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Amara Raja Batteries Ltd
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Ladies and gentlemen, good day, and welcome to the Amara Raja Q1 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Mukesh Saraf from Avendus Spark. Thank you, and over to you, sir.
Thank you, Bhavan. Good afternoon. I'm Mukesh Saraf here from Spark Capital. I appreciate everybody logging in. I'm pleased to be hosting Mr. Delli Babu, CFO of Amara Raja Batteries. We'll start with brief opening remarks from Mr. Babu and follow it up with Q&A. Over to you, sir.
Yes. Good evening, everyone. Welcome to this call. Thanks for your time. Before I get into the details, which we inform you that the new energy business, comprising of lithium packs and battery chargers, which was [indiscernible] part of ARBL has been transferred to Amara Raja Advanced Cell Technologies, a wholly owned subsidiary of Amara Raja Batteries Limited with effect from 1st June 2023.So the stand-alone financial results of Amara Raja Batteries Limited will contain 2 months revenue of this new energy business, while the consolidated revenue will include the entire quarter.In the first quarter of the financial year at a consolidated level, the company had a revenue of INR 2,795 crores, of which about 4% of the revenue is coming from the new energy business. And this reflects a growth of around 7% on Y-o-Y over basis. When we look at the further detail into the revenue, the lead acid battery revenue growth on Y-o-Y basis was around 4%. The 4-wheeler segment grew at about 5%, and the 2-wheeler segment grew at about 9%. But there was a reduction of about 20% as far as inverters and other applications are concerned, both owing to a poor season as well as the lack of complete production facilities as the tubular factory was gutted on a fire in the month of January. Within the 4-wheeler segment, the aftermarket has grown around 7% to 8%, while the OEM volumes have remained stagnant. Our export volume growth was also muted during the current quarter due to certain supply chain adjustments in some of the regions and also the antidumping duty that was there in the Middle East market. While this is a temporary blip, we expect the export revenue export growth to be recovered in the coming quarters. As far as the 2-wheeler aftermarket and OEM are concerned, both have grown in the lower double digit, around 12% to 13%.The industrial segment has shown a strong growth with about 15% on a Y-o-Y basis, while Telecom has grown their share more than the average. All other segments have grown at around 14% to 15% during the current quarter. The reduction in the inverter volumes is mainly due to the lack of production facilities and also considering the seasonal factors. During the quarter, we have replaced this entire tubular range with the [indiscernible], which is why of the total revenue around 15% to 16% is coming from the trading piece, which has also had an impact on the margin percentages when we look at on a Q-o-Q basis.The lead average for the quarter was around INR 194 per kg while currently the lead base is still hovering around $2,150. The currency depreciation is keeping the lead level elevated. The overall lead acid revenue still has a mix of 70% from automotive, which includes 4-wheeler, 2-wheeler and the inverters and 30% is from the industrial segment.While the inverter volumes are projected to maintain our market share, the further growth is getting limited considering the lack of manufacturing facilities. The overall capacity utilizations on the automotive side for the quarter was around 75%, and whereas the industrial segment has been [indiscernible] capacities almost to the extent of 95% to 97%. While the margins have improved during the current quarter on a Y-o-Y basis, there is a reduction in the overall EBITDA when we look at on a Q-o-Q basis, largely due to the trading mix and also increase in insurance costs. While these 2 are compensated by reduction in the power cost due to higher yields of sun-generate solar power, and there is also certain other expenses which were reduced during the current quarter.Our renewable energy efforts, both the rooftop solar as well as the ground-mounted solar are helping us to reduce the power cost apart from the reduction in the overall specific energy consumption. Higher new energy business also will reflect EBITDA margin negatively. Considering this being a new business, the EBITDA levels are still to mature. The overall new energy business during the current quarter was around INR 107 crores to INR 108 crores. This is a 3.5x increase over the same period in the previous year. And on a Q-o-Q basis also new energy business has registered a growth of 23% from the revenue point of view.The mix of new energy business, as I have stated earlier, is around 4% during the current quarter as compared to about 1% in the previous year. The overall capital investment for the year as a whole will still be around INR 400-odd crores with respect to the lead acid business, which is going to be spent on the lithium -- on the lead recycling plant as well as some of the ongoing capacity expansion programs.As far as other updates are concerned, the plastic components business merger of this ARBL is on progress, the NCLT approval in awaited, which we are expecting sometime either in this quarter or in the first half of the next quarter.The reinstatement of tubular plant is also going as per the plans. Right now, the equipment designs and the negotiations are undergoing. We expect to reinstate the tubular plant in the next 18 to 20 months period.With those opening remarks, I would be happy to answer any queries that you may have. Thank you.
