KAA Advisors

Recommendations to the
esteemed Board of Directors of
Indraprastha Gas Limited

Aakash Kataria | Mohd Aksam | Nikki Arora

18th August, 2023 | Asia Investment & Banking Conference (AIBC) | 2022

© Kataria Aksam Arora Advisors LLC

Table of Contents
I. Executive Summary 1

II. Overview 2-7

i. Indraprastha Gas Limited 2-3
ii. Competition Landscape 4
iii. Industry Overview 5-7

III. Potential Targets 8-10

i. Greaves Cotton Limited 8
ii. Exide Industries Limited 9
iii. Amara Raja Batteries Limited 10

IV. Strategic Recommendation 11-14

i. Comparison of potential targets 11
ii. In depth about the target 12-13
iii. Synergies 14

V. Financial Analysis 15-19

i. Valuation Summary 15-17
ii. Transaction Structure 18
iii. Merger Analysis 19

VI. Conclusion 20

i
E
X IGL is best positioned to strengthen its foothold in the electric energy
E
C space by acquiring a 55% strategic stake in Amara Raja Batteries Ltd.
U
T
I
V Current Scenario and Future Outlook Potential Target and Strategic Recommendation
E

S
U
M
M
A
R
Y

 IGL is currently the 4th largest player in CGD space in Natural Gas  Amara Raja Batteries Ltd (ARBL) is a conservatively priced market-
segment after Petronet with a Market Capitalization of >25,000 crores leader with a PE ratio of 16.9x compared to 30.1x of close competitors

 With 100% of its business in the CNG and PNG space, 27.6% and  According to our analysis it is underpriced by an average of 63% w.r.t
72.4% from CNG and PNG respectively, IGL is in a position to diversify CMP and 6.4% w.r.t offer price

 IGL has recently ventured into EV charging stations with 50 in place –
showing its intent to become the first-mover in the EV charging space
 Being in a consolidated market and with recent horizontal investments
in CUGL and MNGL and with cash parked in market investments, IGL
is in a good position to diversify its business into other energy markets
 while a great player in the batteries market - is significantly
diversified, a bigger fish to capture at a market cap of ~13,500 crores,
and above all pricier and behind ARBL in its Li-on battery initiatives
 is a largely diversified engines manufacturer with only
profitable arm in EV retail offering little strategic advantage

1
 Having recovered from the pandemic with promising growth rates, IGL’s
C
O
M
P current investments can yield more by obtaining a strategic ownership
A
N Revenues show stable growth over the years, strong recovery Key Metrics Values in crores, ₹
Y has been witnessed post the pandemic at 55.6% from FY21
Revenue 8,699.8
Revenue and Net Margin trend, values in ₹ crores
Market Capitalization - 08/08/2022 25,120
O
V 10,000 20.00% Cash and Cash Equivalents 1,361.6
11.2%
E Short-term investments 1,717.7
R 8,000 P/E 22.9
V 15.00%
P/B 2.8
I
6,000 Credit Rating (ICRA) AAA
E
10.00%
W Majority of IGL’s revenue comes from the CNG segment and
4,000
IGL sources its gas from government as well as open market
5.00%
2,000

Compressed Non-APM
Natural Gas 27.60%
0 0.00% 42.00% 36.00%
RLNG
FY18 FY19 FY20 FY21 FY22
Piped Natural 72.40%
APM
Gas
22.00%
 Strong growth Fall in demand  Recent recovery
fuelled by especially in the  Highest YoY growth
increasing CNG CNG segment in the CNG segment  Although CNG is the majority segment, and both the segments reflect healthy
& PNG demand due to lower (36.11%) as the CAGR of 7.8% and 11.69% for CNG and PNG respectively – PNG is a better driver
 Govt. initiatives mobility as a mobility sector is  36% of gas sourcing is through Non-APM significantly exposing IGL to volatility in
in the gas sector result of lockdown bouncing back international prices of Natural Gas

Source: KAA Advisors Proprietary Analysis, National Stock Exchange, Annual Report, Quarterly Report, Company Website

2
C
O As natural gas prices rise and continue to stay volatile, IGL should
M
P leverage its recent acquisitions in the CGD space and invest elsewhere
A
N Natural Gas prices have been volatile with a mean of $3.88 and Other threats like depleting natural gas reserves & reducing price
Y a staggering standard deviation of $1.29 for the last 10 years gap between CNG and diesel calls for a diversification strategy
US Natural Gas Futures, in $ Depleting Natural Gas
O
10 Natural gas reserves to production ratio worldwide, values in years
V
This recent increase in natural gas
E 9
prices has been fuelled primarily by the 2016 52.53  It is expected that coal and
R 8 Russian-Ukraine conflict natural gas will last until 2060
V 2017 52.6
 The consumption of natural gas
7
I 2018 50.9 grew by 4.6% last year
E 6 2019 49.8  The rising demand and
W depleting supply are expected
5 2020 48.8
to increase the price level
4
Reducing price gap between CNG and diesel/petrol
3
 In last six months, the price differential between CNG and petrol/diesel has
2 reduced – with a ₹21-25 per kg hike in CNG prices
1  In comparison, petrol and diesel prices have gone up by ₹10 per liter since

0 And for expanding in the core business, IGL can leverage its
Jan-12
Jun-12

Feb-14
Jul-14

Jan-17
Jun-17

Feb-19
Jul-19

Jan-22
Jun-22
Oct-20
Oct-15

May-20
Sep-13

Aug-16

Sep-18

Aug-21
Nov-12
Apr-13

Dec-14
May-15

Nov-17
Apr-18

Dec-19

Mar-21
Mar-16

associate companies rather than an acquisition of a gas company

Central U.P Maharashtra

 Credit Suisse AG predicts that the Russian gas deficit will lead to an annual Gas Limited Natural Gas Limited
global LNG shortage of nearly 100 million tons by the 2025 Stake - 50% of Stake - 50% of paid-
paid-up equity up equity share
 Thus, volatile natural gas prices remain a chief concern in the recent times
share capital capital

Source: KAA Advisors Proprietary Analysis, Annual Report, Economic Times, Business Standard, Statista, Octopus Energy, Money Control, Trading Economics

