Amara Raja sees telecom batteries spurring growth

Amara Raja Batteries, industrial and automotive battery major, is pinning hopes on the revival of demand for batteries in the telecom sector for further growth.

Installation of new towers by telecom companies and most of the batteries in the existing towers falling due for replacement are seen as key factors for revival of demand.

The company currently gets about 58% of its revenue from automotive batteries and the remaining from industrial batteries.

Of its industrial segment revenues, about 50% come from telecom. Before making foray into the automotive segment, the company was a strong player in telecom batteries. However, with the changes in technology and the increasing pressure on margins, it diversified into automobile segment.

“There are signs of revival in the telecom sector. According to research reports, there are about 3.58 lakh telecom towers in the country and by 2014, they are expected to increase to about 6 lakh,” a senior company official said.

Amara Raja is also eyeing battery replacement in the existing towers. “A large number of towers in mobile space were established 3-4 years back. The batteries in these towers will come up for replacement over a period of time. This would perk up the demand in the medium term,” he said.

The company expects 10% revenue growth in the telecom batteries segment.

The battery maker also sees prices rising in the telecom segment in the next few quarters. However, recent increase in lead prices would continue to impact margins in the short term before the sector stabilises.

Amara Raja is also eyeing the solar segment. Though details are being worked out, the official said the growth in the segment would have a positive impact in the long term.

Within the automobile segment, the company is working on a capacity expansion. While the four-wheeler battery capacity would be expanded from the existing 4.2 million units to 6 million units, the two-wheeler battery capacity would go up from 2.4 million units to 5 million units.

The expanded capacities are expected to become available during the second quarter of next year. The capital expenditure for the current year is being pegged at about Rs80-90 crore, a similar amount would be expended during the next year as well.

A greenfield plant too is on the cards. Lead, a key raw material, is proving to be a challenge to procure.

The company continues to depend on imports, which is affecting the margins due to price fluctuations.

To check this, the company is developing secondary sources by aligning with smelters. For the quarter ended September 2010, the company recorded net sales of Rs391 crore and a net profit of Rs 31.6 crore, a significant drop from Rs 47.9 crore in the corresponding period of the previous fiscal.