BUS574, Term 4 2013Prof. Mike MillerMay 9th, 2013

Strategic Analysis of Enersys, Inc.

Sam Bishop

BUS574, Prof. Mike Miller 2Sam Bishop, Final Project5/9/13

Table of Contents

Firm and Industry Background 3

Internal Issues 5

Strengths 5

Weaknesses 7

External Issues 8

Opportunities 8

Threats 9

Trends 10

Key Issues and Decisions 11

Strategic Recommendations13

Transformational Strategy 13

Incremental Strategies 14

Appendix 17

References 23

BUS574, Prof. Mike Miller 3Sam Bishop, Final Project5/9/13

Firm and Industry Background

Enersys, Inc. is a major industrial battery manufacturer for both OEMs and aftermarket

applications. They are in the diversified industrials sector of the electrical components and

equipment industry. They rank highest in terms of market share and volume, as well as global

reach. The company was formed via the purchase of North American reserve and motive power

business from Yuasa Inc. in 2000 (Enersys 2013). They expanded via the acquisition of the

energy storage group of Ivensys in 2002. Following an IPO in 2004, Enersys grew substantially

through acquisitions, particularly in Europe (Germany, Switzerland, Bulgaria). The company

has completed a series of recent Chinese acquisitions as well (Enersys 2013).

Enersys now competes globally including with their original parent company.

Acquisition investments have reached a plateau since 2011 (Traders Insight, 2013). Worldwide,

they have about 9,200 employees. They are a profitable company. For fiscal year 2012, Enersys

had $2,283mil in revenue with $144mil in net income. Their stock has recently been trading at

the high end of the 52-week range (around $45). Additional financials are discussed in the

internal issues section and are summarized in Figure 1.

Enersys serves three major markets: motive power (industrial material handling and

transport), reserve power, and aerospace/defense. In addition, they offer specialty and consumer

battery products as well as customer support services. They operate globally with their

organization structured along three geographic divisions: Americans, Europe, and Asia (Enersys,

2013). Their corporate headquarters is in Reading, Pennsylvania, USA. They operate regional

offices in foreign markets. They have a diverse base of customers. OEMs, material handling,

railway, and mining are the major markets in their motive power division. In their reserve power

division, portable power, telecommunications, uninterruptible power supplies (UPS), and other

electronics are major customers. They offer a variety of energy storage systems (Enersys 2012).

Motive and reserve power batteries constitute a $7.9bil industry. Aerospace and Defense

form an additional $2bil market. Enersys is the market leader with an 18% share of the motive

power market and a 36% share of the reserve power market, for a roughly 25% overall market

share of industrial batteries. In addition, they have a 45% market share in forklifts and have a

specific battery brand for this line of business. About 25% of their revenue is from lead acid

BUS574, Prof. Mike Miller 4Sam Bishop, Final Project5/9/13

related products. As a caveat, however, Enersys has a historically underdeveloped business in

Asia and holds only 7% market share in that region.

Major brand names that Enersys sells under are Powersafe, Hawker, Ironclad, Odyssey,

and Enersys. They have the greatest product diversity in lead acid batteries. They market

maintenance free systems that shrink the footprint of the traditional motive power battery room.

Table 1 shows a diagram of process improvement possible with their “XFC” maintenance free

lead acid battery. Table 2 shows the key product characteristics of their “TPPL” and “Ironclad”

electrodes. Enersys manufactures lead, nickel, and lithium batteries in different configurations.

Table 3 summarizes the major industrial battery types. For reference, Table 4 gives further

technical characteristics of different electrode systems.

Businesses in the diversified industrials sector bring together engineering and production.

They are manufacturing-focused and have significant product diversity (Deloitte 2013).

Identifying market opportunities, new technologies, and strategically valuable niches are

important. This sector is inherently global. Companies distinguish themselves by their ability to

manage raw material costs, supply chain value delivery, and new product development (Landry

2010). This sector has more volatile stock movements than the S&P. This is due to the inertia of

inventories and contracts coupled with sensitivity to manufacturing demand. Unfortunately, it is

difficult to reduce production perfectly in step with demand changes. Operational efficiency is

important in this industry since differentiation is often on value/price with economies of scale in

play. Operating and net margins separate profitable from declining companies. A robust cost

structure is important to weather price pressures, industry consolidation, and recessions.

