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HBL Power Systems – Past Imperfect; Future Perfect?

Company Name – HBL Power Systems Limited (HBL Power Systems)

Current Share Price – INR 103 (February 20, 2023)

Market Cap – INR 2,855 cr


1. What is interesting about the stock?

Q. What was Company revenue in FY11?

A. INR 1,205 cr

Q. What was Company revenue in FY22?

A. INR 1,236 cr

Flat revenue over 11 years when the average nominal annual GDP growth rate has exceeded 10%. That’s past. What does the future hold?

Q. What is the management expectation of Company revenue in FY26?

A. INR 2,900 cr (Source – Company Investor Presentation) or a CAGR of 24% over FY22!

Appropriately tagged as “There is many a slip, between the cup and the lip” in the presentation.

A bit of background of the Company.

HBL Power Systems Limited is a leading Indian manufacturer of specialized batteries, electronics, and power systems, with a history dating back to 1977. The Company was founded by Dr. A. J. Prasad, who has over 30 years of experience in the field of power electronics and energy systems.

Initially, HBL Power Systems focused on manufacturing and supplying batteries for a wide range of applications, including industrial, automotive, and defense. Over the years, the company expanded its product portfolio to include electronics and power systems, becoming a one-stop solution provider for a variety of industries.

Today, HBL Power Systems has a diverse range of products and solutions, including batteries for defense and aerospace applications, railway and metro systems, telecommunications, and renewable energy systems. The company has also expanded its global footprint, with manufacturing facilities and offices in several countries around the world.

HBL Power Systems has a strong focus on innovation and technology, with a dedicated research and development team that is constantly working to develop new and improved products and solutions. The company is committed to delivering high-quality products and services that meet the evolving needs of its customers and has a strong reputation for reliability, performance, and customer satisfaction.

Business Segments

  • Industrial Batteries (~65% of revenue in FY22) – The Company is the world's second-largest manufacturer of Nickel-Cadmium batteries with Pocket Plate, Sintered Plate, and Fibre Plate technologies. In FY22, it executed large orders for domestic and global customers in the Nickel Cadmium battery segment. Nickel-cadmium (Ni-Cd) batteries have been widely used for various applications due to their high reliability, durability, and relatively low cost. Despite their many advantages, Ni-Cd batteries are now less commonly used due to environmental concerns related to the use of cadmium, which is a toxic substance. Management also expects this to be low growth in the next few years. Batteries are for the following applications:

    • Telecom Towers, Railway Coaches, UPS

    • Engine Starting, Data Centers

    • Oil & Gas, Utilities

    • Battery backup systems

  • Defense Batteries (~25% of revenue) – HBL Power Systems is one of two suppliers in India which have been supplying batteries for torpedo propulsion to the Indian Navy. Most of the missile batteries used in India are designed, developed, and manufactured by the Company. It also exports missile batteries to Israel and UAE. Apart from these, the Company also supplies aircraft batteries to Indian Air Force and submarine propulsion batteries to the Navy. Management expects moderate growth in the segment

  • Railway Electronics (~10% of revenue) – HBL Power Systems pioneered the Train Collision Avoidance System (TCAS System) development with Indian Railways the demo trial occurred in October 2012. The system is also known as Kavach. The Indian Railways announced that they will install Kavach over at least 30,000 km of track in ten years. The Company expects this to be the key growth driver for the next 4 years.

Company is now entering into a new domain of Electric Vehicles. HBL Power Systems is planning to set up its manufacturing facility at Mahbubnagar, Hyderabad to manufacture Lithium Ion cells and Electric Drive Trains (EDT). The total cost for the proposed capex is expected to be around INR 110 cr.

Why invest in HBL Power Systems?

  • Experienced Founder – Dr. A. J. Prasad, who has over 30 years of experience in the field of power electronics and energy systems

  • Indian Railway is increasing focus on electronics in the next 5-10 years

  • Strong R&D capabilities – Company has developed a lot of electronics for defense and railways in-house

2. Key Historical Financials

  • Company revenue and PAT have grown at a CAGR of -3% and 18% respectively in the last 5 years

  • Project nature of the business reflects in the revenue profile. Growth is not secular – HBL Power Systems’ revenue decreased in FY20 and FY21 on a YoY basis but increased 36% in FY22. However, the revenue decreased by 5% in Q3FY23 on a YoY basis

  • EBITDA margin has increased from 7% in FY21 to 11-12% since FY22 as the Company increased focus on products with a higher margin

  • PAT growth has been augmented further by de-leveraging in FY22

  • Working capital is quite high at 133 days

  • ROE improved in FY22 but is still trailing below the cost of capital

3. What is my view on company valuation?

The share price has appreciated ~80% in the last 5 years vs. ~80% increase in the Nifty 50 index. So, the share price has performed in line with the market. The profitability (PAT) of the Company has increased 3x during the period implying a fall in the P/E ratio.

Company trades at P/E (TTM) multiple of 30x vs a 5-year median multiple of 26x. However, as the EBITDA margin expansion in the future looks difficult, and also the de-leveraging is complete, the valuation looks expensive given the project nature of the business.

On an overall basis, HBL Power Systems is an interesting company. However, it’s a very difficult bet to make that future revenue growth will break out when the past growth has been quite muted.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • High working capital level

  • Very high dependence on the founder who is 76 years old – significant key man risk

  • Lumpy growth as revenue is mostly project driven


About the Author

I have over 17 years of experience in venture capital, private equity, and investment banking across various sectors in India and the Middle East. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.

I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).

I am an Insignificant Investor in the public market and co-founder of SocInvest.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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