Exide's capex has remained contained in a range between Rs 350-400 crore for the past several years, forcing analysts question the necessity of such a move.
Car battery major Exide Industries has lined up major investments of about Rs 800 crore in capacity expansion and technology upgradation in the current year, its highest in many years, in anticipation of significant revival in demand for auto sector as well as to stay up to date in this fast changing business.
"Our board has approved a budget of Rs 800 crore of capital expenditure for the next financial year. The capex plan sees a major jump from previous year's level of Rs 300 crore. A significant portion of this would go into technology upgradation also, which will help us improve quality, productivity as well as reduce costs," Exide managing director PK Kataky said.
Exide's capex has remained contained in a range between Rs 350-400 crore for the past several years, forcing analysts question the necessity of such a move. "You are adding Rs 1,100 crore over FY15-FY16 on the gross block of around Rs 2,000 core," analysts commented during a post earnings conference call.
"We need to invest in technology otherwise we would be out of business," Kataky replied adding that the board has also approved a rolling capex plan for next three years when the company would continue to invest about Rs 300-400 crore every year.
Keeping up with ever changing technologies in the battery business is a necessity as consumers continue to look for higher power from their batteries, at the same time demanding lesser maintenance hassle.
In the fourth quarter itself, Exide suffered fall of 34% in automotive inverters as demand shifted to tubular batteries, he told analysts. On the capacity front, Exide would raise production capabilities in the automotive segment from present 12.2 million units to 13.8 million by the end of this year.
In industrial segment current capacity is 2.8 billion ampere hour, which will increase to 3.2 billion ampere hour from the capex infusion. The move is necessitated by the fact that revival in demand for automobile batteries is pushing up capacity utilisation and soon, if new capacity is not added, Exide would not be able to exploit demand triggered by revival in consumer spending.
Capacity utilisation in the automotive segment has grown substantially to 79% from 72% year ago. In the motor cycle batteries, utilisation touched 82%, up from 77%. Industrial utilisation improved from 68% to 81%.
Apart from automobile segment, Exide plans to cash in on expansion in telecom sector where batteries are needed to run cell towers. "Under the industrial battery segment, big growth during the March quarter came from telecom segment at 134%."
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