From a distance, the headquarters of Lohum Cleantech, located at Kasna Industrial Area near Greater Noida, appear to be yet another regular mid-tier IT firm. Such units, mostly two-three-storeyed glass houses, abound in many clusters in Uttar Pradesh’s most renowned business hub comprising Noida and the adjacent pockets. But as you enter the 30,000 sq m premises and get a chance to visit every corner, what you see may convince you this is no ordinary ‘run-of-the-mill’ venture.
The two-storeyed transparent glasshouse has a distinctive R&D centre on the ground floor where you will come across technicians segregating and examining the quality of components dug out from used lithium cells. And at the back of the main building, there is a mid-sized factory floor where you will come across 50-60 workers engaged in battery recycling and battery pack or storage manufacturing using state-of-the-art machines.
The scene being played out at this building is somewhat unusual as lithium battery recycling as a business is at an extremely nascent stage in the country with only a handful of players being in the fray. But now it is undoubtedly evolving as an integral component of the circular economy theory globally. It is amidst such a scenario that a start-up like Lohum has made some decisive moves to reap a first mover advantage in not-so-distant future through lithium battery recycling and its derivative activities, more particularly on the storage solution side.
“We will be clocking a revenue of Rs120 crore in the current fiscal, Rs400 crore in 2022-23 and our aim is to touch the $1 billion mark in the next four-five years,” says Harvard University educated Rajat Verma (44), CEO and co-founder of the firm. Considering the current scale of operations as played out at its Greater Noida unit, you may for a moment conclude that Verma may be drawing on what Shakespeare termed ‘vaulting ambition’.
But if various projections by leading research agencies are to be believed, the segment is not just heading for a brisk growth spell but rather explosive or phenomenal growth in the coming years. As for any first-mover, it would be important for the company to continue to play it right and respond swiftly to scale the pressures that are likely to result in a firmer toehold, even as the turf draws more players.
Business dynamics
The global demand-supply equation for lithium-ion batteries is simple. With hybrid and electric vehicles slated to drive the mobility market and completely replace fossil fuel-driven vehicles at some stage during the latter part of the century, the demand for lithium-ion batteries is rising phenomenally. This is over and above the existing base of their inevitable utility in electrical and other appliances. However, the raw materials – lithium, nickel, cobalt, graphite – concentrated in African nations, Australia, Chile and Argentina are finite.
China, with its high consumption of electronics and the fact it was a decisive first-mover in hybrid vehicles (around 2010) has cornered a sizeable chunk of resources with an unmatched production capacity of battery cells (supplying 90 per cent of the world’s demand). It is in such a scenario that the world at large has begun looking favourably at recycling lithium-ion batteries and giving them a second lifecycle as a viable solution. And the drive has seen a sudden escalation in scale in a matter of just five years.
As per an estimate, the global lithium-ion battery production capacity in 2015 stood at 50 GWh and this has jumped by nearly ten times in just five years and it will continue to grow. “We expect global LIB production capacity to increase from 455 GWh in 2020 to 1,447 GWh in 2025, at a CAGR of 26 per cent. China and Europe will be the largest contributors to LIB capacity increases, just as the two regions will also become the biggest drivers of global passenger PEV sales,” a recent report published in S&P Global Market Intelligence underlined.
India is a peripheral contributor to this phenomenal churning but holds a plethora of promises. “India currently has a meagre share of 1 per cent of global LIB capacity. But it will rise very fast and by 2024, the capacity could well amount to 20-25 GWh. There will be plenty of activity in the LIB recycling space too as stakeholders have begun realising its value and about eight to nine players have made some moves or shown a strong intent to jump into the fray which currently has a presence of a handful of players like Lohum and Attero. The PLI scheme has also announced incentives for them,” observes Dr Rahul Walawalkar, Founder & President of India Energy Storage Alliance while adding that more action would be visible post 2025 when the country will have some scale built in the electric vehicle segment and its battery recycle necessity would begin to grow. “It’s a game of patience but the growth prospects are of epic scale,” says he.
Ankur Bisen, Senior Vice President, Technopak Advisors and author of the renowned book ‘Wasted’ which highlights the changes needed for effective e-waste management to usher in a circular economy regime adds another perspective. “The segment is just evolving and because of current low volumes, it is currently a start-up play. But at some stage big players will definitely move in. Lithium battery recycling is primarily happening on the basis of used cells collected from the electronics companies in the country,” says Walawalkar.
