Amara Raja Batteries Limited Annual Report 2012-13

“otta be a better way is the work ethic engrained into ourempowered team for continuous innovation – it strengthensour ability to deliver superior stakeholder value.”GUPS: The UPS market is expected toNew verticals: Our expansion projectremain upbeat on account of increasingenvisages batteries for new applications,power shortages, government initiativeswhich will create new businesses, taking(e-governance, e-health, e-educationour Company into a new orbit.and direct cash transfer among others)and growth in service sectors (IT-ITeS,healthcare, retail, BFSI and ATMs).Besides, a growing focus on technologyby small and medium businesses andHome UPS: As the Home UPS emergesas a critical household appliance, ourCompany expects to enter this spacewith niche products and innovativesolutions.penetration of large data centres isexpected to catalyse UPS growth.Solar power: Solar power is fastemerging as a dependable and viableNew opportunitiesenergy source in India, catalysed byAt Amara Raja, we expect to enter newsignificant governmental impetus forverticals and geographies translating intoexpansion. In addition, as the telecomquicker growth.sector seeks renewable energy sourcesTwo-wheelers (OEM): India producesabout 16 million two-wheelers annually;this is poised to grow rapidly due toincreasing disposable incomes in ruraland semi-urban markets. As the batteryJayadev GallaVice Chairman and Managing Directorfor cost-effective operations; solar poweris expected to play a vital role in thisbusiness space. We plan to establisha strong presence in this solar batteryspace.has become vehicle-critical, two-Motive power: Pan-Indiawheeler OEMs have shifted to VRLAindustrialisation, a preference towardsbatteries. Amara Raja is a pioneer ofa hub-and-spoke logistics model andthese batteries in India. Our Companyincreasing Government thrust onpartnered with Honda Motors for itswarehousing across India has openedlarge two-wheeler battery requirementa new growth vista of motive power for(supplies commence in 2013-14) andwarehousing equipment. Besides, theis optimistic of entering into similargrowth of the organised retail sectoralliances with other leading OEMs.accelerated by the Government’s nodto FDI in this segment is expected toDREAM.DELIVER.13

mara Raja is seeking foothold opportunities in the IndianOcean Rim following a change in the global scenario.Aincrease the size of this business vertical.Capacity pipeline: We havebatteries leading to sectoral leadership.We are well poised to enter this segmentdemonstrated a capacity-lead strategyWe will explore strategic alliances in thewith appropriate solutions.based on the confidence of productindustrial batteries business and caterperformance, ability to transform marketsto dynamic technology changes in theand create demand.storage battery segment.Indian Ocean Rim following a changeSince we have grown revenues throughin the global scenario. China’s focuseconomic slowdowns, we are confidentDream. Deliver.on environmental management hasof doing even better (through aresulted in a rationalisation of productionvolume-value play) when the economycapacities; increasing wages, lead pricerebounds.New geographies: Amara Raja isseeking foothold opportunities in theparity of the Shanghai Metal Exchangewith the global benchmark and currencyBuilding capabilitiesappreciation have weakened China’sFor our sizeable investments to delivercompetitive edge, strengtheningdesired results, we need to supportprospects for other manufacturingthem with adequate capabilities (people,countries.systems, product development andreach).Dreams have no boundaries and, inline with this, our aspirations are notrestricted to India. We are confidentof turning our dreams into reality byleveraging the value resident in ourpartners, team and products. Ourcapacity augmentation is the first steptowards the larger goal of emerging asa dominant player in the IndianOcean Rim.Our Company is attractively placedto benefit from these factors as ourAs a first step, we fast-tracked theAcknowledgmentproducts have demonstrated globalgrowth of star performers to undertakeOn behalf of the Company, we takequality and performance standards.larger organisational responsibilities.this opportunity to convey our sincereWe will continue to strengthen theappreciation to all shareholders andBusiness practicestechnical and engineering capabilitiesplace on record our gratitude toPhilosophy: Since inception, we havefor new product development in linecustomers, employees, Johnson Controlsadopted best-business practices, helpingwith dynamic customer aspirations. WeInc., our joint-venture partner, channelgrow the market space as opposed toare increasing the number of channelpartners, bankers and suppliers.merely focusing on increasing our marketpartners and widening the distributionshare. Despite economic and sectoralnetwork to strengthen our pan-Indiaslowdowns, our Company developedpresence.industry-defining solutions with extendedproduct performance guarantees helpinggrow the business every single year overthe decade.14AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13We will continue to leverage the richintellectual capital of Johnson ControlsWith warm regards,Inc. in the manufacture of automotiveThe management

