Amara Raja Energy & Mobility Q2 FY27 Earnings Call: Board Clears Rs. 2,320 Cr Cell Gigafactory, Input Inflation Weighs on Margins (ARE&M)

Amara Raja Energy & Mobility Ltd held its Q2 FY27 earnings call on November 02, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Solid Top-Line Growth, Margin Compression on Costs and New Energy Spend

• Rs.4,108 Cr consolidated revenue — lead-acid (~94% of revenue) grew ~18% YoY; new energy grew >30% YoY to ~Rs.232 Cr in Q2 FY 2026-2027.
• 8.8% consolidated EBITDA margin — down ~1.3%, driven by additional new energy costs toward product development and fixed costs of the Giga 1 and West plants.
• ~10.1% standalone EBITDA margin — stable QoQ but impacted YoY by elevated material costs, strategic initiative spending (Amaron Assist, factory of the future) and a higher OEM mix; strategic spending drove ~1% of the moderation.
• OEM volumes up ~17% YoY in 4W and >30% in 2W — domestic aftermarket volumes grew ~6% YoY in both 4W and 2W; home energy (tubular + home UPS) grew >50% YoY.
• International revenue declined ~20% YoY — on Middle East volume drops, though improved QoQ; management expects recovery in subsequent quarters.
• Telecom share held above 60% — lead-acid telecom volumes spiked >30% YoY on a one-time basis due to delays in yearly lithium telecom pack negotiations with OEMs; lithium-ion telecom packs grew ~15% YoY; UPS volumes grew ~8%.

Severe Input Inflation; Pass-Through Lagging the Cost Curve

• Sulfuric acid up ~4.3x — prices rose from ~Rs.10/kg to Rs.43-44/kg over the past 6-7 months on sulfur cost increases; separator prices are up on rupee depreciation and domestic lead has also become expensive.
• Cumulative price hikes ~5% till H1 FY 2026-2027 — ~2% taken in Q1 FY 2026-2027 and an additional ~2% in Q2 FY 2026-2027; expected to offset only a portion of cost pressures.
• Aftermarket pass-through lags 2-3 months — rate hikes secured from some two-wheeler OEM customers; aftermarket increases pass through QoQ with a lag once costs stabilize, while immediate B2B pass-through remains difficult amid continuous input inflation.
• Freight at 7-8x on battery exports — management said its sulfuric acid procurement costs continue to rise despite price cuts by some Middle East/Africa sulfur producers, citing prohibitively expensive logistics; it is waiting for normalization.
• Recycling benefits not yet in gross margins — lead scrap imports into India have stopped due to recent geopolitical issues, sharply increasing local RML and scrap prices and leaving recyclers without optimum raw material; a 3-4% recovery improvement vs other smelters could yield ~0.3-0.4% material-cost benefit to gross margin (period unspecified).

BESS Plant Nearing Launch; Cell Roadmap Progressing on NMC

• BESS commercial launch in Q4 FY 2026-2027 — factory acceptance tests completed; trial runs expected in December (Q3 FY 2026-2027), with commercial operations most likely in January-February; the plant was built in ~12 months from construction commencement.
• 5 GWh first-phase BESS ramp — management estimates 50-60% utilization in FY 2027-2028, ramping to full utilization by FY 2028-2029; ~30% of first-phase capacity could cater to export markets (period unspecified), subject to destination-market conditions.
• BESS economics framed at $90-100 per kWh for FY28 — full utilization of the 5 GWh capacity would yield "very sizable revenue"; operating margin could be ~6-7%, mimicking the assembly-led pack business, with low capex intensity making it ROCE-accretive.
• ~2,000 NMC B-sample cells produced — under internal testing at the CQP; handover to OEMs expected potentially within the next couple of months (~Q3 FY 2026-2027), subject to satisfactory internal test results; LFP cells remain at A-sample stage with no timeline given.
• Cell strategy intact — a dedicated team of 200-250 people is working on cell development; once NMC lines are running, cell supply will begin with NMC followed by LFP cells for mobility (timeline unspecified); management stated the lithium journey "will not stop at packs" and the EV opportunity "cannot be missed."
• 10-15% pack cost disadvantage vs China — at the container level as of FY 2026-2027, given ~70% imported cells; management expects government initiatives like ALBM and other protection measures to help the domestic supply chain and believes the gap can be mitigated with some level of government support.

