High Energy Batteries India Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

i. INDUSTRY 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, as the ordering schedule is cyclic and also not in large quantities (volume based) since the application is for strategic Defense use, more as a deterrent.

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 including mid-life upgradation of technology to meet the global challenges and any eventual system obsolescence. DRDOs and Defence establishments have technology driven applications and provide us opportunities for even ab-initio Engineering development which acts as a catalyst for the growth of our Company. The procurement policy currently pursued by the Government with thrust on Indigenization and "Atmanirbhar" in Defence procurement, encourages the domestic manufacturing sector and it augurs well for our Company with Design, Development, manufacturing cum testing capability to perform better.

HEB is a manufacturer of hi-tech batteries for use in Defence and other applications. The Company has a strong base of in-house R&D to design, develop and establish the manufacture of alkaline electrolyte-based silver zinc, nickel cadmium and seawater-based silver chloride magnesium batteries for power intense demanding applications such as under water propulsion, control guidance, communication, emergency starting, rail-road, industrial and aerospace applications. The Company regularly undertakes development activity and establishes the technology for the manufacture of electrochemical systems, for use in many mission-critical applications.

The back - up power requirement is rapidly growing in Defence with the induction of advanced machinery and weaponry. The Company received a number of awards for establishment of technology and Indigenization.

ENERGY STORAGE SYSTEM (ESS) GROWTH STORY

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) and in turn, the resultant thrust on Green Energy cum Hydrogen Economy (Indian mission towards e-mobility). Currently, the company is working on such thrust - areas of global significance which provides the needed impetus to a great extent, for the growth and further prospects of our Company.

Indias Energy Storage System (ESS) growth is rapidly transitioning from a nascent pilot phase into core grid infrastructure to support the countrys ambitious 500 GW renewable energy target. Driven by plummeting battery costs and aggressive government mandates, the market is poised to reach up to $8.6 billion by 2031. This progress is in line with Indias commitment to achieving its 500 GW of non-fossil fuel energy, to meet the ‘Panchamrit goals of the Government of India (Gol) involving both Lithium-Ion battery (LIB) and Flow Battery (VRFB).

Key Drivers of the Growth Story

• Rapid Capacity Expansion: The Central Electricity Authority (CEA) estimates that India will require 411.4 GWh of energy storage by 2031-32. This will be split between Battery Energy Storage Systems (BESS) and Pumped Hydro Storage (PHS). On this, our Company is pursuing Engineering and Development work pertaining to multi-kW level BESS programs.

• Skyrocketing Project Pipeline: Indias BESS pipeline currently sits at an unprecedented 92 GWh installed grid-scale battery storage capacity. It is experiencing a ten-fold increase, jumping from under 200 MWh to roughly 5 GWh.

BATTERY ENERGY STORAGE SYSTEM (BESS) MARKET

Indias Battery Energy Storage System (BESS) market is experiencing rapid expansion, projected to grow from USD 2.05 billion in 2026 to USD 8.59 billion by 2031, at a compounded annual growth rate (CAGR) of 33.2%. This boom is fueled by the aggressive integration of renewable energy and the need to stabilize the national power grid.

Key Market Drivers

• Renewable Energy Integration: India is aggressively pursuing an ambitious target to deploy 500 GW of renewable energy by 2030. BESS is critical to managing the intermittent nature of solar and wind power.

• EV Adoption: The rapid rise of electric vehicle sales and the necessary infrastructure are heavily driving the demand for efficient energy storage solutions.

• Government Mandates: The Central Electricity Authority (CEA) expects BESS capacity requirements to surge, setting clear Energy Storage Obligations (ESO) for power entities.

• Declining Costs: Aggressive competitive bidding and the introduction of Viability Gap Funding (VGF) by the government have led to a significant drop in BESS tariffs, boosting deployment scale.

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 science 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

• Introduction of advanced and/ or disruptive systems cum technological break-through.

• Necessity to get trained in the upcoming technologies and upgradation of production methods and equipment, mandated to take on/tackle these challenges.

iii. SEGMENT WISE OR PRODUCT WISE PERFORMANCE

HEBs revenue grew at a CAGR of 6% over the last ten years from FY 2016 - 17 to FY 2025 - 26, backed by the Governments thrust on the Defense sector as well as its focus on awarding orders to indigenous players. In FY 2025 - 26, the revenue had increased by 3% Year on Year basis of Rs.2.35 Crores. The Company has a confirmed order book of around Rs.56 Crores with a possible order value of Rs.101 Crores to be realized within the next 6 months, to be executed over the next 12-18 months period, compared to the previous year opening order book of Rs.62.68 Crores, providing adequate revenue visibility cum turnover possibility for FY 2026 - 27.

