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Amara Raja Batteries Ltd
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Ladies and gentlemen, good day, and welcome to Amara Raja Batteries Limited Q4 FY '23 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions]. Please note that this conference is being recorded.I now hand the conference over to Mr. Jay Kale, Senior Vice President from Elara Securities. Thank you, and over to you.
Thank you. Good evening, everyone. On behalf of Elara Securities India Private Limited, we welcome you to the Q4 FY '23 Results Conference call of Amara Raja Batteries Limited. We have with us today from the management side: Mr. Vikram, Executive Director, New Energy business; Mr. Harsha, Executive Director, Lead Acid Battery business; and CFO, Mr. Delli Babu. Thanks, team, for giving us the opportunity to host the call, and over to you for your initial comments.
Good afternoon, everybody. Thanks for joining the call. This is Delli Babu. [Technical Difficulty] as a whole, FY '23, we have grown our revenues by about 19%. That's coming on the back of 9 to 10 kind of percent a volume growth in the aftermarket side of 4-wheeler and almost 13 to 14 kind of percent a growth in the exports as well. And also, the OEM business in 4-wheeler also grew about 15% in terms of volumes. And the 2-wheeler business, both on the aftermarket as well as volumes grew around 20% kind of numbers, while our tubular batteries volumes remain stagnant because of the unfortunate incident that has happened towards the end of the financial year. This year has been good in terms of improving our margins. From a gross margin point of view, the numbers were better than the previous year.While in the initial part of the financial year, we have faced some headwinds in terms of higher raw material costs coming in. Over a period of time, we were able to pass on some of that to the customers and also improve our own internal efficiencies, so that the margins were able to be improved. Here also had some of the issues with respect to expenses like power, where we had to pay some surcharges and other things as levied by the government that also had some impact on our overall net margins. But considering the volume growth and also the efficiencies that were brought in to the company, we were able to improve those margin levels compared to the previous year.When we look at the quarter per se. Again, the revenue growth was about 11% on the back of 6 to 7 kind of percent a volume growth in 4-wheeler both in the OEM and the aftermarket. OEMs grew a shade more than the aftermarket volumes. And also the 2-wheeler segment continued its growth around 20% during the current quarter, while we had a reduction in our tubular batteries because of the incident that I was alluding to earlier. So even in this quarter, we had power costs hitting us by about INR18 crores and also because of the incident on -- in our tubular factory, we had to spend an additional amount on the employee cost because those employees obviously were retained and now we are redeploying them into other factories. So in that sense, both the year and quarter have definitely registered a decent volume growth and also the efficiencies that what the operations team was able to bring on to the table helped improve the overall margins.And as far as our New Energy business is concerned, the overall revenue from the packs and chargers, we have grown almost 3.5x compared to the previous year. And the New energy business is now taking definitive steps towards getting into the larger cell manufacturing and also completing the entire New Energy products and solutions portfolio. So with that, we look at the future with optimism.Those are my initial opening remarks. I would now request any questions and clarifications, we'll start answering that.
Thank you. [Operator Instructions]. The first question comes from the line of Kapil Singh from Nomura.
Can you please share the growth for the quarter also, like what kind of growth you are seeing in each of the subsegments?
Yes. I have just shared with you, Kapil. The 4-wheeler both in the aftermarket and OEM grew about 6% to 7% and 2-wheeler, about 20% in both the segments, -and tubular volumes were lower than the previous year. And as far as the industrial is concerned, industrial, again, grew by about 7% kind of a volume growth was seen in the current quarter as well.
Sir, what is the mix of the battery pack business that we are doing, what is the scale of revenues that it has? And any color on profitability over there?
The quarter -- both the quarter and for the year, we have almost, as I mentioned in 3 group [ 3 times ]. Currently, the annual revenue from the pack and chargers is about INR250-odd crores. Today, at the EBITDA level, this business is positive, but it will take some more time before the numbers we improve substantially. Today, the overall business is around 3 to 4 kind of percent an EBITDA because this business also is spending money on the other cell development activities as well. So on a stand-alone basis, both packs and chargers are profitable, but a shade lower than what our Lead Acid business delivers.
Okay. And sir, can you talk of the outlook that you have for replacement business for 2-wheelers, 4-wheelers for next year? And also, when can we expect the lithium-ion business to start showing in from a revenue perspective?
