Amara Raja Terminates agreement with Johnson Controls – Must Read for Shareholders

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Johnson Controls terminates shareholders and technical agreements with Amara Raja Batteries

Amara Raja Batteries share prices have taken deep cut after the news on their strategic investor Johnson Controls Battery Group terminated its shareholders and technical assistance agreement with effect from 1st April 2019.

How this move will impact Amara Raja Batteries Performance, Will Amara Raja Batteries maintain their Market share amid such crises? what as an Investors must know before taking any step towards Selling Amara Raja Batteries? Read to know here.

Background of Amara Raja Termination of agreement with Johnson Controls

The agreement and Technical Assistance between Amara Raja and Johnson Controls were signed in 1997.

Currently,

  • Indian Promotors of Amara Raja Batteries ( The Galla Family) holds 26% stake
  • Foreign Promotors Johnson Controls holds 26% stake in Amara Raja Batteries
  • Together They both hold around 52% stake in the Amara Raja Batteries.

As informed to BSE exchange by Amara Raja Batteries through a press release dated 3rd April 2019, promoters of Amara Raja Batteries (The Galla family), has entered into an agreement with Johnson Controls, to acquire 2% stake from Johnson Controls out of their 26% stake in Amararaja Batteries.

This will make Indian Promotors (The Galla family) to hold 28% stake in the company after-acquiring 2% from Johnson Controls.

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What Management of Amara Raja Batteries says on this agreement termination with Johnson Controls?

As per the company management

  • There will not be any impact on their operations and performance due to this termination of the agreement with Johnson Controls.
  • Amara Raja Batteries have had more than 22years of association with Johnson Controls, and this made Amara Raja Batteries to fully absorb all the critical technologies from Johnson Controls.
  • Also, Johnson Controls will continue to provide technical assistance to Amara Raja Batteries for some more time and this was mutually agreed between Johnson Controls and Amara Raja Batteries.
  • Amara Raja Batteries also signed a power frame technology license agreement with Johnson Controls in September 2018 and has received complete technology details from Johnson Controls. This new technology is important for Amara Raja Batteries and their plans for new capacity expansions which are already in good shape.

What is Road Ahead after Amara Raja Terminates agreement with Johnson Controls?

  • After 2% stake sale to Indian Promotors, there was an uncertainty of 24% stake held by Johnson Controls.
  • In November 2018, Johnson Controls has informed that they are selling Johnson Controls car battery business to Canadian private equity investor group Brookfield Business Partners in a deal of $13.8Bn.
  • Johnson Controls informed few shareholders that 24% stake will be moved to Brookfield Business Partners.
  • Based on the above news on Stake transfer of 24% held by Johnson Controls to Brookfield, Investors seems cooled down, the stock is now looking stable.
  •  Brookfield Business Partners is a very strong investment player and are long term investment company, Hence they may not sell this stake to the public in near time.
  • This gives confidence to investors and may not fluctuate much on this news.

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What Investors should do after Amara Raja Terminates agreement with Johnson Controls?

As per Amara Raja’s Management assurance on this development,

  • It is unlikely to interrupt any operations of Amara Raja Business activities now and their productions will continue to operate.
  • Having more than 20 years of association, Amararaja must have adopted all the necessary technology details from Jhonson controls.
  • Johnson control will continue to be their partner and technical associate based on their agreement, may not be as an investor.
    • This gives major clarity on the move and looks like this is an only temporary disruption.
  • Indian Promotors of Amara Raja has entered in to share purchase agreement with Johnson for 2% stake in Nov 2018, however, they are disclosing to markets only now, This gives a fear on Corporate governance concern to investors.
  • Amararaja is a Strong company having good fundamental parameters
  • They have high market share in Domestic Battery segment, approx 24% in OEM category and 30% in replacement of battery business.
  • In 4 wheeler battery business, Amara Raja is increasing their capacity by almost 50%  and 75% capacity increase in planned for 2 wheeler business segments.
  • These increased facilities will be operational in the coming years, which will drive their growth to multifold, being a strong player in the market.
  • Amararaja is having a good track record of generating profits, they generate always positive cash from their business, by maintaining good working capital.
  • Though Company past and future looks bright, we need to be cautious about the development of this news and clarity from promoters.
  • Going forward, It will be interesting to know the details of Stake sale to Brookfield Business Partners by Jhonson Controls with the share price.
  • In any case transparency in actions by Indian Promotors will be key, otherwise stock will be under pressure in the near future.

 

Disclaimer: I am holding shares of Amara Raja batteries as on the date of this article. These are my personal views based on market news.

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Image taken from Amara Raja Website!


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