Shares of Amara Raja Energy & Mobility Ltd, which jumped 20 per cent in the previous session, may have more steam left, as the battery maker signed a technical licence agreement with Gotion’s subsidiary to get access to the lithium ion phosphate (LFP) technology.
The development, is in line with the Amara’s strategy to tap the Li-ion cell manufacturing space, given that the company has been scouting for a tie up with a leading player in the Li-ion cell manufacturing.
Sharekhan said while Amara’s new energy segment has already been catering to the two-wheeler, three-wheeler and telecom segment, a successful command on the LFP technology would make it easy to supply EV battery solutions to electric PV makers, it said.
"Gotion is a global leading player in battery solution space and its association would help company in gaining command on the Li-ion cell technology, which would make it easy in setting up its Gigafactory projects. Recently, Amara has increased its stake in Norway based InoBat to 9.32 per cent, which is engaged in research, development and production of batteries for electric vehicles. Amara has already planned to invest Rs 2,000-2,200 crore in new energy segment next 2 years," it noted.
For now, Sharekhan has maintained its 'Buy' recommendation on the Amara Raja stock with a revised price target of Rs 1,967 on account of expectation of healthy traction in replacement segment and an opportunity to play in the Li-ion cell business. The Amara Raja target price suggests a 19 per cent potential upside over Tuesday's closing price.
Amara Raja’s new energy segment, which already caters to the two-wheeler, three-wheeler, and telecom sectors, will benefit from mastering LFP technology, facilitating its entry into the EV battery market for electric passenger vehicles (PVs), it added.
Sharekhan said the commencement of tubular battery capacity, reduction in trading revenue and full benefit of amalgamation of plastics business to support profitability. The benefit of amalgamation of the plastics business would enhance on commencement of the tubular battery capacity, it said.
"Tubular battery capacity is expected to commence by FY25-end. We believe that lead acid batteries to remain in demand for the next few years in the replacement market, while Li-ion battery segment would expand from current levels. As Amara is trading at 19 per cent discount to Exide. We believe that a higher visibility for its Li-ion cell business would narrow valuation gap in the coming period," it said.