3
C
O IGLs market valuation not only lends itself well to an equity based
M
P acquisition, its relative position suggests looking for alternatives outside
E
T It is the 4th largest in the CGD space. And with its PE well above In the highly competitive market of CGD companies, with current
I market average of 14.5x equity transactions seem lucrative positioning, acquiring smaller players will not consolidate the market
T Horizontal axis: PE ratio, times; Vertical axis: Revenue, in crore, ₹ Market Share
I GAIL (India) Ltd
120,000  Petronet LNG is bigger than IGL making 2.11%
O 1.73%
it difficult to acquire 4.63% Petronet LNG
N
 Going for an acquisition of a smaller 8.98%
Gujurat State
100,000 IGL’s size player may not be value for money as
L Petronet
based on it wouldn’t significantly affect market
market cap is Gujarat Gas Ltd
A consolidation and give rise to PMI 9.57% 49.85%
moderately
N 80,000 large. concerns Indraprastha
D  IGL can rather go for a diversification 23.13% Gas Ltd
S strategy to explore sectors where it can Mahanagar Gas
Ltd
C be a market leader by means of an
60,000 Adani Total Gas
A acquisition
Ltd
P
E IGL can further leverage GAIL and BPC to expand market reach
40,000

Promoter and
20,000 Promoter Bharat Petroleum
Group 45.00% Corporation Ltd
55.00% 50% 50%
Public GAIL (India) Ltd
0
0 5 10 15 20 25 30

-20,000
Source: KAA Advisors Proprietary Analysis, National Stock Exchange, Annual Reports, Quarterly Reports, Company Website

4
I
N Driven by the rise and hype of EVs and in line with IGLs recent initiatives
D
U for charging stations – market for lithium ion batteries looks promising
S
T Market for lithium-ion batteries is expected to register a CAGR Battery in an EV currently accounts for ~50% of the final product price
R 15.4% till 2026 – making the market 2x larger than 2020 Lithium-ion battery pack costs worldwide in $ per kilowatt hour
Y Projected size of global Lithium-ion Market size in billion, $
91.9 381
O 80.17 293
V 69.94 219
E 180
61.01 156 137
R 101 58
53.22
V 46.43
40.5 2015 2016 2017 2018 2019 2020 2023* 2030*
I
E Electrified and battery electric vehicles - global sales 2020-2025 in %
W 24.7

19.7
15.4
12.7 7.4
2020 2021 2022 2023 2024 2025 2026 10.3 6.1
3.9 4.9
8.7 3.2
2.7

2020 2021 2022 2023 2024 2025

Battery Electric Vehicles Electrified
More than 50% of
LIB’s in electronics • It is estimated that pure battery electric vehicles will account for about 7.4 % of
Electric mobility electrical power
are primarily used in worldwide car sales in 2025. Batteries are now also able to power larger cars such as
alone represents storage systems
phones, tablets/PCs, SUVs, enabling new demographics to be targeted.
about 88% of the that operate to
UPS, & other types • Hybrids have been preferred over battery EVs due to the much larger range of fuel propelled
global li-ion battery stabilize the grid rely
of device.
demand. on LIB’s vehicles, but enhanced battery technology of EV continues to narrow this gap.
• Declining cost of LIB’s and rising sales of battery electric vehicle is a win-win situation.
Source: KAA Advisors Proprietary Analysis, Statista 2022, Springer Link

5
 Not only lithium ion batteries have a promising future – the global
I
N
D
U market for batteries is expected to grow at 19% CAGR till 2030
S
T Automotive batteries segment to witness double-digit growth Future Market Trends in the EV battery market
R Projected global battery demand from 2020 to 2030, by application (in gigawatt hours)
Battery as a Service
Y 1
2,500 19%  Battery swapping and battery-as-a-service (BaaS) allows users to change/swap
EV batteries once discharged – saving users the time spent on recharging
O 2,000  The model has 2 major advantages: consumers can save money on battery cost,
V and not worry about battery depreciation
E 1,500  And manufacturers can accurately predict the market size and potential by tying
R up with companies providing BaaS models
V 1,000

I
500
E 2 Recycling of used batteries
W 0  Future waste projections estimate 4 million tons of cumulative EOL EV
2022 2023 2024 2025 2026 2027 2028 2029 2030 battery module by 2030, which is above the current global recycling capacity
Automobile Stationary Consumer electronics  By 2030, recycled materials from old batteries will enable the production of 60
GWh LIB cells in India, reducing reliance on imports and opening up new
economic prospects for Li-cell makers

3 Government PLI Scheme

Market for batteries in Strict emission norms by Enhanced efficiency,  PLI scheme for manufacturing ACC aims at setting up giga scale factories,
e-rickshaws and small the government coupled cost-effectiveness, export promotion, achieving economies of scale, producing cutting-edge, high-
privately-owned 3- with growing attention and product quality globally competitive products
wheeler taxis is toward fuel efficiency & innovation on account  The applicant manufacturer would have to commit to set-up an ACC
expected to grow at a target of achieving net- of technological manufacturing facility of minimum capacity of 5GWh and ensure minimum
CAGR of about 20% zero carbon emissions by advancement will drive 60% domestic value addition at the project level within 5 years
over the next 5 years 2050 or 2060 the growth  Transitioning towards renewable energy at the national grid level
.
Source: KAA Advisors Proprietary Analysis, Financial Express, EY Report

6
I
N Battery storage units have seen growth hand in hand with solar panel
D
U installation for increased viability of RE on cloudy and foggy days
S
India added a record 10 GW of solar energy cumulative installed India witnessed the lowest solar energy cost i.e., $0.65 per watt in 2022,
T
capacity in 2021, recording nearly 200% YoY growth making it the manufacturing hub of solar related products
R
Share of renewables in electricity generation worldwide from 2015 to 2050 in %
Y
55  Significant surge in demand for eco-friendly and cost-effective energy solutions for
A total of $14.5 billion was invested, industrial and commercial energy storage is expected to drive the market growth.
O up by 125% compared to FY 2020-21.
V RE combined with energy storage
systems like battery storage has 38
E become a cheaper source of electricity.  It is highly effective to reduce carbon footprint. As governments across the globe are
R promoting sustainable energy sources, the demand for solar battery is expected to
26 rise.
V 23
I
E  In residential areas, it can reduce the usage of grid power in small-scale applications.
This approach can further reduce the monthly electricity bill; thus attracting new
W
consumers.

