Overview

HBL manufactures a wide range of specialised batteries for a spectrum of applications using varied technologies - the broadest product range among the manufacturers in India. The Company has developed all these technologies in-house and is therefore free to export.

The battery group is the flagship business of the Company contributing about 77% to the overall revenues. The batteries are manufactured at its fully-integrated facilities, using diverse technologies at four locations - two each in the state of Andhra Pradesh and Telangana. Within the battery space - telecom batteries is the largest contributor.

Product verticals

Telecom: The Company is the second largest supplier of batteries to Indian telecom sector enjoying sound business association with every operator, tower- company and switching OEM. During the year under review, the Company launched advanced 2V-VRLA batteries suited for harsh cyclic applications and for export markets. This product has been widely accepted by customers and is expected to register strong volumes in the years to come.

Having upped the product performance to match best-in-class products, the Company focused on strengthening its post-sales service - widening its reach and creating spares sufficiency on a pan-India basis for minimising the service turnaround time. This is expected to further strengthen the brand loyalty.

Railways: HBL supplies batteries to the Indian Railways for its air-conditioned coaches, train lighting, electric locomotives, diesel locomotive cranking and signalling applications; and for emergency power needs of metro railways. The Company enjoys a preferred supplier status with Indian Railways and metro rail coach manufacturers and operators. This is a stable business where growth is largely dovetailed with increasing rolling stock of passenger trains and metro rail network. The recent focus on increasing the number of air-conditioned coaches to passenger trains is expected to grow volumes.

UPS: The Company now has only a marginal presence in this large market.

The Company launched new products in 2015-16, which have received heartening customer response. The Company is focusing on establishing the distribution channel to market these products to address replacement demand. This segment is expected to generate healthy revenue over the coming years as the Company is engaged in enhancing product awareness among key user sectors and manufacturing capacity.

Solar: HBL manufactures two types of batteries - tubular gel and tubular flooded. The Company is a respected player in the solar market. While tubular flooded batteries account for the lions share of the business from this segment, the Company is focused on promoting tubular gel batteries due to its reliability and reduced maintenance cost. The Company is strengthening its channel partner base for gaining market share.

PLT batteries: HBL has developed a specialty battery using Pure-Lead-Tin (PLT) technology with superior high power capability (work was begun in 1998). These batteries are a high current source for a short time period and used as power back up in large data centres. Since PLT batteries can deliver high power current, they are also best suited for engine cranking and hence find application in DG cranking, Heavy Earth Movers, Large trucks and in battle tanks. The Company enjoys a time tested business alliance with Cummins, the leading diesel engine manufacturer in India - the Company supplies these DG batteries under white label program.

HBL has also tied up with TAFE Motors and Tractors Ltd (TMTL) for supply of these batteries along with their DG sets for telecom tower entities and retail users. This product is under approval stage with other large DG manufacturers. The Company recently developed a new product - PLT vented batteries for price sensitive market for DG cranking application.

The Company has created a dedicated business development team focused on marketing its PLT batteries for data centre applications. The version for battle tanks has NATO registration - this enables the Company to market the product across the world for battle tank applications.

Ni-Cd batteries: HBL is the worlds second largest manufacturer of Ni-Cd batteries with pocket plate, sintered plate and fibre plate technologies. Revenue from this product line accounts for about 20% of the battery group. These batteries are used in diverse industrial applications (Oil & Gas, Power, Utilities) and critical applications in the aviation, railways and defence sectors. This is relatively a high-margin business with stable revenues.

Channel Business: HBLs channel business journey commenced in 2015-16 and it performed well enough in maiden year of entry. The products sold through the channel are SPV roof-top kits; 7Ah UPS batteries and inverter batteries.

The channel is gearing up to handle full range of UPS batteries, DG batteries and e-rickshaw batteries in current financial year. The prime focus is to widen reach and improve penetration. The channel business will resort to adding more products, either manufactured or under white label opportunity, as it spreads its reach pan India.

Factors influencing growth

Telecom: India is the 2nd largest telecom market with the 2nd highest internet users base in the world. Currently, telecom demand in India is driven by data penetration (3G and 4G) as the smart phone population is expected to touch 600 million in 2019 from the current 200 million handsets. Indias internet economy is expected to touch US$150 billion by FY2018. The telecom industry has realised the need to improve the quality of service and actionised to erect about 100,000 towers in near future and committed more than C30,000 crore investment.