On the Lead Acid battery outlook, I request -- Harsha will give you the outlook, and then Vikram will respond to you on the question on the New Energy business.
So thank you for your questions. In terms of the demand going forward, both 2-wheeler and 4-wheeler, we saw a very strong recovery in OE production in this past financial year. And that momentum is carrying forward into the -- this next year. So demand signals from both OE and aftermarket is strong. In terms of the electrification 2-wheeler segment is definitely electrifying at a quicker rate, although we haven't seen the peak IC engine reduction as of yet. In terms of the potentials on lithium, I'll ask Vikram to step in. Here.
A good question. I think, the question was when lithium revenues will start to come in. As Delli Babu had explained that as on date, we are doing INR250 crores in the New Energy business, which is predominantly coming from our lithium packs as well as the [ auto ] chargers that we're selling at the moment. And lithium packs, we're predominantly selling for the 3-wheeler application as well as some stationary storage and telecom. This next year, we'll be seeing pretty robust growth, while we saw 3.5x stores to get to INR250 crores.Next year, we're -- this year, we're anticipating 3x stores at INR750 crores or more, in which we're expecting continued growth of good -- strong segments that we already serve, as well as making our breakthrough ventures at 2-wheeler segment as well, with a couple of OEMs with commercial supply. This is limited to the lithium pack as well as our charger business. As for the real growth coming in the lithium cell, as most of you are aware, we broke grounds just a couple of days -- a couple of weeks back in the state of Telangana to start our first commercial lithium production on the sell side. We are expecting that will take anywhere from 18 to 24 months before start of production, and with another 6 months from then before we start 2 gigawatt hour of production, so probably on the cell side, we can see more commercial sales and all happening in about 2.5 years from now.
Thank you. Next question comes from the line of Raghunandhan from Nuvama Wealth Management.
Sir, on the lithium cell manufacturing, have you finalized the technology tie up? Will you be using technology support of Log 9, InoBat or any other player? And also in terms of homologation with customer, we understand it's a 1, 1.5 year process. So any color there, whether you are working with start-ups or marquee customers?
On the technology, the initial investment, it will come up in 2 phases. The first phase is commercial qualification plant. This is kind of an extension of our own R&D facility, where we will be playing with not only the in-house cell technology that we've been developing for the last couple of years, but also with other partners as well. And this is kind of to -- this is where the homologation activities with OEMs will begin. This is where we start doing pilot productions and sending the sample cells to the various customers to get approved. And that, as you said, is a minimum 1-year process, and hopefully, that can be optimized further in the coming years.As for the further technology development, we have invested, of course, in Log 9. We've invested in a couple of companies. We continue to work with in-house -- our own R&D, and then we also -- wherever we have the opportunity, we continue to engage with others as well for custom cell development. But broadly speaking, we'll be working with [ LSC ] and NMC chemistry, and the overall mix of the 16 gigawatt hour kind of footprint that we build in, will be dynamic. The initial 2 gigawatt hour capacity most likely coming from NMC.
So initial capacity will be 2 gigawatt hours coming in NMC and the time line you mentioned as 2.5 years. Would that be right, sir?
That's correct.
And in terms of CapEx and investments for FY '24, '25 Babu sir, can you give some color there?
Yes. From the overall CapEx investment point of view, both the Lead Acid as well as New Energy we will be requiring capital. So Lead Acid also, as you know, we are now increasing the throughput in existing plants and also look at opportunities where it is possible to expand further. So on an average, for FY '24 and '25 on the existing Lead Acid business, including the recycling plant that we are coming up with in Tamilnadu, we maybe have to spend on Lead Acid about INR300 crores to INR400 crores. And we need to spend about another INR300-odd crores money during FY '24 on New Energy business. And FY '25, depending on how the project implementation progresses, yes, we will have to allocate another INR500 crores there for the New Energy business in the FY '25 also.
So this will get classified as investment or CapEx, sir? Because I think New Energy will be done in a separate venture?
Correct. So we have coined a separate subsidiary for all the New Energy business. We will be doing the pack business as well as the cell manufacturing investments through that separate vehicle. And as the initial capital will be invested by Amara Raja batteries into the subsidiary. And the further plans of capital infusion will be taken up from time-to-time as to what is the best structure, keeping the interest of all stakeholders.
