HSCL Accelerates EV Battery Material Plans Amid Market Volatility

Himadri Speciality Chemical Ltd. (HSCL) is expanding from its carbon materials expertise into the fast-growing battery components market. The company's established carbon black and coal tar distillation businesses are currently performing well, but HSCL's main focus is now its large-scale move into lithium-ion battery materials. This strategic shift aims to secure earnings stability from its existing operations while pursuing high growth in new areas.

Push into EV Battery Materials Gains Pace

HSCL is advancing its plans for lithium-ion phosphate cathode active material production. A 2,000 tonnes per annum (TPA) capacity is set for commissioning in Q3 FY27, part of a larger Phase 1 goal of 40,000 TPA, expected to be fully operational by FY29. The company has also commissioned its first anode material facility in West Bengal, with a 200-TPA capacity. HSCL has secured a technology license with Sicona for proprietary Silicon-Carbon (SiCx) anode technology in India, planning a pilot plant by Q2 FY27. Additionally, HSCL has invested in International Battery Company (IBC), which is building a Gigafactory in Bengaluru due to open by Q4 FY27. These moves are designed to tap into India's rapidly growing electric vehicle (EV) battery market, forecast to expand from about $2.7 billion in 2025 to over $15 billion by 2034, at a CAGR exceeding 21%. While India's government supports domestic production through Production Linked Incentive (PLI) schemes for Advanced Chemistry Cells (ACC) and battery manufacturing, the scheme has seen slower-than-expected rollout, with only 2.8% of its target capacity commissioned by early 2026.

Existing Businesses Provide Stability Amid Market Shocks

HSCL's core operations in speciality carbon black and coal tar distillation continue to be important profit sources. Planned capacity expansions for speciality carbon black and improvements to coal tar distillation facilities are expected to drive volume growth in FY27. The company benefits from backward integration using coal tar feedstocks, offering a cost advantage over crude oil-based materials, especially in the current market. This stable base is vital as HSCL competes in the carbon black market, where rivals like PCBL Limited, trading at around 28x P/E, are also targeting EV battery applications. However, the Middle East crisis has created significant market instability. Higher geopolitical risk has increased crude oil and diesel prices, raising transport costs and potentially affecting downstream industries that rely on coal tar derivatives. This disruption also creates challenges for export markets, which could delay revenue from new coal tar distillation capacity.

Analyst Concerns and Execution Risks

While HSCL's stock has performed strongly, reaching new 52-week highs near ₹650, some analysts express caution. The company's valuation appears high, with trailing twelve-month (TTM) P/E ratios between 34.5x and over 43x, suggesting it might be moderately overvalued. Analyst opinions are split; a previous 'Overweight' rating has shifted towards a 'HOLD' consensus, with price targets ranging from ₹470 to ₹550, pointing to a potential downside of over 10% from current trading levels. This divergence between the stock's performance and some analyst views calls for careful consideration. Projecting HSCL's battery material initiatives involves risks, such as securing customer approvals and contending with a global battery supply chain heavily influenced by Chinese companies. The sluggish implementation of India's ACC PLI scheme, despite its significant funding, could lead to delays and execution hurdles for local firms like HSCL. Moreover, the ongoing Middle East tensions not only drive up operational energy costs but also threaten export volumes and pricing for coal tar derivatives, affecting HSCL's established income streams. Entering the advanced materials sector also places HSCL in direct competition with established giants like Cabot Corporation and Orion S.A. in specialty carbon black, requiring a focus on niche, high-margin areas for differentiation.

Growth Forecasts and Investor Strategy

Looking ahead, Himadri Speciality Chemical forecasts its net profit to double between FY25 and FY28, reaching an estimated ₹1100 crore. The recently acquired Birla Tyres division is expected to be a major growth contributor, with plans to increase its revenue from ₹187 crore in FY26 to around ₹3,000 crore within four years. HSCL anticipates its new speciality carbon black capacity will reach 85% utilization in FY27, boosted by higher prices linked to the Middle East crisis. Management acknowledges the large production capacities in China, leading to a measured approach in valuing the near-term financial contribution from its battery components business. The company maintains a solid financial position with ₹121 crore in net cash. Analysts project an Enterprise Value to EBITDA (EV/EBITDA) of 25x for FY28, while current P/E ratios of 34-43x suggest investors are anticipating considerable future growth. Some analysts believe market dips could present opportunities for investors to buy shares.