Amara Raja targets BESS expansion as lithium-ion returns remain uncertain

Investment View and Valuation

Motilal Oswal Financial Services (MOFSL) retained its Neutral rating on Amara Raja in its July 30, 2026 company update. The broker’s central view is that battery energy storage systems (BESS) offer a substantial future growth opportunity for the company’s lithium-ion business, but near-term lead-acid battery margins face input-cost pressure and lithium-ion returns remain uncertain.

At the report CMP of Rs 908, MOFSL considered the stock fairly valued at 21.3 times FY27E EPS and 17.3 times FY28E EPS. Its Rs 878 target price is based on 15 times standalone FY28E EPS plus Rs 92 per share for the New Energy business investment.

Giga Corridor and Lithium-Ion Expansion

MOFSL visited Amara Raja’s Giga Corridor at Divitipally in Telangana, which is intended to become an integrated lithium-ion battery manufacturing ecosystem. The customer-qualification plant is already operating, and sample-cell deliveries to original equipment manufacturers for testing and qualification are expected to start in August 2026.

The giga cell factory is expected to begin Phase 1 operations in Q2 CY27 with 2 GWh of NMC chemistry capacity. Further capacity is planned in phases through FY30, covering both NMC and LFP chemistries. Amara Raja has partnerships with Ather Energy and Piaggio Vehicles for future lithium-ion solutions. Management believes the lithium-ion giga factory could generate 10–11 per cent EBITDA margins once it reaches an 8–10 GWh scale.

BESS: A Key Growth Opportunity

BESS is a principal growth focus for Amara Raja. The report expects India’s renewable-energy demand to reach 500 GW by 2030, while the BESS market could expand to 25–30 GWh by 2031 from around 1 GWh currently.

Amara Raja is building a BESS integration facility for commercial and industrial as well as grid applications. The facility is scheduled to begin with 5 GWh of capacity by the end of CY26 and eventually scale to 10 GWh. The initial 5 GWh facility entails an investment of Rs 280 crore and is expected to generate an initial margin of 6–7 per cent.

The company plans FY27 capex of Rs 1,500–1,700 crore, of which only Rs 400 crore is allocated to the lead-acid battery business.

Lead-Acid Battery Business Outlook

MOFSL sees improving demand conditions for the lead-acid battery business following GST rate cuts. It expects healthy automotive replacement demand after steady industry growth over the prior three years.

The industrial business excluding telecom should benefit from rising data-centre backup-power needs, while a revival in thermal power generation could support incremental demand for the next five to six years. The broker also notes opportunities in home-energy solutions and overseas lead-acid batteries, with export contribution expected to reach 25–30 per cent over the next five years.

Key Lithium-Ion Risks

MOFSL remains cautious on the lithium-ion venture despite market optimism. It cites a Rs 9,500 crore, 10-year capex programme for eventual 16 GWh cell capacity and expects external funding may be necessary after the initial years, although internal accruals can fund the initial phase.

• Limited addressable demand, as domestic passenger-vehicle original equipment manufacturers have manufacturing plans or existing alliances.
• Greenfield execution challenges and a potentially lengthy testing and validation period.
• Low-margin cell manufacturing, which may dilute returns.
• Uncertainty over the long-term sustainability of lithium-ion technology.

MOFSL Financial Estimates