[Operator Instructions] The first question is from the line of Kapil Singh with Nomura.
Sir, first, I wanted to check on the demand outlook, if you could share your thoughts in the replacement segment for both 2-wheelers, 4-wheelers as well as industrial? And how much revenues do you think we lost because of the fire incident? Also, if we have taken any pricing actions, if you can comment on that in the aftermarket.
Sure. See, the aftermarket demand outlook for 4-wheelers, as I was explaining earlier [indiscernible] is still in the range of 6% to 7% considering the volume slowdown what we are seeing in the last 3, 4 quarters. And the 2-wheelers are concerned, we still believe 2-wheelers are growing strong at about 11% to 12%. We are growing a share more than that as far as 2-wheeler aftermarket is concerned. So these numbers are not significantly oscillating as I was speaking to you earlier as well. Then as our industrial is concerned, yes, we have seen a strong uptick in the demand for telecom batteries because some of the tower augmentation requirements have increased substantially. And that is actually providing additional demand, which is why telecom is now growing more than in this quarter, if you look at it around 16%, 17% kind of growth was seen in the telecom volumes. The UPS segment also has shown a very strong growth domestically. Earlier we used to see a growth of about 7% to 8%. At least in this quarter we have seen about 10% to -- 11% to 12% kind of a growth we've seen. We expect that both these telecom and UPS demand at this demand levels may sustain during the current year, but we need to wait and see how this is going to shape up as we move into the next year. As far as the inverter batteries is concerned, while we wouldn't have lost much of the market share because we are using the strong vendor network that we have to replace all the requirements of our channel. But further acceleration might have got limited while we believe that we haven't lost any market share. We could have seen some upside if -- some more upside if our manufacturing facility was to be available. Yes.
Sir, on pricing.
Yes, we have not taken any aftermarket price corrections during the current quarter.
Okay. Because, sir, margins are under a bit of pressure. So do you think excluding the new energy business and trading also, there is some margin pressure which you need to pass on with price hikes?
No. If we remove that, if you adjust the margins compared to the previous quarter, if you adjust the margins for the higher insurance cost and the trading mix and the new energy business, there will not be a significant change in the margin profile, maybe a 0.1%, 0.2%, that's the quarterly oscillation that happens. But I think we will be able to recover it as we move ahead into the year.And as I was saying, today the lead price is still around INR 195 to INR 200 a kg. So we expect if these lead levels were to remain at this level as I was mentioning to you earlier also, that around INR 150 to INR 170 is where we can look for a 15% kind of an EBITDA margin. Beyond that, the EBITDA margin is diluted considering the lead level. So we believe over a period of time, I think we have more or less FY '23 we closed at an EBITDA margin in the range of 13%, even though the lead level was at an elevated level. And we expect we will further improve in this current financial year but for the tubular issue.
Understood. And sir, second question is just on the cost side. If we see other expenses, we've seen a pretty good reduction, both on a Y-o-Y as well as Q-o-Q basis. So are there any onetime elements here or they are seasonal because this percentage of sales also looks to be on the lower side of what we have been doing for last many quarters. So are there any sustainable elements here? And what should be the right level?
See, power cost reduction, as I was alluding to earlier is sustainable because now all our renewable capacities are adequately running. So that while in the summer, yes, you will get a bit of higher generation compared to the other months. So barring for that adjustment, we believe power is something sustainable. And the insurance cost increase is also something that we will see in the coming quarters. But as we move into next year or the year thereafter, I think they should slowly come back. Barring these 2 operations, rest of the expenses are more of a timing issue, maybe some expenditure, some promotional expenditure might have got deferred depending on the activity that we do. Beyond that, there are no special one-off reductions that have happened during the [ trend setter ].
Got it, sir. If you could, sir, quantify these 2 issues, power cost, how much reduction you think we have been able to get? And how much is the impact of insurance cost? That's it from my side.
Yes, power and the issuance cost, both will actually -- when we look at power cost would have given us a saving of around INR 10 crores to INR 15 crores. And insurance cost had an impact of additional expenditure of about INR 6 crores to INR 7 crores. And rest [indiscernible].
The next question is from the line of Raghunandhan NL from Nuvama Institutional Equities.
Raghu here. Sir, my first question was on the new energy side. We have seen a very good jump in terms of contribution to revenue. If you can broadly indicate which segments we are catering to and any major customers whom company supplies to?
Yes. Today, we are supplying battery packs to mostly 3-wheeler applications. One of our largest customer in that segment is Piaggio. And we are also supplying battery charges to again 3-wheeler OEMs and some of the other stationary applications. Again there the 2 large customers are Mahindra & Mahindra and Piaggio. We are now currently getting ourselves prepared for the next level of packs for 2-wheeler applications. And going forward certain high-voltage applications also.
