Battery scrips on a roll

Battery stocks have largely outperformed the benchmark Bombay Stock Exchange's Sensex over the past month despite the price of the key input, lead, remaining strong on the London Metal Exchange.

Analysts said the stocks have remained steady due to the steps taken by battery manufacturers to move up the value chain in terms of higher value battery products offered and diversifying their revenue stream in the non-battery product segment in a bid to improve their operating profit margins.

As a result, the Amara Raja Batteries' stock has gained nearly 13.5 per cent over the past one month compared to a 2 per cent fall in the Sensex.

Other stocks such as Eveready Industries have gained 68 per cent during this period, while Exide Industries fell 2 per cent. This strong investor interest for battery stocks has come at a time when lead is trading at $3,045 a tonne on the LME.

The average lead price in the September 2007 quarter was $3,140.9 a tonne on the LME compared with $1,189.4 a tonne in the year-ago period. For a typical battery maker, lead as a percentage of net sales typically accounts for 60 - 63 per cent.

To offset the tougher operating environment, players like Eveready are looking to strength its presence in the non-battery business via potential acquisitions.

The company's current product portfolio includes batteries, packet tea, mosquito coils, CFL lamps and dishwashing cakes. It is on the lookout for an acquisition in the non-battery and tea business, which would help strengthen its product profile.

On the other hand, Amara Raja Batteries will include higher margin battery product segments like the two-wheeler industry. Amara Raja derives a significant portion of its revenues from supplies of battery products to segments like railways and telecom.