Management team(Left to right): M Jagadish, Chief Operations Officer-ABD; K Suresh, Chief Financial Officer; Rajesh Jindal, Chief Marketing Officer-ABD;M M Venkata Krishna, Chief Operations Officer-IBD; Srinivasa Rao Ganga, Chief Marketing Officer-IBDDREAM.DELIVER.15

Economy at a glanceGlobal economy: Global gross domestic product (GDP) grew 3.2% in2012 against 3.9% in 2011 after having encountered another boutof turbulence in what was always expected to be a slow and bumpyrecovery. The key impediments were prolonged financial turmoil in theEurozone, instability in the US economy due to a fiscal cliff, disruptionof global oil supplies and slow investments in emerging markets.16AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13

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Management discussionand analysisAerial view of facilites at Karakambadi,TirupatiFollowing the 2012 deterioration inIndian economyglobal economic conditions, one expectsIndia’s economic growth decelerateda marginal economic rebound in 2013.for the second year in succession inGlobal GDP growth forecast stands at2012-13. It declined from 6.2% in3.5% in 2013 as trends suggest that2011-12 to 5% in 2012-13, thefactors decelerating global commerceslowest economic growth in a decade.are expected to wane. This growthThis decline was due to a sharper thanestimate is pivoted around the followingexpected deceleration in the servicespreconditions:sector, dismal performance by the Necessary policy measures areagricultural and industrial sectors andimplemented in time to avoid furtherunemployment remaining appreciablydeterioration in the financial issues inabove pre-crisis levels.EuropeIndia’s industrial output declined, A smooth fiscal adjustment in the USled mainly by a contraction in the A rebound in the growth momentumof emerging economiesBI projects baselineGDP growth of 5.7%in 2013-14R18AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13manufacturing, mining and capitalgoods sectors. The dampened industrialsentiment was largely due to variousThe World Bank however expects thefactors: sustained inflation, high interestworld economy to grow by 2.4% inrates, volatile currency fluctuation and2013.policy logjam.

Partially deregulated the oil and gassector (diesel pricing) to reduce subsidyburden.Current account deficit: India suffersfrom one of the highest current accountdeficits among large economies. Thefull-year current account deficit roseto 4.8% of GDP, or US 88 billion, upfrom US 78 billion during the previousfinancial year.Fiscal deficit: India’s fiscal deficit duringfiscal 2012-13 was 4.9 trillion orequivalent to 4.9% of the country’s GDP.The higher revenue mop-up moderatedthis to lower-than-the revised estimate of5.2% provided by the government in thefederal budget in February 2013.Economic growth estimatesfor 2013-14Economic Survey: The Indian economyis slated to grow between 6.1-6.7% inTo strengthen industrial growth, theinfrastructural projects and announcinggovernment announced important policySOPs for some infrastructure sub-sectorsdecisions: Used buffer stocks to moderate food Reduced interest rates by 125 basisinflationpoints from 8.50% in October 2011 to Introduced FDI in multi-brand retail,that the Indian economy is expectedaviation, insurance and broadcastingto grow at 6.0% in 2013-14 due to asectorsconsumption revival catalysed by an2013-14RBI projection: RBI projects baseline7.25% in May 2013 Revived the stressed infrastructureGDP growth of 5.7% in 2013-14CRISIL estimate: The agency indicatessector by fast-tracking largeacceleration in the growth of agriculturalGains in global growth will be moderate and unevenReal GDP2004-07122012f2013f2014fannual % change1086420-2ChinaIndiaBrazilMexicoSource: Bloomberg, BEA, Statistics Canada, Eurostat, Scotiabank Economics.U.S.CanadaEuro zoneForecasts at December 4, 2012DREAM.DELIVER.19