The launch of 4G by Reliance Jio, in a large scale, is expected to push the tower industry growth. Mobile towers in India are likely to grow to over 500,000 from about 400,000 at present due to increase in demand of wireless internet services and compulsion to improve quality of service. Governments Bharat Net program under USOF for expanding rural and tribal communications with latest backhaul technologies and hybrid energy solutions is expected to generate demand for highly reliable tubular gel batteries along with solar panel and controller units.

UPS: The demand for UPS batteries is expected to be driven by promising growth of user sectors such as BFSI, IT& ITES, e-governance projects of various Governments etc.

Contribution of the IT sector to Indias GDP is about 9%; Indias US$150 billion IT- industry is expected to maintain a healthy double digit growth going forward.

The Governments Digital India initiative contemplates an investment of US$ 18 billion.

Financial inclusion initiatives by the Government are widening the presence of banks pan-India with branches being opened in rural (power-scarce) locations.

In India, the number of ATMs is expected to double in next five years from about 182,000 ATMs in operation currently.

Growing retail business and investments in service sectors like health, hospitality and education

DG power: Indias power deficient and unreliable power position has led to a significant increase in back-up power requirement. This is evident in the robust increase in DG power generation capacity - it is growing at about 5000 to 6000 MW (about 200,000 units) every year

Data Centres: Data centre infrastructure market, in terms of revenue, is estimated at $2.03 billion. Growth of Indian data centre market is forecast to reach 20% YoY, against the 11% globally for the period 2013-18. BFSI, telecom and IT&ITES are the major sectors driving demand for data centres in India, beyond demand from cloud based services. Adding to the momentum is the rising IT penetration and social media consumption in the country. A bigger demand potential in Indian data centres market is being generated by public investments in large scale digitisation - christened as the Digital India Scheme. An investment worth $1.6 billion is underway in the Indian data centre market.

Consolidation plan in 2016-17

• Fortify the position in larger telecom segment

• Enlarge the presence in UPS market - invest in capacities and reach, aligned to scale and market penetration

• Increase business alliances with DG manufacturers with both PLT - VRLA and PLT vented ranges

• Increase awareness of solar battery range among the integrators

• Aggressively promote PLT batteries, which offer better TCO, for data centre applications

• Market e-rickshaw tubular batteries through channel and secure product approval from major OEMs

• Capitalise on export opportunities for advanced version of 2V-VRLA and PLT batteries

Revving up exports

• HBL has been developing the export opportunities available to it from 1987.

• HBLs products have found their way to about 80 countries spanning 5 continents. HBL sales subsidiaries, HBL - America and HBL - Germany, are equipped with stocking and service capabilities to ensure quick delivery and service. Apart from having a direct reach to its customers;

• HBL is also represented by agents, distributors and resellers in more than 25 countries

• Exports in HBL have been predominantly driven (>70%) by Nickel Cadmium (Ni-Cd) battery sales for Oil & Gas, Power and Utility segments. DC systems, lead batteries, aviation batteries and defence batteries account for the balance. Exports account for about 15% of total revenue.

• Despite weak global economic cues and the sharp dip in the oil prices resulting in reduced spend on new projects, exports revenues have been stable in FY16. This was achieved by increasing reach and adding new customers.

With the global economy showing signs of recovery and stabilised oil prices, an upswing in market demand is expected in FY17. This is evidenced by a much healthier order book at the end of Q1 FY17. With the on-going addition of new products for exports, focus on deeper penetration in current markets and further expansion of reach, FY17 and coming years promise to be exciting times for exports growth in HBL.

Factors influencing growth

• HBL has been approved as a supplier by key Oil and Gas majors and Utility majors, who are big buyers of batteries and DC systems.

• HBL has secured approval of major EPCs like Hyundai, Petrofac which gives HBL more opportunities to bid in big projects, which were earlier unavailable.

• Introduction of advanced 2V-VRLA range of lead batteries will help to expand business in the UPS segment by leveraging HBLs strong association with major UPS OEMs.