Last question on the input cost side, there has been some pressure in the previous quarter. Any color whether any price hikes being taken in the replacement market?
The input costs for Q4, yes, there was a bit of a lead price inflation that was seen, though it is not a very significant change from the previous quarter. The price rises earlier that were taken are sufficient to recover these costs because we don't change the prices in the aftermarket for every small movement in the lead price, because a sustained price level needs to be witnessed before we attempt any change in the aftermarket. So in Q4, we have not taken any price rises as far as Lead Acid batteries is concerned.
Got it, sir. And some benefits should come on the cost side because of the efforts on the recycling plant and the captive power plant?
Yes. So benefits would take some time to be realized and during the process of setting up their plans, and by the time it's commissioned, it will be towards the end of the following fiscal year. That being said, we'll be to recycle and supply almost 150,000 tonnes of lead, which will in turn improve our material efficiency.
Yes.
And sizing that also, we also have a large initiative around renewable energy usage with our own captive solar plant commission now, [ ground market ] that's about 50 gigawatt hours, so that also brings in a savings on the per unit cost of energy. Megawatt hours, I'm sorry.
Yes. Just to add on what Hasha just said, see recycling plant once it comes down as it comes up into operation as well as the solar plant once it is already operational. So 30% of our overall net requirement will be coming through that recycling plant, and we expect there will be cost synergies that will come in once we have our own recycling unit. Power cost already is helping us in terms of reducing the overall cost.
Thank you. Next question comes from the line of Jinesh Gandhi from Motilal Oswal Financial Services Ltd.
Can you clarify what kind of investments we even need to do for this 2 gigawatt hour capacity on Lithium [ cell ] overall across that entire phase?
Yes. See, the CQP plus the 2 gigawatt hour NMC plant will require anywhere between INR1,300 crores kind of a CapEx to be spent over the next 2.5 years.
INR1,300 crores. Okay. Okay. And we haven't yet materially spent anything on that till FY '23. Is that correct?
We have so far have completed the land acquisition and also the -- you would have seen the MoU with the government in terms of land acquisition plus other incentives that what we need to do bear, we need to get. And we have started working on the equipment selection and the other works are in process. As of now, money-spent wise, FY '23 is not very significant.
Okay. Okay. Got it. Secondly, can you talk about how the exports turn out in fourth quarter? I mean, we were seen some bit of moderation in exports in earlier quarters, was fourth quarter did we see any stability in exports or signs of recovery?
Yes. See, when we look at exports compared to the previous year, because previous year, we had some one-time orders coming up. And then when we look at from a simple growth point of view, we will see some reduction compared to the -- for the particular quarter, but that's not the case with these as a whole. So from a run rate point of view, yes, exports, as you have seen in the last 4 years, we have been growing at a CAGR of about 14% to 15%. That kind of momentum is possible to continue even in the coming years.
Okay. Okay. And exports are now what about 11%, 12% of revenues or higher than that?
12% of the revenues,
12%, okay. Got it, got it. And lastly, if you can talk about the RM cost trend, which we are seeing not just on the lead side but on other input side as well. Let's think that leads are further inflating, so are you also witnessing that in terms of actual cost of purchase?
No, Jinesh, I think lead at least is now stabilizing around 2,100 levels.
Okay.
The other raw material also there is some bit of the status quo being maintained. So on that side, there are major cost reductions.
Okay. So that has broadly, okay. Got it. Got it. Great.
Thank you. The next question comes from the line of Mukesh Saraf from Avendus Spark.
Yes, sir. Firstly, on the 2 gigawatt hour, I didn't see the thing that you are looking at in the next couple of years. I'm not sure that you mentioned that we're already working with some customers on this? Or do you have some customers who are interested and you're working with them? How do we see the visibility of the utilization of this and which segments we're targeting?
So in terms of working with customers, I can say that we've started supplying samples to any customer just yet. The major segment that we think that we'll be able to address through this 2 gigawatt of NMC supply, our capacity is the 2-wheeler segment. We believe that the 2-wheeler segment will see the most robust growth in the short-term. And as we start building up our new R&D center as well as the commercial qualification plant, this is where we will start building out our initial samples to start sending out to the OEMs that we're trying to target, mainly in the 2-wheeler segment.
Right, right. And the current INR250 crore revenues that we're doing out of the packs, that is largely going to the telecom space, is what you have mentioned?
