<dhhead>Management Discussion and analysis</dhhead>
1. COMPANY STRUCTURE AND DEVELOPMENTS
High Energy Batteries (India) Limited was established in the year 1979
for manufacture of Silver Oxide Zinc batteries for MIG Aircraft starting and emergency
application with the technical collaboration of M/s. Yardney Electric Corporation, USA.
HEB Aircraft battery was type tested and approved for bulk manufacture
in the year 1981. Over the years, design features and product range for all the three
services have been constantly upgraded to suit Indian conditions and improvements in life
achieved through in-house R&D.
Silver Zinc Batteries, Nickel Cadmium Batteries and Silver Chloride
Magnesium batteries designed, developed and manufactured by HEB are power sources intended
for high rate critical applications. These batteries are very strategic in nature and
custom-designed for use in aviation, torpedo propulsion, Satellite Launch vehicles and
Army Battle Tanks. The demand for our batteries is not regular in nature by volume, as the
ordering schedule is cyclic.
The principal customers of the Company are the Department of Defence
Supplies and VSSC / ISRO and therefore the Company is subject to certain provisions of the
Official Secrets Act, 1923.
The Company also requires prior permission from Ministry of Defence for
export to other countries. The defence applications require high reliability products and
upgradation of technology to meet the global challenges. DRDOs and Defence establishments
have opportunities for technology driven applications and this acts as a catalyst for the
growth of our Company. The procurement policy currently pursued by the Government with
thrust on Indigenisation and "Atmanirbhar" in defence procurement, encourages
the domestic manufacturing sector and it augurs well for our Company, to perform better.
HEB is a manufacturer of hi-tech batteries for use in Army, Navy, Air
force and launch vehicles. The Company has a strong base of in-house R&D to design,
develop and establish the manufacture of, silver zinc, nickel cadmium and silver chloride
magnesium for stringent applications such as under water propulsion, control guidance,
communication, emergency starting and for aerospace applications. The Company can
undertake any development activity and establish the technology for the manufacture of
electrochemical system for use in many critical applications.
The back – up power requirement is rapidly growing in Defence with
the induction of advanced machinery/ weaponry. The Company received a number of awards for
establishment of technology and Indigenisation.
Supplementing the existing potential, the Energy sector at large, needs
Energy Storage systems (ESS) like Flow Battery (FB) commensurate with Power Generation
units like Fuel Cells (FC). In turn, the resultant thrust on Green Energy cum Hydrogen
Economy (Indian mission towards e-mobility), provides the needed impetus to a great
extent, for the growth and prospects of our Company.
II. OPPORTUNITIES AND THREATS Opportunities
A major player in silver zinc battery for defence.
In house capability for technology development.
Part of established business group.
Dedicated talented pool of human resource with scientific and
engineering background.
Availability of dedicated Production cum
Testing facility for the Manufacture of High Power Batteries for
Strategic Defence Applications.
Huge capital expenditure planned by the
Government of India for Batteries and ESS, in the Energy sector.
High growth potential projected for E-mobility,
Green Hydrogen and clean energy.
Threats
Price rise in input materials.
Import restriction and/or delays in receipt of critical materials/
components.
Change in Government policy of procurement, especially by Defence
Departments.
Adverse change in the global scenario, with introduction of advanced/
disruptive systems.
Need for HEB to get trained in the upcoming technologies and
upgradation of production methods and equipment needed to tackle the changes.
III. SEGMENT WISE OR PRODUCT WISE PERFORMANCE
HEB’s revenue grew at a CAGR of 15% over FY 2018-2023,
backed by the Government’s thrust on the defence sector as well as its focus on
awarding orders to indigenous players. In FY 2023, the revenue grew by 16.70% Year on Year
basis to 92.53 crores primarily due to the increased orders from Navy as well as a major
order to develop high power battery for futuristic torpedo program. The Company has a
confirmed order book of around 55 crores with a possible order value of 50 to 60
Crores to be realized within the next 06 months, as of March / April 2023, to be executed
over the next 12-18 months period, providing adequate revenue visibility. The Company
supplies silver- zinc batteries to several defence establishments including Navy, Army,
Airforce and space research organizations. WithlimitedcompetitionintheAerospaceandNaval
segment, HEB derives around 65% revenues from Navy & Naval Research Labs. Typical
break – up of orders from different customer base indicates:
| Customer |
% |
| Navy & Naval Research Labs |
65 |
| DRDO Labs. |
6 |
| Defence Public Sector |
17 |
| Aerospace & Others |
12 |
|
100 |
HEB’s EBITDA margins have improved substantially over the last
five years, as a result of change in the product mix, better absorption of fixed costs and
improved Banking operations. With due consideration of the possible uncertainties arising
out of the flow of development orders, exposure to raw material price fluctuations and
inconsistent import delivery commitments by approved sources abroad. Fluctuation in silver
price volatility is monitored and addressed well in all our contracts. The Company strives
its best to maintain a sustainable EBITDA margin of around 25%.
