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MANAGEMENT DISCUSSION AND ANALYSIS REPORT

i. I N D U S T R Y S T R U C T U R E A N D

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 Defence use.

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 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 alkaline electrolyte-based silver zinc, nickel cadmium and seawater-based silver chloride magnesium for stringent 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 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 Indigenization.

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.

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 these challenges.

iii. SEGMENT WISE OR PRODUCT WISE PERFORMANCE

HEBs revenue grew at a CAGR of 12 % over the last five years FY 2019-2024, backed by the Governments thrust on the Defence sector as well as its focus on awarding orders to indigenous players. In FY 2023 - 24, the revenue had dropped by 17 % Year on Year basis of 77.23 crores. The Company has a confirmed order book of around

35.73 crores with a possible order value of

58.46 Crores to be realized within the next 06 months, to be executed over the next 12-18 months period, providing adequate revenue visibility cum turnover possibility for FY 2024 – 25.

The Company supplies silver- zinc batteries to several Defence establishments including Navy, Army, Airforce and space research organizations. With limited competition in the Aerospace and Naval segment, HEB derives around 45% revenues from Navy & Naval Research Labs. Typical break – up of orders from different customer base indicates:

Customer

%

Navy & Naval Research Labs

45

DRDO Labs

11

Defence Public Sector

1

Aerospace & Others (NICAD,

43

TDF and NuPro)
Total

100

HEBs EBITDA margins have improved substantially over the last five 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 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 Aerospace, various strategic applications and credited with several National awards, especially towards R&D and Indigenization. However, the procurement cycle of Indian Defence is normally of the order of four to five years which in recent years got shifted to six- or seven-year cycle or even more, in view of the midlife technical improvements done on both the dry storage life and wet service life of batteries. While some flexibility available in product pricing in 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 and shift in Defence Policies of the various Governments. The prevailing war / conflict situation tantamounts to global economic slowdown which impacts Defence Budget allocation grossly.

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 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 supply and / or replacement on priority and to cater for any emergency situation / vigil needs of Defence services. 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, though there is risk as our product range falls under a niche category, catering to Strategic Defence requirements, without much

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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 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, gets 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. 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 effectivecompliance with applicable laws, accounting standards and regulatory guidelines. vii. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The Company as of 31st March, 2024 has 110 employees on its rolls out of which 61 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

Financial Year

Change –

Description

2023-24

2022-23

Increase or Decrease

Operating Profit Margin (PBIDT/Total Income)

0.32

0.34

(0.02)

Net Profit Margin (PBT/Total Income)

0.28

0.29

(0.01)

Interest Coverage Ratio (EBIT/Interest Expense)

12.77

9.73

3.04

Earnings per share

19.14

22.86

(3.72)

Debt Equity Ratio

0.06

0.29

0.23

Current Ratio

4.01

1.98

2.03

Debtors Turnover

3.15

3.83

(0.68)

Inventory Turnover

1.46

1.68

(0.22)

(For Board of Directors)

Chennai

N GOPALARATNAM

04th May, 2024

Chairman

(DIN: 00001945)