It's largely going to the 3-wheeler space, followed by telecom.
Okay.
And we have a couple of customers and we are doing some business [ of course].
Right, right. So the question is that -- I mean, once you start making these cells, wouldn't we want to first address the telecom and 3-wheeler space given that they are just doing assembly right now? Is that -- I mean, the question is basically related to that?
So I think by the time we get that capacity up and running. We would expect our pack overall business mix to also change to be more dominated by the 2-wheeler segment as well the 3-wheeler segment. And then as we alluded to, the first place where we want to supply ourselves moving to the packs that we're already supplying to customers. So we try to look to in the initial couple of years consume most of the cells that we're making in-house for our in-house [ checking ]. And as well as our business mix changes, we'll see mix increasing our scope of sales as well.
Got it. Got that. And secondly, which is on your existing business, the fire impacting the tubular capacities, what portion do you think we can still address by trading in these tubular batteries? Because in the past, we have done a lot of trading in these tubular batteries either getting a contract manufactured or any other such measures we can take, can you give some sense on that?
So we'll be able to address the new market opportunity to approve trading, but as you've alluded to, we won't be able to cover that 100%. I think, we can confidently say with the existing supplier ecosystem in the country, 60% to 70% of that can we addressed adequate. [Indiscernible] reinstating that capacity. So we'll be able to address all of our customers needs pretty soon as well.
Got it, got it. And just my last question is on the existing telecom business. And you have commented that it's quite strong and you have 60% market share there? Any more color you can provide on the margins that we are making in the telecom space? The capacity we have there? And then any expansion plans for capacities or the utilization that we have on that space?
So, I can't comment on subsets and possibility, but I can share that we're able to supply all these lead acid requirement and the driving lithium requirements towards existing capacity.
Okay. Okay. All right. I'll get back in the queue.
Next question comes from the line of Abhishek from Dolat Capital.
Sir, how much is the industrial versus automotive mix in FY '23, earlier it was used to be around 70% by 30%?
It's the same ratio, 70% automotive and 30% industrial. And this year, obviously, about 3% to 4% revenue came from the lithium side of it.
Okay. And in automotive, how much is 4-wheeler versus 2-wheelers?
Yes. The mix-wise, there is no significant change, Abhishek, compared to the previous years, it remains the same.
So it is at a 65% to 70% from the 4-wheelers, which is used to be earlier?
Yes, yes, yes.
Okay, sir. And sir, apart from the lead prices non-lead raw materials are showing some decline. So how do we see the margin trend ahead? Will you get the benefit of it, like that separator prices has gone down significantly, the plastic prices has gone down. So how do you see the margin trend ahead.
Yes. See, while there is some softening on the other raw material, there is also equally, there are pricing pressures in the market. So from a margin profile point of view, what we used to guide earlier in terms of a lead-base and an EBITDA margin of 14% to 16% still remains. But naturally, the lead base currently is far higher than the lead base that we used to guide, which was 150 to 175. Today, we are seeing a level of 200,000. So while we are running towards improving our operating margins, still our overall margin guidance of 14% to 16% given a lead base of 150 to 175, 180 still remains the same.
And have you taken any price cut in the last quarter, sir?
No, no.
Okay, sir. That's all for me.
Next question comes from the line of Vibhav Zutshi from JP Morgan.
My first question is on the Lithium-ion side, especially on the presentation that you have uploaded. We've talked about Phase 2 going -- actually seeing an 8 gigawatt hour cell capacity and 5 gigawatts hour of pack capacity. So just to clarify, should we view this as like 13 gigawatts hour of total capacity? Or in the pack at least, like will you -- can you like take the cells from externally? Or will you be deploying the cells that you manufacture in your own facility into the pack? So how should we view the total capacity?
So we should -- I think, just to [ enter the ] cell and pack capacity should be viewed separately. There will be a significant amount of our packs that we make with in-house cells, but there will still be some niche cells for specific applications like, let's say, energy storage or something where we may continue to buy an outsourced cell and import cells that we don't decide to make immediately ourselves.
Okay. Got it. So it will be probably a bit less than 13 gigawatt hour, but more than 8?
Correct.
Got it. And my second question is on the acquisitions that you've announced of Amara Raja Power Systems. Now you expect the acquisition to be closed over 3 months, I guess? And you talked about reaching INR750 crores of revenue on the EV battery packs and chargers business. So does this account the synergies that you will be getting from this acquisition or the INR70 crores is just a separate organic growth?