High Utilization, Throughput-Led Capacity Strategy

• 8-10% lead-acid growth "cannot be ruled out" — management sees no reason for growth below 10% in the medium term (includes OEM/SLI); combined aftermarket guided at 6-8% over the next 5 years, with two-wheeler aftermarket possibly at 8-9% given EV penetration in scooters; OEM-side headwinds flagged for the near future.
• 2W plants at 95-100% utilization in FY 2026-2027 — 4W at 80-85% on lower international demand, leaving clear 4W headroom; management does not expect 4W, 2W, tubular or VRLA facilities to be underutilized for at least the next 5-6 years.
• Throughput over new plants — the company is spending to improve throughput from existing plants, may debottleneck some lines and sees the possibility of adding one or two four-wheeler lines; even in a very conservative scenario, no reduction in lead-acid utilization is expected for 6-7 years.
• Home energy share gains — HUPS grew substantially in Q1 and Q2 FY 2026-2027; management believes it added at least 3-4% share on top of an earlier base of 10-15% as of Q2 FY 2026-2027; 10% growth "cannot be ruled out" over the medium term.
• Telecom lithium migration "almost complete" — some lead-acid demand possible over the next couple of years, thereafter a pure lithium play; lead-acid UPS for data centers can still grow 6-7% in the medium term despite rising lithium penetration.
• International recovery potential — currently facing geopolitical and supply-chain headwinds, but management "wouldn't be surprised" by growth beyond 15% once uncertainties stabilize (period unspecified).

Heavy Investment Phase Weighs on ROCE; Recovery Seen Over 2-3 Years

• ~Rs.2,100 Cr invested in new energy, ~Rs.700 Cr in recycling — cumulative as of Q2 FY 2026-2027 per MD Jayadev Galla, driving the current downward ROCE/ROE trajectory.
• ROCE recovery in 2-3 years — management expects improvement by roughly FY 2028-2029–FY 2029-2030, contingent on cell capacity ramp-up; the MD's optimistic estimate is a platform for improved profitability and return ratios about 3 years out (~FY 2029-2030).
• Scale threshold of 8-10 GWh — optimum profitability ratios on new energy expected only at that scale; management is looking at a next cell capacity of 5 GWh and NMC capacity of 7 GWh, to be ramped over the next 2-3 years (~FY 2028-2029–FY 2029-2030).
• Board approved ~Rs.2,320 Cr prismatic cell gigafactory capex — LFP-based, ~5 GWh, initially for stationary and later mobility applications, to be completed within the next 30 months.
• FY 2026-2027 capex guided at ~Rs.2,200 Cr — ~Rs.1,600 Cr for new energy (including payments toward the new cell and pack plants); Rs.800 Cr already spent in H1 FY 2026-2027, of which Rs.500 Cr went to new energy.
• Margin upside of at least 1.5% — possible from current levels (period unspecified) by passing on unabsorbed raw-material costs and adding the recycling piece, contingent on restoring the high-margin international business where ~20% degrowth is hurting the bottom line; a further ~2% (optimistic 2.5%) is possible once throughput initiatives conclude by end of FY 2026-2027 and acid, polymer and sulfur prices normalize.
• Lead-acid ROCE of 20-23% historically — including 20-21% in FY24 and FY25; FY26 adjusted ROCE (excluding new energy investments) was around 18%; management sees the possibility of restoring ROCEs beyond 20% once current lead-acid cost challenges are resolved (period unspecified).

Long-Term Conviction, But No Near-Term Commitments on Returns

• Analyst pushback on shareholder value — Meet Doshi (Professional Capital) flagged that over the last 10 years revenue/profit growth has not reflected in shareholder value, with EPS not growing more than 100% in a decade, and asked for management's confidence on sales at least doubling after 2-3 years (~FY 2029-2030) and its EPS growth expectation for FY 2027-2028–FY 2029-2030.
• No specific EPS or sales commitments — management described the new energy build-out as a long-term investment given EVs are "here to stay," expressed high confidence the journey will pay off, and emphasized a capability-first approach with much less capex spent than many other players; it committed to no specific numbers for FY 2027-2028–FY 2029-2030.
• New energy losses funded by the core — losses are driven by product development (R&D) costs and depreciation on developmental labs, with the cell plant not yet operational; these are being compensated by the profitable PAT business, with telecom batteries operating at ~6-7% margin per management's earlier remarks.
• Amaron Assist subsidiary approved — the B2C automotive services pilot launched in Q1 FY 2026-2027 in Hyderabad; based on pilot response, the Board approved a wholly owned subsidiary with gradual scale-up to new locations; initial-period cash burn impacted Q2 FY 2026-2027 margins.
• Standalone margin accretion from Q3 FY 2026-2027 — moving Amaron Assist into a subsidiary should improve standalone margins, but accretion will be less than 1%; the ~1% figure under discussion combines the divestiture and spend on building manufacturing capabilities.
• Competitive intensity in BESS dismissed — despite several players announcing capacities, management expects demand to far outweigh supply with no margin pressure, noting cells (~70% of cost) will remain imported; planned backward integration into cell manufacturing is expected to help it "play the long game."