Amara Raja Energy and Mobility: What next after the huge rally?
The company’s partnership with Gotion High-Tech Co offers no immediate to medium-term benefit.
Highlights
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- Partnership with Gotion High-Tech Co Ltd aimed at getting new technology for EV battery manufacturing
- Trades at elevated levels, seize the opportunity to lock in gains
The stock price of Amara Raja Energy and Mobility (AREM; CMP: Rs 1,663.15; M Cap: Rs 30,440 crore, Rating: Underweight) surged more than 20 percent in the last four trading days, following the announcement of a partnership with GIB EnergyX Slovakia, a subsidiary of Chinese battery manufacturer Gotion High-Tech Co Ltd, to license the LFP battery technology in multiple form factors.
This partnership has captured the attention of investors, triggering questions about the potential implication of their investment strategies.
The key question in investors’ minds is about the strategic significance of this partnership and its potential impact on AREM’s financial performance in the near to medium term.
Is this collaboration poised to deliver tangible benefits that will translate into improved financial metrics for the company in the foreseeable future? Or, is it primarily a forward-looking initiative with limited immediate impact on financial outcomes?
Why AREM got interested in Gotion Hi-tech
Gotion Hi-tech, a Chinese battery manufacturer, specialises in lithium-ion batteries with LFP (lithium iron phosphate) and NMC (N-methyl pyrrolidone) form factors.
The company holds a 2.2 percent share of the global EV battery market. Supported by Volkswagen, Gotion Hi-tech’s major clients include Geely, Chery, BAIC, Leap Motors, Chana, VinFast and others.
Collaborating with Gotion Hi-tech will provide AREM access to patented technology, enabling the establishment of its gigafactory facilities with advanced technologies. Additionally, this partnership will grant AREM access to Gotion Hi-tech’s major clients.
Big opportunity for AREM?
AREM, one of the dominant forces in traditional battery supply, has been diligently investing in Li-ion battery technology to cater to the growing EV sector. The recent partnership heralds a significant step towards localising EV battery production. Over the long term, the partnership is anticipated to yield positive results.
AREM has not yet secured orders from many passenger car (PV) original equipment manufacturers (OEMs) as many major EV OEMs have already partnered with other battery manufacturers.
Since OEMs often work with multiple suppliers, it positions AREM to benefit from its latest partnership, giving it a technological edge.
However, substantial investments will be required to establish an EV battery factory, and this could impact the company’s return ratio.
In terms of numbers, AREM’s earnings per share (EPS) is expected to grow 13 percent annually until FY26e, positioning the stock at a relatively high multiple of 25.6 times FY26 projected earnings.
When compared with leading global peers in the EV battery manufacturing domain, AREM’s valuation appears elevated. Therefore, we recommend investors to seize this opportunity to realise some gains and consider re-entering the stock when valuations align more comfortably.
Bymoneycontrol.com