So already this, if I can just give a quick summary. Amara Raja Power Systems is the first company that started in the Amara Raja Group, originally started as a specialty manufacturer of industrial chargers, thereafter we started our industrial battery division. So today, the company is made up of probably 3 categories of power; industrial chargers, integrated power supply and then the balance is coming from the new products and EV chargers. The EV chargers are already being supplied to Amara Raja batteries and then going to the end market. So we will continue to kind of utilize the facility, utilize design and manufacturing of power electronics, and their sales will be driven through the now subsidiary, Amara Raja Advanced Cell Technologies.
[Operator Instructions]. Next question comes from the line of Sameer Deshpande from Fairdeal Investments.
Congratulations on good results. And the expansion we are planning in lithium-ion cells, you mentioned you require a capital investment of around INR1,300 crores over the period of next 2 years. Is it correct?
2 to 2.5 years, yes.
And so in that, how much will be the capacity that is currently we are selling some x for 100 units of the local batteries? How much will be the capacity which can be replaced with this lithium-ion cells?
Sorry. Can you ask the question again?
Yes. Clearly, what I'm mentioning, suppose we have been selling 10,000 batteries totally today. Out of that, with this capacity of lithium-ion cells manufacturing, how many batteries for electric vehicles we can manufacture as a percentage of the current sales?
See, currently, we [Technical Difficulty] lithium packs by imported cells. So when we get the capacity of 2 gigawatt hour NMC cells as Vikram was referring to, that will be going into a 2-wheeler application. And wherever packs are being made by us, we will be using our own cells and wherever cells need to be sold to other pack-making customers, it will be sold. So right now, to fit the ratio of how many packs that we will be making internally vis-a-vis how many cells we'll be selling to outside parties is not possible for us to put a number right now.
Hello?
Yes.
Actually, the line was, I think, disconnected, something had happened. Can you just repeat what you were mentioning out?
Sure, sure. See, today, we are selling our battery packs for 3-wheeler and telecom applications, and we are importing the cells. So once our initial capacity on NMC is ready, that cell capacity is supposed to be used for the 2-wheeler applications as Vikram was explaining earlier. So it will not be right for me to put a number as to how much of the current battery pack will be substituted with the cells that we will make. Ideally, 100% of the pack that we'll be making will be substituted by our own cells. But right now, it is not right for me to put a number around it.
But this much investment will be sufficient for going ahead with the things?
Yes. The initial capacity because as we were mentioning, the technology center, the customer qualification plan and the 2-gigawatt hour line and also some investments on the further expansion of the Gigafactory, Initial CapEx is what we have indicated, we will come back to you as and when further plans are formed up, and approved by the Board.
Okay. And we hope to finance it through internal accruals?
The initial seed capital, we expect to finance it with the internal accruals and also possibly some leverage on the Amara Raja Batteries. But at an appropriate time, we will decide what should be the right capital mix for the new business, and then we will see how the outside investment can be brought into that subsidiary itself. So, there is some initial CapEx, which capital will come from Amara Raja; after that, we will decide what's the best way forward in terms of financing the rest of the venture.
Sure. Are we actually under this PLI scheme, et cetera, you mentioned?
No, we have not been qualified under the PLI scheme.
Thank you and all the best. Hello?
Thank you. The next question comes from the line of Mr. Kale.
Just one question from my side. In terms of the telecom batteries demand, if you can just throw some light on how are you seeing the demand currently and the mix of the industry between lead acid and lithium-ion because essentially, from your main entity, you'd be supplying lead acid and as the industry shift into lithium-ion that will be going into your subsidiary. So how do you see the growth rate for individual lead acid as well as lithium-ion segments for telecom and telecom industry as a whole?
Sure. So when it comes to the demand in telecom, we actually saw increases in demand for both technologies, lithium, of course, growing at a faster rate, starting with a lower base. Lead acid also saw strong volume growth, low-double digits this year, and we continue to see that going forward, supported by the 5G rollout. Of course, over time, we will be experiencing some transition as well, but there's a clear runway in this the next few quarters.