Management discussionand analysisView of Environmentalcontrol systemsInterest rate movement over the past 12 monthsGDP growth (%)At factor cost, constant (2004-05) prices9.38.69.39.68.68.46.26.78.27.8Advance estimate1st revised estimate2nd revised estimate5.08.07.67.4Apr 1212-1311-1210-1109-1008-0907-0806-077.2Source: Central Statistics Office, Ministry of Statistics & Programme ImplementationJul 12Oct 12Jan 13Apr 13Source www.tradingeconomics.com Reserve Bank of IndiaIndia’s automotive sector 135.08Production No. in V2009-103-W2010-11LCVM&HCVTractorCAGR for the last five years (2008-09 to 2012-13)Total: 11.6%, Car: 11.3%, UV: 18.4%, 3W: 10.9%, LCV: 16.8%, M&HCV: -1.1%, Tractor: 10.7%Source: SIAM20AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13

challenging for the Indian automobileindustry. The sector witnessed asustained slowdown on account ofhigher interest rates, rising fuel prices,weak infrastructure growth, lowconsumer confidence and decliningconsumption growth. The wideninggap between the cost of petrol anddiesel enhanced a preference for dieselplatforms.sector (predicated on a normalfor reliable, quick recharge and deepAutomotive replacement: Themonsoon), lower interest rates anddischarge capable batteries.automotive replacement market demandUPS: India’s economy wasremained strong, influenced by thechallenged by slow capital formationfollowing factors:and investments, which impacted A considerable addition of vehiclesinvestments in technology and variousto the existing population following ae-governance projects and, in turn,spurt in OE production over the recentaffected demand growth for UPSpast (post 2008-09 global economicbatteries. The replacement potential inmeltdown)the country’s UPS sector continued to be Realignment in the focus of smallencouraging due to a persistent powerplayers towards inverter batteriesshortage and imports becoming unviable Growing preference for brandedhigher governmental spending.Economic impact on businessTelecom: The Indian telecom sector ispassing through challenging times astelecom operators are experiencing profitpressure. The policy logjam on spectrumpricing and allocation, cancellation of2G licenses by the apex court and slowprogress in broadband rollout stallednetwork expansion and restricted anowing to changing business dynamics inimprovement in the tower occupancyproductsChina and a depreciating Indian rupee.ratio. As a result, the replacementdemand prevailed with a preference An attractive value proposition offeredAutomotive: The fiscal 2012-13 wasby organised industry playersIndia’s peak power Source: Central Electricity AuthorityDREAM.DELIVER.21

Industrialbattery division03 Distribution networkLargely a B2B model100 AQuA channel partnersfacilitate the reach for UPSbatteries across the country02 ProductsProduct portfolio offers capacitiesranging from 4.5 Ah to 5,000 Ahunder multiple brandsAmaron VoltTM(Telecom networks, data centres,power stations, oil and gas)01 OverviewCommenced operations in 1991to manufacture batteries for thetelecom, UPS back-up systems,railways and power utility sectorsManufacturing facility is ISO 9001and ISO 14001 accredited22AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13Power Stack (Telecom networks, data centres,power stations, oil and gas,Indian Railways)Quanta (UPS applications)TMPower Sleek(Wireless telecom network,UPS applications)04 CustomersKey customers include Indus Towers,Viom Networks, ATC, Bharti Infratel,Bharti Airtel, Vodafone, Aircel, BSNL,Idea Cellular, Indian Railways, APC,Emerson, Numeric, Delta, DB Powerand Schneider05 Niche features First to introduce VRLA batteriesfor telecom and rolling stockapplications in India Strategic supply partnership withleading telecom tower companiesand operators Well-balanced OE andreplacement mix in UPS sector

Automotivebattery division01 OverviewCommenced operations in 2000with technology from JohnsonControls Inc. USAManufacturing facility isQS 9000, ISO 14001 andTS 16949 accredited02 ProductsPassenger cars: Amaron Pro,Amaron Flo, Amaron Go,Amaron Black and Amaron Fresh03 Distribution networkAmaron network comprises 287franchised distributors, including21,000 plus retailers and 2,400plus service hubs-second largest inthe battery sector in IndiaPowerZone network comprises1,100 plus retail outlets forsemi-urban and rural presence First to introduce VRLAtwo-wheeler batteriesCommercial vehicles: Amaron Hiway Tractors: Amaron HarvestTwo-wheelers: Amaron Pro BikeRiderTMInverter: Amaron CurrentPowerZoneTM (For all the aboveapplications)05 Niche features First to introduce zeromaintenance four-wheeler batteries First to provide extended04 CustomersMajor OEM customers: Ford,Maruti Suzuki, Hyundai, Honda,M&M, Tata, Volvo Eicher, DaimlerBenz, Tafe Tractors, Isuzu Motorsamong otherswarranties to consumers First supplier of batteries toM&M for micro hybrid vehiclesMajor private label customers:Bosch, Lucas, Cummins and ACDelcoDominant player in the aftermarketsector for four-wheeler andtwo-wheeler batteriesDREAM.DELIVER.23