2015 2017 2030* 2050* Breakthrough in energy backup systems: uninterruptible power supply
Cumulative Installations in India as of June 30th, 2022 in %

9
Shortage of solar radiation and foggy weather
Solar energy will account for 60%
4 can impact the efficiency of solar storage.
of the predicted renewable
However, the backup system as a part of the
growth, primarily due to its
solar collector aids in the additional storage
accessibility. It will become 35%
51 of solar heat during cloudy or foggy
cheaper by 2024 & combine with
36 weather. It maintains the same performance as
government incentives, the cost
a solar battery even on cloudy days and
of making solar related
overcast weather. Hence, such advancements
equipment’s like battery, panels,
are expected to create lucrative
solar PV will decline
opportunities for market growth.
Solar Wind Small Hydro Bio Power
Source: KAA Advisors Proprietary Analysis, Statista 2022, JMK Research, Better India, Hindu

7
P
O Greaves, from being a leading engines manufacturer, now drives just
T
E one profitable segment of EV retail as the whole enterprise bleeds
N
T Company Overview Losing share in the engines markets, falling efficiency, and capacity
I Revenue trend – values in crores, ₹
A Industry Diesel Engines
L Market Capitalization (crores, ₹) 3,990 1,987.8
1,792.1 1,821.1
Price/Earnings 55.31 1,329.1
T 1,177.6
A Industry Price/Earnings 17.70
R Price/Book Value per Share 5.01
G
E 2018 2019 2020 2021 2022
Greaves Cotton Inc. is a diversified company with core competencies in
T engineering. It offers products and services in the following lines – engines, EV
Asset Turnover Ratio, and BVPS (₹)
S retail, Electric Vehicles with its brand Ampere, and financing services for the
same. Even after accounting for the rise in revenue from EV segment, the
1.4x 1.4x
business has consistently underperformed and has dived into unprofitability. 1.3x
1.0x
0.8x
Future Outlook
 Greaves Cotton is planning to invest ₹700 crore in its EV arm over 10
years. The Ranipet plant will have a capacity to produce up to 1 million units. 2018 2019 2020 2021 2022

 Expand into export business once the units come in full production and are
getting demand from SAARC countries and Africa. ₹ 39.5 ₹ 39.7
₹ 34.6 ₹ 33.9 ₹ 32.4

 ‘AutoEVMart,’ first multi-brand EV retail store in Bengaluru is one such

initiative - the new mega-site will help in meeting the rising demand and last-
mile mobility needs of the customers.
2018 2019 2020 2021 2022
Source: KAA Advisors Proprietary Analysis, National Stock Exchange, Greaves - Annual Reports, Quarterly Reports

8
P
O Exide Industries is a better potential target, catering to all relevant
T
E opportunities but with great risk as it is too diversified and large
N
T Company Overview Rising revenues with thinning margins caused by rise in lead prices
I Revenue trends and Net Profits with margins – values in crores, ₹ and %
A Industry Batteries - Automobile
6.2%
L Market Capitalization (crores, ₹) 13,500
12,382
10,588 9,857 10,041
Price/Earnings (Continued operations) 19.06 9,186
T
A Industry Price/Earnings 22.11
R Price/Book Value per Share 1.95
G
E 2018 2019 2020 2021 2022
Exide Industries Ltd. is an India’s largest multi-national storage battery
T manufacturer which has ventured into various product lines – automotive
2.8%
S batteries, inverter batteries, home UPS systems, integrated power back-up 1,000 10%
systems, institutional UPS batteries, end-to-end solar solutions, industrial 800 8%
batteries, and a minor division of e-Rickshaw vehicles 600 6%

Future Outlook 400 4%

200 2%
 Exide plans to focus on bottom-line growth through ‘premiumization’ of 0 0%
product lines i.e. focusing on premium category products with higher margins 2018 2019 2020 2021 2022
 Growing the Li-ion batteries pack and module business under their brand
Nexcharge – it working on setting up a manufacturing facility for the same 7%
25%
 Synergetic growth areas that the business is focusing on are as follows – E3-
Institutional
Wheelers, and E2-Wheelers, Battery Swapping Stations, EV Charging, India
and Renewable Integration
International Non-
 Multi-year technical collaboration with Svolt Energy Solutions, China for Institutional
Li-ion cells manufacturing and setting up the plant
93% 75%
Source: KAA Advisors Proprietary Analysis, National Stock Exchange, EXIDE Annual Reports, Quarterly Reports, and Investor Presentations

9
P
O Amara Raja Batteries is positioned just perfectly for IGL to leverage with better
T
E
price point, healthier margins, and promising business focusing on batteries
N
T Company Overview Promising increase in revenues though margins hit due to lead prices
I Revenue trends along with margins – values in crores, ₹ except % values
A Industry Batteries - Automobile
L Market Capitalization (crores, ₹) 8,780
10,000.0 12.0%
Price/Earnings (Continued operations) 16.98 10.0%
T 8,000.0
A Industry Price/Earnings 22.11 8.0%
6,000.0
R Price/Book Value per Share 1.92 6.0%
G 4,000.0
4.0%
E Amara Raja Batteries Ltd is a leader in battery manufacturing technology with 2,000.0 2.0%
T a focus on constant innovation. While the 2nd largest battery player in India, it is
S an undisputed leader in industrial batteries – application ranges from Telecom, 0.0 0.0%
Solar, Railways, Motives, and Defence. FY18 FY19 FY20 FY21 FY22

Future Outlook Revenue breakdown – manufactured goods are the major driver
Revenue trends along with margins – values in crores, ₹ except % values
 Plans to introduce auto cell and module insertion to reduce fatigue to
operators on the product line
13.1%
 Implement a high-speed pack assembly line with a total capacity of 500MWh Home UPS 98.5

 Implement commercial scale pilot plant for Li-Ion cell manufacturing – Mega-
scale Customer Qualification Plant Storage batteries 432.3
 Incorporate creative/ functional features in its Li-Ion battery packs with 86.9%
highest priority on product safety and improve the ergonomics by
Manufactured 8080.8
collaborating with design houses for new applications
India Outside India

Source: KAA Advisors Proprietary Analysis, National Stock Exchange, Annual Reports, Quarterly Reports

10
S
T While Exide and Amara Raja are both great market-leading businesses
R
A – Amara Raja offers a few prudent benefits that make it our choice
T
E Post assessment of size of the target, strategic fit, and
G value for money – Amara Raja Batteries is the way to go
I
C