Okay. Sure. And also, if you can throw some light on the 2-wheeler lead acid battery capacity expansion. Going forward, if the EV penetration continues to rise, of course, you have the aftermarket that would be growing. But what is the kind of optimal capacity you think you will need probably in the next 2 to 3 years? And how are you planning for that especially on the 2-wheeler lead acid?
Within our existing plans, we'll be scaling up to about 30 million 2-wheeler barrels per annum. We feel that will be sufficient for the demand we foresee given that we are seeing the electrification of that segment. And we're able to also have confidence that we'll be able to utilize those capacities going forward by also diversifying into other geographies.
Next question comes from the line of Udhayaprakash from Value Research India Private Limited.
Congrats on the great set of numbers. I have 2 questions on my side. The first is, since we have started working on the lithium-ion plants and all, have we contracted any company for raw material sourcing? Or is it still on the top? Or are we doing it later on we have started consistent?
That's a great question. So we are continuing to reach out to all the critical raw material suppliers. We recognize that there's not much supply in India today. I think at the time that we start our plant capacity, I think the initial target will be somewhere around 25% can come from domestic value addition. The major kind of raw materials like cathodes, anodes, while there's some talk in the market that some people are interested, there's no immediate suppliers available. So mostly from Asian sources we're expecting they will have to source for the first couple of years. And we continue to discuss with all these players. We continue to buy samples and test it out in our R&D facility today and get these people qualified into our supply chain ecosystem.
Okay. And as for the -- what was the R&D spend as a percentage of revenue for the year? And can you give it for FY '22 also, if the numbers are available?
See, I think, the R&D spend today is around including the development CapEx that what we are investing will be in the range of 2% to 2.5%. That will be scaled up as we move into the separate facilities what we are currently creating. So right now, it is more of the R&D pilot cell that we have established last year itself with about a total capital outlay of about INR20 crores to INR25 crores. And the current manpower cost and everything put together on the new energy business, we'll be spending around 2% to 2.5% of our overall revenue in this financial year, both lead and new energy business put together.
Okay. My final question is a bit on the future. So we have been investing heavily both on new energy business and lead acid business. But there will come a time where the growth in new energy business will be much higher than lead acid business, and it may lead to some kind of cannibalization. So do we have any plans for that as in so that whatever we are spending on lead acid business doesn't go to waste in future, let's say, 5 to 7 years into?
Great question. I think one thing is we're very confident that in 5 to 7 years, we're not going to see any significant cannibalization, especially across our major segments. I think one thing that we are kind of bolstered by, if you look at Indian market and also adjacent markets to a Southeast Asia other developing markets. While you have penetration of lithium, electric mobility, other applications as well, we continue to be an underserved market as far as automotive penetration is concerned.So even Harsha mentioned earlier that we required 30 million 2-wheeler batteries, we require expansion in many of our facilities. And we don't really see even a plateau, complete plateau of lead acid market for another 10 to 15 years at least in the Indian market, Indian context. Even after India plateaus, we still believe that nearby markets to us will continue to see some level of lead acid replacement demand. So probably at least to this time period, I talked about to the end of the decade, we're not going to see any major cannibalization. Wherever there's some cannibalization or some conversion of capacities in stationery and others, I think there's enough of opportunities in exports and other applications where we can easily deploy our lead acid battery capacity.
Okay. Just if I could squeeze just one final question. We've seen some very good momentum in our Industrial segment, both in telecom and data centers have been growing, and that also we have very good demand. So as you mentioned previously that we have a mix of 70 and 30 industrial. Do you see the same going forward with the same level of growth in automotive segment? Or is this mix supposed to change to 60-40, maybe or 55-45?
We see roughly the same ratio maintained going forward. It's not to say that industrial by any means is deprioritized. It's just that we're taking aggressive targets across segments, growing industrial both domestically and internationally, the same way we're taking automotive. So there's maybe a little bit of movement this way or that way that will continue going forward.
Okay. And does the industrial segment have better EBITDA margin than automotive? Or is it the same as automotive?
On the margin profiling, we don't comment at the subsegment level.
Next question comes from the line of Ashutosh Tiwari from Equirus Securities.
Congrats on decent numbers. Sorry, I joined the call a bit late, so my question would be repetitive. Firstly, on the license side on 4-wheeler and 2-wheeler and industrial battery, what is the utilization level currently?
Current capacity utilization is around 90%, Ashutosh.
