HBL Power Systems Ltd Management Discussions

(Part of Annual Report FY 2024-2025)

industrial batteries segment lead acid battery division telecom

Indian telecom sector has witnessed significant transformation in last 3 years in terms of network penetration, 5G roll outs and critical technological changes. Indian telecom is rapidly expanding the network connecting to remote locations as well. The said network expansion, upgradation of sites for 5G roll out coupled with regular replacement requirement, generated strong demand for batteries in FY24 and FY25.

In FY25, Lithium-ion battery solution attracted the attention of the telecom tower entities due to attractive total cost of ownership compared with Valve Regulated Lead Acid battery solution, on account of steep reduction in lithium-ion battery price, extended warranty and optimized sizing for a given requirement. These aspects substantially reduced the gap in total cost of ownership compared with VRLA solution, tilting the preference towards lithium technology. One of the major private sector telecom tower entities, and the state-owned operator-BSNL, have commenced deployment of lithium solution, with necessary upgrades to battery charger and cabinet/ housing infrastructure, across the country.

This trend is accelerating in FY26 and is expected to continue in future, resulting in a substantial reduction in demand for lead acid batteries. The lithium-ion battery demand is met through import of ready to use packs or domestic supplies of lithium packs using imported cells with marginal value addition in the form of BMS and Racks.

HBL is not participating in the lithium opportunity for telecom market, although it has a fully integrated facility for pack assembly using imported cells, due to unattractive price levels and inherent risk of extended warranty in the absence of matching warranty offering by cell suppliers. Meanwhile, the Company has chalked out plans to gradually prune its lead acid 2V-VRLA battery capacity aligned with the market potential.

In view of the above market trend, there will be a considerable reduction in 2V-VRLA battery business and thus revenue in FY26 and in the coming years.

RAILWAYS

In FY2025, the demand from Indian Railways for Lead acid batteries was encouraging on account of aggressive roll out of new LHB coaches and advance preparations for Maha Kumbh event at Prayagraj. The Company expects that the demand for lead acid batteries for train lighting application will remain strong at least for next couple of years. The conventional air-conditioned coaches are being gradually phased out and hence the requirement of AC coach batteries is bound to moderate over the years.

Indias metro rail network is expanding rapidly, with numerous projects in various stages of development across the country. As of March 2025, the operational metro network spans over 1,000Kms across 23 cities in 11 states. HBL supplies Nickel Cadmium and Lead acid VRLA batteries for stationary applications such as UPS, Signalling, Communication and lighting. It also supports the network with supply of Nickel Cadmium battery for rolling stock application, to metro network operators and metro car OEMs. The presence of HBL in both the application segments is considerable and is very encouraging. During the year under review, Company secured large orders from Locomotive Manufacturers, Metro operators and OEMs.

UPS

Market for UPS lead acid batteries in India is large and growing steadily. In recent times, there are signs of lithium-ion battery preference for large UPS applications. We expect that this trend will gain momentum gradually over the years. Major UPS OEMs are keen to offer lithium solution for large UPS installations, enabling direct participation in battery business supported by their in-house BMS (Battery Management System), and cell packing capability. While anticipated transition to lithium- ion battery solution remains a key challenge to VRLA batteries, in the long run, the growing market continues to offer sufficient opportunity to HBL in medium term, being a small and growing player now.

During the year under review, the Company had clocked more than 15% growth in its 12V UPS battery business, enabling it to cover shortfall in 2V-VRLA battery business to some extent. The Company will continue to enhance the UPS battery business backed by calibrated capacity augmentation using surplus plate making capacity of 2V-VRLA battery and new additions, as necessary.

DATA CENTERS & DEFENCE

Indias data center market is experiencing significant growth, driven by rising internet penetration, the adoption of cloud computing, increasing demand for data storage, and AI and digital transformation efforts. The market is projected to expand, with capacity potentially doubling by 2032. In Data Centre application too, lithium-ion battery solution is being seriously evaluated by the users, looking at compactness and extended life. However, safety concerns do weigh on the decision, and many consultants continue to recommend pure lead thin plate lead acid batteries, which offers matching high-rate discharge performance, life and higher safety.

HBL is a significant player in this segment offering reliable and high performing Pure Lead Thin (PLT) plate lead acid batteries. During the year, the Company broad based its customer profile and secured large orders. To fortify its position and to expand its offerings, the Company has committed a capital investment in new processes and product variants offering compactness and extended life.

Indian defence establishments have started using PLT products for use in battle tanks; towed guns, heavy trucks and other uses, due to better product performance both in hot and cold conditions, compared with conventional lead acid batteries. This positive trend is increasing the volume and helping with better capacity utilization. Export opportunities for use in western battle tanks is also significantly widening.

