HBL Power Systems Ltd Management Discussions.

Economic scenario

India, the bright start in the global economy, appeared to slow a little in fiscal 2018-19 as Indias GDP growth dipped for the second consecutive year. According to the National Statistical Office (NSO), the nation achieved GDP growth of 6.8% in 2018-19 down from 7.2% in 2017-18.

The below par growth of the India economy was primarily owing to the sub-optimal performance in the second half of the year - in Q4/2018-19 Indias GDP growth declined to 5.8%, the lowest in five years.

India grappled with a liquidity crisis in the second half of 201819 as the NBFC sector witnessed a downward spiral. Defaults and repayment delays forced the financial ecosystem to adopt a cautionary approach. This impeded investments by India Inc., which took a toll on economic progress.

Indias Industrial Production (IIP) contracted significantly. On an annual basis, IIP growth slowed to a three-year low of 3.6% in the 2018-19 fiscal as against 4.4% in the previous fiscal.

The woes of the telecom sector were largely owing to the prevailing unsustainable tariffs. As a result, revenue and profitability erosion continued unabated for all telecom players. Industry experts suggest that appropriate and timely government intervention is the only solution that could arrest this situation and help the nation progress to the 5G-technology.

On the defence front, India continues to focus on strengthening its self-dependency about its requirements. This drive was initiated by the Governments clarion call of Make in India and further catalyzed by relevant forwardlooking policies. More recently, the then Defence Minister Nirmala Sitharaman simplified the industry- funded development procedure (Make-II). A new defence production policy is under deliberation that aims to achieve self-reliance in 13 systems latest by 2025.

Indian Railways continues to strengthen its focus on improving signaling solutions across the worlds second-largest railway network to ensure the safety of the people and minimise damage to railway infrastructure. For this, the Government has budgeted an investment of Rs.75,000 crore on a signalling system project to be implemented across India over the next few years.

The promise of a better tomorrow

As we step into 2019-20, there continues to be optimism about Indias growth prospects owing to the pro-incumbency wave, which allows Indias existing political leadership to continue with its reform and pro-investment policies. This augurs well for the Indian economy.

The International Monetary Fund (IMF) has forecast Indias GDP growth at 7.3% in 2019 and 7.5% in 2020. Their optimism is based on the expected recovery of the investment climate in India, robust consumption amid a more expansionary stance of monetary policy, and some impetus from fiscal policy. The Asian Development Bank and the RBI estimate GDP growth for 2019-20 at 7.2%.

Business vertical 1


This vertical is the key revenue spinner for the Company, accounting for about 80% of its revenue. The telecom batteries segment is the essential growth and profitability catalyst within the battery segment. During the year, the revenue from telecom segment declined sharply as demand for batteries from the beleaguered telecom sector continued to wane owing to the continuing volatility in the industry.

The disruptions in the telecom industry forced incumbent operators and tower entities to shelve capex projects, conserve cash and focus on cost optimisation. This reduced the demand for telecom batteries significantly. Further, competitive pressure led to a crash in battery prices, which compromised the profitability of every battery manufacturer.

Despite these volatile headwinds, the Company was able to secure reasonable volumes and register a profitable year. However, going forward, sustaining revenue and profitability in telecom battery business segment could emerge as a challenge. Hence as a prudent practice, the team will focus on further operational efficiency, liquidation of long- pending receivables, and select business opportunities that do not compromise the Companys profitability and liquidity aspiration substantially.

The revenue from mono-block batteries (used in the diverse application UPS, solar, and train lighting) continued to maintain a healthy uptick. After a stellar performance in 2017-18, revenue from the retail channel remained subdued in 2018-19. This was owing to the Companys strategic call in transforming the business model from credit to cash-and carry - thereby reducing the receivables risk.

The Company is leveraging the challenging environment prevailing in the lead-acid battery user segment to strengthen internal efficiencies. As an important step in that direction, the Company plans to consolidate its lead-acid battery operations at one facility. This initiative will drive operational efficiency and optimise costs.

Pure Lead Thin (PLT) plate batteries gained traction from multiple user segments. In the diesel generator segment, the Company improved business volumes with Cummins and focused on expanding its customer base beyond Cummins.

The Company also secured good volumes from the Data Centre segment. Moreover, having obtained product approvals from the Indian Defence for armoured and other heavy vehicles, the Company is working on commencing business with the Indian Defence. It would also make efforts to increase its exposure in the growing Data Centre segment. In keeping with increasing volumes, the Company is increasing the manufacturing capacity of PLT batteries.

For its Ni-Cd pocket plate batteries, the Company was successful in growing business volumes with its domestic customers. The enhanced profits from this product line partially cushioned the fall in profits from the telecom batteries. Going forward, the Company will implement various initiatives to maintain the growth momentum of Ni-Cd batteries.