This is across all capacities or like what is 4-wheeler and 2-wheeler separately?
It will be in the same range, around 90 to 93 kind of percent a range, Ashutosh.
Okay. So how much CapEx you plan to do for this lead acid in this year?
In FY '24, we -- on the lithium -- sorry, on the battery recycling plant and also some of the line expansions that we have planned, we may have to spend about -- apart from the regular CapEx of INR100 crores, INR150 crores, we may have to spend a total CapEx of about INR300 crores to INR350 crores.
INR300 crores, INR350 crores apart from maintenance or the including maintenance?
Including maintenance.
This is not the center. And how much CapEx for this lithium-on cells plan in this year?
This year, we should -- depending on how the project progress and what are the terms that are agreed with the vendors, I think our estimate right now is we may have to spend about INR250 crores to INR300 crores on the building construction as well as some of the equipment advances that we need.
And you mentioned around INR1,300 crore CapEx over the next 2 to 2.5 years in this lithium-ion segment?
Yes. Because once the 2 gigawatt hour line also comes in, I think this year, it will be more of the commercial customer qualification plant. Once the 2 gigawatt hour line kicks in, that's when I think even higher numbers need to be allocated.
For next year, basically. Okay. And this tubular that is planned, like say, will we be reinstating that? Or how should we process on that?
Yes. We are going to reinstate it.
That will be separate CapEx, basically?
Yes. Because that will be partially be covered by the insurance claim, what we'll be receiving. So hence, that's a separate CapEx.
Okay. That will be -- and we mentioned we already received INR100 crores on them remaining around 3 will come extra?
It depends on how much cost we need to spend on the reinstatement. Our expectation is that it will be in the tabor of some what you have mentioned, but it would be difficult for me to put a specific number at this point of time.
Okay. And we mentioned on the lithium-ion side that on battery packs is applying for 3-wheeler and telecom applications, right? But are there any 2-wheeler orders as well for battery packs?
We've been selling smaller lots and we're giving samples out to 2 other manufacturers. We don't have any major supply contracts today with any of the 2-wheeler OEMs, which hopefully this year, we're planning on breaking.
Okay. And on this data center side, are we seeing any signs of shift towards lithium-ion? And how are we prepared for that?
So I wouldn't call it a shift. We're getting definitely requirements for both, still largely dominated by the lead acid requirement. There are certain challenges inherent to lithium that the market is still figuring out. But in the long term, we feel that this transition will be happening.
Okay. And on the 2-wheeler replacement side because last 3, 4 years, we've seen a decline in the overall industry volumes on the OEM side, considering that what kind of growth we expect, let's say, in next 2 years? Can we really maintain double-digit growth or that will fall?
I think on the 2-wheeler front, demand, like you said, has been strong this year on aftermarket and OE. Though I think that with a bit of a rebound characteristic, I think for the next 2 years, we can see similar growth, not just as inflated as we might have been this year, this previous year.
So is it because now unorganized smaller player market share has fallen a lot, and that's why we were bidding on this shift basically? Is that the reason why you still we expect to grow well in this segment?
It wasn't the market share, rather it was a contraction of the market itself. I think be aware there was a lower production over the last 2, 3 years, we mentioned. And right now, we're seeing an OE level, almost less than pre-pandemic numbers. So we feel that will be caught up, and the momentum will carry forward for the next few years.
[Operator Instructions] Next question comes from the line of Sagar Parekh from One Up Financial Consultants.
A couple of questions. So just to be clear, you said that you don't expect 2-wheeler lead acid side industry declining for the next few years. Did I hear it correctly?
That's correct.
Okay. So you continue to maintain kind of double-digit kind of volume growth for OEMs for 2-wheeler OEMs for next couple of years at least?
Low-double digits, high-single digits.
High-single digits. So the replacement will continue and OEM will grow at high-single digit?
That's correct.
Okay. And on the lithium-ion side, I understand we are doing such a large kind of CapEx, though initial CapEx is lower, but eventually, you would be spending a lot of money. So I just wanted to check on if there is a, let's say, 5 years out, there's a technology shift from lithium ion to, let's say, sodium ion or any other sort of technology, then does it mean that this CapEx that we are doing will have like sort of no value like we'll have to do new CapEx to -- for sodium ion? Or what is your thoughts on this?
