HBL Engineering Ltd

DEAR SHAREHOLDERS,

We are pleased to share your Company's progress in the recently ended fiscal 2022-23. While the financial numbers succinctly summaries the story, the satisfaction quotient was encouraging as we started reaping the benefits of our decade-long efforts.

A THROWBACK ON FY23

To say the world is in uncharted waters would bean understatement. The adverse impact of multi-dimensional challenges, such as armed conflict and climate change, has exposed the fragility of the global economic system. It resulted in incalculable damage (uncontrolled inflation, disrupted food supplies, increased human displacement, and faltering job creation ecosystems) and tested the resilience of every nation.

The government-funded capital expenditure and the gradual increase in interest rates allowed the nation to absorb the increased interest burden efficiently.. India adopted a significantly matured approach to this multi-dimensional global crisis which helped India to emerge as one of the fastest-growing economy in the world. Also, corporate India maintained its resilience to deliver superior performances.

OUR PERFORMANCE

Aligned with the India story, we reported a improved performance. Revenue from operations stood at H1,350 crore, a growth of 11% over the previous year. Notwithstanding heightened inflation and elevated interest costs, EBITDA improved to H167 crores in FY23 and a Net Profit of H95 crore in FY23. As liquidity improved, we adopted a judicious capital allocation strategy between investing in our business segments to capitalise on emerging opportunities and further reducing organisational leverage.

BUSINESS IN FY23

It was a year of palpable excitement as every business segment had a healthy inflow of orders. There were good product introductions that gained the attention of user sectors and hence promised to add new growth levers to our business segments. Every business segment reported healthy operational and financial performance improvement and ended the year with a decent open order book.

Electronics

Train Collision Avoidance System (TCAS) has become the flagship product in our Electronics segment. We won four contracts for deployment of Kavach TCAS to cover 1,322 route km and 267 locomotives. Our team's proactive preparatory steps in FY22 helped us become the first Company to complete the execution of Kavach TCAS over Milestone I of three projects in Eastern Railway, West Central Railway, and Western Railway. We have made considerable investments to improve our delivery schedules. We have significantly revamped and expanded our capacity for manufacturing electronic systems. We have adopted a Lean Manufacturing strategy for most of our manufacturing operations, including Electronics, to improve the productivity of our human resources and manufacturing infrastructure. We continue to invest in inventories of electronic components to combat shortages and long lead times. Together, these initiatives, among several others, form the basis for the confidence in our supply chain resilience to complete the Kavach contracts ahead of schedule.

We have deployed the Train Management System (TMS) in the Eastern Dedicated Freight Corridor and our team is working hard to commission this solution in the Sealdah Division of Eastern Railway. These eminent projects should help us garner additional business for this solution shortly.

Defence

Having completed supplies of two sets of Type-IV batteries for use in Kilo Class and Scorpene (Kalvari) Class Indian submarines, we have expanded our capabilities and completed the type approval process for Type-II batteries for HDW German (Shishumar) class submarines and secured manufacturing clearance. We expect to supply one set of these batteries in the current year.

During the year, we received the production order for the supply of thermal batteries to the Advanced Systems Lab (ASL) of DRDO for Agni Prime Strategic Missile. In addition, we developed and supplied thermal batteries for two other strategic missile programs of ASL.

Moreover, ELBI and IAI of Israel found that our batteries matched their stringent performance and quality standards. This opens an exciting opportunity for the Company over the coming years. We are increasing our engagement with these agencies to develop new product variants to increase our business with them. As our products are gaining traction globally, we are investing in critical and high-cost testing equipment to ensure we meet international testing standards and minimise our dependence on external test agencies. This will go a long way in improving our product quality and delivery timelines.

Batteries

The battery division registered an excellent performance with robust growth in lead-acid and Nickel Cadmium batteries.

After a lull of about 2-3 years, we secured large orders from the telecom sector - from BSNL (a large order that is payment secured) and other private players. Our 12V-VRLA battery sales also picked up appreciably as we commenced supplies to small cell sites and increased our share of business with UPS OEMs.

We made considerable headway in the Data Center space with our PLT batteries, positioning them as the most suited product for this application. We concluded a contract with a large data center enterprise to supply PLT batteries over the next 30 months. In addition, we bagged large orders for PLT batteries from the Indian Army Data Center under the NFS project.

The year's highlight was widening the canvass for our PLT batteries. The Indian Army has recognised the performance superiority of PLT batteries and approved them for deployment in battle tanks and heavy trucks. Further, the DRDL has approved these batteries as a reliable power source for its Akash and other missile launchers. Additionally, the demand for our PLT batteries for battle tank applications continued to grow in the Middle East and South-East Asian countries.

We experienced strong demand from the Oil & Gas sector and railways in the Nickel Cadmium space. We bagged our largest order for the prestigious IGGL pipeline project under execution. We have also successfully converted lead acid battery demand to Nickel Cadmium in various applications in the Power sector and Metro Rail, which should help grow the numbers over the medium term.

