Domestic lead-acid battery manufacturers are expected to witness a revenue growth of 10-11% in the fiscal year 2025, according to a recent analysis by CRISIL Ratings. This growth projection closely mirrors the approximately 12% growth seen in the previous fiscal year.
The steady demand from the automotive segment, coupled with the tailwind from the rising 5G penetration, expansion of 4G networks, increasing data centres, and demand from railways, is expected to drive this growth. Despite the cyclical nature of the automotive sector, which accounts for around 55% of the sector’s revenue, battery makers are diversifying their portfolios by setting up lithium-ion battery capacities to cater to diverse applications such as electric vehicles, renewable energy storage, data centers, consumer electronics, and industrial segments.
CRISIL Ratings’ analysis of five lead-acid battery makers, which collectively account for over 80% of the sector’s revenue, indicates that the industry is undertaking significant capital expenditure (capex) to enhance capacities, integrate backward into lead recycling, and diversify into lithium-ion batteries. The capex, estimated at Rs 11,000-12,000 crore between fiscals 2024 and 2026, will be partially funded by debt. However, the credit profiles of these companies are expected to remain stable, supported by healthy cash accruals and steady operating margins of 12-13%.
Anuj Sethi, Senior Director at CRISIL Ratings, stated, “Demand from the automotive segment is projected to increase 9-10% in fiscal 2025, driven by two-wheeler and passenger vehicle sales as well as replacement demand. This, along with a demand growth of 11-12% from the industrial segment due to expansion in the telecom, data centers, and railway sectors, will ensure healthy revenue growth for lead-acid battery makers this fiscal as well.”
India currently relies heavily on imports for its lithium-ion battery requirements, with imports estimated to have risen by around 45% over the past three fiscals to approximately Rs 26,000 crore in fiscal 2024. China, South Korea, and Japan are the primary suppliers to India, with China alone meeting over 75% of the requirement.
Despite the high demand, battery makers are expected to commission only 15-20 gigawatt hours of lithium-ion battery capacity in phases between fiscals 2025 and 2028, catering to 25-30% of the total requirement during that period. These manufacturers will be keen on ensuring tie-ups and offtake arrangements for a significant portion of this capacity.
Naren Kartic.K, Associate Director at CRISIL Ratings, added, “We expect annual capex of battery makers to double to Rs 3,800-4,000 crore between fiscals 2024 and 2026 (from ~Rs 2,000 crore previously) towards enhancing lead-acid battery capacity (current utilisation of 75-80%) given the stable demand, as well as to set up lead acid battery recycling capacities and lithium-ion battery capacities. Amid this sizeable capex, strong balance sheets will help absorb initial losses from lithium-ion battery plants and the impact of debt for part-funding capex, keeping debt protection metrics healthy and credit profiles stable.”
CRISIL Ratings expects the debt-to-EBITDA and interest coverage ratios to moderate to around 0.6 times and approximately 15 times, respectively, by fiscal 2026, from an estimated 0.3 times and over 35 times, respectively, in fiscal 2024. Key factors to watch include the timely execution and commencement of lithium-ion capacities, developments around supply tie-ups and offtake agreements with customers, the pace of EV adoption, and movement in prices of key raw materials.