The management envisions the Energy Storage System (ESS) as an interesting opportunity. The team is working on novel chemistries including lithium to develop solutions for this segment, which should see the light of day over the medium-term.

In three wheeler e-mobility space, the Company is keeping a close watch on the developments transpiring in this segment. The knowledge gathered during this time will enable the Company to develop and launch a holistic solution for e-rickshaws over the coming years.

Business vertical 2


Consistent with HBLs vision of benefiting India by filling technology gaps, the Electronics Group is continually repurposing itself to leverage opportunities from industries and the Indian Railways.

Years of perseverance in developing technology-based solutions appear to be seeing fruition as the divisions flagship products - the TCAS and TMS - have secured relevant regulatory approvals. The Company has received orders for TMS and about to secure a maiden order for TCAS from the Indian Railways.

Railway electronics: The team has two key solutions in this segment, namely Train Collision Avoidance System (TCAS) and Train Management System (TMS).

Train Collision Avoidance System (TCAS): The Company secured the RDSOs approval for TCAS, which makes the Company eligible to execute large scale projects for the Indian Railways.

Further, the Company successfully demonstrated the functioning of the TCAS at train speeds of 160 km/hr in the Delhi - Agra section; the team also demonstrated the compatibility of the TCAS with auto-signalling sections. These developments have made TCAS suitable for all networks of the Indian Railways.

The Company participated in a tender by South Central Railway for rolling out TCAS over a 1,200 km stretch. On receiving the contract, the Company would focus its energy on accurate and timely execution of the same.

HBL signed an exclusive manufacturing agreement with ACTIVE Networks, USA, for the licensed production of RFID readers in India. Apart from being used in TCAS, these RFID readers will also support other applications in railways like smart yards.

Train Management System (TMS): After the initial success of commissioning the TMS in Eastern Railway, Howrah Division, the Company is actively promoting this solution in other railway zones and divisions. It has recently been awarded a contract for installing TMS in 28 stations in the Sealdah Division of Eastern Railway. This success has only strengthened the teams impetus in pursuing similar opportunities in other Railway zones. In the current year, the team will work toward executing this order with speed and efficiency.

Industrial Electronics: The Companys Digital Signal Processor controlled battery chargers have gained traction, with several customers switching to this new technology over the traditional analog controlled chargers. These chargers and associated DC Distribution Boards comply with relevant international standards at IPH Labs, in Germany. Besides, chargers for electric vehicles (EVs) are at an advanced stage of internal testing. They are scheduled to go through qualification testing at ARAI in the current financial year.

Electric Mobility: HBL is working on developing a complete DC drive train solution for powering commercial vehicle fleet that runs long distances on fixed routes. The technology has been demonstrated on a 12-meter bus for city traffic applications. The Company will engage in securing the relevant regulatory approvals for its electric drive train solutions, immediately upon completion of the development Business vertical 3


Determined and diligent efforts of the Company in developing niche batteries for various defence applications have positioned HBL as the largest battery supplier to this marquee customer. The trust equity gained during this journey is translating into growing revenue and increasing opportunities.

During 2018-19, revenue from this business vertical increased at a healthy 58% over the previous year owing to growing volumes.

The Companys exports continued to scale new heights due to its expanding global footprint for its battery products.

Moreover, the Company made considerable headway in developing new products that are expected to open sizeable growth opportunities over the medium term.

The Company has been awarded the design, development, manufacture and supply of Submarine Type II (SSK class) battery from the Indian Navy. It is also bidding for the Type I (Kilo class) submarine battery with the Indian Navy. The Company remains hopeful of securing orders for Type I batteries in the current year.

The team has made substantial progress in developing the advanced technology power solutions for Light Weight Torpedoes (LWT) and Heavy Weight Torpedoes (HWT) for the Indian Navy. During fiscal 2019-20, the team will focus on progressing and completing the development of these solutions.

The Company has bid for the supply of batteries to the Varunasthra torpedo for the Indian Navy. This is the most powerful silver-zinc torpedo battery indigenously developed and is likely to open up avenues for significant volumes in global markets. The Company expects to get material business volume from this development in the current fiscal.

The Company continues to pursue the sizeable 10-year tender for the supply of artillery fuses to the Indian Army. If the Company is successful, this tender will provide large volumes for a period of ten years.

The Company has temporarily put on hold its project for establishing infrastructure for manufacturing and storage facility of Grad Rockets and Grenades owing to delay in the tendering process. However, the organisation will continue to closely monitor and explore this opportunity at the appropriate time.


Quality management

Quality has been the hallmark of HBL, which manifests itself in an important reality - majority of the Companys output goes to the large telecom tower entities, global OEMs, the Indian Railways and the Indian Defence with whom the Company enjoys a business relation extending for more than a decade.

