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The demonetisation of high-value currency notes and the allied push to non-cash transactions to widen the tax net, is good news for large organised automotive battery makers like Exide Industries as it would make operations of unorganised sector costlier.
Unorganised players, operating on cash-only model, control an estimated 37 per cent of the automotive battery market due to cost-advantage generated primarily through avoidance of tax and labour laws.
“The unorganised players will now have to come within the ambit of the formal system, ensuring adherence of statutory requirements such as minimum wages. Hence, their costs will go up and the organised players will benefit,” said Gautam Chatterjee, Managing Director and CEO, Exide.
Chatterjee was speaking on the sidelines of the commissioning of the company’s ₹700-crore punched grid battery unit here in Haldia, 130 km from Kolkata, on Monday.
The organised players are also expecting the imposition of the Goods and Services Tax to further squeeze the unorganised sector by reducing the tax load from 28 per cent to 18 per cent.
According to Chatterjee, as an immediate impact of the demonetisation, sale of motor-cycle batteries has dropped by 30 per cent in December.
However, four-wheeler battery sales and replacement sales have not been impacted. Replacement sales generate a higher profit margin.
Price hikeExide has hiked its battery prices twice since November due to 10 per cent rise in price of its primary raw material — lead. “Price of lead has gone up 10 per cent. So we initiated a total hike of 7 per cent between November and December. It has nothing to do with demonetisation,” Chatterjee said.
Exide on Monday announced plans to invest ₹420 crore to set up two new units at Haldia. The projects will be funded through internal accruals.
Of the total, ₹300 crore will be spent towards setting up a punched grid motorcycle battery-making unit over the next 18 months.
The remaining ₹120 crore will be invested in setting up a smelting unit with an annual capacity of 30,000 tonnes.
The West Bengal government has already given a verbal commitment for handing over 25 acres of land to the battery-maker. “Work will start within 15 months of us getting the land,” Chatterjee said.
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