For nearly a decade now, Amara Raja Batteries Ltd (ARBL) has been chipping away at the near unassailable lead that market leader Exide has had in the Indian battery market. But in the last five years the company has begun to close the gap.
The $5-billion Indian battery market is a duopoly, with Exide and ARBL controlling around 90 per cent of the organised market. Most of the demand for batteries comes from the telecom and the automotive sector, with ARBL’s market share at about 35 per cent and Exide’s at 40 per cent.
Over the next three years, however, ARBL has set a goal to become the market leader in the automotive batteries and double its overall turnover to Rs 100 billion from Rs 59.81 billion in 2016-17.
Lending optimism to its plans is the implementation of the Goods and Services Tax in July 2017. The company expects the new tax regime to help it improve its competitiveness vis-à-vis the unorganised sector that accounts for 40 percent of the market currently. The company believes, the lack of after-sales services and better warranty terms will result in volume growth for organised players.
“The key drivers of our strategy are product, pricing, market penetration and brand awareness,” says Jayadev Galla, vice-chairman and managing director, Amara Raja.
Equally important is diversification. In the industrial battery segment, ARBL has been among the preferred vendors in a wide spectrum of companies — from infrastructure and power to railways and telecom, among others.
This extensive reach is helping the company tide over the slowdown in telecom better than most other players. Recent developments in the telecom market, with the entry of Reliance Jio, have disrupted the revenue model of telcos and tower companies, forcing them to rethink their cost structure. The demand for replacement batteries as a result has seen a slide in recent quarters, hurting companies like Exide and ARBL. The increase in lead prices, a key component in batteries, has further added to the challenge of battery makers.
Yet, ARBL could manage to achieve a moderate growth in volume in the industrial battery business during the year. The management credits this success to its recent initiative to provide integrated solutions— after sales service and maintenance— for backup power requirements for all segments it operates in.
The automotive battery business was the star performer, growing at over 60 per cent in terms of revenue riding on strong demand from two-wheeler and four-wheeler makers in both OEM (original equipment makers) and the after-market segments. In the four-wheeler OEM space, ARBL grew faster than the automobile sector.
S Vijayanand, chief executive, ARBL, says: “We believe it (the four-wheeler segment) is a very important market for us, and we need to position ourselves strongly in this segment. We are very committed to it, and over the next three years, we see ourselves leading the market with a share of around 40 per cent.”
In the two-wheeler space, ARBL is a relatively late entrant. It entered the segment in 2007 after a market study initiated by the company revealed significant gaps in the industry in terms of technology.
With its superior AGM (absorbed glass mat) technology, ARBL saw an opening in the market and established itself as a key player in no time, with 30 per cent share in the replacement battery for two-wheelers and 11 per cent in OEM. Vijayanand claims ARBL batteries are more advanced than those currently available in the market and also safer because there is no risk of the acid spilling out inside the battery.
“It is more important from a safety perceptive to have a non-spillable battery designed for two-wheelers than for four-wheelers. When two-wheelers tilt and lean or in the case of road accidents, there shouldn’t be any risk coming from the battery. We entered the market with this technology,” he adds.
Apart from technology, ARBL is counting on its two-tier distribution model to reach its new goals. Instead of relying on a direct dealer network, the company has adopted a distribution model where franchisees service retailers directly, expanding the company’s reach exponentially and cutting out middlemen that become part of the direct dealer network. ARBL has close to 400 franchises who reach out to 40,000 retailers. Among OEMs, it counts Honda, Bajaj, Royal Enfield among its clients and plans to include Hero Motorcycles soon.
“Our OEM market share will go up once we have the Hero account. In the coming years, according to the strategic plan, ARBL should be able to increase OEM share in two-wheelers to 45 per cent from 11 per cent currently,” he adds.
In tandem with its new goal, ARBL has started investing heavily on capacity expansion, especially in the two-wheeler space, which it believes will be crucial in overtaking Exide. In December, the first phase of a Rs 7-billion greenfield facility for two-wheelers in Andhra Pradesh went on stream and it’s expected to reach its full capacity of 17 million units over the next five years. Once fully functional, it will be the country’s largest battery plant, taking ARBL’s total battery capacity to 29 million units. Exide, on the other hand, has nine plants and together, they produce eight million automobile batteries, including batteries for motor-cycle applications.