Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Enterprising India 2 - Excerpts from IIFL’s interview
with Jayadev Galla, MD, Amara Raja Batteries
Jayadev Galla knows a thing or two about batteries, and he wants to
make sure they don’t just sit there under the hood, unsung and
uncelebrated. Batteries are a “low–involvement” category, but Mr
Galla’s Amara Raja is changing that through its witty advertising,
technological innovations and smart distribution. Amara Raja has
done what some of the largest global battery players were unable to
do—shake off Exide’s monopoly to garner 25% market share in the
automotive battery business. The result: Amara Raja’s revenues
have grown at 40% annually and profits at 80% annually over the
last five years.
Mr Galla joined his father’s firm, Amara Raja Batteries, in 1992, after
completing his studies in the US and learning the ropes of the
battery business through a two-year stint with GNB Technologies
(technology partner in his father’s firm). He was instrumental in
getting Johnson Controls on board, and masterminded the
company’s entry into the automotive business.
He believes Amara Raja can grow annual revenues to US$1bn in the
next five years, as growth in the automotive segment will be
supplemented by growth in UPS, two-wheelers (an area the
company has recently entered) and entry into home inverters.
You started with the telecom segment; any particular reason?
We pioneered VRLA technology in the country. We saw telecom as a
segment with huge volumes; it was also a segment where
internationally it was proven that VRLA batteries were better suited.
So we started with the telecom segment, we introduced this system
to the Department of Telecommunications (DoT). Apart from dealing
with the bureaucratic mindset, we had to provide a lot of service and
technical capabilities to ensure the success of the product. We
worked with them in defining the specifications for these batteries,
testing samples etc, before they came out with tenders.
How did the JV with Johnson Controls materialise?
We had grown to about Rs2 billion in revenues on the industrial side,
and with growth stabilising, we were getting restless. At the same
time, we saw Exide entering the industrial VRLA space, so we made
the decision that to continue growing, we will have to enter the
automotive space. We looked at various partners and decided that
Johnson Controls, which was the leader in the automotive space, was
the best partner for us. Having worked with a technology-licensing
arrangement with GNB, we were clear that we needed somebody
who was willing to look at this as an owner, and hence we got them
as an equity partner in our company.
What is the arrangement with Johnson Controls for
technology; do you pay them a royalty or a one-time fee?
There is no royalty or a long-term fee. On the industrial side of the
business, we were big players even before their entry, so there is no
royalty; but on the automotive side, we had some royalty for a
period, not a large amount (there is no royalty now). They have an
equal representation on our board; we have two family members,
two members from JCI and five independent directors. They review
all inter-group transactions on a monthly basis to ensure that they
are fair.
How did you break Exide’s dominance in the Indian market?
We realised that there were a number of players who came in with
better technology than Exide but still could not succeed because they
failed in distribution. When I say distribution I mean collections—
people were not able to collect money, as Exide would start giving
huge credits to these distributors, who would demand the same from
the new entrants, who were not able to do that. So we decided to
adopt a different distribution strategy. Exide has some 4,500 direct
dealers and about 3,000 indirect dealers, so they have 7,500
dealers. But we have only 200 franchisees who service 18,000
retailers. On our part, we deal with only 200 franchisees who give
credit in the retail market, and that is how we were able to survive.
You were the first player to really focus on building a brand.
Again, we knew Exide’s other big strength was its brand, and we
needed a brand to compete against a brand. It may take us some
more years to become a stronger brand than Exide, but our brand
recall right now is pretty good.
Given that margins in the replacement market are so much
higher, why do the OEM business at all?
Globally, the OEM business has lower margins and the difference in
India is much more stark and similar to Japan. This is not surprising,
given the influence of Japanese manufacturers in India. But given
that this is a low-involvement category, the replacement buyer
usually goes with the battery that is already under the hood, so one
has to be present in the OEM business as well. This buying behaviour
is gradually declining as more and more brands have started to
advertise.
What is your outlook on the telecom segment?
The telecom-batteries business globally is a cyclical business—and in
India, the cycle is pretty close to its bottom. Demand should recover
on upgradation in technology and replacement of old batteries. One
big reason for this slump has been the sharing of telecom
infrastructure, but with most of that efficiency being realised, I
believe the worst is behind us, and demand should recover soon.
Margins have to improve because current margin levels are just not
sustainable. We are also looking at making some of our telecom
capacity more flexible so that it can be used for other segments.
What’s your strategy against the unorganised segment?
Our strategy has always been to launch products that nobody else
has and thereby create a unique positioning in the market. To
compete against the unorganised segment, we have launched
Powerzone outlets; these are not franchises, but exclusive retail
outlets. We have opened around 700 such outlets in tier II and tier
III towns, and we plan to expand these to 1,200 outlets by 2012. We
save on the franchisee margins in this model and that helps us
compete on price against the unorganised segment.
Where do you see the company in the next five years?