R
E
C Market Leader Market Leader Overpriced
O
Li-on battery
Strategic Alignment

M Relevant EV Too diversified

prospects manufacturing
M
Unprofitable
E Commitment to R&D Attractive
N valuation
Negative growth
D Market cap
too high Strategic alliances
A with ISRO Low synergies
T with the profitable
Too diversified
I Global presence & retail wing
O growth opportunities
Relatively
N overpriced Falling BVPS
Easier PMI
Chinese alliances Commitment to R&D
amidst geopolitical
concerns

Financial Feasibility

Source: Company Website, Annual Reports, National Stock Exchange, KAA Advisors Proprietary Analysis

11
S
T With strategic stakes associated with innovative industry leaders, and
R
A major accounts like Adani in its pockets, it is truly a market leader
T
E Amara Raja Batteries started with the manufacturing of lead-acid ARBL is the market leader after EXIDE in the battery industry of India
G based batteries. Now, its exploring li-ion batteries used in EVs with a market share of 35.85% compared to 51.05% of EXIDE
I Market Capitalization, values in ₹ crores
 May, 1990- Amara Raja Batteries Ltd introduced VRLA technology in India Exide Industries Ltd
C  March, 1991- Amara Raj Batteries Ltd goes public
1.58% 1.01%
192 0.44% Amara Raja Batteries Ltd
5.04%
 December 1997- Amara Raja Batteries Ltd diversified into automotive
265 5.04%
R batteries and signed JV with Johnson Controls Inc. Eveready Industries India
Ltd
E 2,252 HBL Power Systems Ltd
C
2,628 51.05% Indo National Ltd
O 35.85%
8,933 Panasonic Energy India
M Company Ltd
M  April, 2000- Amara Raja Batteries Ltd launched brand AMARON automotive 13,957 Others

E batteries
 Quality Certifications- The company's products are manufactured at its Even when the market share of EXIDE is greater than ARBL, ARBL is performing much
N
ISO/TS-16949, ISO-14001 and BH OHSAS-18001 certified manufacturing better than EXIDE in the production of li-on cells as a result of better strategic
D facilities in Tirupati partnerships
A  In a breakthrough, the team grabbed the account of Adani for their upcoming
T Data Centers Net Cash from Operations trend is stable considering the fact that the
I increase in lead prices is an industry-wide phenomenon
O Net cash from operations, values in ₹ crores
N 1,177

802
633
 The Company has created a portfolio of 0.5Kwh to 21.0Kwh products 541
catering to e-mobility and energy storage applications in India 322

ARBL has an impressive track-record of maintaining high quality standards as

well as being one of the early players to adapt to changing market needs 2017-18 2018-19 2019-20 2020-21 2021-22

Source: Company Website, Annual Reports, National Stock Exchange, KAA Advisors Proprietary Analysis

12
S
T Leading ahead of Exide in the race for Lithium-ion batteries with major
R
A details worked out, it can offer great synergies to IGL within a year
T
E Amara Raja Batteries is continuously investing in R&D to gain an ARBL is heavily foraying into the EV battery sector and has created a
G upper hand in producing high quality li-on cells new division called New Energy Division to achieve this objective
I
Expenditure on R&D and R&D expenditure as a % of revenue – values in crores, ₹ and %
C Companies strategic investment in the li-on technology
18 0.30%
 Amara Raja Batteries is investing €10 million in InoBat Auto, a European Group focused
R 15 on research and development in the field of batteries for electric vehicles and production
E 0.23%
12
of lithium-ion battery cells as well as tailored and customs cells
C  The Company as part of its strategic initiatives has made an investment of ₹36.99 crores
O 9 0.15% in Log 9 Materials Scientific Private Limited ('Log 9 Materials’) which is an advanced
M 6 battery and deep-tech start-up providing EV batteries
M 0.08%  It has invested in a state-of-the-art R&D pilot plant for prototyping Li-ion cells which will
3
E be a corner stone facility to develop futuristic technologies.
0 0.00%
N FY 18 FY19 FY 20 FY 21 FY 22 ARBL has an upper hand in terms of having relevant partnerships with
D
Capital Recurring % of revenue experienced players in the EV space giving it a competitive advantage
A
T 8.05%
3.12% Companies strategic partnerships for improved li-on technology
Promoters
I
O General Public  Amara Raja Batteries Limited has established a joint research center at SRM
N 28.94% University, Amaravati to design and develop low-cost, fast-charging, next-generation
Others
18.91% Lithium-ion battery innovations for smarter E-mobility
Foreign Institutions  ARBL has successfully received the technology transfer from the Indian Space
20.87% 23.24% Financial Institutions Research Organization (“ISRO”) for the development of various types of Li-Ion cells
as power sources for satellite and launch vehicle applications
NBanksMutualFunds
 Johnson Controls owns 26% of ARBD and is experienced in the manufacturing of
li-ion batteries. It can provide the technical assistance when required

Source: Company Website, Annual Reports, KAA Advisors Proprietary Analysis

13
S
T Leveraging its technology, culture for innovation, and existing and
R
A expanding global market channels – IGL has a lot to gain from the giant
T
E Partnerships and Product Diversification
Sales Expansion Technology and Culture
G
I
C Sales Network Technology Partnerships

IGL can make use of global ARBL IGL is in the process of setting up IGL has partnered with Kinetic
R sales network to expand EV charging stations Green to establish battery
E internationally swapping stations
C ARBL has planned to invest $1
O ARBL can leverage IGL’s billion in building up its capabilities Strategic investments in Log 9
extensive sales network in the to manufacture li-ion batteries Materials, and InoBat Auto
M
national capital region
M Both the companies are investing Both the companies can utilize
E Both the companies benefit from in complementary technologies each other’s partners to further
N each other’s sales network making this a perfect match their own objectives
D
A Government Associations Culture Product Diversification
T
IGL has alliances with major IGL’s mission is to provide IGL is primarily in the distribution
I of CNG and PNG across India
government players like GAIL environment-friendly alternative
O fuel which would reduce pollution
N ARBL has partnered with ISRO ARBL is in the business of
to collaborate on Li-on cells ARBL is a socially and manufacturing batteries for
manufacturing environmentally conscious automobiles and industries