IV. OUTLOOK
Since inception, HEB had concentrated on specialized batteries for the
Defence application and those used in aerospace, railways, Army and Navy. The Company had
so far developed and supplied batteries for various strategic applications and credited
with several National awards, especially towards R&D and Indigenisation. However, the
procurement cycle of Indian
Defence is of the order of four to five years. While some flexibility
was available in product pricing the earlier years, competitive pricing requirement
impacts the operating margins severely. Export potential for the present range of our
products on a continuous basis, appears limited in view of obsolescence, shift in Defence
Policies and global economic slowdown which impacts Defence Budget allocation.
The company is currently working on to expand its product range to
include Fuel cells and Flow Battery mainly Vanadium Redox Flow Battery (VRFB) which will
be used in Power Generation using Hydrogen and Bulk energy storage applications. The
Company will be focusing more on value added products including Battery/ Power Pack System
Integration which would help the Company occupy a strong position in both Defence related
and other non-defence based markets in India.
V. RISK AND CONCERNS
HEB has a long working capital cycle, primarily due to the higher
levels of inventory that need to be maintained, being Defence based. This service need
will be there for silver zinc and other battery accessories, towards replacement on
priority, in case of any emergency situation / vigil needs of Defence services. The
Company’s Major revenue is from defence sector and is dependent on Defence priorities
and budget allocation. Continued thrust for indigenization and Atmanirbhar, especially of
Ministry of Defence (MOD), provides a positive outlook, though there is risk that our
product range falls under a niche category, catering to Strategic Defence requirements,
without much of a possibility for spin off
The export market though limited, the Company keeps exploring new
markets like Poland, Vietnam and effects supplies to countries like Malaysia,
Algeria, Italy and Kyrgyzstan. The procurement procedure is more or
less similar to that of our Government Defence agencies and here again the risk of budget
allocation for Defence and the consequent review of ordering cycle exists. The Company has
also appointed Authorised Agents on selective basis to cater to export markets.
HEB’s major raw materials include Silver, Zinc and Copper, the
prices of which are highly volatile due to external market factors. Any adverse increase
in the raw material prices could lead to a compression of margins. Price volatility in
silver price gets covered by the customers on a timely basis mostly built into the
contract under a price variation clause, thus exposing the Company only to minimal impact.
Price fluctuations arising out of non-silver materials like Copper and Zinc, is
judiciously addressed in cost estimates and pricing to mitigate any abnormal escalation.
Around 10% of the total raw materials consumed are imported, liable to certain Forex risks
variation, and/ or Government restrictions, which again is factored adequately in cost
workings, to ensure overall exposure level to be "Nil" to "as minimum as
possible".
VI. INTERNAL CONTROL SYSTEMS
The Company has proper and effective internal control systems
commensurate with its nature of business and size of operations to ensure that all
controls and procedures function satisfactorily at all times and all policies are duly
complied with, as required. These are considered adequate to reasonably safeguard its
assets against loss or misappropriation through unauthorized or unintended use.
There is adequate and effective internal audit system that employs
periodic checks as "on-going process". The Audit Committee of the Board of
Directors regularly reviews the effectiveness of internal control system in order to
ensure due and proper implementation and effective compliance with applicable laws,
accounting standards and regulatory guidelines.
VII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES
The Company as of 31st March, 2023 has 97 employees on its
rolls out of which 60 are Managerial, and others being supervisory and production staff.
Further it employs around 143 labourers/ workers on contract basis, depending upon time to
time job requirements. The relationship between Management and Employees was cordial and a
harmonious work environment prevailed throughout the year under review.
VIII. KEY FINANCIAL RATIOS
| Description |
Financial Year |
% Change - Increase or |
|
2022-23 |
2021-22 |
Decrease |
| Operating Profit Margin |
0.34 |
0.37 |
(0.03) |
| (PBIDT/Total Income) |
|
|
|
| Net Profit margin |
|
|
|
| (PBT/Total Income) |
0.30 |
0.31 |
(0.01) |
| Interest Coverage Ratio |
8.83 |
7.38 |
1.45 |
| (EBIT/Interest Expense) |
|
|
|
| Earnings per share |
22.86 |
20.02 |
2.84 |
| Debt Equity Ratio |
0.29 |
0.45 |
0.16 |
| Current Ratio |
2.01 |
1.74 |
0.27 |
| Debtors Turnover |
3.83 |
4.18 |
(0.35) |
| Inventory Turnover |
1.68 |
1.59 |
0.09 |
|
(For Board of Directors) |
| Chennai |
N GOPALARATNAM |
| 29th April, 2023 |
Chairman |
+91-9892691696