I think we need to definitely evaluate what some of these new chemistries could look like. I think my understanding is that between sodium and lithium manufacturing process is actually quite similar. So maybe the CapEx is not entirely to do wait. But I think when we talk about 16 gigawatt hour of final capacity in this location, it's a very dynamic plan. So beyond the 2 gigawatt hour NMC plan that we have, everything in the future is going to be -- all those decisions are going to be taken based on the best information we have at that time. Even if you see a significant shift to some new chemistries, I definitely believe that to we go at our NMC that we're setting up, will definitely find its own market penetration, and we'll be able to definitely offload that capacity. Looking at the larger market demand that there's going to be in India and adjacent markets.
Sure. Understood. So sodium ion is -- you're saying it's possible to convert some existing capacities or -- but if there is like, let's say, solid-state batteries or any other -- I mean, solid state is the next one which people are talking about. So in that case, then we -- there would be completely new sort of CapEx requirement to manufacture the cells, right, for solid state?
I just want to kind of -- just what I said is about sodium having a similar manufacturing process of lithium. I don't want to speak out of turn and say that it's a completely fungible CapEx to what we're setting up, that may not be very accurate in that. On the solid state as well, at least from what I know today, I don't believe that -- I think it will be new CapEx is a completely dissimilar manufacturing process. But a lot has yet to be seen, and there's a few companies that have really shown any we're close to commercializing that. So I may not believe that, that will happen in the next 5 years. But definitely, we're watching out for when significant shifts can happen in the technology magnitude.
Got it. And my last question would be on the homologation process. You mentioned it will take about a year at least. So when do we start this entire process? So do we start once the plant is, I mean, under construction? Or can we start now with already -- we are already supplying the battery packs? So just wanted to...
So generally speaking, the way that our products -- any product development happens is that you have 3 samples that have to come out, A, B and C. And usually around the B or C sample stage, we'll be supplying that to the OEM to work in their upcoming platforms, existing platforms and get that tested. With our R&D facility coming up closer to the city of Hyderabad, that's where we build -- we start immediately once they're already building out our A sample, and we already have that facility in Tirupati as well, which will be moved. When our commercial qualification plan is first built 18 months from now, we'll be ready to start building out C example. And from there, I think is when we start the homologation activities along with the OEMs who are looking for our products.
Next question comes from the line of Deepak Jain from Enam AMC.
What is the expected asset turn in the lithium-ion project, once it matures, so let's say, maybe 6 gigawatt hour? And secondly, since there will be different chemistries, is there a requirement or a minimum CapEx required in a particular chemistry like NMC to reach our optimal level margins, let's say, we are expecting to reach corporate level margin in this project? So is there any minimum CapEx per line or per chemistry required or we should look at an aggregate level only?
As far as the asset turn is concerned, at this point of time, based on the kilowatt hour price, what is available, it may be around 1x to 1.2x, that's the number what we are seeing today. As far as the other question, in terms of the optimum CapEx, I'll let Vikram respond.
So as on date, with the kind of mapping we've done, we believe that around 8 gigawatt hour, 8 to 10 gigawatt hour, we'll be able to reach a better kind of economies of scale, especially as we start to bring in all the kinds of raw materials. But I think I also need to kind of put an asterisk on that statement to say that it's a moving target as the capacities around the world are starting to ramp up quite a lot, whether that will remain the competitive scale, whether we also need to start looking at higher numbers in a shorter period of time, I think, has yet remains to be seen. But today, we're targeting around 8 kilowatt hours for that kind of benefit.
Next question comes from the line of Vibhav Zutshi from JP Morgan.
I just had one clarification. The battery pack unit is going to have NMC chemistry and the 2 gigawatt cell plant will have both LFP and NMC. Is this understanding correct?
No. The very fast, depending on the segment, we'll supply whatever chemistry is required. We're saying that in the initial Phase 1, there's 2 parts to this plant. One is the commercial qualification plant, which is kind of a commercially scaled R&D line. That will be being fungible between LSP and NMC Chemistry. The 2 gigawatt hour today, we're planning as an NMC capacity.
[Operator Instructions] Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
So thank you, everyone.I think we continue to look forward to the support and any time, we'll be very happy to get on the calls and answer your questions. Very enlightening questions also that helps us to really explain our plans and our future readiness.I want to thank everyone again for patiently sitting through this call and allowing us to interact with you today.
Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.