Production capacity largely determines a company’s ability to grow. Flexibility in funding is

important for supply chains reasons. Vendor deals, acquisitions, non-recurring engineering

charges can all require funding in the short term. Through 2012, this sector was still rebounding

in sync with global economic forces (Landry 2010).

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Internal Issues

Strengths

Enersys is in good financial shape. They have significant liquidity holding $229mil in

cash (quick ratio of 1.54 in 2012) and over $370mil in flexible credit lines through 2016.

Demand for their products is driven largely by construction and manufacturing. Their challenge

is to rise above the ebb and flow of economic and GDP trends (Traders Insight). While some of

their rebound is accounted for by the global economic recovery following losses in 2008-2010,

they are still achieving record sales numbers. They have posted $1.7bil in sales through the third

quarter of 2013, up 1% over the same quarter last year. Their net income is up as well at

$134mil for 2013 compared to $102mil for 2012 (Marketwatch 2013). They have also delivered

record earnings, up 33% to $2.75/sh for 2013 to date versus $3.03 for all of 2012 (adjusted

diluted eps, SEC 2013). They have demonstrated a positive trend in their gross profit margin

since 2nd quarter of 2012. Their gross profit margin is currently at 25.8% for 2013 compared to

20.9% for the same point last year. Their net sales are down slightly (3%) from 2012 to $557mil

which might be the reason why analysts are reluctant to give buy recommendations for Enersys.

Analyst opinions are shifting from neutral to slightly positive for ENS (Holland 2011). There are

no breakout stocks in their industry due to ongoing global economic uncertainty (Traders

Insight).

Table 1 in the appendix summarizes some key financial ratios for Enersys and

competitors. Enersys has a P/E of 11.83 and a P/B of 1.6, fairly attractive given their positive

earnings trend. For a company with operations and sales around the world, their gross,

operating, and net margins are competitive (at 22.66%, 9.62%, and 6.31%, respectively, for

2012). Their returns on assets, equity, and total capital are strong in the industry (7.68%,

14.35%, 11.45%). They have very little relative debt possibly to the point of being

underleveraged. Their total debt-to-total equity is only 24.81 and their net debt-to-EBITDA is

only 0.5x.

Enersys achieves 60% of its net sales from outside the US and has more than half of its

production capacity outside the US. This suggests they have their human and physical resources

distributed effectively across the 100 countries in which they operate. They have a global sales

coverage and have strategically acquired production facilities to serve their largest markets and

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areas of potential growth. Overall they have significant capacity in low cost countries such as in

Eastern Europe. They recently opened their third plant in China and have new facilities in

Argentina and Brazil, primarily for lead acid products (Williams 2013). Overall, their

production capacity in lead acid battery is greatest allowing them to accommodate growth in this

area (SEC 2013). In addition, Enersys has also acquired Li-ion facilities or entered into joint

ventures. They have new large format Li-ion facilities in Germany (Enersys 2012), but they are

untested for production. In theory, they are staged to accommodate market expansion into this

area as well.

Enersys survived the recent economic downturn to remain the market leader. They have

a good cost structure allowing them to handle further economic slowdown or industry

consolidation. While they have some premium products, they had traditionally differentiated via

value/price leadership. They have maneuvered to retain the major share of old silver zinc

Aerospace and Defense contracts even as they transition to Li-ion. They strategically acquired

Li-ion producer ABSL in order to maintain their foothold on this market (Enersys 2011). With

recent acquisitions and some product development, Enersys has multiple platforms (lead,

lithium, and nickel based battery chemistries) that can all be integrated into their energy storage

systems. Some of the specific configurations are new and untested in the field, however.

Enersys has strong, long standing customer relationships and the most reliable and

diverse portfolio of products in the industry. Relationships are supported by end user and dealer

loyalty programs. They also have installation and maintenance capabilities. A recent

partnership with a logistics company improved their ability to deliver these service products

(Macleod 2013). They have strong recognizable brands and trademarks in their markets

(Superhog Ironclad in motive power, Optigrid in reserve power, Odyssey batteries in retail).