2R Factor
For those who have begun tracking the evolving stream of the lithium-ion battery recycling business (lead acid battery recycling has been happening for quite some time) Lohum is now a known name which has raised expectations with its avowed focus on the 2R factor. “Recycling and reuse are two pillars of our business. We are dealing with recycling and second life in an integrated way and that makes us different from what others are doing. This is a unique business model and that gives an edge,” Verma underlines.
The formation of the company in 2018 has its genesis in the conviction shared by Verma and the other co-founder Justin Lemmon (based in the US and a batch-mate of Verma at Harvard) around 15 years ago that the environmental business would have a big future. According to Verma, even as the duo had taken a decision to take the plunge into unchartered territory in 2018, they were sure that India would be viable turf in which to build large-scale global operations in lithium battery recycling and storage solutions.
“India’s low-cost R&D (1/10th of the cost in comparison to developed markets), large electronics market and diverse energy requirements make it the right location for this business. We have access to a large base of battery waste from consumer electronics. The entire world was waiting for EV raw materials to come back into the system and then start recycling. We went ahead and started on the basis of electronic waste batteries,” he explains.
And the preliminary expectations of the co-founders that what they were embarking upon would soon begin to grow big seem to have been met. With battery pack manufacturing (15 SKUs) including storage and recycling being two key verticals, the company today claims to be undertaking 80 tonnes of recycling monthly and making 300-400 battery packs every day using used and new cells.
“Right now, apart from leading electric two-wheelers, three-wheelers and some noted international OEMs, we also make battery packs and storage solutions for commercial UPS market, telecom companies and smart city projects.” For the collection of used batteries, its 55 service centres in the country double up as collection points and the main contributors here are electronic companies and also large-scale kabadiwalas.
The Extended Producer Responsibility (EPR) concept which was subtly introduced as part of The Plastic Waste Management Rules, 2016 makes it mandatory for electronic giants to buy back a sizeable chunk of their products after their first life cycle gets over to prevent them from adding to environmental degradation. “This rule has been softly implemented but nevertheless, it has started showing some results,” Bisen confirms. Meanwhile for Lohum, the current split between the two verticals is equal in terms of revenue contribution.
Big-bang developments
Having grown at a steady pace while laying its foundation in its formative years, the company is now expecting a big-bang growth trajectory to come into play from next year. And there will be a host of expected developments which will act as critical trigger points. To begin with, the company’s second unit is all set to get fully functional in the next couple of months. It is being set up in Greater Noida on a three-acre plot. This is going to significantly enhance the recycling and production capacity of the company.
“The plant will have the capacity to recycle one million EV batteries per annum. This is a state-of-the-art facility and is fully automated,” Verma explains. The company will spend around Rs200 crore in setting up this facility which will be the first major investment after the setting up of the existing base plant built at a cost of Rs50 crore.
This will be the first of the major developments which the co-founders have planned for the next couple of years. Lohum has received funding of over $15 million so far from noted private equity firm Baring PE Partners (which led the preliminary round of $7 million) and a clutch of other investors like Talbros Automotive and the Michael Schwab Trust. “In the next six months, we will be generating an additional $100 million which will lead to major expansion in capacity, especially outside the country. There will be one more round of fund generation about 18 months after this which would probably be in the range of $200-250 million,” Verma says, while adding that negotiations for the next big round funding before June have almost been finalised.
The company is now gearing up to open plants in the US and European markets which will be spearheaded by the US-based co-founder. “Our international operations will continue to rapidly expand over the next few years. Our anchor hub and foundation have been laid in India and we are now uniquely positioned to dramatically expand our international operations. We currently have customers throughout Asia, US and Europe and we will continue to build upon this business based on the high demand,” Lemmon says.
“Contrary to companies in the West, we have always had to pay for recycling feedstock. This forced us to develop a really efficient recovery process with low capex, high modularity, and superior economics for our customers. Our first plant in the US will be completed in 2022, which will cement a much deeper international capability and presence,” he further adds while explaining the merit of planning an India-based multinational entity.
The rapid planned expansion is also going to make a specific change in the company’s vertical composition wherein stationary storage will become the driving component of the business. “In the next five years, we expect about 65 per cent of our revenue to come from stationary storage and battery pack (storage-50 and pack-15) while the remaining will be contributed by recycling and its derivative businesses,” Verma says.
According to Walawalkar, emphasis on stationary storage by any player in the green energy solution space is quite obvious given the cost advantage it is going to offer. “We will eventually move to a stage in which demand for energy (coming from renewable source) offered in stationary storage format will be on the high side rather than direct buying from the grid. For commercial customers, this would be cheaper in comparison to buying from the grid,” says he. The preference for the segment, therefore, seems to be a well calculated move for Lohum co-founders who today definitely have more clarity on emerging trends than when they had started.