On the industrial side, sir, do we have products, are we taking to telecom customers or any other segment?
Yes, we are -- the regular telecom customers also now are looking at, for some for some of their applications, they are looking at lithium packs. We are participating in those products as well. We have supplied some quantities in the last quarter also. Going forward, we expect that all that business also will substantially increase.
Got it, sir. And in terms of localization of lithium cell manufacturing, so the company has signed the MOU with Telangana state government. So just wanted to understand like in terms of are you planning to tie up with any global major as a technical partner. When do you plan to start construction of the cell manufacturing facility?
See, the manufacturing and the site -- the construction and the site development of the lithium-ion park, the GIGA corridor, as we call it, is underway. We have acquired the land near about 70 kilometers from Hyderabad. The construction is underway. And the sourcing of the required -- the partners required for the construction are all tied up. As far as the product technology is concerned, as you know, we have developed our own internal -- development effort is going on as far as [ MMP ] is concerned. And we are working for other chemistries with other agencies. As of now, it is not that we have a large technology partner that is onboard. But we believe that in the process of creating self-efficiency on technology, we have also started now constructing the E Positive Labs, as we call it, near Hyderabad International Airport. Groundbreaking of it has happened on day before yesterday. On 11th of this month we had this groundbreaking ceremony also. So I think we are having enough technology partners who can give us the product technology. And we are also creating a robust mechanism to ensure self-sufficiency for further developments. As far as manufacturing know-how is concerned, I think we have got the right vendors and other partners who will help us in terms of building this entire GIGA factory. So as we move ahead in this journey if some other partnerships, which is going to be synergistic with our long-term growth strategy, definitely we would be open for those ideas. But at this time, the idea is to have our own some self-sufficient method of achieving the product technology and also offer the right product to the Indian market.
Got it, sir. And any time line, sir, when you expect to commence the pilot production?
At this point of time, we believe the customer qualification plant, as we call it, the first plant where we will be producing all the chemistries and form factors, we believe will start sometime towards the end of FY '25. And the gigawatt hour line should deliver some production in FY '26.
Understood, sir. And just one last question before I fall back to the queue. Sir, government may reopen that PLI scheme qualification. So would you consider looking at the PLI scheme? Would it bring in enough incentives? How are you thinking about the opportunity there?
See, I think the balance capacity, 20 gigawatt hour is what is proposed to the option. So depending on the terms at which the tender is going to come, we will definitely explore the possibility of participating in it. But until the terms are clear, I don't think I am in a position to give you an yes-or-no answer. But we hope to see that if the terms are, I mean within our achievability metrics, yes, we may look at participating in to the tender. And also other, one other condition came, we need to take a call at that time.
The next question is from the line of Jinesh Gandhi from Motilal Oswal.
Could you also check that the dealer plan you are saying that reinstated in 18 to 20 months, is it? Hello?
Yes, Jinesh, I can hear you, please. Yes. So [indiscernible] will take 18 to 20 months to start back?
Yes, yes.
So in that context, broadly our margins will be in this kind of range, 13% to 14% range depending on the seasonality of inverter. Is that the right way to look at our margin profile from where we are today?
[indiscernible] the lead levels as well. So the core business will again follow the same margin trajectory, what I have explained earlier. So the FY '25 season is what we hope to use our own factory. So until that time, the tubular demand with the trading volumes, yes, it will have some negative impact on the margin.
Okay. So [indiscernible] FY '25 together is what we should be looking at, got it. And second question pertains to the lithium-ion CapEx given that we expect plant to be ready by FY '25 end. What kind of CapEx should we budget for lithium-ion plant or cell plant for FY '24 and FY '25?
As I mentioned earlier also, Jinesh, the first phase CapEx includes these 3 projects, one is E Positive Labs, second is the customer qualification plant and the 2-wheeler [indiscernible] our cell lines. All 3 put together will cost us about INR 1,500 crores. And this year, we may need about INR 200 crores to INR 300 crores towards the initial construction. We believe next year we'll have the higher cash flow as most of the machinery and other things might come in. So while I will not be able to put a number at this point of time, at least 50% of the CapEx may be falling between next year and the year after. So I'll leave it at that then.
Okay. So for the Phase I plus customer qualification plant and [indiscernible] INR 2,000 crore, okay.
I said INR 1,500 crores between these 3 projects.
INR 1,500 crores, okay, sorry, my bad. Okay. And coming to the replacement market demand, so the 7% growth which we have seen, that's for the market, right, not for us? We would have grown slightly more?
Yes, yes.
Market only?
