The board of Exide Industries, the largest manufacturer of lead acid storage batteries in south Asia, today decided to enter the lead smelting and recycling business in India through strategic alliances with local smelters including equity participation.
The company was in discussions with some smelters.
The move was expected to insulate the company from fluctuations in the prices of lead, the main raw material used in lead acid batteries which represented up to two-thirds of the cost of a battery.
The Exide board today empowered the management team to select a local smelter where an initial investment of up to Rs 25 crore by way of equity participation could be made.
T V Ramanathan, managing director & CEO of Exide, said in a release, "Such an acquisition - as and when it materialises - would be a significant step towards enhancing the amount of recycled lead and lead alloys used by the company, and hence would help to reduce our dependence on imports of high cost lead".
He added, "In a scenario where the price of lead has been highly volatile, having an equity stake in a local smelter would be a significant step towards increasing the reliance on domestic sourcing of recycled lead."
P K Kataky, director of the automotive business of Exide, said, "This would open up an opportunity for the company to enhance the volume of scrap battery collection from the dealers - a battery handling and management rules (regulatory) requirement."
Exide had launched a pioneering initiative to collect scrap batteries as required by the regulatory framework.
The foray into smelting would was expected to help further the company's commitment to protect the environment, through use of recycled materials, as part of its corporate social responsibility initiatives.
Exide made lead acid storage batteries both for automotive and industrial applications, from batteries fore motorcycles to those powering submarines with market share of over 80% in the OE business, above 75% in the branded replacement market and more than 50% share in industrial batteries.
Exide recently decided to raise Rs 150 crore through a rights issue of shares, aimed at augmenting long-term resources.
Ramanathan stated that the fund raised from the rights issue would augment long-term resources and enhance opportunities for shareholders to strengthen the company, rather than any specific working capital or expansion project.
Exide had lined up a capex of Rs 400 crore for the next three fiscals.
Ramanathan said Rs 185 crore would be invested in the current fiscal for debottlenecking of plants to meet robust market demand.
While topline growth was satisfactory, margins were a challenge, he admitted.
Ramanthan said that while margins for automotive batteries were more or less the same in domestic and overseas markets, the margins on traction batteries were superior overseas.
The Indian market for traction batteries was growing rapidly because the retail revolution was leading to creation of modern warehousing complexes and logistics hubs, where forklift turcks and similar equipment depended on traction batteries, Ramanathan said.
Similarly, the real estate boom, and the growth of the information technology (IT) and IT enabled services (ITES) sectors as well a higher home office, small office and domestic computer sales were driving sales of batteries used in UPS systems.
Rising demand necessitated the availability of long term capital resources to enable efficient supply and access to raw material like lead at competitive prices and on time, Ramanathan said.