Capacity of Large VRLAbatteries (million Ahper annum)* Capacity reduction from 900million Ah to 760 million Ah dueto a change in the product mixCapacity of MediumVRLA batteries (millionunits per annum)Largest supplier ofbatteries to the telecomand UPS sectors24AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13

Contribution to theCompany’s revenuein 2012-13Share of the UPSmarketShare of the telecommarketDREAM.DELIVER.25

Highlights, 2012-13 Launched the Quick Recharge SeriesKey initiatives, 2012-13(QRS) batteries, primarily catering to Plant operated at 90% plus capacitythe requirements of the telecom towerutilisationapplication; the product received a De-bottlenecked the assembly andheartening responseproduction‘Excellence in SME (Subject Matter Created separate grid casting linesExpertise) Services’ from Indus Towersfor Medium and Large VRLA batteries,Limitedwhich enhanced productivity Received an award as the ‘Most Completed more than 118 QCCPreferred Battery Brand’ in the Telecomprojects at the shop-floor level, whichsegment by Frost & Sullivanimproved operating efficiencies Received a 3-Star award in Reduced cycle time in the formationInternational Convention on Qualityarea, which optimised energyCirclesconsumption46464232March 31, 2013March 31, 201332March 31, 2012March 31, 201232March 31, 2011March 31, 201132March 31, 2010March 31, 201027UPS26AMARA RAJA BATTERIES LIMITEDANNUAL REPORT 2012-13formation areas, which increased Received the gold award forMarket share (%)TelecomIn-plant measuresProduction-pasting section

Tightened process parameters and Undertook activities to improve thequality vigilance to operate withinCompany’s presence in the IT and ITeSstringent tolerances, which reducedsectorsin-process rejections Initiated training for marketing, Shifted the production of sub-300 Ahengineering and service staff of thebattery variants from the MVRLA tochannel partners for providing superiorLVRLA assembly lines, which improvedservice to the UPS OEMs and users inproduct qualityreplacement sectorOn-field initiatives Conducted an extensive survey of the Established strong business relationsIndian market for mapping emergingwith key telecom tower companiesopportunity pockets for UPS batteriesand operators for end-to-end solutionsfor their stand-by power requirements(battery, logistics, installation,maintenance and disposal) which furtherstrengthened business relationsmara Raja receiveda 3-Star award inInternational Convention onQuality CirclesADREAM.DELIVER.27

Sectoral scenario andAmara Raja’s competitive positionTelecom businessAmara Raja’s positionUPS businessAmara Raja’s positionPurchases are largely forThe Company has created aUnreliable power suppliesMaximising throughput,replacement as new servicehigh quality product basketacross India are increasingimproving product quality,roll-outs are minimal, thusthat meets the completea reliance on standbywidening reach andmaking demand morerequirements of all telecompower sources, namely UPSenhancing the overallstable and predictable.tower companies andsolutions.business quality. Quanta emerged as the preferredbatteries emerged as thevendor.preferred brand in theUPS sector. We are alsodoubling capacities.Huge power shortage andQuick Recharge batteriesImports have reduced dueFortifying the replacementfrequent power outagesare designed in keepingto the changing businessmarket business byprevent complete batterywith this harsh operatingenvironment in China andexpanding our productrecharge.environment.the depreciating Indianrange.rupee.Soaring diesel prices

Quanta and Power SleekTM . Market share z 46% market share in telecom sector z 32% market share in UPS sector z 28% market share in automotive four-wheeler OEM market . Book value per share ( )* Book value per share growth 28.70% Over 2011-12 16.23% CAGR over 5 years 31.83 09-10 10-11 48.21 11-12