In order to operate cohesively across 100 countries, Enersys implemented a unified HR

system in the early 2000s as part of a global strategic initiative (Enersys 2013). This system uses

common standards and metrics across all subsidiaries. At the same time, HR promotes

“constructive conflict” and a culture of respect. The system has been recognized by industry

awards. This globally integrated approach is supported by a senior management team with an

average of over 12 years experience with the company. This demonstrates stability in

management as most were part of the original global strategic initiative.

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Weaknesses

Enersys’ major vulnerability is an overreliance on lead based battery products. This lack

of fundamental product diversity makes them disproportionately sensitive to raw material costs

(material costs already account for one third of their cost of goods). The company has used its

market leadership to successfully pass material costs on to its customers, but it can’t rely on this

forever. Rising lead costs are a strong incentive for customers to evaluate other battery

chemistries for which Enersys would face stronger competition and reduced margins. While the

price of lead is a macroeconomic factor, Enersys’ product mix and pricing strategies make them

uniquely vulnerable. Enersys relies so heavily on lead based products that it has little flexibility

in the short term if customers move to other platforms. If Enersys accelerates its transition into

non-lead products it runs the risk of cannibalizing its existing product sales (i.e., lithium vs.

lead). This is a strategic weakness as lead acid batteries will continue to be the company’s

primary focus for the near future.

Enersys doesn’t have ready access to cutting edge technologies in battery electrodes.

They have limited in house R&D, favoring product development through acquisition. They may

not have the resources to cover their near term lithium development needs. While they have

acquired some lithium production capabilities, they don’t have access to the best lithium battery

designs. In general, they are not using state of the art battery chemistries in their fully

commercialized products. They have licensed some cutting edge nickel zinc products, but these

are not fully commercialized for industrial applications (Enersys 2012). Retail application of this

technology has been challenging.

Similar to its reliance on an old battery technology, Enersys is vulnerable because of the

age of the designs of its products. Material handling and logistics systems are changing rapidly

in favor of automation. Conventional forklifts and non-cyclic reserve power supplies are rapidly

becoming legacy systems.

Enersys does not have best-in-industry operational efficiency. Their margins are average

for the industry (GE’s operating margin is nearly double Enersys’, Table 1). This could be a

problem when trying to grow operations in Asia. They are spread out geographically with poor

market share in key areas (South American, China). Enersys is vulnerable to pricing pressures in

these weak points. They have excess capacity in some sectors. They also don’t own their own

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lead smelting facilities. This suggests an overdependence on long standing customer/vendor

relationships. They also lack strong patent protection instead relying on product quality.

Enersys runs this risk on not being able to catch up or keep up in a rapidly changing

environment. This is particularly troublesome as Enersys has managed its finances to the point

of being underleveraged (too little debt). This undercuts their ability to generate sales growth or

bring next generation products to market.

External Issues

Opportunities

Enersys has multiple opportunities stemming from recently established partnerships and

acquisitions. The company recently licensed nickel zinc technology from Powergenix

(Powergenix 2013). There is the potential for synergy with their existing nickel metal hydride

capability (including products on the market currently and excess production capacity). Nickel

zinc has interesting characteristics as a chemistry. It has average volumetric and gravimetric

energy densities, but it is less than half the cost of lithium on a watt-hour basis ($250/kWh vs.

$550/kWh). It is also a water based chemistry making it a better candidate for industrial scale,

maintenance free systems. In theory, these electrodes are capable of superior high power

response than lithium. Enersys has not incorporated the Powergenix designs into their battery

platforms yet. If nickel zinc can expand the lithium market by 10% (via its safety and power

characteristics) that would be a $400mil market opportunity. Setting aside the risk of

cannibalization, if the costliest and highest power lithium customers can be converted, it is not

unreasonable to expect the market opportunity to approach $1bil. Table 2 summarizes this and

other market opportunities.

The company also recently partnered with an ultracapacitor startup company (Enersys

2013). This technology is fairly unproven and the price needs to come down. There is strategic

potential, however. This technology could be incorporated into existing battery platforms as a

value added component (motive power cold start backup or short term high load supplemental

power, for example). Hybrid applications in new markets could be enabled by ultracapacitors, as

well.