I think India itself is a huge growth story, so we would like to expand
our footprint in India both in terms of getting into new types of
batteries and new applications, but we would also like to expand our
global footprint. We would then like to benchmark ourselves against
a different set of peers rather than benchmarking ourselves against
only the domestic players. I would like to scale the US$1bn revenue
mark in the next five years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
with Jayadev Galla, MD, Amara Raja Batteries
Jayadev Galla knows a thing or two about batteries, and he wants to
make sure they don’t just sit there under the hood, unsung and
uncelebrated. Batteries are a “low–involvement” category, but Mr
Galla’s Amara Raja is changing that through its witty advertising,
technological innovations and smart distribution. Amara Raja has
done what some of the largest global battery players were unable to
do—shake off Exide’s monopoly to garner 25% market share in the
automotive battery business. The result: Amara Raja’s revenues
have grown at 40% annually and profits at 80% annually over the
last five years.
Mr Galla joined his father’s firm, Amara Raja Batteries, in 1992, after
completing his studies in the US and learning the ropes of the
battery business through a two-year stint with GNB Technologies
(technology partner in his father’s firm). He was instrumental in
getting Johnson Controls on board, and masterminded the
company’s entry into the automotive business.
He believes Amara Raja can grow annual revenues to US$1bn in the
next five years, as growth in the automotive segment will be
supplemented by growth in UPS, two-wheelers (an area the
company has recently entered) and entry into home inverters.
You started with the telecom segment; any particular reason?
We pioneered VRLA technology in the country. We saw telecom as a
segment with huge volumes; it was also a segment where
internationally it was proven that VRLA batteries were better suited.
So we started with the telecom segment, we introduced this system
to the Department of Telecommunications (DoT). Apart from dealing
with the bureaucratic mindset, we had to provide a lot of service and
technical capabilities to ensure the success of the product. We
worked with them in defining the specifications for these batteries,
testing samples etc, before they came out with tenders.
How did the JV with Johnson Controls materialise?
We had grown to about Rs2 billion in revenues on the industrial side,
and with growth stabilising, we were getting restless. At the same
time, we saw Exide entering the industrial VRLA space, so we made
the decision that to continue growing, we will have to enter the
automotive space. We looked at various partners and decided that
Johnson Controls, which was the leader in the automotive space, was
the best partner for us. Having worked with a technology-licensing
arrangement with GNB, we were clear that we needed somebody
who was willing to look at this as an owner, and hence we got them
as an equity partner in our company.
What is the arrangement with Johnson Controls for
technology; do you pay them a royalty or a one-time fee?
There is no royalty or a long-term fee. On the industrial side of the
business, we were big players even before their entry, so there is no
royalty; but on the automotive side, we had some royalty for a
period, not a large amount (there is no royalty now). They have an
equal representation on our board; we have two family members,
two members from JCI and five independent directors. They review
all inter-group transactions on a monthly basis to ensure that they
are fair.
How did you break Exide’s dominance in the Indian market?
We realised that there were a number of players who came in with
better technology than Exide but still could not succeed because they
failed in distribution. When I say distribution I mean collections—
people were not able to collect money, as Exide would start giving
huge credits to these distributors, who would demand the same from
the new entrants, who were not able to do that. So we decided to
adopt a different distribution strategy. Exide has some 4,500 direct
dealers and about 3,000 indirect dealers, so they have 7,500
dealers. But we have only 200 franchisees who service 18,000
retailers. On our part, we deal with only 200 franchisees who give
credit in the retail market, and that is how we were able to survive.
You were the first player to really focus on building a brand.
Again, we knew Exide’s other big strength was its brand, and we
needed a brand to compete against a brand. It may take us some
more years to become a stronger brand than Exide, but our brand
recall right now is pretty good.
Given that margins in the replacement market are so much
higher, why do the OEM business at all?
Globally, the OEM business has lower margins and the difference in
India is much more stark and similar to Japan. This is not surprising,
given the influence of Japanese manufacturers in India. But given
that this is a low-involvement category, the replacement buyer
usually goes with the battery that is already under the hood, so one
has to be present in the OEM business as well. This buying behaviour
is gradually declining as more and more brands have started to
advertise.
What is your outlook on the telecom segment?
The telecom-batteries business globally is a cyclical business—and in
India, the cycle is pretty close to its bottom. Demand should recover
on upgradation in technology and replacement of old batteries. One
big reason for this slump has been the sharing of telecom
infrastructure, but with most of that efficiency being realised, I
believe the worst is behind us, and demand should recover soon.
Margins have to improve because current margin levels are just not
sustainable. We are also looking at making some of our telecom
capacity more flexible so that it can be used for other segments.
What’s your strategy against the unorganised segment?
Our strategy has always been to launch products that nobody else
has and thereby create a unique positioning in the market. To
compete against the unorganised segment, we have launched
Powerzone outlets; these are not franchises, but exclusive retail
outlets. We have opened around 700 such outlets in tier II and tier
III towns, and we plan to expand these to 1,200 outlets by 2012. We
save on the franchisee margins in this model and that helps us
compete on price against the unorganised segment.
Where do you see the company in the next five years?
I think India itself is a huge growth story, so we would like to expand
our footprint in India both in terms of getting into new types of
batteries and new applications, but we would also like to expand our
global footprint. We would then like to benchmark ourselves against
a different set of peers rather than benchmarking ourselves against
only the domestic players. I would like to scale the US$1bn revenue
mark in the next five years.
No comments:
Post a Comment