Legacy Battery Reliance And Heavy Capex Will Impair Future Stability

Key Takeaways

• Heavy reliance on lead-acid batteries increases vulnerability to technology shifts and intensifying competition in the evolving global battery market.
  
• Significant execution, supply chain, and compliance risks threaten profitability as the company transitions into lithium-ion and next-generation battery segments.
  
• Strategic investments in new energy and storage technologies, strong execution, and resilient mobility demand position the company for diversified growth beyond traditional battery segments.

Catalysts

Manufactures and sells lead-acid storage batteries for industrial and automotive applications in India and internationally.

• The overwhelming dependence on lead-acid batteries for approximately 95–96% of revenues exposes Amara Raja to structural risk, as global adoption of lithium-ion and next-generation battery technologies continues to accelerate. As demand structurally shifts away from lead-acid solutions, Amara Raja's market share and long-term revenues are at risk of significant erosion.
  
• The company's capex-heavy expansion into lithium-ion cell manufacturing brings substantial execution risk. Delays in bringing the giga-factory online, slow customer acquisition, or inability to scale next-gen chemistries on time will likely saddle the business with elevated fixed costs, strained balance sheets, and poor return on capital, adversely impacting future net earnings and shareholder returns.
  
• As the global push for stricter environmental compliance and carbon neutrality intensifies, traditional battery manufacturing and recycling are likely to face much higher compliance, input, and restructuring costs. This secular threat will suppress operating margins over the long term, especially if Amara Raja is unable to increase its cadence of innovation or adapt fast enough.
  
• Supply chain dependence for new chemistries, with critical materials such as cathodes, anodes, and electrolytes almost entirely sourced from China, introduces significant vulnerability. Geopolitical tensions or global price volatility could create unpredictable cost spikes, squeeze margins, and disrupt production, threatening both earnings stability and growth projections.
  
• Intensifying competition from established global players and Indian new entrants in both EV and stationary storage further compresses pricing power and increases the risk of rapid product obsolescence, amplifying margin pressure. If Amara Raja cannot match the pace of R&D and innovation, it may suffer both topline stagnation and net profit decline as industry trends shift away from legacy offerings.

Amara Raja Energy & Mobility Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Amara Raja Energy & Mobility compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Amara Raja Energy & Mobility's revenue will grow by 6.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.6% today to 7.4% in 3 years time.
• The bearish analysts expect earnings to reach ₹11.6 billion (and earnings per share of ₹65.38) by about August 2028, up from ₹8.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.6x on those 2028 earnings, up from 21.0x today. This future PE is lower than the current PE for the IN Electrical industry at 38.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.67%, as per the Simply Wall St company report.

Amara Raja Energy & Mobility Future Earnings Per Share Growth

Risks

• The company's strategic investments in lithium battery gigafactories, advanced research labs, and capacity expansion in New Energy demonstrate a dedicated pivot towards high-growth segments, which may drive future revenue growth and diversify earnings away from traditional lead-acid battery dependence.
  
• Robust demand trends in automotive OEM and aftermarket segments, particularly with consistent growth rates in both 2-wheeler and 4-wheeler batteries, suggest that revenues in the mobility business may remain resilient, supporting a strong topline performance.
  
• The company's ability to rapidly scale tubular and recycling plants without significant operational delays indicates execution strength, which can lead to margin expansion through improved in-house manufacturing and cost control, thus positively impacting net profitability.
  
• Management's expectation of margin normalization-driven by stabilized input costs, reduced power expense headwinds, and increasing share of own manufactured products-suggests that EBITDA and net margins could recover meaningfully in coming quarters, contradicting a long-term decline hypothesis.
  
• Amara Raja's proactive approach to Energy Storage Systems (ESS) for retail, commercial, and grid applications positions the company to benefit from India's secular transition to renewables and grid modernization, potentially opening large new addressable markets and additional revenue streams.

Valuation

• The assumed bearish price target for Amara Raja Energy & Mobility is ₹925.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Amara Raja Energy & Mobility's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1680.0, and the most bearish reporting a price target of just ₹925.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹156.3 billion, earnings will come to ₹11.6 billion, and it would be trading on a PE ratio of 22.6x, assuming you use a discount rate of 15.7%.
  
• Given the current share price of ₹987.2, the bearish analyst price target of ₹925.0 is 6.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.