BUS574, Prof. Mike Miller 9Sam Bishop, Final Project5/9/13

Enersys has some new product initiatives that present opportunities as well. There are

multiple markets where can help Enersys gain access. In the oil/gas industry, their Kepware

pipeline systems partnership has the potential to add new capabilities while revitalizing existing

products (PRNewswire 2013). Moving the company into oil/gas is strategically significant as

well. The size of this market opportunity is unclear. Maintenance free lead acid systems might

be able to compete with lithium as a low cost option for the medium term (figure 1). Enersys’

proprietary “TPPL” lead acid technology may be extensible into cyclic applications. Modeling a

10% expansion of the existing lead-acid market ($550mil) makes this roughly a $50mil annual

market. Fully containerized large scale energy storage (Optigrid brand) constitutes $300mil per

year in the short term with significant market potential ($160bil domestically, up to $600bil

worldwide). Finally, Enersys has the potential to grab up to $4bil of the lithium market, but this

requires co-development of primary and rechargeable battery systems. As game-changing

commercial space applications emerge, this could how Enersys expands its Aerospace/Defense

market.

On a regional basis, Enersys’ relative market share is low in Asia and South America

(less than half of the US market share). If they can overcome regulatory and political challenges,

they have significant growth potential here. In general, they have production facilities in place,

either underutilized or on hold.

Threats

For a market leader in a large industry, Enersys has a definite threat of new entrants, both

small and large. New entrants can emerge and multiple levels: new battery chemistries,

improved packs, assemblies, charging systems. Ultralife and Altair Nanotechnologies are

examples of smaller companies threaten to leapfrog over Enersys’ lead acid dependence with

more advanced lithium or other technologies. There is the potential for a rapid decay of the lead

acid market at some point either in volume or margin. Exide is an example of a direct

competitor of similar size. This company has not been as acquisition focused and has proprietary

lead acid technology of their own (gel-cell) (Exide 2013). While Exide has suffered from

management scandals and bankruptcy, its core products rival Enersys’ in terms of performance

and quality (4-Traders 2013).

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Enersys’ lead acid products are only weakly protected by tech differentiation and depend

more on longstanding customer relationships. They are vulnerable to pricing pressures at the

international and regional levels. They have underutilized capacity in some sectors already and

foreign producers are increasing their export volume and marketing presence. Enersys faces new

competition in reserve power. Asian competitors are now able to effectively sell worldwide in

high growth areas faster than Enersys causing further price erosion.

Lead brings environmental, health, and safety (EHS) risks as well. Enersys is already

saddled with legacy clean up costs for facilities it has acquired. So far these costs have been

reasonable domestically ($3mil in Sumter, SC). However, one of their Chinese plants was shut

down in 2011. While it was allowed to reopen, the plant will ultimately need to be relocated.

Enersys has the ISO 14001 environmental management system in place at many of its facilities,

but has struggled to implement EHS controls in Asia. With intent to grow in this region and

significant operations occurring in China and India already, Enersys is weak overall in terms of

EHS.

Enersys faces legal and political threats. The company is limited in its acquisition based

growth strategy going forward due to anti-trust limitations. They are impacted by sequestration

and austerity measures. Their plants are at risk of shutdowns due to political instability. South

America, North Africa, and the Middle East are areas of targeted growth with stability issues.

Enersys has already experience strikes in Eastern Europe. This could hurt their cost structure.

Trends

The nature of competition in industrial batteries is changing. Lead acid product and

process innovation are tapering off with the maturity of low maintenance batteries and optimized

thin plate manufacturing. Customers are less likely to accept large format, centralized “battery

rooms”. There is a diminished focus on capacity among other battery parameters. Fast charging,

rate-capability, power, cost, and reliability are more important now that most products can

deliver sufficient base capacity. The trend towards specialized battery chemistries for niche

applications (including Aerospace/Defense) is ending. Original monovalent silver zinc defense

products are being retired now that lithium is capable (and mainstream) alternative.

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There is a trend towards strategic innovation logistics. Custom solutions can be

developed using existing products and processes with management systems included. This is the

manifestation of the overall business trend towards focusing on the customer experience instead

of a company’s products. Therefore, more customer facing support and installation services are

expected. The commercial space industry will need customized energy storage of this kind.

There are major growth opportunities in the power grid market, potentially a $600bil

market globally. The US is currently losing $180bil annually from power outages. Therefore,

the trend in smart grid systems and components will likely accelerate. It is possible new trends

in microgrids could surface including integrating small grids into dense urban environments with

renewable energy sources. Next generation storage systems will need support equipment to

enable off-site (cloud) management. A complementary trend is the automation of energy storage

systems including battery charging. This enables the expansion of cyclic applications.