Both can leverage alliances for Both are Indian companies with a Both can mitigate their risks by
capturing the government sense of strong responsibility going with a diversification into
tenders for Li-on batteries towards the environment each other’s product class

Source: Company Website, Annual Reports, Zee News, Hans India, KAA Advisors Proprietary Analysis

14
V
A Speaking of value for money - for a player so good, it is priced
L
U conservatively relative to its direct competitors in the battery space
A
T Founded In Country Market Cap Enterprise Value P/E P/B EV/Sales EV/EBITDA
I
O
N 1985 8,780 8,643 17.0x 1.9x 1.0x 7.9x

S
U
1947 13,500 13,084 19.1x 2.0x 1.0x 9.4x
M
M
A
R
1905 2,640 2,750 69.5x 9.1x 2.3x 22.0x
Y

1977 2,260 1,705 25.2x 2.6x 1.4x 11.4x

1972 257 330 33.2x 1.2x 2.7x 17.5x

1972 191 159 20.1x 1.7x 0.7x 10.0x

30.7x 3.1x 1.5x 13.0x

Note: Market Cap and Enterprise Value are in crores ₹
Source: KAA Advisors Proprietary Analysis, Annual Reports, Yahoo Finance, Wikipedia (Founded In)

15
V
A Even post a control premium of 35%, our analysis suggests that every
L
U dollar invested in Amara Raja will be worth at least $1.14 from the start
A
T Football Field Analysis
I Per share price in ₹
O 510.5 689.1
DCF VALUATION
N
Market Data 52 week H/L 438.1 781.6 Valuation using a discounted cash flows analysis sits
well above the CMP by using below market growth
S rates and a range provided by the sensitivity analysis
U DCF 690.5 917.4 between LTGR of 6-7% and WACC of 12.6-13.6%
Intrinsic Value
M
M
A P/E 779.2 1054.2
TRADING COMPARABLES VALUATION
R
Using average of different trading multiples – we can
Y clearly see that AMARAJABAT is significantly
P/B 697.7 944.0
undervalued by an average of 63% by CMP and
6.4% from the 52 week high. This indicates a positive
657.5 889.6 current valuation. Moreover, the players in the market
EV/Sales
haven’t recovered from the market shock that came with
Trading COVID-19 pandemic.
Comparables
Forward EV/Sales 585.4 792.0

OFFER PRICE
EV/EBITDA 711.0 962.0
The offer price even after accounting for a 35% control
premium is far less than the comparable and DCF
valuation which means that we can expect buying at
Forward EV/EBITDA 835.4 1,130.2
current multiples to be an opportunity not to be missed
CMP Offer

Source: KAA Advisors Proprietary Analysis, Annual Reports

16
V
A A complete acquisition, accounting for synergies will fetch clear value
L
U gains of a whopping ₹2,734 crores to IGL and 29.7% proportionally
A
T Putting the total purchase consideration against the estimated fair value
I of Amara Raja Batteries, we estimate it to be available at a 29.7% discount Inputs, benchmarks, and other considerations
O Values in crores, ₹
N Fair Value Computation – Discounted Cash Flows
1
Weighted Average Cost of Capital 13.1%
S 2
U Long-term growth rate 6.5%
M Beta – 5 years 1.10
M
A
1
Valuation of Synergies
R 2
Y Synergies are measured for 5-years post completion of
acquisition, discounted to present value using the combined
enterprise WACC ~ 13.1% and cumulated together.
Consolidation is done proportional to the share acquired.
3
Control Premium – mean for the FY2021
3
35%
39%
31%
Value discount of 2,734.0

Energy and Natural Resources Industrial

Source: KAA Advisors Proprietary Analysis, IncWert Advisory Valuation and Research

17
T
R With our recommended deal structure IGL will be debt-free, have
A
N enough cash for liquidity, and still create value for its shareholders
S
A # Number of new shares issued in crores
C
T 55% 65% 35% 0% Total Equity Consideration (crores, ₹) 4224.7
I Stake Equity Cash Debt Current PPS (IGL, 8/8/2022, ₹) 358.8
O
Acquired Issued Paid Issued Total Shares issued 11.8
N
Pre-acquisition diluted shares outstanding 70.0
S Through the recommended financing cash retention can be Post-acquisition diluted shares outstanding 81.8
T maintained and liquid investments can be directed towards the target
R Values in crores, ₹
Benefits of the financing structure
U #
C Stake Acquired
T
U The target being a big enterprise, we recommend a staged takeover beginning
with a majority stake since it is important to leverage its current operations in
R the Li-ion battery segment. Remaining acquisition can be tailored per results.
E
Equity Issued
IGL is valued well above the market P/E ratio of 14.5x at 22.9x making an
equity based acquisition financially feasible, and hence preferable.

Cash paid and Debt Issued

Cash is being used up-to an extent for 3 reasons – to not dilute equity of the
enterprise too much; not remain a debt-free business; and not starve the
business of liquidity. Utilizing 35% cash successfully caters to all these concerns

Source: KAA Advisors Proprietary Analysis, Annual Reports, Quarterly Reports

18
M
E Owning a 55% stake gives IGL the required flexibility with its investment,
R
G all the while building a strong strategic alliance with a market leader
E
R Accounting for annual synergies, proportional with the acquisition Cash payback period from the investment while not accounting for
share, the transaction will result in ~53% accretion on average synergies is 3.01 years and discounted cash payback is 3.84 years
A Accretion/(Dilution) – values in crores, ₹ Free Cash Flows – values in crores, ₹
N 1,175.1
A 14 70% 988.9
59.1%
L 61.9% 59.5% 850.0
13.1 753.1
Y 652.1
S 12 64.4% 60%
I 11.4 12.0
S 10.8
10 50%

2023 2024 2025 2026 2027

8 40%
Financial Impact Summary
Post acquisition credit rating AAA
6 30%
Post Acquisition D/E 0.04

21.2% Post Acquisition ICR ~

4 20%
Average annual proportional accretion (Y1-Y5) 53.3%
3.2
Average annual proportional accretion (Y2-Y5) 61.3%
2 10%
Cash break-even from Amara Raja (100%) 3.01 years
Discounted cash break-even from Amara Raja (100%) 3.84 years
0 0%
2023 2024 2025 2026 2027 Break even from Amara Raja (55%) ~4.7 years

