Amara Raja to scout for external funding for its EV battery business, may explore an IPO

(L to R) Vijayanand Samudrala, President - New Energy, ARE&M, Tobias Schmieg, VP of Product Development at Gotion Global, Steven Cai, President EMEA Region, Gotion, Dr. Tara Lindstedt, Board Member, Chief Development Officer Chair Audit and Risk Committee, Inobat, 2 key Officials from Gotion, Vikramadithya Gourineni, Executive Director ARE&M, Jayadev Galla, CMD, ARE&M and Harshavardhana Gourineni, Executive Director, ARE&M

In its bid to fulfil its commitment of deploying Rs 9,500 crore for establishing a gigafactory corridor in Telangana, Amara Raja Energy & Mobility (ARE&M) is looking for external funding options such as debt, equity, or a mix of both.

At present, AREM is sourcing funds through internal accruals and investing through Amara Raja Advanced Cell Technologies (ARACT), which was hived off into a separate entity.

“During the first phase of our manufacturing operations when we're getting to the 8–10-gigawatt hour (GWH) capacity, we're planning to manage with our own internal accruals and borrowings. But to go beyond that, we would have to raise money through equity,” said Jayadev Galla, Chairman and Managing Director, AREM.

ARACT, a step-down subsidiary established in 2021, is tasked with producing battery cells, packs, and fixed chargers for electric vehicles. In December 2022, Amara Raja stated that it is building a 16 GWH lithium-ion cell production and battery pack assembly facility in Telangana.

Last week, the Amara Raja Group held a groundbreaking ceremony for their Customer Qualification Plant for cell manufacturing, and also inaugurated phase 1 of the 1.5 GWH battery pack plant in Mahabubnagar district.

“We are aiming for a 16 GWH cell manufacturing capacity by 2029. The capacity expansion will be calibrated based on how the market demand pans out,” added Galla.

After attaining 50 percent of the desired output, it will look for  stake dilution, he said,  and added that, “We have not yet decided on the course of action at that point, but  we're looking at different options. Listing is also not ruled out.”

On the quantum of stake dilution and the amount to be raised, Galla said he won’t be able to share that information at this point.

Vikramadithya Gourineni, Executive Director of the New Energy business at Amara Raja Energy and Mobility Ltd., also said that some combination of external financing (debt / equity) will be required as the company doesn’t intend to fund all the capex for its gigafactory corridor internally.

“We are refining our funding strategy right now. Rs 9,500 crore is a lot of money, and the entire group's capex over the last 30 years hasn't been equal to this. We are spending more in the next five years than we've spent on anything so far,” Gourineni explained.

He stated that until now, the company has infused all the funds required for the initial set-up of the assembly lines for battery packs, and the R&D facility. “Going forward, I think we are debt free at the listed company level. We are working on all combinations, permutations. I don't think anything's off the table right now,” added Gourineni.

Meanwhile, Amara Raja expects its New Energy and Mobility Business, comprising cells, packs, chargers, and energy storage systems, to contribute nearly $2-3 billion to its topline of $5-6 billion by 2030.

“The potential beyond five years will be a different story,  it all depends on the path that EV penetration takes. If it really takes off, then the sky is the limit as the battery is 40 percent of the cost of an electric passenger car. In the case of our lead acid batteries, it's only 1 or 2 percent. Therefore, the scope for the new energy business is significantly beyond that of our traditional business,” said Gourineni.

However, Amara Raja also clarified that there won’t be any decline in revenues from its traditional lead acid battery division, which caters to automotive, telecom, and other industrial applications. The company expects this business to more than double, from $1.2 billion currently to $3 billion in the next seven to eight years.

“Five years hence, our lead acid business should be seeing a healthy double-digit growth if international demand and our capacity expansion happens. In the New Energy business, we are at the early stages. If things turn out right, we should be able to have at least 20 percent market share in cells. But in battery packs it would be much lower, because there are a lot of battery pack builders in this country,” asserted Galla.