• HBL has been successful in penetrating new markets with aviation and defence batteries. Business from these markets is expected to increase the contribution of aviation and defence batteries in exports revenue.

• HBL has been successful in working with Siemens for supply of Rail Battery systems. This is now giving HBL new opportunities to bid for rail projects globally.

THE ENGINEERING GROUP FORMED LAST YEAR, HAS BEEN DIVIDED INTO ELECTRONICS AND DEFENCE GROUPS. THE ELECTRONICS GROUP IS ITSELF DIVIDED INTO THREE BUSINESS UNITS:

Technology solutions for Railways

1. Rail signalling

HBL offers a wide range of electronics products to railways that cater to power solutions, signalling and safety. The Companys railway signalling products comprehensively meet the stringent RDSO specifications and CENELEC standards.

HBL also has many years of experience and has been recognised as a high quality contractor for installation of signalling equipment. Some of the key technology offerings include:

Train Collision Avoidance System (TCAS): As the name suggests, this is an automated system which protects trains from various types of collisions, monitors speed restrictions and provides in-cab signal aspect display. HBL initiated TCAS development in 2010 and demonstrated the first version of solution to Indian Railways in 2012. The Company received a trial order from the Indian Railways and installed this system across 50 kms during 2015-16 which is undergoing interoperability field trials, with equipment supplied by two other Indian companies.

While there has been a delay on the part of the Railways in commercially inducting TCAS, this is largely due to their recognition that with some additional features (which they have already suggested and those have been incorporated) the market scope of TCAS can be increased, thereby reducing the need for imported systems.

Electronic Inter Locking System: Located at railway stations, this fail-safe, automated system controls the movement of trains through multiple tracks in the station and prevents unsafe movements. HBL had begun work on this in 2003, when it knew next to nothing in rail signalling. As a consequence, the Company realised, when the product was finally ready for testing in 2013, that it could further improve the technology and make the product a state of the art globally competitive one. The new system is undergoing approval process with the Indian Railways.

Digital Axle Counter: This device counts the number of axles between specified entry and exit points on a given section of the track. If the two numbers match exactly, it signifies a vacant track and therefore permits the next train to go through. This solution is expected to receive approval from the RDSO in 2016-17.

Data Logger: This system logs in all events in the railway station. The Companys product is approved by the Indian Railways and is under production for the past few years.

Integrated Power Supply system: This is a centralised power management solution that receives AC power from the grid, converts it into AC and DC power of different voltages to replace multiple systems earlier used to operate the various electronics and signalling equipment at a railway station. HBL is a Part 1 (preferred) supplier to the Indian Railways for this solution.

Factors influencing growth

Indian Railways is one of the largest in the world with over 7,000 stations in active operation and more than 89,000 KM running tracks. Safety and signalling has been a high priority but progress has been slow because of the exorbitant and unaffordable costs of imported electronic systems. Indigenous production will be affordable and therefore has a good market.

The Government is focused on reducing the number of accidents - improved safety and signalling is an important tool to this end. The Government has earmarked US$117 billion to modernise and expand Indian railways. Signalling averages 5% of the budget for railway investments.

i Technology solutions for Solar Photovoltaic Power

2. Solar Photovoltaic (SPV) Electronics

HBL is developing Grid Tied String Inverter(s) for on-grid solar application. These inverters convert the DC power into AC power to be fed into the grid for downstream usage. The Company is planning to launch its 10KW inverter during 2016-17. Connected in parallel, this product can be used for up to 200 KW SPV power plants. Higher rating products for larger SPV power plants will be developed in phases.

The Company has also developed solar pump controllers that convert the DC power to AC power which can be used to run water pumps. The demand from the agricultural sector for such products is high, because the state utilities find it easier to provide a solution like this, than to establish a grid and power the grid reliably, especially in remote areas.

Factors influencing growth

India targets 175 GW of solar power by 2022 and 250GW of solar power by 2030.

As per estimates, solar power cost could be cheaper by up to 10% compared to coal by 2020. The predominant part of generation will be on-grid. As per Company estimate, the cost of inverters accounts for 8% of total project cost - offering enormous potential for Grid Tied Inverter(s).

