Undeterred by investor apathy, BILT has begun work on consolidating its lead and turning more profitable.

By E. Kumar Sharma

If there's a sense of déjà vu pervading Ramachandra Naidu Galla's corner room in Riaz Garden Building in Chennai, it's for good reason. Fifteen years ago, when he returned after a successful career in the US to launch a small industrial batteries unit, he was overwhelmed by the sheer bureaucracy involved in doing so. Yet, braving mountains of red tape and consumer apathy, Galla went on to create Amara Raja Batteries Ltd (ARBL), which today is the leader in industrial type, valve-regulated lead acid (VRLA) batteries.

The 62-year-old Galla must now summon the same kind of courage and conviction as he orchestrates ARBL's foray into automotive batteries. Rival Exide, with around 90 per cent share, has a stranglehold in the market. In a bid to loosen Exide's grip, ARBL is paying special attention to its product Amaron's technology and positioning in the market. Says his son and Executive Director of Amara Raja, Jayadeva Galla: ''We are aiming at a mix of the best product at the best price with innovative distribution.''

A positive move

It's easy to see why ARBL wants to grow outside the industrial batteries market. The total size of the storage batteries market is estimated at close to Rs 2,200 crore. Of this, industrial batteries account for a bare Rs 600 crore. The big business is in powering the one million vehicles that roll out of factories each year and the 8.5 million already out on the roads.

What's not so easy to see is whether or not Amara Raja can replicate its industrial batteries success in the automotive segment. For one, the automotive industry works differently. Prices are constantly under pressure and, in the after-market, distribution and customer service are extremely important. In industrial batteries, by contrast, only a few large customers need to be serviced. Notes S. Arun, an auto analyst with SSKI in Mumbai: ''Costs of inputs and components will play a crucial role in future because vehicle manufacturers themselves are set to face increasing cost pressure.''

Amara Raja has a few things going for it, though. Johnson Controls, a US-based auto components major with $16 billion in sales, has a 23 per cent stake in the company. That's helping in two ways. One, it ensures access to contemporary batteries technology. And two, it plugs Amara Raja into Johnson Controls' original equipment (OE) buyer network. In India, Amara Raja already supplies to Ford India, Mercedes-Benz India, and General Motors. Says Sandip Sanyal, Vice-President (Supplies), Ford India: ''Our original link with the company was on account of Johnson Controls (supplies to Ford globally). But we also find the battery maintenance-free and one of the best in its class.''

The batteries have so far been launched in Delhi, Mumbai, Andhra Pradesh, and Chennai. By the end of this fiscal (March 31, 2000), Amara Raja hopes to corner a seven per cent share of the passenger car, multi-utility and light commercial vehicles batteries market. Growth in revenues will depend on the company's ability to expand markets geographically and add more OE customers. Given that customers, be they retail or institutional, don't easily switch brands (at least in the case of need-based purchases like batteries), growing volumes won't be easy.

Battling a near monopoly

That apart, the market already has a dominant player in Exide, and new transnational aspirants like Tudor (subsidiary of Exide Batteries of USA) and the Bangladesh-based Volta. After the February, 1998-takeover of Standard Furukawa, Exide has become an even bigger player. For instance, it has a staggering 93 per cent share in the OE segment and 75 per cent in the organised after-market, translating into a 40-per cent share of the overall market. Says Exide Chairman and CEO, S.B. Ganguly: ''There is scope for new players to enter, as the automotive market is growing at between 10 and 12 per cent annually. But they'll necessarily be small compared to Exide.''

Galla senior knows that only too well. By the first quarter of next year (2001-02), Amara Raja will ramp up volumes at its Tirupati (Andhra Pradesh) plant from the current five lakh units per annum to 10 lakh units. And since the plant has a modular design, capacity for another million units can be created, taking the tally up to two million (Exide can manufacture 4.2 million units a year).

How much money Amara Raja is able to plough into automotive batteries will depend on the performance of its cash cow, industrial batteries. Here again, Exide is heaving in against Amara Raja. Two years ago, Exide launched VRLA batteries and is already claiming a significant victory over its south-based competitor, whose P&L does betray signs of battle scars.

In 1999-2000, Amara Raja's sales were down to Rs 132.08 crore from Rs 186.50 crore the year before. Yet, there was no fall in sales volume, implying that there was a huge cut (30 per cent) in prices of VRLA batteries. The bottomline took a bigger hit, more than halving to Rs 19.54 crore. Admits Galla senior: ''With new competitors eyeing the market, there will be increased pressure on margins.'' But the upside, as Galla claims, is that low prices will make it difficult for the new players to compete.

In many ways, the situation confronting Galla is that of building Amara Raja Part II. Only this time round his challenge is not a corpulent bureaucracy, but nimble competition.

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