HBL Power System Ltd - Rs 110.00
Founded in 1977, HBL Power Systems Ltd (HBL) is an acknowledged leader in design, development and manufacture of industrial & specialized batteries, allied electronic products and DC (direct current) systems in India. DC power systems are used across the world for a variety of application where the traditional power supply system cannot be sustained/supported. It is specifically required in mobile (non-stationary) applications like rail coaches, aviation etc. Therefore company focuses mainly on five key sectors namely telecom, aviation, railways, defense and other industrial segment including oil & gas, power, petroleum, steel etc. In these applications the usage of conventional sources of power / electricity is not possible and DC power supplied thru batteries is to be relied upon. Notably, HBL offers a diverse portfolio of product which has been classified into following three segments
A. Batteries: This is the core business of company deriving more than 90% of total revenue. HBL is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc. Infact it is the market leader in VRLA (valve regulated lead acid) and NCPP (nickel cadium pocket plate) batteries and enjoys 50% market share of domestic telecom market. Ironically, HBL is the world’s second largest player in nickel cadium alkaline batteries and stands 3rd for Nicad Passenger aircraft batteries. Moreover it is among the very few companies in the world making ultra high specialties batteries for military use like thermal, reserve and torpedo batteries. It also produces passenger and military aircraft batteries which are mainly for export.
Meanwhile, company has completed the development and test marketing of pure lead tin (PLT) Batteries for diesel engine starting (gensets, trucks etc) and has even entered into agreements with a reputed company for sale under their label. This marks the entry of HBL into the gigantic automotive industry. It is also working with makers of EKO battery operated electrical vehicles to design & manufacture advanced technology batteries for these future products. To encourage use of green, non-polluting power fast growth is expected in the solar power and as each equipment based on solar power needs batteries to store and supply the power, the potential in this area is very substantial
B. Railway Electronics: Traditionally HBL has been supplying various batteries for train lighting, air conditioned coaches, locomotives, signaling and communications. But off late, company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. It now offers integrated power supplies for railway stations and does turnkey signaling works contracts including design, installation and commissioning. It even has a dedicated division to execute end-to-end turnkey railway signaling works, starting from yard design, estimation, procurement, installation and commissioning. Company is now also working closely with IRISET, RDSO and other agencies to showcase and implement its other innovative electronics products like data loggers, automatic train charting systems, high frequency track circuits, solid state interlocks, digital axle counters, etc. In short this segment is expected to be the major growth driver in coming years, since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner.
C. Defence Electronics: Although HBL derives hardly 5% revenue from this division but it boasts of supplying several specialized, tailor made batteries to the Army, Navy and the Air Force. Last year it supplied battle tank batteries to three NATO countries. Infact it is most dependable supplier to defence for critical application areas like torpedoes, missiles, aircraft starting, ground power units etc. where no other manufacturers can cater. Besides, company also deals in several electronic products which are used in defense sector like electronic warfare, radar, field telephone exchanges, electronic proximity, time fuzes, radio relays, laser weapon sights, night vision devices, opto electronics, thermal imagers, simulators, mine and grenade electronics etc. Unlike batteries and railway products where almost all development was done in house, HBL has collaborated with IAI - ELTA of Israel for most of the defence electronics products. Their joint venture has already bid for two defense contracts for electronics worth Rs 500 cr. The tender is expected to be opened and finalized during the current fiscal.
Apart from above, HBL also manufactures other power electronics such as thyristor controlled battery chargers, earth leakage monitors, battery monitoring systems, industrial chargers, uninterrupted power systems, distribution boards etc. To meet the rising demand, HBL has been constantly expanding and modernizing its production facilities at Hyderabad, Manesar (Delhi) and Haridwar. Recently it has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150 cr. Now it is setting up a small facility in Mahape, New Mumbai. Last fiscal it commenced production at the modern printed circuit board assembly and test facility which has been specially designed for small volumes of high quality. For the next two years it has a capex plan of Rs 240 cr to augment the capacity of its VRLA & NCPP batteries by further 15~20%. Maintaining its philosophy of 'We do not forget the batteries we have sold', HBL has doubled the after sales service centre to 80 and is further expected to take it to 120 in the current year. Incredibly, HBL has developed strengths in areas of limited competition and focused on direct marketing to chosen customers / market segments.
Fundamentally as well as financially, HBL is on a strong footing and doing extremely well. For the nine months ending Dec 2008 it has recorded 40% growth in sales to Rs 958 cr whereas PAT zoomed up 65% to Rs 73 cr thereby surpassing the entire FY08 net profit of Rs 67 cr by decent margin. This is despite the fact that company’s margin has taken a hit due to sharp rise in raw material cost in the last two quarters. However, prices of lead, nickel, copper, tin and other metals has fallen considerably which may improve the operating margin of company in coming quarters. Still on a conservative basis, it may end FY09 with sales of Rs 1250 cr and PAT of Rs 80 cr i.e. EPS of Rs 33 on equity of Rs 24.30 cr. Incidentally company has a debt of Rs 350 cr leading to a debt equity ratio of 1.2x times. In order to fund its expansion, company had planned a preferential allotment as well as a right issue, but due the stock market sentiment, had to shelve it off. Importantly, with telecom, power, railway & defense being its focus market, HBL isn’t much affected by the ongoing recession. And in case if it witnesses any slowdown in domestic demand it can always cater to international market and increase its export revenue which is currently around 10% of total sales. Considering all the factors investors are strongly recommended to buy at current levels with a price target of Rs 240 in 12~15 months.
