To say that almost all modern day gadgets are powered by lithium-ion batteries would not be an exaggeration. From mobile phones and medical devices to defence equipment, these batteries are omnipresent. Interestingly, while their demand has been on the rise little has been done to produce them indigenously. And that means importers of these batteries are making hay. The Dollar Business analyses the present and the future of the business.

BY NILADRI S. NATH | September 2017 Issue | The Dollar Business


If you thought it’s only your electronic gadgets run on lithium-ion (Liion) batteries, think again. Li-ion batteries are today omnipresent and are being used in medical devices, electrical vehicles, toys, a plethora of professional equipment and more. Without this product, our life would have been reduced to buying and replacing batteries ad-nauseum. Li-ion batteries are known for their durability, rechargeability, high-density power, low maintenance, low self-discharge and miniature design.

Interestingly, India hardly produces any Li-ion batteries and is completely import dependent for this life-saver of an energy source. If you are a curious electronic gadget user, you may have tried to guess the unfamiliar script that is printed on the battery of your phone. And if you guessed it was a Chinese script, nine out of 10 times your guess would have been right. For, China currently fulfils 88.85% of India’s demand for this incredible multi-purpose product.

GROWING APPETITE

That the demand for these batteries is going up is no surprise, thanks to proliferation of electronic gadgets which use Li-ion batteries. And given that there is little or no domestic production of these batteries, in the last few financial years, barring FY2015, the imports of Li-ion batteries have been on a constant rise. In fact, FY2017 figures reveals that imports leaped by 19.93% to $328.65 million from $274.02 million in FY2016. Abhay Bhargava, Associate Director, Energy & Environment Practice, Frost & Sullivan reveals, “Over the last 3-4 years, the Indian Li-ion battery market has been growing at a CAGR of around 17-18%, and is expected to touch 22-25% year-on-year growth by CY2020.”

And if you study reports related to end-user industries of lithium-ion batteries, they will leave you with no doubt that importing these batteries is a great business idea. A report by Ericsson states that ‘India will have 1.37 billion mobile subscriptions by 2021’. A similar report by Market Research Store also reveals that ‘by 2020, the Indian telecommunication services market is likely grow by 10.3% year-on-year.’ So, the growth in the mobile handset industry itself can fuel demand for Li-ion batteries. What is even more promising is the fact many other industries that use these batteries too are on the rise.

Abhinav Gupta, CEO, Sealed Energy Systems, a Haryana-based importer, says, “Business has been good. We have started supplying Li-ion battery to manufacturers of defence equipment, medical and healthcare devices, cordless power tools, data collection machines, telecommunications equipment, cell tower power back-up, data-centres, solar street lights, bio-metric devices, etc. In short, the demand is growing at a rapid clip. And in another two years, we expect imports to double in value.

Vipul Duggal, Founder-Director, Pastiche Energy Solutions, points to the potential in solar energy devices and says, “Almost 4050% of our revenue from the industrial segment comes from supplying Li-ion batteries for solar street lights. Our company has been witnessing 250% year-onyear growth.”

Given such demand, one may wonder why domestic manufacturers have not set up facilities to make these batteries. The fact is that many companies in India are making attempts to manufacture Li-ion battery and the Centre has asked the Indian Space Research Organisation (ISRO) to collaborate with the domestic companies to manufacture Li-ion battery. The government is also planning to incentivise domestic car makers, who invest in setting up facilities to manufacture lithium-ion batteries in India. But, this proposition doesn’t intimidate importers because they know for sure that it’ll take years before India become self-reliant. And till such time that we start producing in volumes we will remain reliant on China, the largest exporter of Li-ion batteries in the world.

THE CHINA STORY

The Chinese dominance in this segment is overwhelming! In CY2016, China exported 38.14% of the world’s Li-ion batteries by value – followed by Japan that had a 14.71% share. Concurringly, in FY2017, China was by far India’s largest sourcing destination for Li-ion battery. While India’s sourcing destinations also include countries like US, Vietnam, Hong Kong, etc., their contribution in value terms is negligible.

