Evidently, scrips of major players have reacted bearishly. In general, the drop in share prices for different players has varied from 30 per cent to 50 per cent during the month of March so far. Amara Raja Batteries has slid from Rs 320 on March 1, to Rs 158 on March 26. Exide Industries went down from Rs 105.50 to Rs 77.45.

In the wake of growing disparity between prices and sales volume, the industry is stuck in a demand-supply mismatch. Capacity utilisation has remained stagnant more or less at 82 per cent witnessed in 1994-95. In the same period, manufacturers had added to capacity in anticipation of demand growth that failed to materialise. Consequently, total capacity has increased by 90 per cent while production increased by 85 per cent.

Also, since most of the demand is met by cheap imports, the domestic players have to resort to price under-cutting. The landed cost of imports is significantly below the domestic sale prices. The price under-cutting varies from 13 per cent to 54 per cent for different sizes of industrial and automotive batteries.

A closer look at the price trend reflects the above fact clearly. Over a period of last five-years, the domestic manufacturers had to refrain from raising prices. Not only this, the average price realisation shows a declining trend. Although, there is slack in the user sectors, the current price of a lead acid battery is well below what it was five years back.On the financial front, net profit and profit margins are down. In the year to March 2000, net profit of three battery manufacturing companies declined by 35 per cent to Rs 77 crore from the previous year. This is despite a 6 per cent rise in sales to Rs 1,905 crore.

The industry is lucky enough to attract capital, in spite of low returns. The industry has seen huge capacity build-up since 1995-96, and the rate of capital infusion works out to around 15 per cent per annum. However, the trends in return on capital employed (ROCE) are not encouraging. During 1995-95, the total capital employed was at Rs 700 crore and by 1999-2000, the figure crossed Rs 2,000 crore mark. Of this, nearly 85 per is employed in asset formation.

On the other hand, return on networth (RONW) is in single digit at 6.5 per cent during 1999-2000, having crashed from around 27.3 per cent in 1995-96.The dumping of cheap batteries from the Asian countries is a serious problem. The authorities say imports from China account for 30 per cent, Korea 21 per cent and Japan 6 per cent of the total value of imported batteries. Imports from these countries have been increasing at a worrisome rate still.

In view of the fact that the WTO deadline is approaching fast, the domestic manufacturers will have to take up innovative measures in improving quality and lowering prices to ward off unhealthy competition from cheap imports. Apart from product pricing, lower cost of financing may help a bit. Once the Quantitative Restrictions are removed, the floodgates will be opened for international players. But before that happens, the domestic players will have to gear themselves up. As for the government, a policy that protects the domestic players from unhealthy competition without compromising on quality products at competitive prices to consumers will prove to be a real challenge.