Key Issues and Decisions

Due to the potential size of the market opportunity in smart grid energy storage, the most

important decision Enersys needs to make is their marketing strategy for their Optigrid product

line. The company has capability in multiple battery platforms that can be offered under the

Optigrid brand, but it might not be feasible to carry all along due to differences in features, cost,

or compatibility with existing products. Enersys is currently promoting that they can offer large

scale energy storages systems of multiple chemistries which could confuse or overwhelm

consumers. There is also the issue of supply chain complexity. If Enersys is successful in

achieving rapid growth with their smart grid platforms they could experience poor economy of

scale if they don’t improve their margins.

To develop that marketing strategy, Enersys will also need to decide how it should

evaluate its multiple battery platforms and product direction. They have flexibility in the

“dimensions” they choose to use both technical and practical. They will need to redo their

customer profiles and market segmentation in order to determine which characteristics is most

important going forward: rate-capability, recyclability, total assembly cost/size,

voltage/electronics compatibility, safety, maintenance. It is possible that this effort will guide

the product development of smart grid components.

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Enersys faces other key issues and decisions related to product development. Until now,

they have not required any research or product pipelines, relying on acquisitions and

partnerships. With their complexity of batteries and large market opportunities on the horizon,

they may need to quickly develop additional product engineering capabilities. They could get

called out on their claims to be able to deliver large scale nickel zinc uninterruptible power

supplies (never been done before). These capabilities may require changing the organizational

structure to include new management levels or even departments. As power storage applications

become more automated with remote monitoring, installation and management of IT systems

will become critical. Enersys’ IT department will rapidly become customer-facing. There will

be a confluence of new customer relationship and IT management requirements.

Enersys is emerging from over ten years of major acquisitions. They have multiple

brands and product lines in motive power, reserve power, and retail areas. They have even

launched new brands during the last couple years. There are multiple underdeveloped (both in

terms of brand and product development) lithium chemistries and other (lead, nickel) battery

types. The company depends on its reputation for quality and brand (in many cases cobranding

both the legacy product name and the Enersys logo), but there is lack of cohesiveness. The

company faces multiple branding decisions.

A key issue for the company is their moving into a post-acquisition phase (or at least

slower rate of acquisitions). The company is definitely underleveraged with plans to add up to

$800mil of debt, but their growth strategy is unclear. There are many options to fuel growth.

They could pursue non-lead acid technologies and/or seek out new specialty markets. It is

important that they determine if increasing their presence is worth it in terms of ultimate market

size. They also have the issue of insufficient or fractured R&D resources. Most of Enersys’

product development has been leveraging acquired platforms. There is little in house R&D to

speak of.

On the service side, the company is just beginning to leverage their Hawker and other

acquired material handling brands to deliver complete material handling systems (Enersys 2012).

Similar to their lack of in house research, their organizational chart doesn’t show any roles

related to system installation and support. This is a key issue because senior management for all

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three regions listed service and support as a strength, but it’s not integrated into their strategic

plans.

Previous growth has been from acquisitions and their “unique lead acid” capabilities.

Complementary partnerships like Kepware and licensing with Powergenix increase their

capabilities, but the total market opportunity is either unclear or small. The company’s overall

profitability will still hinge on lead costs and operating efficiency. The company has no strong

non-pricing strategies to deal with lead costs. Quality and safety issues in foreign facilities are

ongoing. Li-ion processes are getting cheaper all the time. These issues impact the timing and

speed on attempts to increase market share in China and India.

Enersys has no long term roadmap for providing energy storage for the commercial space

industry or drone technology (private or military). These may become the prestige markets of

the future. It is unclear if the company’s existing aerospace/defense connections are useful in

this new arena. This is an important example of the company’s lack of vision. They intend to

profit off of lead-acid, transition at some point to lithium (via acquired production capabilities)

and continue delivering commodity industrial batteries.