Duggal explains, “China produces quality batteries at an extremely competitive price and the product range they offer is incredible.” In fact, Duggal’s company sources 80% of its supply from China. Agrees G. S. Marjara, Business Head, Future Hi-Tech Batteries Ltd., adding that, “China being a manufacturing hub offers plenty of options, both in terms of price and quality. Today, the dragon country has the capability to feed markets of any size.”

Currently, the southern part of China is the most favoured sourcing destination amongst Indian importers because not only does the region have some of the most developed ports in the world, but the region is home to many top-level lithium-ion battery manufacturers. “While sourcing hubs like Guangzhou and Shenzhen are popular amongst Indian importers, cities such as Dongguan and Jiangmen are also gaining popularity,” says Eric Liu, Overseas Sales Manager of DNK Power Company Ltd., a prominent Li-ion battery manufacturer and exporter based out of Shenzhen.

STUMBLING BLOCKS

If you’re wondering it is all rosy, there are indeed a few challenges. The Goods and Services Tax (GST) that was implemented on July 1, 2017 is, according to exporters, the biggest challenge at present. Prior to GST, importers paid total duties of 29.44% that included basic customs buty (10%), additional customs duty (4%), countervailing duty (12.5%) and Cess (3%). However, under GST, importers now pay 10% basic customs duty, 3% cess and 28% IGST – a total of 41.18% in tax and duties. Marjara explains, “IGST will be credited back to us as input credit, but the refund process is slow. Remember, we import the batteries in huge quantities to avail the most competitive price and it takes time to sell. And this means, a huge portion of our working capital will be locked.”

Also, Li-ion battery being a hazardous. product, as described by the International Civil Aviation Organisation (ICAO) and as per the International Air Transport Association (IATA) norms, it is a challenge for importers who opt for air route to transport them. Gupta explains, “Proper Material Safety Data Sheet (MSDS) is mandatory at airports. But the problem is that each MSDS is valid only for a specific product and for a limited period of time. Getting five MSDS to import five products is a real challenge.” According to importers, procuring MSDS is an expensive affair and it’s them who bear the cost.

In addition, the Indian government’s initiative to make Bureau of Indian Standards (BIS) certification mandatory, a laudable effort to maintain quality standards, has been become a hassle of sorts for our importers. Marjara shares, “Sometimes the Chinese exporters ask Indian importers to get the BIS certificate for them so that they can export to India. Getting the BIS certificate can be an expensive and lengthy proposition.” According to importers, it can costs around Rs.1.5 lakh to get the certificate for one specific product depending on the quantity imported. Most of the importers The Dollar Business interacted with claim that they had to process the BIS certification for Chinese exporters. Without any hesitation, Gupta affirms, “I have applied for the BIS certification many times on behalf of Chinese exporters. It is a hassle, but the margins are good and that is why Indian importers choose to undertake the process and pay the fee on behalf of exporters.”

SUNNY DAYS AHEAD

When importers say that margins are high, they really mean it. Margins on Li-ion battery for certain applications are a modest 10%, while margins in the industrial segment can be a whopping 40%. Both Duggal and Gupta say that value-addition is required depending on the requirement of the sector they supply to but margins remain high. Duggal says, “Since the commercial segment calls for a volume game, a 10% margin is definitely a very good number.”

Li-ion batteries find varied uses across sectors like defence, telecom, medical equipment and solar power.

Add to this the fact that there are numerous government initiatives like Digital India, Smart Cities, National Electric Mobility Mission Plan (NEMMP) which will require Li-ion powered equipment in the near future. NEMMP alone plans to deploy millions of electric vehicles/ hybrid vehicles (powered by Li-ion battery) on Indian roads by 2020. Even if these ambitious government initiatives reach half their potential, with the demand for existing application rising, imports are bound to go only up from here. High volumes, high margins and a visibly promising future. What else can an importer ask for?