HBL Power - Recent Product Approvals, Order Flows, Export Opportunities To Drive Growth: HDFC Securities

HDFC Securities Retail Research

Investment thesis

HBL Power Systems Ltd. has an established presence in the batteries segment, which continues to grow moderately every year. Since the batteries are replaced every few years, demand is expected to remain stable.

Electronic signaling and safety is a priority investment for the railways and is a growing segment for the company. Defense indigenisation will also help the company’s products, which have been developed inhouse.

The electronics segment of the company is a high margin business and will scale up rapidly, contributing to ~35% - 40% of revenue by FY25-26.

We expect revenue/Ebitda/profit after tax to grow at a compound annual growth rate of 24%/55%/57% over FY23-FY25E.

About the company

HBL Power specialises in the design, development and manufacture of batteries and electronic solutions for challenging applications. The company focuses on creating solutions that address key user sectors such as telecom, UPS, railways, power, oil and gas, and defense. It has developed most of these products indigenously.

HBL Power has its headquarters at Hyderabad and five manufacturing facilities located in Telangana and Andhra Pradesh.

The battery vertical is the major revenue contributor for the company at ~74%, followed by defense at ~13% and the electronics segment at ~10%. Although batteries continue to remain the major revenue contributor for HBL, the company is gradually working to reduce its dependence on telecom batteries and increasing its focus towards defense and railways.

The company has signed big contracts for “KAVACH” (Train Collision Avoidance System) with the Indian Railways. It also expects growth from its train monitoring systems, electro optics products, grenades, electronic fuzes for defense applications and electric drive trains.

The company is creating a presence in niche categories where competition is limited and the business earns a good return on investment.

We believe that the new verticals will report a robust growth over the coming years owing to recent product approvals, order flows, and export opportunities. The order book position as of June 2023 has improved and stood at Rs 1,607 crore vs Rs 594 crore in June 2022 providing medium-term revenue visibility.

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