The Companys quality passion is visible in the multiple certifications under various standards, secured from global certification agencies [ISO 9001 - 2015, ISO 14001 - 2015, OHSAS 18001-2007, ISO 22167-2017 - IRIS - Rev 3 (Railway business) and AS 9100D (Aviation, Space and Defence Organisations) & EASA regulation, lend an important watermark to the relevance and accuracy of its systems and processes. The Companys laboratory is accredited by NABL under ISO 17025 - 2017

Human resource

Intellectual capital has been the corner stone of HBLs sustenance over the years. HBL has a large pool of engineers - 300+. This critical competitive edge has enabled the Company to stand out of the clutter and develop niche solutions to bridge technological gap in the country.

The Companys people-centric policies have created a unique bond between the Company and its 1700+ team. This is reflected in an important statistic - about 52% of the team is with the Company for more than 10 years.

The Company continued to enhance the intellectual capital of its team through an engagement program with reputed educational institutions and comprehensive learning & development calendar.

Further, the Company intensified its people development initiatives (leveraging multiple tools) to enable the team to make a more meaningful contribution to operational improvement and new product development. In addition, the management team members periodically interacted with the team to update them on the Companys performance and prospects going forward.

Internal control and its adequacy

HBL maintains a system of well-established practices and procedures for effective internal control of operations and other allied activities. The internal audit function is continually strengthened in consultation with statutory auditors and audit committee for monitoring statutory compliances and operational aspects.

The Company has appointed an independent agency as internal auditors. The prime objective of this audit is to test the adequacy and effectiveness of all internal control systems and suggest improvements. Material controls and systems related issues are brought to the attention of the audit committee for periodical review.

Moreover, the Company is diligent in adhering to various QMS standards and to standard operating practices in its manufacturing and operating activities.

Environment management

HBL continues to endeavour to reduce the adverse impact of its business operations on the Earth. Its dedication goes beyond compliance with the environmental laws and encompasses the integration of sound environmental practices in its business practices and decisions.

Entire effluents generated from the operations, across all units, are effectively treated and recycled. Manufacturing units are equipped with adequate treatment plants and maintains zero Liquid discharge.

All of HBL plants are equipped with adequate sewage water treatment infrastructure. 90% of the treated water is used for maintaining green cover. Every location also has proper water harvesting points and storage ponds. More than half of the area of manufacturing locations is of green coverage.

Significant changes i.e. change of 25% or more in the key financial ratios

In accordance with the amendments notified by SEBI in Regulation 17 of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 on 9th May, 2018, the details of significant changes i.e. change of 25% or more in the key financial ratios as compared to the immediately previous financial year along with detailed explanations are reported hereunder

Particulars 2018-19 2017-18 Change Reason for change
Debtors Turnover Ratio 2.97 3.48 (15)%
Inventory Turnover Ratio 3.67 4.15 (11)%
Interest Coverage Ratio 2.74 2.64 4%
Current Ratio 2.10 1.63 29% Improvement owing to reduction in working capital borrowing from banks.
Debt-Equity Ratio 0.24 0.43 44% Improvement owing to reduction in borrowing.
Operating Profit Margin (%) 3.47 5.01 (25)% Reduced OPM on account of volume shrinkage and price erosion in telecom battery business.
Net Profit Margin (%) 1.98 1.86 7%
Return on Net Worth (%) 3.20 3.89 (18)% Due to lower operating margins during the year.

Corporate Social Responsibility


As a responsible corporate citizen, HBL has institutionalised an inclusion model to make an enduring impact on promoting social and economic inclusion.

The Companys social upliftment initiatives focus around healthcare, hygiene, and literacy, which facilitates in bettering lives and improving livelihood.

Healthcare: HBL firmly believes that a healthy child provides the foundation for a growing economy and wealthy nation. As such, the Company supports child welfare centers in local communities by providing safe, nutritious, and wholesome meals to children in the 3-6 age group.

Education: HBL understands that a woman contributes more to Nation Building than a man. In keeping with this belief, HBL passionately supports girl child education by providing scholarships to encourage them to pursue higher education. The Company also supports preprimary and primary education by providing learning aids, sponsoring teachers, and creating a joyful school environment, thereby drawing kids to attend school. Providing this platform, could, over a period of time, facilitate in strengthening the momentum of Indias economic progress.

Potable water: HBL is working with local communities to create facilities that enable access to safe, clean water to local communities.

Sanitation: Hygiene and sanitation is a state of mind. Hence to infuse the concept of cleanliness among the masses, change in the mindset is critical. In keeping with this belief, the Company conducts periodic programs and workshops with the local communities to educate them on the benefits of proper sanitation practices. As a supplementary activity, HBL helps them in devising waste collection and management mechanisms and provides garbage collection vehicles. These initiatives have resulted in significant improvements in sanitation levels in the local communities.