Technology solutions for e-vehicles

3. Permanent Magnet Machines

There is a substantial technology gap in India for brushless DC equipment, which is more efficient in terms of energy usage and is also easier to control. The gap is due to the specialised nature of the markets and the fact that multi-disciplinary skills are involved, combining electronics with mechanical and electrical engineering. Such a gap attracts the attention of HBL because it is consistent with its vision of preferring high value engineered products for demanding customers.

Work began a few years ago and has taken less time to be commercialised than some of earlier products. The focus has been on both motors and alternators.

Motors for three wheelers: HBL has developed a 1.2KW Brush-Less DC motor and battery, for use in electric rickshaw (3- Wheelers). There are no established Indian manufacturers. The motor and battery are approved by ICAT. The market potential for these products is significant. This design can also be extended for heavier vehicles.

Factors influencing growth

The National Electric Mobility Mission Plan 2020 envisages large scale deployment of electric 2-wheelers, 3-wheelers, cars and buses. Under the scheme, about 6 -7 million vehicles (full range) are expected to be rolled out by the year 2020. HBL is planning to invest R&D efforts in development of drive train solutions for these promising electric mobility applications, in the coming years.

The Company received a contract to develop state of the art motors, for torpedo propulsion. The technology used is also based on permanent magnet designs. The contract is due to be completed in FY17.

Permanent Magnet Alternators for the LHB Coaches of the Indian Railways, is an attractive market. There are already several thousand coaches in use, which lack such alternators. The production of such coaches is being increased to reduce the production of older design coaches. There are no Indian suppliers today of such alternators. HBL is offering a prototype for evaluation in FY17. Trials are expected to conclude in FY18.

STRATEGIC BUSINESS UNIT

Defence

THE DEFENCE GROUP IS DIVIDED INTO THREE BUSINESS UNITS

Batteries for various applications

HBL is the largest defence battery manufacturer in India. All the products have been designed, developed and manufactured based on in-house technology. The Company supplies batteries for a wide range of applications - fighter aircrafts, helicopters, transport aircraft, submarine propulsion, light weight and heavy weight torpedoes, battle tanks, missiles and artillery fuzes among others.

The Company has recently secured approval for Kilo class submarine battery and approval process for Scorpene class submarine is at an advanced stage of completion. These are good margin products which are expected to grow at a steady pace because these are essential replacement items, not subject to variations in the defence budget, which affect capital equipment.

Electronics for Defence systems

While HBL has not developed any technology in electronics for defence systems, its broad based engineering capability and vertically integrated infrastructure facilities have given the opportunities to provide offset support for foreign companies active in India.

The Company possesses the capabilities of both Build to Print and Build to Specification subsystems to support this offset demand.

Two such projects illustrate the Companys capabilities:

In partnership with DCNS of France, produced and supplied IPMS (Integrated Platform Management System) and Steering Consoles for four Scorpene submarines being built at Mazagon Dock Limited. HBL also produced and delivered two Fire Control Systems (FCS) for torpedoes used in submarines.

In partnership with Elbit of Israel, the Company received, as prime contractor for the Ministry of Defence (MOD) in India, a large order for supplying communication systems for armoured vehicles. The Company will complete supplies by December 2016.

Factors influencing growth

India account for 15% of worldwide arms imports. Indian defence budget was US$41 billion in FY16. As per McKinsey, India is likely to spend US$150 billion on various defence platforms with US$70 billion for Navy in next three years.

The offset clause was introduced in 2005, as an obligation of foreign defence suppliers. At that time, it stipulated that for contracts over C300 crore, the foreign company has to buy from Indian companies (or invest in India), 30% of the contract value. Of the 24 contracts signed between 2007 and 2013, total offset obligations were close to C30,000 crore. Ninety per cent of them under-performed their targets and annual offset obligations remain unfulfilled. The Defence Ministry has brought about major changes in offset provisions in the Defence Procurement Procedure (DPP) 2016, under which, the value of new contracts for which offset obligations are mandatory, has been increased to C2,000 crore.