We are seeing a market around 6% to 7%. We have grown even in this quarter between 7% to 8%. So [indiscernible] higher growth is coming. Yes, the industry growth rate is somewhere around 6% to 7%, yes.
Okay. Okay. And an aftermarket should continue to grow in similar range on low single-digit to high single-digit kind of range given the bottleneck that was there in demand.
Yes, on 4-wheeler, yes.
Okay. And what is driving the stream of strong demand growth because underlying market has been quite weak for some time. The [indiscernible] and 2-wheeler market has been weak for quite some time. So what is driving the strong growth in that, 2-wheeler aftermarket?
Yes, I think there has been considerable improvement in our share as far as the aftermarket of 2-wheeler is concerned. We have been growing at this stage at least for the last 4 to 5 quarters from my immediate summary. So that robustness of the overall vehicle parts vis-Ã -vis the [indiscernible] battery demand I think is continuing. I would attribute most of this for lesser unorganized as well as our improved market share.
Okay. But the underlying market would be still growing at high single digits to low double digit or?
That's our view, that's our view. At least we must be growing more than the market. In 2-wheeler segment we have shared more than 1% to 1.5%. While in the 4-wheeler maybe around 0.5% to 1%.
The next question is from the line of Vibhav Zutshi from JPMorgan.
Just firstly on the lithium-ion side, just wanted to understand what is our supply chain demand in terms of sourcing the raw materials at least for the first phase of the plant which is 2 gigawatt hour. And just related to that, you do have strategic investments in Log9 as well as InoBat Auto. So are you also like kind of collaborating with them? Would you call them as your partners who just mentioned some time back?
No, as far as the investments in the startups is concerned, I wouldn't call as our partners, I would definitely call them as our associates. We do exchange and collaborate with them. There are actually things that are going between some of these entities and us in terms of some of the technology development work. But that's the relationship currently. As far as the overall supply chain is concerned, yes, we are currently developing and working with certain partners. For our equipment, we are working with at least 3, 4 vendors. And for our material also there is a team working with at least 4 or 5 people right now because it will depend on also the material mixes that once we finally decide on, then we will have to choose the right source for those material mixes and then select accordingly and then see how we tie up about it. While the work in terms of arriving at the right mix, right partners and other things are going on, at this point of time I don't think I have specific details to share about it.
Okay. And just a follow-up on this. So you mentioned that currently you're supplying to 3 dealers. And then you're also cater to 2-wheelers. So is it fair to say that 3-wheelers, 2-wheelers and the telecom and industrial side is what you will be focusing on initially?
Yes. The demand trajectory also is going to look like that, depending on the penetration levels that's what we have seen. Obviously 3-wheeler is the first one and 2-wheeler is the next. Naturally some of the storage applications like telecom are actually seeing traction. While [indiscernible] and UPS [indiscernible] considering the price [indiscernible] that is going to be spent on those applications because depending on the charge characteristics and the power requirement and the energy requirement, each segment will have a different penetration cycle. So we just -- right now these 3 set of applications is what is going to carve the initial demand. And as we move ahead, yes, we will get into other segments as well as -- far as the pack development is concerned.
Okay. And my second question is on the export side. So clearly your export revenue has been at a very strong CAGR of 20% plus if I look at the last 7 years. And even as the percentage contribution that has now risen to double digits. So is there any target that you have in mind, how much it contribute with the percentage of top line? And you've been talking about making certain what's potential inorganic intervention as well. So what is the thought process on the export side going forward?
See, right now, as we have articulated in our annual report also that the export market which today we currently target about 50-odd countries [indiscernible]. The idea is to look at what are the other markets in the western part of the world that we can actually penetrate into. And some work is happening over there. And we expect that the volumes will ramp up in the export segment again. And then we continue to maintain these healthy growth rates of 15% to 20% a year as a whole as we move head. But we are also seeing in some of the global market the [ AEM ] product demand is steadily increasing. And now we have the [indiscernible] the product and then we are going to supply those products to some of these markets. So considering the product readiness and also our distribution reach getting significantly improved, we expect to continue this growth momentum in exports. While we are really strong in the APAC markets, the Middle Eastern markets and also the African markets, we expect to increase the presence in these market further deep and also [indiscernible] other countries so that the volume trajectory for exports remains robust.
We have the next question from the line of Abhishek from Dolat Capital.
How is the RM trading for the non-lead RM like separator and the plastic items?
Yes, there's fairly -- I mean what we have seen as an inflation in the last year has now tapered up. We have now seen a reasonable level of materials like back plastic separator, air freight, with sea freights, all those impact have now more or less come back. While they are still a shade above the lowest levels what we have seen, I think that they are at the manageable levels.
Okay. And sir, when can we expect the integration of the plastic component business? And what would be the addition in the top line and the margin front because of this integration?