NICKEL CADMIUM BATTERIES DIVISION

HBL is secure in the second position in the global market for Nickel Cadmium Batteries.

The overall domestic demand for Nickel Cadmium battery in Oil & Gas segment was strong during the year under review aided by several ongoing large pipeline projects, and addition of oil refining capacities. In power sector, the Power Grid Corporation of India Limited (PGCIL), large pan-India power transmission entity, switched its preference to Nickel Cadmium battery technology from lead acid VRLA, owing to a reliable performance and longer life, as experienced by NTPC, and other power producers over the years. New addition and expansion of capacity in various process industries are also increasing demand for Nickel Cadmium Pocket Plate batteries.

In FY 2025, the Company increased its business of Nickel Cadmium Pocket Plate by 30%+ compared with FY 2024, recording volume growth across all user segments. The Company continues to be a most preferred vendor in this product segment backed by timely and quality supplies. The order book position as of March 31,2025, is encouraging and the company expects strong order flow in FY2026 as well, necessitating appropriate capacity expansion through adequate line balancing.

In FY2025, exports of industrial batteries comprising both lead acid and Nickel Cadmium products increased significantly recording 40% growth. The business from new customers - both OEMs and EPCs helped enhance the volume across geographies, more so in Middle East Region. The Companys focused efforts in enhancing engagement with OEMs and agency network helped. In FY 2026, the Company will increase its on-ground market development efforts in APAC, Africa and Europe regions. The order booking position as of March 31, 2025, for supplies in FY 2026 is very strong and pipeline of offers is very encouraging. The company expects to improve its performance further in FY 2026 as well. To meet the demand, NCPP capacity meant for exports is enhanced through line balancing.

LITHIUM ION BATTERIES (LIB) DIVISION

Lithium-Ion cells are now price competitive with industrial VRLA lead batteries, and it is matter of time before industrial VRLA lead batteries are replaced with LIB, by all big customers. VRLA will coexist, but not in all prime markets. HBL was aware of this shift; competence has been established in LIB. Scale can be gradually increased to meet demand for Solar Energy Storage Systems which require suppliers to offer a lot of engineering, apart from BMS, to be integrated.

Except in consumer products, Lithium-Ion cells are not used directly. The need is for batteries. The business of making cells, and the business of using cells to design and integrate other parts of a battery to meet customer needs, are different businesses. A global scale company like BYD can be in both, and even produce EVs themselves.

Both of Indias leading automotive lead battery companies, and several other ambitious Indian companies, have committed to invest large capex to make Lithium-Ion cells. HBL approach to this domain is consistent with our vision. We will not enter capital intensive businesses. Instead, we will focus on low volume, customized, engineering intensive higher margin markets for LIB. This is where HBLs Engineering capabilities help become competitive.

HBLs "Industrial" customers for LIB include Vande Bharat trains. Siemens in Germany has chosen HBL as one of two sources to be developed globally, for LIB for Siemens built train and metro cars. Defence customers abroad have purchased HBL LIB for their armoured vehicles. In India, HBL has contacts for undersea vessels of critical importance which should lead to sales in CY 2026.

HBL is implementing a capex plan of about 100 crores in CY 25, to make high energy density cells in house. The earlier investment made two years ago, on a pilot plant to learn the technology, was about 40 crores.

HBL has no illusion that it can produce Lithium cells at a cost lower than imports plus customs duty. So, HBL E-trucks also will use HBL made batteries, assembled from Chinese cells.

To summarise, LIB will be a significant contributor to HBL top line because these are used in HBL made E-Trucks. It also adds to our brand value as the "go to" company for specialised batteries, and revenue at a decent EBITDA.

DEFENCE BUSINESSES SEGMENT

HBL began with filling the technology gap for batteries for defence aircraft. Many other types of batteries for defence were developed over the years. Niche opportunities in electronics products used in defence are being added.

Defence businesses worldwide are not transparent because of security considerations. They are procedure heavy, which makes it difficult to enter; but the same feature discourages new entrants. HBLs position is secure.

Batteries are "revenue" items, and need replacement at regular intervals. Therefore, while demand for each type of battery is not predictable annually, the aggregate demand tends to grow steadily.

HBL products for "capital" items in defence are very few. The demand for these tends to be quite unpredictable.

BATTERIES DIVISION

Batteries for all types of aircraft, missiles, armoured vehicles, torpedo propulsion and submarine propulsion.

In all these batteries, MoD has a second supplier; but overall, HBL is recognised as the leading supplier. Exports are a significant contributor.