Ammunition

Artillery fuzes are a product category, where MOD wants high local content. HBL has been working on this opportunity since 2006 and the current position is rather strong. These fuzes require reserve batteries, which have been manufactured and exported by the Company for several years; there is no other producer in India. It should be noted that the Company is only working on electronic fuzes, not the mechanical fuzes, where there are already several suppliers. Some more opportunities are being actively pursued in the ammunition area. The revenue generations from these opportunities are expected during FY19.

Environmental conservation and employee health and safety

Overview

HBL adheres to the basic policy of prioritising the safety and health of its employees, based on the recognition that health and safety management is essential to business management. Also based on a spirit of respect for all human beings, it is committed to fulfilling its corporate responsibility by remaining committed to the cause of environmental conservation.

Effluent treatment

All effluents generated as a result of the Companys activities are effectively treated and recycled. All manufacturing facilities of HBL are equipped with top-of-the-line effluent treatment mechanisms to ensure minimal damage to the environment.

HBL has cemented its reputation as an ecologically responsible organisation by attaining the ZLD (Zero Liquid Discharge) status from relevant statutory bodies and successfully holding onto it.

Waste water treatment

Pressure from population growth, economic development, urban concentration and climate change are squeezing world water supply and demand even more tightly.

Water treatment technologies have been accepted as critical prerequisites of global environmental conservation. As such, all of HBLs plants are equipped with adequate sewage treatment machinery to process waste water. 90% of the treated water is used for maintaining the lush green cover across all HBL facilities.

Water harvesting

HBL has undertaken several major initiatives to replenish water in communities. Its goal is to conserve, replenish and thus offset the water used in manufacturing processes by building several rain water harvesting pits across its manufacturing facilities.

These initiatives have ensured that the groundwater levels do not get depleted and HBLs reliance on other sources is kept to a bare minimum. Apart from this, rainwater storage tanks and conduits have been constructed to capture and channel rainwater from rooftops.

Renewable energy

HBL has reinforced its commitment to the environment by setting up a 0.5-megawatt solar generation capacity across its manufacturing facilities for captive consumption.

Certifications

HBL is mindful that the mental and physical well-being of employees and the maintenance of health and safety at the workplace are essential to enable employees to exhibit their full capabilities. Equally important is to conform to the environmental guidelines set down by regulatory bodies.

Accordingly, HBL gives the utmost priority to the promotion of health and safety in all business processes, and strives to build a safe and comfortable work environment. All HBL manufacturing facilities are certified with stringent environmental management and occupational health and safety management accreditations (ISO 14001 - 2004 and BS OHSAS 18001-2007).

i Socially responsible corporate

Overview

HBL has made a name for itself by remaining committed to behaving ethically and contributing to socioeconomic development while improving the quality of life in and around the areas of its presence. HBL decided to go beyond minimum legal requirements in order to address societal needs long before these directives became mandatory. CSR is an integral part of the Companys business strategy. Satisfying each stakeholder group is just as important for HBL as is addressing the needs of the society at large and maximising its commitment to the investors. HBLs CSR activities are focused on healthcare, education, potable water and sanitation.

Healthcare

HBL firmly believes that well-being of children (between the ages of 3-6 years) is absolutely essential to creating vibrant and prosperous societies. As UNICEF states, "Healthy children become healthy adults: people who create better lives for themselves, their communities, and their countries."

HBL supports schools in local communities by providing nutritious and wholesome meals to children of these age groups. HBL also organises health awareness programs and periodic health check-up camps for the benefit of the local communities. Further, HBL tries to bridge the gap between people needing advanced or specialised treatment by providing appropriate referrals.

Education

Education is one of the key elements of sustainable development. While there has been much focus on girl-child education in the recent past, this particular issue has been a key initiative of HBL.

HBL has been rallying around this cause for a long time by providing scholarships and paving the way for them to pursue higher education opportunities. HBL has been making a difference in the area of pre-primary and primary education by supporting local schools by making school environment colourful and lively, providing innovative learning aids and promoting sports among children.

Potable water

In order to ensure that this basic amenity is accessible to everyone, HBL is involved in establishing facilities that provide safe potable water for the local communities.

Sanitation

HBL also has been actively promoting the benefits of good sanitation practices by conducting awareness programs and benefits thereof among the local communities.

As a supplementary activity, HBL has been helping them by devising waste collection and management mechanisms and by providing garbage collection vehicles.

   

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