Yes. As I was mentioning in my initial remarks, we expect the NCLT to give its approval, I mean, in the next couple of months and then the integration will start soon thereafter. We expect it will be NPS-accretive. That's what we have said as our rationale, and also our EBITDA should improve. While those numbers, we have put it up, I would wait to provide you the details once the complete integration is done. We are very clear that it will be an EPS-accretive as well as the margin-accretive. The exact numbers, I have some numbers in my model. I would like to tell it before you once the integration is completely done.
Okay. And sir, I assume that the 2-wheeler segment, the current capacity utilization is around 90%. So how do you see the CapEx in this particular segment?
As far as 2-wheeler is concerned, currently we are around 80% levels. If I look at it on an annual basis, we will be around 85% levels. So we still have some headroom to utilize those capacities. And we are also trying to do some throughput enhancement work. We should take care of the requirements for the coming periods. But any further greenfield capacities on 2-wheelers, we are -- we need to be extremely careful about how the penetration of 2-wheelers is going to happen and how it's going to be impact overall demand. While the 2-wheeler factories to some extent or fungible with our [indiscernible] battery requirements, we'll be looking at the demand for both these and then take a call. At this point of time, we believe we have sufficient capacities for 2-wheeler at least for the next 1 to 1.5 years. And also, we are looking at any export volume growth if at all were to come even in the 2-wheeler segment. We do see there is a new alternative arrangement that we can work with instead of completely going on a greenfield process where the capital requirements and any risks associated with that has to be [indiscernible] before we actually take that decision. So we are thinking about it. But at this point of time, I don't have further plans to share with you on any capacity addition as far as 2-wheeler is concerned.
And, sir, in lithium-ion batteries, you are adding the capacity of 2.5 gigawatts. So what would be the peak revenue from this business if you take the 3.5 gigawatts capacity from FY '26. What would be the peak revenue and the margin?
See, these are definitely changing scenarios. We have said earlier that the asset terms could be only 1 to 1.2. Based on the latest CapEx numbers we are seeing we scale it up even the asset terms can improve as high as 1.4 to 1.5 as well. Now the question is depending on the sell price today, if I look at different [indiscernible] have different cell prices. So on a weighted average basis at cell level, we may think about $100 to $110 as a relation in the initial period. And there is also a target price to reach because we are seeing on a global basis the per kilowatt hour cost is still shown as a possible reduction from about $100, $110 to about maybe $70 or $80 per kilowatt hour. So if we take average $100 as the per kilowatt hour revenue, and you can at a 2 gigawatt hour level and our current currency at INR 83. So you know the number. So that's how we are looking at today. And on the pack side also, we currently have a our pack capacity close to about 500 megawatt hour. We expect that can be increased to about 1 gigawatt hour. We also think that capacity can be further increased to about 2 gigawatt hour or in the coming future. So if we do that, even the packs over a period of time should deliver roughly about INR 3,000 crores revenue if we use our entire 2 gigawatt hour packs. So the numbers on the specifics can only be detailed out maybe into the -- some more quarters into the future. But at this point of time, this is our thinking.
The next question is from the line of Manav Choksey from KRChoksey Shares & Securities.
I had a question on Amara Raja Electronics Limited. Can you suggest the synergy or the benefits that the Amara Raja Battery would have with that subsidiary? And is there any plan of it going forward with a merger or getting it listed going forward?
See, right now, Amara Raja Electronics supply for the home UPS, the inverter piece of it, [indiscernible] battery. So beyond that, it's only a vendor and customer relationship at this point of time. I wouldn't want to comment on any other strategic possibilities going forward at this point of time, yes.
Okay. And my second question is a like add-on to what you mentioned about Log9. Your investment in Log9, like how -- can you suggest how it would complement Amara Raja, the investment like because it's in the same sector. So what are the synergies you see with the Log9 investment towards the Amara Raja Battery Limited?
See, the initial investment into these startups was more to look at because Log9 was focusing on certain fast charging solutions, [indiscernible] pack development. And apart from that, they are also working on certain other technologies like fuel cells. And they are also working on things like other lithium chemistry cell development as well. So we are working with them on certain product development areas. And then over a period of time, we will have to see what other strategic possibilities can come in. So the [indiscernible] this is not possible in this segment for everyone to do everything. So we have initially thought about ability to draw the technological inputs to what initiatives that these start-up are doing. And we are working with them on certain projects. In that process, obviously we had to make those investments. So as we move ahead, we will see how those relationships can be nurtured and then see how we can take this [indiscernible].
Next question is from the line of Sanjaya Satapathy from Ampersand Capital.