Source: KAA Advisors Proprietary Analysis, Annual Reports, Quarterly Reports

19
 In summary, out of the potential targets – ARBL is the best suited for IGLs
C
O
N
C needs, prepares it for a future with RE, along with ~53% annual accretion
L
U
S
I
O
N

20
 Appendix
Supporting materials and statistics
Stock Performance
IGL EXIDEIND

700 300

600 250
500
200
400
150
300
100
200

100 50

0 0
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021

AMARAJABAT GREAVESCOT

1,200 300

1,000 250

800 200

600 150

400 100

200 50

0 0
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021

iii
 IGL and Industry data
Sales volume mix trend in million standard cubic meters Natural Gas consumption trend in million standard cubic meters

182 40,000 60.00%

139
120 522
480 30,000
109 433 168
95 40.00%
370 419
310
20,000

1,738 1,847 20.00%

1,602
1,269 1,412 1,357 10,000

0 0.00%
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2016-17 2017-18 2018-19 2019-20 2020-21

CNG Industrial PNG Domestic PNG LNG Import Net Production Import dependency (%)

Installed energy capacity in India (Feb 2022) by source - Megawatts Global market share of EV batteries by type – 2020-2050

100
235,929
90
80
70
60
50
40
106,375
30
20
46,525
10
6,780
0
2020 2025 2030 2035 2040 2045 2050
Thermal RES Hydro Nuclear
LFP NCA NCM 111 NMC 622 (& 433/532) NCM 811 NMC 9.5.5

iii
 Greaves Cotton
Shareholding Pattern EBITDA and EBITDA Margins in ₹ crores and % respectively

300 16%
14%
12%
200
Promoters 10%
8%
FII's
6%
DII 100
4%
Public 2%
0 0%
2018 2019 2020 2021 2022

EBITDA EBITDA Margin %

Quarter wise Investor Complaints Net Income and Net Margins in ₹ crores and % respectively

Date 250 12.0%

10.0%
200
31-Mar-22 1 8.0%
150
6.0%
31-Dec-21 1
100 4.0%

30-Sep-21 1 2.0%
50
0.0%
0
-2.0%
2018 2019 2020 2021 2022
-50 -4.0%

Net Income Net Margin %

iv
 Greaves Cotton
Capital Expenditure in ₹ crores 2022 Revenue Mix in ₹ crores
425.0
40.0 3.0%

35.0
2.5%

30.0 98.1

2.0% 1.0 9.7 9.0

25.0
Greaves Finance Greaves Greaves Electric Bestway Agencies MLR Auto Limited
Limited (GFL) Technologies Mobility Private Private Limited (MLR)
Limited (GTL Limited (GEMPL) (Bestway)
20.0 1.5%
Spending on research and development in ₹ crores

15.0
1.0% 28.4 27.9
27.2
23.5
10.0 22.4
18.6
0.5%
5.0

0.0 0.0%
2018 2019 2020 2021 2022

Capex Capex/Revenue 2017 2018 2019 2020 2021 2022

v
 Exide Industries
Shareholding Pattern EBITDA and EBITDA Margins in ₹ crores
1450 16.0%
1400 14.0%
12.0%
1350 10.0%
Promoters 1300 8.0%
1250 6.0%
DIIs 4.0%
1200 2.0%
FIIs
1150 0.0%
Others 2018 2019 2020 2021 2022

EBITDA EBITDA Margin %

Spending on research and development in ₹ crores

28.1 29.9
Quarter wise Investor Complaints 22.7 22.9 20.0

Date

30-Jun-22 4 2017 2018 2019 2020 2021

31-Mar-22 3
Asset Turnover Ratio

31-Dec-21 3 2.40x 2.51x

2.24x 2.14x 2.01x
30-Sep-21 6

30-Jun-21 0
2017 2018 2019 2020 2021

vi
Exide Industries & Industry Data
EBITDA and EBITDA Margins in ₹ crores Lead Prices in $ per tonne
900 8.0%
800 7.0% $3,000
700 6.0%
600 $2,500
5.0%
500
4.0%
400 $2,000
3.0%
300
200 2.0%
$1,500
100 1.0%
0 0.0% $1,000
2017 2018 2019 2020 2021

Feb-21
Jun-18

Feb-19

Jun-19

Feb-20

Jun-20

Jun-21

Feb-22

Jun-22
Oct-18

Oct-19

Oct-20

Oct-21
Dec-18

Dec-19

Dec-20

Dec-21
Aug-18

Apr-19

Aug-19

Apr-20

Aug-20

Apr-21

Aug-21

Apr-22
Capex Capex/Revenue

Spending on research and development in ₹ crores Volume weighted average pack and cell price - $/KWh

₹ 81.1
₹ 74.1
₹ 70.4
₹ 63.4
₹ 58.4
469
412

263
221
159
215 194 134 112
130 104 101
82 67 52 48 36 31
2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021

Pack Cell

vii
 Discounted Cash Flows - AMARAJABAT
Forecasts Values in crores ₹, except per share values

Actual Projected
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Select Operating Data
Revenue 6,051.0 6,793.0 6,839.0 7,150.0 8,696.0 9,739.5 10,908.3 12,108.2 13,319.0 14,650.9
Growth Rate (%) - 12.3% 0.7% 4.5% 21.6% 12.0% 12.0% 11.0% 10.0% 10.0%
EBITDA 929.0 990.0 1,125.0 1,181.0 1,091.0 1,266.1 1,527.2 1,755.7 1,997.8 2,344.1
EBITDA Margin (%) 15.4% 14.6% 16.4% 16.5% 12.5% 13.0% 14.0% 14.5% 15.0% 16.0%
EBITDA Growth (%) - 6.6% 13.6% 5.0% -7.6% 16.1% 20.6% 15.0% 13.8% 17.3%
Depreciation and Amortization 233.0 265.0 301.0 320.0 403.0 414.2 463.9 514.9 566.4 623.0
D&A as a % of PP&E 3.9% 3.9% 4.4% 4.5% 4.6% 4.3% 4.3% 4.3% 4.3% 4.3%
EBIT 696.0 725.0 824.0 861.0 688.0 852.0 1,063.3 1,240.8 1,431.5 1,721.1
EBIT Margin (%) 11.5% 10.7% 12.0% 12.0% 7.9% 8.7% 9.7% 10.2% 10.7% 11.7%
EBITDA Growth (%) - 4.2% 13.7% 4.5% -20.1% 23.8% 24.8% 16.7% 15.4% 20.2%

