Amara Raja Energy & Mobility: Navigating Transition with Strategic Growth

Amara Raja Energy & Mobility Limited (ARE&M) has reported a consolidated revenue of INR 3,410.2 Crore for Q3 FY26, marking a 4.2% year-on-year growth. The company's EBITDA stood at INR 373.8 Crore, with an EBITDA margin of 11.0%. Profit After Tax (PAT) for the quarter was INR 140.2 Crore, reflecting a PAT margin of 4.1%. While the traditional Lead Acid business continues to be the primary revenue driver, contributing 93.1% of the total, the burgeoning New Energy Business (NEB) is rapidly gaining traction, showcasing the company's strategic pivot towards future growth.

Segmental Performance and Market Dynamics

The Lead Acid business, despite its significant contribution, faced a mixed quarter. Domestic automotive 4-wheeler OEM volumes demonstrated robust growth of 25% year-on-year, sustaining double-digit expansion. However, the aftermarket segment for 4-wheelers grew at a more modest 3%. The 2-wheeler segment, across both OEM and aftermarket, experienced relatively flat growth, primarily attributed to a higher base in the corresponding previous year and temporary shutdowns at certain OEM factories. The company's Lubes business continued its growth momentum, clocking INR 50 Crore in quarterly revenue.

On the industrial side, UPS volumes grew by 5%. However, the telecom segment witnessed a significant decline in lead acid volumes, falling by over 45% year-on-year. This reduction is a direct consequence of the industry's ongoing transition from lead acid to lithium solutions, a trend that has reduced telecom's share in overall revenue to less than 5%. Export volumes also saw a 15% decline, impacted by tariff issues and geopolitical uncertainties, particularly affecting the US market and increasing competitive intensity in the Middle East and Asia Pacific regions.

Strategic Initiatives and Future Outlook

Amara Raja's strategic focus is clearly on the New Energy Business, which delivered a strong performance in Q3 FY26, with revenue exceeding INR 200 Crore for the first time, nearly doubling year-on-year. The company supplied over 250 MWh of telecom packs, achieving an optimum capacity utilization of over 80%. Management is actively shifting focus towards Battery Energy Storage Solutions (BESS), anticipating a market demand of 25-30 GWh by FY31. To capitalize on this, ARE&M plans to set up a 5 GWh integrated solution plant with an estimated capex of INR 280 Crore, expected to be operational by the end of FY27. Furthermore, the Giga cell plant aims for a capacity of 16 GWh by FY30, with initial operations for 2 GWh based on NMC Chemistry expected by H1-CY2027.

To bolster its traditional Lead Acid business and enhance operational efficiencies, Amara Raja has invested in a state-of-the-art Lead Recycling Plant at Cheyyar, Tamil Nadu, with a capacity of 1.5 Lac MTPA. Refinery operations commenced in December 2024, and battery breaking is expected to start from Q4 FY26/Q1 FY27. This plant has already contributed to a 0.6% EBITDA margin accretion in Q3 FY26. Additionally, the new Tubular Battery Plant at ARGC-Chittoor commenced commercial production in Q1 FY26 and achieved full capacity in Q3 FY26, significantly increasing in-house inverter battery sales.

Navigating Challenges and Sustaining Margins

Despite the positive strides in NEB and strategic investments, the company faced margin pressures in Q3 FY26. Raw material costs, particularly for tin alloys, sulfuric acid, and antimony alloys, increased materially. A higher OEM mix and provisions for warranty expenses and EPR liability also contributed to the moderation in margin expansion. In response, Amara Raja implemented a 2% price increase in January 2026 to mitigate these cost pressures. The company is also exploring the formation of a subsidiary to stabilize and improve its business in the US market, addressing the challenges faced in export volumes.

Amara Raja's management acknowledges the dynamic market environment and is focused on adapting its strategies. The company's commitment to sustainability is evident in its high S&P Global ESG score of 77/100, ranking first in its sector in India. The strategic investments in NEB, coupled with efforts to optimize the Lead Acid business through recycling and in-house manufacturing, position Amara Raja to navigate the ongoing energy transition effectively. The company aims to grow at least a percentage point ahead of the domestic market and is working to increase its international footprint, despite current headwinds.