Sir, 2 things. First of all, while you have given a lot of details on your, this lithium-ion cell program, just wanted to clarify whether your focus is lot more towards non-passenger vehicle side?
No, see, at the cell level, the chemistry is what we are focusing currently NMC and LFP because cells can go into any application starting from stationary application to a low-voltage 2-wheeler application to high-voltage 4-wheeler application. As far as the packs are concerned, obviously currently our focus is still on 2-wheeler and 3-wheeler, naturally 4-wheeler is only a matter of time that we will be [indiscernible] for all requirements for all vehicle categories. But we also need to understand that some of the OEMs, it is not necessarily that they would want to outsource the pack development as well, while, yes, cells definitely I think the battery players will make and then the OEMs will be buying it. But it is not the same case for packs. Some OEMs think they can outsource the packs, some OEMs think that the packs have to remain with them itself. So our capability development is for developing packs for all categories of applications. Whereas cells will be, I would say, little agnostic to which application they are going. Yes, there will be some requirements. I'm not saying -- technically they may be some variations, but cells may get into any of these applications [indiscernible].
And sir, on the time line, a little bit confused. You said that you will take about 18 to 24 months. But at the same time, you were also saying that the revenue will start to flow in only from early fiscal '26. So, sir, just can you just clarify the time line, sir?
See, FY '25 is when we expect to start our customer qualification plant, which is more to test out the products for the applications and get the approvals, et cetera. So initially we said we will start with the 2 megawatt hour NMC line which is going to take that much time. And then that's why I said revenue may come only in FY '26.
The next question is from the line of as [ Arshid Varya ], an individual investor.
I think you had mentioned about the power cost which we have got, which was in the vicinity of INR 10 crores to INR 15 crores a year. What is the capital investment that went behind these solar power plants?
Overall, it is not [indiscernible] I mean right now our overall energy requirement, about 20% of it is coming from these renewable spaces. The overall investment we made into these both mounted and the rooftop solar will be around INR 300-odd crores.
And do we see further investments, like at optimum utilization, what is the percentage of power which we can utilize from our captive power units?
We are using 100% of it because we have created the capacity by keeping in view the peak requirements. And then we are currently using these captures of our plants full. Now, any further expansion of our investment into these plants will be guided by our requirements. And also the government policies with respect to the power banking and net metering related story. So as and when we see that policy environment and also the requirement of energy for the company as a whole, then we will take a call whether to make total investment or open investment or [indiscernible].
Perfect. And my second question is, at the AGM our Chairman had mentioned that we'll be putting up greenfield plants for lead acid batteries of a capacity of 7 million plus, which is almost equivalent to our current capacity. Can you talk more about these plans because that would be very large CapEx from [indiscernible] from our company?
No, no, it is 7 million -- see, today our 4-wheeler capacity is about 30 million capacity and our 2-wheeler capacity is about 30 million. So depending on we had 2 things to take carte, obviously the coming future capacity expansion that is required for the future demand and also look at the -- we have been discussing about the [indiscernible] concentration [indiscernible] plants, which have been running for the last [indiscernible] as and when we see a need for a large refurbishment of those or maybe technology improvements that we have done over a period of time, we may consider look at having a facility. When we put up that facility, naturally we don't want to put up in the same location considering the risk that we have discussed for a long time. So next, when we look at our next plan, which will obviously be in a different location. The sizing of a new plant, when we look at it, the optimum size of any plant will be in the range of 7 million to 7.5 million batteries. It used to be fixed considering the equipment efficiency now that has been reached. So whenever we look at a new plant, we look at that size. And it doesn't mean we directly go and put a capacity for the entire 7 million at one go. We do that in phases. The line addition will happen only when there is a bigger demand signal.
We have the next question from the line of [ Rajesh Enor ] with [ ITI Limited ].
And in some part of the discussion how much is the CapEx for this 2.5 gigawatts unit that we are setting up [indiscernible] how much is the [indiscernible]. And second part is what kind of profitability do you expect in [indiscernible].
[indiscernible] clearly, but I'll repeat your question, confirm if that is right? You are asking about the margin profile for the lithium business?
Yes, and the CapEx.
Yes. CapEx, as I have mentioned earlier, for the first phase we are looking at about INR 1,500 crores as an investment. As far as profitability is concerned, at the operating level we believe 10% to 12% kind of a margin is possible at this point of time. But once we finalize the entire -- the product mix and also the sourcing of raw material, I think I'll be able to come back to you with clear numbers. But at this point of time, that's our view. But I would wait for some more time before we actually put a clear number on table as far as profitability is concerned.
And sir, when you say Stage 1, what are the [indiscernible] because 2.5 gigawatt and INR 1,500 crores is, I think is on the [indiscernible] that capacity.
