Amara Raja signs technical licensing pact with GIB EnergyX; stock zooms 20%

Amara Raja share price record high: Shares of auto ancillary major, Amara Raja Energy & Mobility (ARE&M) hit a record high of Rs 1,655 apiece, zooming 20 per cent on the BSE in Tuesday’s intraday trade. The gains were reported on account of a technical licensing agreement it signed with GIB EnergyX Slovakia, a subsidiary of China-based Gotion High-Tech Co.

Gotion Hi-tech has a global EV battery market share of 2.2 per cent. and is backed by VW, and its key customers include Geely, Chery, BAIC, Leap Motors, Chana, and VinFast.

As a part of the agreement, GIB EnergyX will license Gotion’s LFP or Lithium ferrous phosphate technology for lithium-ion cells, the company said in a regulatory filing. The stock ended the day with gains of 19.4 per cent.  

The comprehensive agreement will enable Amara Raja to manufacture  LFP cells in both cylindrical and prismatic form factors. The scope of licensing provides access to cell technology IP, support in establishing gigafactory facilities conforming to the latest generation process technologies, integration with Gotion’s global supply chain network for critical battery materials, and customer technical support for solution deployment.

Last year, Amara Raja announced an investment outlay of Rs 9,500 crore to establish the Amara Raja Giga Corridor in Telangana. The aim was to keep the company’s products competitive and contemporary through access to continuous improvements in cell performance and process efficiencies through the partnership period, it had said.

ICICI Securities said the licensing agreement is a positive development for the company and such technology tie-up was keenly awaited. 

“It shall help Amara Raja develop its envisaged gigafactory. This technology tie-up is in addition to Amara Raja’s recent equity stake purchase in InoBat AS. This is a positive development for the company and shall accelerate work on the new energy space,” the brokerage said in a note. Amara Raja has, in the recent past, entered into an MoU with the Telangana government for setting up Li-Ion battery gigafactory.

The said facility is expected to have the cell manufacturing capacity of up to 16GwH and the assembly capacity of up to 5 GWh with the overall investment pegged at around Rs 9,500 crore over the next 10 years. In the first phase, it is setting up a Li-Ion cell plant of 2GwH capacity at capex outlay of around Rs 1,200 crore with likely commissioning by FY26, the brokerage firm added.

Rishi Vora and Praveen Poreddy of Kotak Research expect the profitability and return ratios of the Li-ion battery business to remain under pressure due to higher capex requirements and the commoditised business transitioning to B2B. The brokerage has, however, retained its ‘sell’ rating.

Valuations remain expensive at 23 times its FY2025 estimated earnings amid the terminal risk to the lead acid business and the inferior return ratios of lithium-ion business, says the brokerage. Valuations remain high as the stock has more than doubled over the past three months, skyrocketing 112 per cent from a level of Rs 777.6.

ARE&M recorded robust revenue growth in the financial year 2023-24 with both lead acid Battery business and new energy Business growing substantially. In the Lead Acid Battery business strong volume growth momentum continued in both automotive and industrial applications across all customer segments, the company had said.

“ARE&M will incur significant capex to become future-ready in the Li-ion segment (FCF may take a hit in the medium term). The next leg of valuation re-rating is likely if it can tie-up with a large firm for technology in the Li-ion cell space, which could open up the PV Li-ion cell opportunity size of Rs 45GWh by FY30E,” analysts at Elara Capital had said in their Q4 result update.

The brokerage firm had said they continue to monitor new order wins in the lithium-ion space, especially for anchor customers in the 2W space. Auto replacement demand will keep core business revenue and profitability insulated from cyclicity of OEM business, it added.