The Company supplies silver- zinc batteries to several Defence establishments including Navy, Army, Airforce, space research organizations and exports. In the Aerospace and Naval segment, HEB derives around 60% revenues from Navy & Naval Research Labs. Typical break - up of orders from different customer base indicates:

Customer	%
Navy & Naval Research Labs	58
DRDO Labs	-
Defence Public Sector	15
Aerospace & Others (NICAD, TDF and NuPro)	27
Total	100

HEBs 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 and silver price volatility all the possible fluctuations and cost factors are monitored and addressed well in all our contracts. The Company strives its best to maintain a sustainable EBITDA margin of around 25%.

iv. OUTLOOK

The procurement needs of Indian Defence can be linked to a particular cycle of order placement. Earlier, the cycle was of the order of four to five years and in recent years, it got shifted to six or seven years cycle or even more, in view of the mid-life technical improvements that we have achieved and provided through in-house R&D, on both the dry and wet storage life of batteries in service. While some flexibilities were available in product pricing during the earlier years, in recent times, competitive pricing requirement has an impact on the operating margins as well. The Export potential for the products, though limited, is being explored on a continuous basis.

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 respectively in Power Generation using Hydrogen and Bulk energy storage (LDES - Long Duration Energy Storage) applications. The Company will be focusing more on value added products including Lithium Ion based 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.

Some of the key features in FY 2026 - 27 of the Defence in Union Budget 2026 - 27 are as follows:

> In 2026 - 27, the Ministry of Defense (MoD) was allocated a total Budget of Rs.7.85 lakh crore, which is 15.19% YoY increase from 2025 - 26 budgeted figures.

> Of this, Rs.1.39 lakh crore was earmarked for procurement from domestic Defence industries.

> For FY 2026 - 27, the budgetary allocation under capital head to the Defence Forces is over Rs.2.19 lakh Crore, which is 21.84% more than Budget Estimates of FY 2025 - 26. Out of Rs.2.19 lakh crore, Rs.1.85 lakh crore has been earmarked for capital acquisition, representing an increase of approximately 24% over FY 2025 -26.

> The capital allocation to the Border Roads Organization (BRO) has been increased to Rs. 7,394 crore for FY 2026 - 27.

> Defence exports was at Rs.38,424 crore in Financial Year 2025 - 26, a 62.66% increase over previous fiscal.

v. RISK AND CONCERNS

HEB has a long working capital cycle, primarily due to the higher levels of inventory that need to be maintained. The Companys 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.

The export market though limited, the Company keeps exploring possible markets like Poland, Vietnam and effects supplies to countries like Philippines, 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 Authorized Agents on selective basis to cater to export markets.

HEBs major raw materials include Silver, Zinc and Copper, the prices of which are highly volatile due to external market factors. Only any abrupt 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 that are gradual and regular, arising out of non-silver materials like Copper and Zinc, get judiciously addressed in cost estimates and pricing, to mitigate any abnormal escalation. Less than 10% of the total raw materials consumed are imported, liable to certain Forex 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" on annual basis.

ENERGY STORAGE GROWTH (ESS) BOTTLENECK AND CHALLENGES

Despite the monumental growth in Solar PV power and the need for battery thereof, the market faces hurdles. Aggressive tariffs discovered in recent competitive bidding do not always align with current battery prices coupled with challenges faced in supply chain due to global scenarios.

Nonetheless, with national policies solidly in place, the energy storage ecosystem- spanning generation, transmission, and distribution will remain the most critical component in Indias ongoing transition away from fossil fuels.

vi. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

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.

vii. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT OF OPERATIONAL PERFORMANCE

	2025 - 2026	2024 - 2025
	(in Ampere hours)	(in Ampere hours)
Production	1503380	1437377
Sales	1503380	1437377
	(Rs. in lakh)	(Rs. in lakh)
EBIDTA	2369.72	2307.66
Finance Costs	185.57	148.28
Depreciation	109.45	91.00
Exceptional Item - Expenses	124.66	-
Profit Before Tax
- Before Exceptional Item	2199.36	2068.38
- After Exceptional Item	2074.70	2068.38
Profit After Tax	1539.18	1532.99

viii. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The Company as of 31st March, 2026 has 125 employees on its rolls out of which 81 are Managerial, and others being supervisory and production staff. Further it employs around 160 persons 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.

ix. KEY FINANCIAL RATIOS

	Financial Year		Change - Increase or Decrease
Description	2025-26	2024-25		Explanation
Operating Profit Margin (PBIDT/Total Income)	0.28	0.27	3.70%	Better operation parameters achieved.
Net Profit margin (PBT/Total Income)	0.23	0.24	(4.17%)	Impact due to Additional Gratuity provision made inlieu of New Labour Codes.
Interest Coverage Ratio (EBIT/Interest Expense)	12.18	14.95	(18.53%)	Additional working capital utilized due to delay in realization.
Earnings per share	17.17	17.10	0.41%	Better operation parameters achieved.
Debt Equity Ratio	0.10	0.11	(9.09%)	Marginal increase in Cash Credit
Current Ratio	3.65	3.77	(3.18%)	Increase in Current liabilities due to impact of New Labour Codes.
Debtors Turnover	3.01	3.43	(12.24%)	Marginal increase in Trade receivables.
Inventory Turnover	1.60	1.58	1.27%	Impact of Silver Price.
Return on Capital Employed (ROCE)	0.18	0.20	(10.00%)	Impact of New Labour Codes.
Return on Net Worth	0.14	0.15	(6.67%)	Implementation of New Labour Codes.

 

	(For Board of Directors)
	N GOPALARATNAM
Chennai	Chairman
12th May, 2026	(DIN:00001945)