Strategic Recommendations

Transformational Strategy

A transformational strategy requires large-scale, irreversible, long term change. The

change can be structural or cultural. It can cross departmental and process boundaries. Once

initiated, transformational strategies are generally irreversible because they represent a break

from the past (Stark 2000). Such a strategy is justified when a company is facing a crisis, is

anticipating rapid shifts, or is experiencing declining performance that won’t yield to incremental

change. Transformational strategies are a high risk, high reward approach (Goldsmith 2013).

Enersys needs to adopt a transformational market penetration strategy for the smart grid

market. There are multiple reasons why this category of transformational strategy is appropriate.

First, they can anticipate the decline in growth potential of the lead-acid batteries as new

chemistries are developed. Second, they can expect their market share to decrease as foreign

competition heats up. Third, their profitability could deteriorate due to raw material prices and

price pressures. These factors undermine Enersys’ current growth strategies, ability to sustain

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competitive advantage, and business model as a whole. In contrast, the smart grid market

potential dwarfs their current business and they can leverage existing products to grab market

share. The time to act is now while their funding is still flexible.

The long term smart grid market size may ultimately approach $600bil. More

conservatively, the market is forecast to reach $80bil in 2016 (Duprey 2013). Additionally, there

are trends towards microgrids in urban areas relying on small-scale renewable systems. The

microgrid market alone is forecast to be $18.9bil in Europe and Asia (SmartGridNews 2013).

There is a wide scale rethinking of how energy is captured, stored, and delivered. Enersys

should radically change how it does business to lock down market share here. They will need a

new identity. They should become a utility company and profit off the energy that their systems

pump back into the grid via new connections with renewable energy partners. They should

become a real estate development company and build their systems into new developments.

They should become an IT consulting company and rethink their place of work not as the

manufacturing plant, but in the cloud optimizing how they provide energy solutions. They

should shift their center to be Asia-facing due to the combination of market size and real time

grid construction. They should act like a startup company and bring modular microgrid

components and systems to market to complement their full-scale containerized products. All in

all, they need to shift their culture and their technology to support this new vision of the

company.

Their acquisition and product development strategies should be designed to achieve long

term differentiation in this market. They should explore microgrid compatible renewable energy

companies that could allow the rechanneling of their commodity lead-acid products into hotter

markets. This transformational strategy provides the direction for existing ultracapacitor and

lithium development. While they offer Optigrid energy storage system now, it is a repackaged

version of their legacy products. This is an incremental answer to a game-changing market

opportunity.

Incremental Strategy

Incremental strategies don’t require changes to the organization and often allow for

retreats. Multiple incremental strategies can be implemented in parallel. Existing resources and

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capabilities are leveraged in a continuation of the company’s existing trajectory. Three valuable

incremental strategies for Enersys are: the development of commercial space and drone markets,

development of turnkey material handling systems with full-service installation and support, and

vertical integration of lead related aspects of their supply chain (upstream and downstream)

(Goldsmith 2013).

Enersys needs to modernize and advance its space battery program as opposed to

continue in maintenance mode servicing old silver zinc Aerospace/Defense contracts for military

entities. NASA estimates the commercial space transport market could approach $6bil (NASA

2011). While the fraction of the market that applies to battery systems is unclear, they are a

critical part of any mission. The long term uptake is also unclear. Modeling the market

opportunity at 10% of the total market and allowing for relatively slow (roughly ten year) growth

still yields on the order of $60mil per year. There are also crossover and complementary market

opportunities in drones, space suits, and space tourism (upwards of $35mil per trip). This

strategy mostly relies on releasing existing products into new markets. Product development of

lithium electrodes (or modern silver zinc!) could be helpful in aiming for best-in-industry rate-

capability, and safety. However, it’s possible that optimized assemblies and systems will be

more attractive to potential new partnerships with commercial ventures like Virgin Galactic,

SpaceOne, and Orbital. Scooping and consolidating legacy space battery companies like Eagle

Pitcher, BST, and Yardney is possible as they are maintenance mode themselves. Even small

moves in the commercial space market could boost Enersys reputation and brand.

Enersys needs to become more customer experience oriented by emphasizing their ability

to deliver full-service system support. This means bringing new products and services to

existing markets. Their long term goal should be to combine ultracapacitors, multiple battery

types, automated charging and material handling, and service contracts into one turnkey package.

This is in line with the company’s existing vision. Their short term incremental goal should be

to grow their support and install services for newly acquired/developed capabilities (lithium and

nickel). Boosting system design and implementation services can grab more of the customer.

