Battery-manufacturing stocks have been on low charge for the past few years on worries that lithium-ion batteries could slam the brakes on the growth of lead-acid batteries. But that may be overdone, at least in the near future. Lithium-ion batteries are still some way from picking up, say analysts, while demand for mobility continues to drive demand for passenger vehicles and two-wheelers. This is leading to a pick-up in demand for conventional batteries. Shares of Exide Industries Ltd and Amara Raja Batteries Ltd inched up in about 6% each in the past week.
Besides, the government’s plans to incentivise lithium-ion battery manufacturing in India could take time to play out. In fact, volume growth of electric vehicles is still in the slow lane, while some automobile manufacturers are investing in their own capacities now. Analysts say that adoption of electric cars could get delayed post the covid-19 outbreak, and demand electric-car batteries is not vast enough to warrant large investments in lithium-ion production.
“Cost is the real deterrent as investment required for lithium-ion-battery plants is huge. In India, companies are looking at assembly units rather than complete manufacturing for now, ” said Ashutosh Tiwari, head of research, Equirus Securities Ltd.
Meanwhile, domestic replacement demand for two- and four-wheelers could shift up a gear. Domestic lead-acid-battery producers such as Exide Industries Ltd have already announced price hikes starting October. Analysts say there is a shortage of batteries in the home market due to the increasing requirement for personal mobility and the pick-up in demand in the used-car market.
“Replacement demand is quite good, and there is a shortage of batteries. Dealers are running on low inventory with just 10-12 days of stock. Even if retail sales soften a bit, dealer stocking will keep replacement demand strong for companies,” noted Tiwari
Besides, passenger vehicles and two-wheeler sales have been pacing up in the past month. Both large auto Hero MotoCorp Ltd and Maruti Suzuki Ltd saw vehicle sales volumes increase 8% and 17% year-on-year.
Further, lead prices have lately been soft, hovering at about ?150 a kilogram, which could add to margins of battery producers.
Shares of Exide Industries, though, have been weaker than those of competitor Amara Raja Batteries. In 2020, the Exide stock is still down about 12% compared to Amara Raja’s 4% rise. With both stocks trading in the region of about 21-23 times current earnings as per data from Bloomberg, current valuations though appear to be pricing earnings growth.
News Source:- livemint