Select Balance-sheet Data

Inventories 1,049.7 1,061.4 1,142.7 1,438.2 1,803.8 2,074.6 2,385.8 2,743.6 3,155.2 3,628.5
Growth (%) - 1.1% 7.7% 25.9% 25.4% 15.0% 15.0% 15.0% 15.0% 15.0%
Trade receivables 1,049.7 1,061.4 1,142.7 787.5 792.6 800.5 816.5 832.8 849.5 875.0
Growth (%) - 1.12% 7.66% -31.09% 0.65% 1.0% 2.0% 2.0% 2.0% 3.0%
Other Current Assets 184.4 293.4 205.6 120.4 122.7 124.6 126.4 128.3 130.3 132.2
Growth (%) - 59.1% -29.9% -41.4% 1.9% 1.5% 1.5% 1.5% 1.5% 1.5%

Trade Payables 592.3 510.4 614.9 746.5 806.5 879.2 1,008.7 1,142.8 1,271.6 1,425.2
Growth (%) - -13.8% 20.5% 21.4% 8.0% 9.0% 14.7% 13.3% 11.3% 12.1%
Borrowings & Other financial liabilities 168.4 170.5 204.9 216.3 305.7 357.8 400.8 444.8 489.3 533.4
Growth (%) - 1.2% 20.2% 5.6% 41.3% 17.1% 12.0% 11.0% 10.0% 9.0%
Other Current Liabilities 176.3 159.6 167.3 224.6 252.8 279.4 307.3 338.1 371.9 409.1
Growth (%) - -9.5% 4.8% 34.2% 12.6% 10.5% 10.0% 10.0% 10.0% 10.0%
Lease Liabilities - - 15.4 19.4 25.2 32.2 40.3 49.4 56.8 62.5
Growth (%) - - - 25.7% 30.1% 27.9% 25.0% 22.5% 15.0% 10.0%

Property, Plant, and Equipment 1,698.2 1,809.1 1,647.6 2,116.0 2,127.6 2,210.9 2,344.0 2,545.4 2,802.8 3,127.2
Capital Expenditure (Net of gains) - 375.9 139.6 788.4 414.6 497.5 597.0 716.4 823.8 947.4
Growth (%) - - -62.9% 464.9% -47.4% 20.0% 20.0% 20.0% 15.0% 15.0%

viii
 Discounted Cash Flows - AMARAJABAT
Values in crores ₹, except per share values
Forecasted Cash Flows 2023 2024 2025 2026 2027 Weighted Average Cost of Capital

EBIT 852.0 1,063.3 1,240.8 1,431.5 1,721.1 Diluted shares outstanding (crores) 17.1
Price per share (8/8/2022) 510.5
Tax Rate % 28% 28% 28% 28% 28%
Market Capitalization 8,731.2
EBIAT 613.4 765.6 893.4 1,030.6 1,239.2

Add: Depreciation and Amortization 414.2 463.9 514.9 566.4 623.0

Total Debt 16.5
Less: ▲ in Net Working Capital -122.0 -120.6 -158.1 -215.6 -260.2

Less: Capital Expenditure 497.5 597.0 716.4 823.8 947.4 Debt Weight 0.2%

Free Cash Flows 652.1 753.1 850.0 988.9 1,175.1 Equity Weight 99.8%
100.0%
Discount Factor 0.88 0.78 0.69 0.61 0.54
WACC 13.1%
Present Value of Free Cash Flows 576.8 589.2 588.3 605.3 636.3

Terminal Value 19,096.1 Capital Asset Pricing Model

Risk Free Rate 7.3%
Present Value of Terminal Value 10,340.2
Expected Market Return 12.5%
Beta 1.10
Enterprise Value
Cost of Equity 13.1%
Long-term Growth Rate
Cost of Debt 4.6%
5.5% 6.0% 6.5% 7.0% 7.5%
After tax cost of debt 3.3%
12.1% 13,786.7 14,726.2 15,834.8 17,162.7 18,782.4
Long term growth-rate 6.5%
12.6% 12,766.9 13,559.0 14,481.8 15,570.9 16,875.4
WACC

13.1% 11,882.9 12,558.0 13,336.1 14,242.7 15,312.6 Enterprise-Equity Value Bridge

Equity Value per Share
13.6% 11,109.3 11,690.2 12,353.5 13,118.0 14,008.8 Enterprise Value 13,336.1
Long-term Growth Rate
14.1% 10,426.8 10,930.9 11,501.7 12,153.4 12,904.5 Less: Debt (16.5)
5.5% 6.0% 6.5% 7.0% 7.5%
12.1% 813.1 868.0 932.8 1,010.5 1,105.2 Less: Preferred Holdings -
12.6% 753.5 799.8 853.7 917.4 993.7 Less: Minority Stake -
WACC

13.1% 701.8 741.3 786.8 839.8 902.3 Add: Cash and cash equivalents 105.0
13.6% 656.6 690.5 729.3 774.0 826.1 Equity Value 13,457.6
14.1% 616.7 646.1 679.5 717.6 761.5 Equity Value per share (₹) 786.8

ix
 Comparable Companies Analysis - AMARAJABAT
Values in crores ₹, except per share values and ratios

S.No. Company Name Exchange Ticker 52 week high/low Market Capitalization Enterprise Value 2022 Sales 2023 Sales 2022 EBITDA 2023 EBITDA
1 Amara Raja Batteries Inc. NSE AMARAJABAT 781.6 - 438.1 8,780.0 8,642.8 8,696.0 9,739.5 1,091.0 1,266.1
2 Exide Industries Ltd NSE EXIDEIND 130.25 - 204.9 13,500.0 13,084.0 12,789.0 13,143.4 1396 1,514.1
3 Eveready Industries India Ltd NSE EVEREADY 255.3 - 413.5 2,640.0 2,750.4 1,206.0 1,162.2 125.3 124.9
4 HBL Power Systems Ltd NSE HBLPOWER 43.1 - 105..4 2,260.0 1,704.6 1,222 1,158.3 149.4 149.5
5 Indo-National Limited NSE NIPPOBATRY 288.2 - 550.0 257.0 329.6 121.34 390.2 18.8 16.3
6 Panasonic Energy India Company Ltd BSE 504093 220.0 - 413.8 190.5 158.9 241.0 249.4 15.8 15.8