Electric Drive Train

We made considerable progress in this area. We undertook road trials of our electric drive train (EDT) solution on a 7.5T truck, demonstrating encouraging results with our solution's performance and energy efficiency. It reinforces our belief that our solution is viable for commercial . truck operators without financial subsidy from the Government. We will continue to develop solutions for larger trucks.

OUR OPPORTUNITY WINDOWS

Electronics

In the Union Budget 2023-24, an allocation of H2.40 lakh crore has been provided to the railway sector for accelerating the growth of the Indian Railways by improving infrastructure and introducing high-speed trains, which would call for increased TCAS deployment.

Considering these factors, Kavach TCAS garners the greatest attention in the directional focus for FY24. We will aim to supply and install Kavach systems in 23 Vande Bharat Trainsets. So far, 20 Kavach systems have been delivered, and eight have been installed in 4 Vande Bharat train sets. We will focus on getting our Train Management System (TMS) certified to Safety Integrity Level II, according to CENELEC standards. Following this certification, the deployment in Eastern Dedicated Freight Corridor will be commercially operational. We will also complete the installation of TMS in the Sealdah Division of Eastern Railway. This will prepare our teams to be ready to take on many new projects for TMS, which are currently in the pipeline.

Defence

We have partnered with HAL Kanpur to develop batteries for civil aircraft Hindustan D0-228 and with HAL, Bangalore for Light Compact Aircraft - Tejas, and Advanced Light Helicopters, as part of the Atmanirbhar Bharat and Make in India initiatives. Parallelly, we are working with the Ministry of Aviation and the Director General of Civil Aviation (DGCA) to deploy NCSP batteries in all civil aircraft _ying in India under the Atmanirbhar Bharat initiatives. When this happens, maybe a few years into the future, it will open an interesting growth window for the HBL.

Further, leveraging our product success in the Indian context, we are engaging with defence authorities in other nations with Russian-made aircraft and helicopters to promote our batteries.

Having successfully developed batteries for Light Weight (LW) and Heavy Weight (HW) torpedoes, we embarked on creating new variants to expand the market. Our wider offering, backed by new variants and ratings and our LW and HW torpedo battery solutions, is expected to enhance business volume in the next couple of years.

We are also working on products for new generation aircraft and helicopters, recently acquired by the Indian Air Force and currently under development in India.

Batteries

Telecom players are back, investing aggressively in creating telecom infrastructure. Credible estimates suggest that telecom players will add another 4.5 Lakh towers to improve latency and quality 5G coverage. Moreover, 5G consumes more power than 4G. Hence, the connected battery capacity will be higher for a given backup requirement. Moreover, the replacement opportunity is also expected to be promising.

The UPS battery market is enormous (H3000+ crore) and is growing consistently. While our share at this point is meager, we will adopt a cautious approach in this space with calibrated investment around capacity and channel building. These realities should sustain the demand for lead-acid batteries.

India is a data-guzzling market and the world's largest consumer of data. This data needs to be stored in India. As a result, India will add a data center capacity of over 4000 MW in the next five to six years. Our PLT batteries are fast catching the attention of Data Centre consultants and entities, aided by their performance, total cost of ownership, and safety over conventional VRLA and lithium options. We hope to make deeper inroads into this large and rapidly growing business space.

We have started FY24 on a positive note for our Nickel Cadmium batteries with a sizeable order book. We believe the demand for Nickel Cadmium Pocket Plate (NCPP) will remain robust over the next couple of years.

Our optimism is based on:

1) Mandatory commissioning of Fuel Gas De-sulfurisation (FGD) plants across all thermal power plants.

2) Commissioning of Oil & Gas pipelines (around 15000 km) across the country.

3) Implementation of various hydrocarbon projects under India Hydrocarbon Mission 2030. The demand for these batteries will be further energised by the Government's aggressive targets for rail electrification across the Indian Railways network and various ongoing and upcoming (both new and expansion) metro rail projects.

HOW THE OVERALL BUSINESS WILL EVOLVE

The fruits of our transformation journey have only started to show. Our high-value business segments, namely Electronics and Defence, where we enjoy an oligopolistic position, have come under the spotlight as our products and solutions secure approvals from user sectors. These segments should emerge as essential growth levers over the coming years. Our high-value products will continue to drive profitable business growth in the battery segment.

PROSPECTS FOR FY24

We started the current year with a healthy open order book for all our business segments, which is heartening. We will deploy our energy and resources to grow the business and widen our horizons.

We will also work on optimising costs and improving productivity that will enable us deliver faster.

We look forward to inking this narrative once again next year with an even better performance and further exciting prospects.

ACKNOWLEDGMENT

It is our privilege to pursue our passion for creating a better world by integrating our capabilities. We will focus on long-term growth, the ultimate measure to generate value. To achieves this, we will invest in strengthening our competitive advantages, be disciplined in capital allocation, and stay diligent in our pursuit of efficiencies.

We extend our gratitude to every team member for their relentless efforts in uplifting the organisation.

We would also like to thank all our stakeholders, Board, Bankers, and Government authorities for our support and assistance throughout our journey.

We solicit your continued cooperation.