No, I said 2 gigawatt hour of NMC and customer qualification plant and our energy research labs. So those are the 3 projects which would call for INR 1,500 crores to INR 1,600 crores CapEx. That's what I said.
The next question is from the line of Udhayaprakash from Value Research India Private Limited.
I just have 3 questions from my side. The first is, it's more of a future, new energy related question only. Sir, the thing is, whenever we have a new technology, the normal thing what happens over the year as adoption grows and demand grows, the cost of production is -- cost of production falls relatively over the years. But we have quite a typical situation case where the lithium prices have climbed up and with difficulty to find new reserves and make it operate -- find new mines and make it operational, do you think we won't have this effect in lithium energy business going forward in, let's say, in another 5 to 10 years. I'm not asking when we start operating the plant. In 5 to 10 years, is it possible for us to witness a cost of, falling cost of production level similar to [indiscernible] technologies.
Are you asking -- I'm not very clear about what your question is, if you can repeat it again, please.
Yes, sir. So similarly, what happens whenever we adopted new technology, it is that as demand grows and volumes grow, relatively cost of production falls per unit on a per unit basis. But here we have a situation where the lithium prices are growing every year, and the demand is also growing. So do you think we may not witness the same thing in new energy business, not just for Amara Raja but for in the entire industry.
See, lithium prices have gone through its own [ prices ]. I think any metal price, that's what happens, even with lead. I mean if you go back to the history, you would have seen even a $800 per tonne also as a price. But today we are at $2,150 or $2,200. We have seen even $2,500 happening at some point of time. So I think the metal supply equation cannot be the sole factor for us to decide whether the cell prices, what is the impact of the cell prices that will come in. So as more and more resources come up and then the identification of the minerals happen, I think that demand supply equation of the metal will go through certain, I mean, I would say certain trajectory. So I don't think I -- but as far as the conversion cost efficiency, how to improve the density so that you are considering lesser material per kilowatt hour power delivered, these things are a continuous effort which will definitely have impact on the overall conversion cost. And over a period of time, scale will definitely give those efficiencies. But I think, in my view, I think these 2 things have to be [indiscernible]. The mineral availability vis-a-vis the conversion cost efficiency and technology innovation, these 2 may have to be dealings and then looked at.
My next question is on our investment in renewable [indiscernible] and our solar plants. So with new plants coming up, both for [indiscernible] lithium-ion, are you planning to invest further in these power sources? Or are we trying to just maintain what we already have?
So as I mentioned earlier, I think the decision to go further on the renewable thing will depend not only on our demand, but also on the policies and the intrastate power movement charges and various other things. So it is not necessarily that we should only put all the facilities. There are other structures that are getting available in the market. So we will explore those possibilities with an idea to further reduce our power cost as we move ahead.
My final question is regarding the contribution of the revenue mix between automotive and industrial. As I said, many segments and - -many sectors in industrial segment have very good growth prospects [indiscernible]. So do you still believe that revenue contribution will continue to be 70-30, let's say, [indiscernible] '24 and '25? Or is there a chance for the [indiscernible] contribute more going forward?
I think this ratio of 70-30 will continue because we are also seeing equal growth opportunities in our [indiscernible] as well. So I don't believe that significantly altering on an annual basis going forward.
And sir, the 70-30 is same on operating level too? At a revenue level, it is 70-30. Is it the same on operating profit level too?
We wouldn't comment on the [indiscernible] profitability [indiscernible].
The next question is from the line of Kapil Singh from Nomura.
Sir, just one follow-up. On the pricing for lithium-ion cells, do you expect that to be at import parity? Or do you see that there is an opportunity to get some premiums in this because of proximity of source, et cetera?
So I think the first objective is to be import parity couple. So anything beyond that, I wouldn't want to venture a guess at this point of time. The idea now to first get how to be competitive because the scale at which other players are producing and for Indian players to reach that scale and also deliver the cost efficiency in parity with the import, that itself is a big task. I think people are gearing up towards that. I don't want to go beyond that.
Okay. So do you think the first target is to get to import parity pricings with the OEMs? And then later on, we'll think about it?
Yes, I would think so. I mean obviously I have not consulted my colleague before I give you this answer, but that's my view, yes.
Okay. And would you also look at segments like buses, for example, which are seeing -- which have potential to grow more? So is that a segment where you think we can be a significant supplier as well?
See, as I said, as we move, we need to develop the packs for all the possible applications depending on what is the demand that we have for each of the vehicle segment. So at this point of time, we are not saying that we will rule out one for the other. So the idea is wherever our product development initiative and the demand initiatives, both as and when they match, we obviously offer products for all the applications. It is not that we are staying away given application. Now, as and when those are ready and then we are able to get the customers' approval for those products, yes, we are not staying away from any one of those products. But at this point of time, the focus is to build products for these segments, which are currently requiring those and there is a good demand signal that's available. So the focus currently is on those segments that I have explained earlier.