Enterprise Value/
S.No. Company Name Exchange Ticker P/E P/B
2022 Sales 2023 Sales 2022 EBITDA 2023 EBITDA
1 Amara Raja Batteries Inc. NSE AMARAJABAT 17.0x 1.9x 1.0x 0.9x 7.9x 6.8x
2 Exide Industries Ltd NSE EXIDEIND 19.1x 2.0x 1.0x 1.0x 9.4x 8.6x
3 Eveready Industries India Ltd NSE EVEREADY 69.5x 9.1x 2.3x 2.4x 22.0x 22.0x
4 HBL Power Systems Ltd NSE HBLPOWER 25.2x 2.6x 1.4x 1.5x 11.4x 11.4x
5 Indo National Limited NSE NIPPOBATRY 33.2x 1.2x 2.7x 0.8x 17.5x 20.3x
6 Panasonic Energy India Company Ltd BSE 504093 20.1x 1.7x 0.7x 0.6x 10.0x 10.1x

Mean 30.7x 3.1x 1.5x 1.2x 13.0x 13.2x

Median 22.6x 1.9x 1.2x 0.9x 10.7x 10.7x
High 69.5x 9.1x 2.7x 2.4x 22.0x 22.0x
Low 17.0x 1.2x 0.7x 0.6x 7.9x 6.8x

P/E P/B EV/Sales 2022 EV/Sales 2023 EV/EBITDA 2022 EV/EBITDA 2023
Enterprise Value 15,591.8 13,952.6 13,143.4 11,691.7 14,219.8 16,722.3
Add: Cash and cash equivalents 105.0 105.0 105.0 105.0 105.0 105.0
Less: Total Debt 16.5 16.5 16.5 16.5 16.5 16.5
Less: Minority Interest - - - - - -
Equity Value 15,680.2 14,041.0 13,231.8 11,780.2 14,308.2 16,810.7
Total diluted shares outstanding 17.1 17.1 17.1 17.1 17.1 17.1
Equity value per share 916.7 820.9 773.6 688.7 836.5 982.8

x
 Transaction Structure
Values in crores ₹, except per share values

Transaction Value Transaction Structure Goodwill

Price per share (8/8/2022) 510.5 Acquisition percentage 55% Allocable Premium
Premium 35.0% Sources % of TV Implied Equity Value 11,787.2
Implied Share Price 689.1 New Debt 0.0 0.0% Net identifiable Assets - Target 4,551.4
Fully diluted shares outstanding 17.1 Equity Issue 4,203.2 65.0% Allocable Premium 7,235.8
Implied Equity Value 11,787.2 Existing Cash 2,263.3 35.0% Goodwill
Less: Cash and cash equivalents 105.0 Total Sources 6,466.4 100.0% Tangible asset write-up 10% 723.6
Add: Total debt 16.5 Intangible asset write-up 15% 1,085.4
Add: Non-controlling interest 0.0 Uses Deferred Tax Liability
Implied enterprise value 11,698.7 Equity Purchase 6,483.0 Goodwill created 9,044.7
EV(Market Value)/Sales 1.3x Repayment of existing debt -16.5 Write up depreciation and amortization
EV(DCF)/Sales 1.5x Total Uses 6,466.4 Tangible assets write-up (723.6)
Years 15.0
Value Creation Synergies Annual Depreciation (48.2)
Fair Value 7,401.7 Target's Operating Expenses 1,703.8 Intangible assets write-up (1,085.4)
Synergies 1,815.2 % of Target's OpEx 5% Years 5.0
Market Cap (4,802.2) Cost Synergies 85.2 Annual Amortization (217.1)
Premium (1,680.8) Target's Revenue 8,696.0 Total annual write-up D&A (265.3)
Value Added 2,734.0 % of Target's Revenue 15% Marginal tax-rate 28.0%
Discount 29.7% Revenue Synergies 1,304.4 Deferred income taxes (74.3)

Cash Payback Period New shares issued

Cash usage 2,263.3 Total Equity Consideration 4,203.2
Absolute breakeven 3.01 years Current PPS (IGL, 8/8/2022) 358.8
Discounted Breakeven 3.84 years Total shares issued 11.7

xi
 Accretion/Dilution Analysis (Proportional)
Values in crores ₹, except per share values
Proportionally adjusted merger model 2023 2024 2025 2026 2027
Acquirer EBIT 1,476.9 1,624.6 1,787.1 1,965.8 2,162.4
Target EBIT 468.6 584.8 682.4 787.3 946.6

Combined pre-transaction benefits EBIT 1,945.5 2,209.4 2,469.5 2,753.1 3,109.0

Cost Synergies - 46.9 46.9 46.9 46.9
Revenue Synergies - 717.4 717.4 717.4 717.4
Write-up depreciation 26.5 26.5 26.5 26.5 26.5
Write-up amortization 119.4 119.4 119.4 119.4 119.4
Pro-forma EBIT 2,091.4 3,119.6 3,379.7 3,663.3 4,019.2
Acquirer standalone interest expense 0.0 0.0 0.0 0.0 0.0
Incremental interest expense 4.6% 0.0 0.0 0.0 0.0 0.0
Earnings before taxes 2,091.4 3,119.6 3,379.7 3,663.3 4,019.2
Income tax expense 28% 585.6 873.5 946.3 1,025.7 1,125.4
Pro-forma net income 1,505.8 2,246.1 2,433.4 2,637.6 2,893.8
Acquirer standalone net income 1,063.4 1,169.7 1,286.7 1,415.4 1,556.9

Acquirer full-diluted shares outstanding 70.0 70.0 70.0 70.0 70.0

New common shares issued 11.7 11.7 11.7 11.7 11.7
Pro-forma shares outstanding 81.7 81.7 81.7 81.7 81.7

Pro-forma EPS 18.4 27.5 29.8 32.3 35.4

Acquirer Standalone EPS 15.2 16.7 18.4 20.2 22.2

Accretion/(Dilution) 3.2 10.8 11.4 12.1 13.2

% accretion/(dilution) 21.3% 64.5% 62.0% 59.6% 59.2%

Post-tax value of synergies 105.1 655.3 655.3 655.3 655.3

Discount Factor 0.88 0.78 0.69 0.61 0.54
PV of synergies 92.9 512.7 453.5 401.2 354.9
Total value of synergies 1,815.2

xii