ELECTRONICS DIVISION

Fues are needed to detonate ammunition. Electronic fuzes are more reliable than mechanical fuzes. HBL has successfully developed and obtained approvals for many types of Electronic Fuzes including grenades, artillery shells, rockets, missiles, air-dropped bombs. HBL is the only company in India with 100% indigenisation. This would be the largest single contributor to revenues from the Defence Segment.

OTHER ELECTRONIC PRODUCTS

Voice and data Communications system for armoured vehicles (Battle Tanks and Armoured Personnel Carriers). HBL is the only supplier in India of this capital item. HBL also did high value "projects" which recur only with long intervals. Platform Management and Steering Systems, built to print by HBL, for Scorpene submarines is a prominent example.

INDUSTRIAL ELECTRONICS SEGMENT RAIL SIGNALING DIVISION KAVACH

In 2005, RDSO asked HBL whether we can invest on development of an indigenous train collision avoidance system. There was no funding from RDSO. On 27 Oct 2012, HBL successfully demonstrated the concept, on the tracks. The specification at that time was v3.1. Two more companies then joined the effort, and spec was revised to 3.2. interoperability among all three firms had to be established, before trial orders were placed by the Railways during 2019 to 2021.

Kavach v4.0 The earlier Kavach (train collision avoidance system) specification, called v3.2, was designed for protecting trains running at 110 kmph speed. This was used by the Railways for several contracts. This specification was revised to V4.0 in 2022 to facilitate protection of trains running at 160 kmph. Contracts awarded in 2022 were expected to be deployed with this version, although no supplier had an approved product in 2022.

On 16 July 2024, after several iterations, the V4.0 specification was frozen and formally approved. Bidders in new tenders needed to supply Kavach equipment qualifying to this spec before they can execute new contracts. Since the development of v4.0 spec started in 2022, new tenders were held back by the Railways to give time to OEMs to achieve v4.0 certification. This was why HBL overall sales in FY 25 were lower than budgeted.

On 24th Sep 2024, HBL was the first Kavach OEM to demonstrate the functioning of Kavach system with this new specification in West Central Railway from Kota to Sawai Madhopur. Minister of Railways witnessed the successful trial of this system during a loco trial. Kavach tenders were issued from October 2024, expecting that OEMs would be certified soon. But the Kavach system is complex, the specification is demanding and Railway operations are far from simple. This delayed the certification.

Meanwhile, tenders covering 19,000 km were floated and contracts for 16,000 km finalized. Delivery to be compliant with the v4.0 spec.

HBL won contracts totalling about C4,000 crs.

6,980 kms, 2,425 locos, 758 stations, 460 level crossing gates

HBL was the first among the OEMs to obtain v4.0 certification, on 13 May 2025.

TMS

There are six Train Management Systems in operation in india. The first two were installed by Bombardier and Alstom. The other four were installed by HBL. The total km now covered by TMS is less than 2% of IR network. TMS and its enhancements will be steadily extended to more and section of the Railways. But the value of contracts will not be comparable to Kavach.

ELECTRIC DRIVE TRAINS DIVISION

EVs : Hope, hype and reality over 20 years

The idea of electric traction for vehicles is more than 100 years old. Battery driven cars early in the last century were superseded by very rapid improvements in two technologies: internal combustion engines and petroleum refining.

A 100 years later, early in this century, very rapid improvements in two technologies, electronics applied to electric motors and Lithium batteries used in EVs, have attracted a lot of public attention. Some people think EVs will replace all engine driven vehicles by 2050.

In the last decade, this euphoria, led to government subsidies for purchase of "pure" electric vehicles in many countries. Toyota alone stood out for questioning this, but was shouted down. In 2025, reality is being recognised and the faith in EVs is eroding rapidly, both in auto manufacturers and in governments, including India.

Ten years ago, HBLs techno-economic market analysis showed that EVs can only be a small percentage of the passenger vehicle population, even after two decades. Further, that business strategy should not be based on subsidies. This has proved to be right.

TECHNOLOGY GAP IN ELECTRIC DRIVE TRAINS

HBL saw that the critical components of electric vehicles, including motors, batteries and electronics were being imported by all EV manufacturers in India. This is a technology gap, that HBL thought can be filled. So development of the electric drive train was started in house.

Our Annual Reports had mentioned this as ongoing work. As is common, some wrong paths and some dead ends took more time than was planned. But, the results and learning about an industry new to HBL, were worth the time and money spent. Road tests on trucks showed that the HBL electric drive train works reliably and could save money on operating costs for some use cases.

Six years ago, HBL had sensed a potential business opportunity in a viable segment of the EV market. That electric trucks could be techno-economically viable in some use cases. HBL was not the only company to see this, globally or in India. Where HBL differed was in HBLs strategy to first fill the technology gap to secure a competitive advantage.

