The contraction in demand over the last six weeks is only a shift in purchase and not a case of evaporating offtake. "At the end of the day, you can't forever postpone the purchase or replacement of a battery that has reached its end of life cycle. Once the channel gets activated, and retail markets are open, we will see some of the replacement demand reappearing," he added.
The company, which has a two-third market share in the telecom battery segment, has been running limited operations to serve the telecom sector during the lockdown period. It has also put new standard operating procedures in place to ensure social distancing and health check up of its employees with the support of digital technologies.
Low OEM production will suppress battery demand over the medium to long term. This is because lower new vehicle sales, and vehicle replacement demand over the two- or three-year cycle will be impacted to the extent. It is also pertinent to note the changes in buying patterns post Covid-19, with China already seeing more personal vehicle purchase from people averse to travelling in shared or public transport. This is likely to have a positive impact on fresh vehicle sales.
During the current fiscal year, the share of unorganised players may slightly increase as customers in the commercial segment consisting of taxis, CVs, tractors and three-wheelers may shift towards cheaper products due to the slowdown in economic activity and the consequent need to conserve cash. However, over the medium term, the shift toward organised segment is expected to continue. The growth in used car sales will also boost the replacement of batteries.
Emkay Global report states that the LAB segment’s revenue should see 8-10 per cent CAGR over FY20-25E, led by stable growth in the aftermarket segment, as the service life of batteries are reducing due to higher number of starts per day and an increase in electronic content in vehicles; pick-up in OEM segment from FY22E onward, driven by low base, pent-up demand and gradual improvement in economic activity; and growth in industrial segments, led by UPS, e-rickshaw, solar and traction batteries. Exide and Amara Raja dominate the LAB industry with 80 per cent market share in the organised replacement market. As EV penetration is expected to be gradual, the LAB industry is expected to peak only in FY40, it says.
It added that battery maker Exide plans to shift to a two-tier distribution model as it will lead to better reach and reduction in costs. "Costs are expected to reduce due to the reduction in storage depots, manpower, freight costs and working capital needs. However, during the initial period of transition, there could be a shift of some of EXIDE’s retailers from exclusive to multi-brand outlets, resulting in some market share losses. Overall, we expect replacement revenue CAGR of 10 per cent for EXIDE and 11 per cent for AMRJ over FY20-22E," it added.
Exide did not respond to the request for its comments on the trends.