A. Batteries: This is the core business of company deriving more than 90% of total revenue. HBL is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc. Infact it is the market leader in VRLA (valve regulated lead acid) and NCPP (nickel cadium pocket plate) batteries and enjoys 50% market share of domestic telecom market. Ironically, HBL is the world’s second largest player in nickel cadium alkaline batteries and stands 3rd for Nicad Passenger aircraft batteries. Moreover it is among the very few companies in the world making ultra high specialties batteries for military use like thermal, reserve and torpedo batteries. It also produces passenger and military aircraft batteries which are mainly for export.
Meanwhile, company has completed the development and test marketing of pure lead tin (PLT) Batteries for diesel engine starting (gensets, trucks etc) and has even entered into agreements with a reputed company for sale under their label. This marks the entry of HBL into the gigantic automotive industry. It is also working with makers of EKO battery operated electrical vehicles to design & manufacture advanced technology batteries for these future products. To encourage use of green, non-polluting power fast growth is expected in the solar power and as each equipment based on solar power needs batteries to store and supply the power, the potential in this area is very substantial
B. Railway Electronics: Traditionally HBL has been supplying various batteries for train lighting, air conditioned coaches, locomotives, signaling and communications. But off late, company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. It now offers integrated power supplies for railway stations and does turnkey signaling works contracts including design, installation and commissioning. It even has a dedicated division to execute end-to-end turnkey railway signaling works, starting from yard design, estimation, procurement, installation and commissioning. Company is now also working closely with IRISET, RDSO and other agencies to showcase and implement its other innovative electronics products like data loggers, automatic train charting systems, high frequency track circuits, solid state interlocks, digital axle counters, etc. In short this segment is expected to be the major growth driver in coming years, since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner.
C. Defence Electronics: Although HBL derives hardly 5% revenue from this division but it boasts of supplying several specialized, tailor made batteries to the Army, Navy and the Air Force. Last year it supplied battle tank batteries to three NATO countries. Infact it is most dependable supplier to defence for critical application areas like torpedoes, missiles, aircraft starting, ground power units etc. where no other manufacturers can cater. Besides, company also deals in several electronic products which are used in defense sector like electronic warfare, radar, field telephone exchanges, electronic proximity, time fuzes, radio relays, laser weapon sights, night vision devices, opto electronics, thermal imagers, simulators, mine and grenade electronics etc. Unlike batteries and railway products where almost all development was done in house, HBL has collaborated with IAI - ELTA of Israel for most of the defence electronics products. Their joint venture has already bid for two defense contracts for electronics worth Rs 500 cr. The tender is expected to be opened and finalized during the current fiscal.
Apart from above, HBL also manufactures other power electronics such as thyristor controlled battery chargers, earth leakage monitors, battery monitoring systems, industrial chargers, uninterrupted power systems, distribution boards etc. To meet the rising demand, HBL has been constantly expanding and modernizing its production facilities at Hyderabad, Manesar (Delhi) and Haridwar. Recently it has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150 cr. Now it is setting up a small facility in Mahape, New Mumbai. Last fiscal it commenced production at the modern printed circuit board assembly and test facility which has been specially designed for small volumes of high quality. For the next two years it has a capex plan of Rs 240 cr to augment the capacity of its VRLA & NCPP batteries by further 15~20%. Maintaining its philosophy of 'We do not forget the batteries we have sold', HBL has doubled the after sales service centre to 80 and is further expected to take it to 120 in the current year. Incredibly, HBL has developed strengths in areas of limited competition and focused on direct marketing to chosen customers / market segments.
Fundamentally as well as financially, HBL is on a strong footing and doing extremely well. For the nine months ending Dec 2008 it has recorded 40% growth in sales to Rs 958 cr whereas PAT zoomed up 65% to Rs 73 cr thereby surpassing the entire FY08 net profit of Rs 67 cr by decent margin. This is despite the fact that company’s margin has taken a hit due to sharp rise in raw material cost in the last two quarters. However, prices of lead, nickel, copper, tin and other metals has fallen considerably which may improve the operating margin of company in coming quarters. Still on a conservative basis, it may end FY09 with sales of Rs 1250 cr and PAT of Rs 80 cr i.e. EPS of Rs 33 on equity of Rs 24.30 cr. Incidentally company has a debt of Rs 350 cr leading to a debt equity ratio of 1.2x times. In order to fund its expansion, company had planned a preferential allotment as well as a right issue, but due the stock market sentiment, had to shelve it off. Importantly, with telecom, power, railway & defense being its focus market, HBL isn’t much affected by the ongoing recession. And in case if it witnesses any slowdown in domestic demand it can always cater to international market and increase its export revenue which is currently around 10% of total sales. Considering all the factors investors are strongly recommended to buy at current levels with a price target of Rs 240 in 12~15 months.
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