EMERGING MARKET FOR ELECTRIC HEAVY TRUCKS

"The government is thinking about how to increase the adoption of electric trucks for long haul applications".

(Dr H Qureshi, Additional Secretary, Ministry of Heavy Industries, 10 August 2024)

Primary Benefit of Electric Drive for Trucks

Saves money Vs diesel drive, under use cases, where the kms/year is high.

Secondary Benefit : ESG Obligations

ESG Obligations, as part of the global effort to contain global warming, are being increased every year. Companies are evaluated on the contribution they made which should be reported annually. Larger companies lean on their suppliers and service providers to do something, and this makes it desirable for even medium sized companies to do something. Large truck fleet operators are looking at converting to Electric Trucks, to show progress. This tilts the balance in favour of electric when the total cost of operations of Electric Versus Diesel is considered.

CHARGING PROBLEM

Many of the initial sales are planned to deliver to customers who use trucks off highway. Highway charging infra is being planned by several firms.

Marketing Strategy for Electric Drive Trains

The easy way to commercialise HBLs drive train technology is to try and sell it to truck makers. This is a tedious, low margin (potentially high volume) business. But HBL wants to sell direct to users; lower volume niche markets with higher margins.

After trials of its drive trains on retrofit of old trucks, HBL chose to develop new trucks and sell the trucks. The initial models would be of GVW 35 and 55 Tons. The trucks would be assembled by buying all components from sources currently supplying to truck OEMs. HBL already has space available. Assembly at our limited scale needs little capex.

The last annual report said sales could begin in October 2025. However, unexpected problems (magnets) and ideas emerged in April - June 2025. The schedule for sales is delayed by a year to October 2026.

HUMAN RESOURCES

HBL Engineering Ltds human resources strategy is a cornerstone of its success, fostering a workforce of 2,152 skilled professionals as of March 31,2025. With expertise spanning diverse technical domains, the Company cultivates a collaborative, innovative environment. HBL prioritises continuous learning, offering robust training and upskilling programs to keep employees at the forefront of technological advancements. Its commitment to a safe, inclusive, and high-performing workplace empowers employees to reach their full potential. By emphasising well-being and professional growth, HBL ensures its human capital drives organisational excellence, aligning with its mission to bridge technology gaps and deliver cutting-edge solutions.

FINANCIAL RATIOS

In accordance with SEBI regulations, this section details substantial variations in key financial ratios from the prior fiscal year. Any changes surpassing 25% are disclosed as per the requirements of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Particulars	March 31, 2025	March 31, 2024	Change	Reason for change
Debtors turnover %	5.25	6.23	-15.73%
Inventory turnover %	4.10	5.81	-29.43%	In FY25, reduced turnover and increased inventory
Interest coverage ratio	31.68	29.42	7.68%
Current ratio	2.90	2.81	3.20%
Debt equity ratio	0.04	0.05	-20.00%
Operating profit margin (%)	17.87	17.17	4.08%
Net profit margin (%)	13.71	11.87	15.50%
Return on net worth (%)	18.30	21.74	-15.82%

INTERNAL CONTROL & ADEQUACY

HBL has established a strong framework of internal controls to promote efficiency and ensure compliance throughout its operations. The company undergoes periodic audits by an independent firm, working alongside statutory auditors and the Audit Committee, to assess the strength of these controls and pinpoint opportunities for enhancements. Additionally, HBL is committed to following strict quality management standards and operational protocols in all manufacturing and operational processes.

HEALTH, SAFETY & ENVIRONMENT

HBL received the prestigious "Outstanding Contribution Award" for its environmental stewardship at the Visakhapatnam SEZ Authoritys 32nd Zone Formation Day celebrations. In addition, HBL was also honoured with an appreciation certificate from the Telangana State Pollution Control Board for adopting exemplary environmental practices. This recognition was bestowed on the eve of Indias 75th Independence Day.

HEALTH

HBL prioritises the health and safety of its workforce. To ensure their well-being, the organization arranges routine health screenings for all employees, carried out by qualified healthcare providers.

SAFETY

HBL emphasizes the importance of safety in the workplace for every staff member. The company promotes a safety-first mindset by offering comprehensive training, necessary safety equipment, and conducting routine drills. Achieving ISO 45001:2008 certification highlights HBLs dedication to maintaining a protected and secure working environment.

ENVIRONMENT

HBL is dedicated to sustainability and environmental stewardship. The company champions a circular economy model, actively reducing waste through reduction, reuse, and recycling at every level of its operations. Its production facilities have proudly maintained a zero-liquid discharge record for over twenty years. Beyond its own operations, HBL actively supports afforestation initiatives and encourages its suppliers to adopt environmentally responsible practices.