They need a way to grow their business without cannibalizing lead profits or accelerating its

decline. There are aspects of strategic innovation here. They could develop a new acquisition

strategy around regional logistics companies in order to be able to boost their material handling

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system capabilities. Their battery sales process should be adjusted to emphasize system delivery

and support. This strategy should incrementally improve their sales and margins. Even bringing

their net margin in line with the industry average would be over a $50mil per year gain. A 1%

increase in sales is over $20mil per year, more than enough to cover the incremental costs of the

program (CRM projects, product development).

Increasing the common ownership of their lead acid supply chain is a risk mitigation

strategy in the short term with some profitable cash flows possible in the long run. Enersys can

address raw material cost volatility and supply chain risk by acquiring lead smelting facilities,

processing facilities, or even mines. Downstream, there are options for adding metal reclamation

capability. The primary benefit would be the recovery of raw materials to better handle price

pressures. Secondary benefits include better management control of quality and supply (less

markup or holdup risk). This strategy could demonstrate to the market and regulators that

Enersys is committed to safe hazardous material handling. This opportunity for this strategy is

large. Analysts forecast a 28% increase in lead costs for 2013 (Fraser 2012). At one third of

cost of goods, this would constitute a $163mil increase. For modeling sake, if a 10% markup is

avoided and 10% value is reclaimed, the value is over $30mil per year. This doesn’t include the

strategic value of fending off a growing Chinese battery industry, operational flexibility, ability

to squeeze out competitors, or direct cash flows from smelting and reclamation.

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Appendix

Figure 1. Maintenance Free Lead Acid Battery Motive Power System

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Figure 2. TPPL Lead Acid Electrode Design

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Figure 3. Comparison Chart of Industrial Battery Chemistries

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http://www.iccnexergy.com/battery-chemistry-comparison-chart/Table 1. Comparison Table of Industrial Battery Chemistries

BUS574, Prof. Mike Miller 21Sam Bishop, Final Project5/9/13

  ENS XIDE ULBI GEIndustr

yP/E 11.83 4.54 -42.83 15.58 21.6P/B 1.6 0.61 0.77 1.78 2.4TD-EV 0.14 0.88 0 0.8             GM 22.66 15.85 27.77 38.29  OM 9.62 3.04 -0.11 11.34 16.3NM 6.31 1.84 -1.08 10.14 8.8ROA 7.68 2.59 -1.11 2 4.1ROE 14.35 14.07 -1.49 12.26 15.4ROTC 11.45 4.85 -1.49 2.65  TAT 1.22 1.41 1.02 0.2  QR 1.54 1.02 1.68 0.96             TD-TE 24.81 193.32 0 336.56                        Revenue (2012, $mil) 2,283 3,085 102 147,359  Net Income (2012, $mil) 144 57 -2 13,641  eps ($/sh) 2.93 0.69 -0.09 1.29             Employees 9,200 9,988 841 305,000             Financial data compiled 5/4/2013 from Marketwatch

TD-EV is Total Debt to Enterprise Value

TD-TE is Total Debt to Total Equity

Table 2. Financial Comparison of Enersys to Key Competitors

BUS574, Prof. Mike Miller 22Sam Bishop, Final Project5/9/13

Market OpportunityTotal Size ($bil)

Potential Market Value 

($bil)

3 Year Forecast* ($mil) Notes

Penetrate large scale energy storage, global** 600 37.5 1125

scaling Enersys current US targets

Penetrate large scale energy storage, US only 160 10 300 Enersys current targets

NiZn converting 25% of Li market 4 1 100high power and safety critical customers

Commercial space expansion*** 6 0.6 60 not sure of long term uptakeNiZn expanding Li market by 10% 4 0.4 40 niche applicationsTPPL expansion into cyclic applications*** 0.5 50 5 not sure of long term uptakeKepware partnership in oil/gas pipeline support unclear unclear unclear partnership*3 year forecast modeled as 10% of potential market value unless noted

**High end estimates

***Market value is modeled at 10% of total size.  Forecast is modeled at 10% of market value.  

Table 3. Summary of Market Opportunities

BUS574, Prof. Mike Miller 23Sam Bishop, Final Project5/9/13

References

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