Understood. And sir, lastly, just on the technology tie-up, how should we understand this that you're not really looking for a major partner. So are we comfortable with whatever inputs we have got through our investments or otherwise internal developments? Or we are still looking out for a major technology partner?
See, it is like this. We have to continue our effort of developing the required product for this market, whether a large partner like our erstwhile lead acid business partner is available or not. I think we have got the wherewithal to develop those products and then run on our own. Naturally, there is a large partner is there, you can compress these time cycles and maybe get market ready little ahead of time. But we are not saying we are absolutely close to that part of it. We will see -- as long as there is a synergistic relationship, we can build with any large partner. We are definitely clearly open for such an idea. But then that -- as and when that happen, until then that happens, it's not that we can keep quite and then do nothing. So we have put all of our efforts and then have our strategy in place whether with partner or with our partner, it's going in the direction. If any partner were to come on board or I mean, any other relationship ought to be coming onboard, then naturally there will be some advantage. We are definitely open for such ideas.
The next question is from the line of Jinesh Gandhi from Motilal Oswal.
Just quickly wanted to clarify on [indiscernible] business. So the seasonality of that businesses [indiscernible] 1Q is [indiscernible] is concerned. And 1Q and 4Q are the heavy quarters, right?
Yes, yes, yes.
The next question is from the line of Madhur Rathi from Counter Cyclical Investments.
Sir, I have just one question. When you were telling that asset [indiscernible] for the lithium-ion battery would be in the range of 1 to 1.2 and operating profit margin will be 10 to 12 [indiscernible]. So what kind of ROCs are you expecting? Because there will be a decline in our current ROCs and looking from this core sector.
Yes. So as I was mentioning earlier also, based on our current capital projection, sometime back it looked 1 to 1.2, now there is a possibility of it growing up to 1 to 1.4 as well. So even the bill of material, the cost of procurement, all these numbers are also work in progress. So while we have certain views at a given point of time, it is not that there are no improvements possible on top of it. I do understand that these numbers, yes, the ROC may be a little dilutive. But the opportunity size and the future growth potential for this business is too big for us to ignore. And also think that the ROIC levels will continue to be under pressure by looking at the current numbers. The idea is to get into this and then see how do we improve from there. As we increase the scale, I believe both the asset turns and the profitability numbers will improve. I will only be able to put those numbers with a lot of conviction as we move into the times and then see how we are able to [indiscernible].
And sir, so what was the IRR or the ROC that we expected before embarking on this CapEx? And could you just highlight on the future 2- to 3-year guidelines when we shift from lead acid batteries to LI, lithium-ion batteries? And what are our expectations going forward?
See, I don't think I'll be able to put numbers around at this point of time. And I don't think lead acid's future is only limited for the next 2 years. There is a large future available for lead acid as well. We have embarked on this journey by seeing the size of the opportunity and also the attractiveness and the requirements for the Indian market. So we assure the return and profitability ratio can be improved as and when we scale up this activity.
Okay. And just a final question, what will be your outlook for top line and bottom line for FY '24? And maybe next 1 or 2 years. So that will be very helpful.
As we have discussed, the possible market growth rates, we generally have been mentioning those numbers. We have not been giving you a very clear numbers around the possible revenue per se, yes.
We will be taking the last question from the line of [ Hemant ] an individual investor.
Most of my questions are answered. Just one book keeping, sir, for the insurance claim that we had, can you give us some update? Is that claim process money, any time line of when the money is expected to be received?
Yes. We received about INR 100 crores [indiscernible] payment, which we have mentioned in our results as well. Right now we are working on the balance claim for the inventory loss. And as and when we reinstate our tubular plant going forward, as I mentioned earlier about -- to the current status, we are confident of realizing the claim for the full restatement.
So generally, does it take like additional 3 to 6 months, or would it take longer?
The inventory climb should take next 2 to 3 months. But the machinery will come only as and when we will pay it. So it will go along with the project implementation. Thank you. Thanks, everyone.
Thank you. I would now like to hand the conference over to Mr. Mukesh Saraf for closing comments. Over to you, sir.
Thank you, sir, for your time. If you have any closing remarks, maybe you could kind of continue [indiscernible].
Yes, nothing more to add, Mukesh. Thanks, everyone. Thanks for your time and [indiscernible] questions. Thank you.
Thank you. On behalf of Avendus Spark, that concludes this conference. Thank you for joining us. You may now disconnect your line.