Recommendation from Automobile & Ancillaries Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

HBL POWER SYSTEMS : CHARGED TO PERFORM

HERE IS WHY
✓ Indian battery industry to grow exponentially
✓ Increasing demand for the company’s products
✓ Consistently impressive financials

The Indian battery industry, valued at USD 7 billion in 2023, is expected to grow at a CAGR of 8-10 per cent over the next decade due to expanding sectors like automotive, renewable energy, telecommunications and consumer electronics. The adoption of electric vehicles (EVs) is a significant driver, with government initiatives like the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme and Production-Linked Incentive (PLI) scheme for advanced chemistry cell (ACC) batteries dominating the market. The renewable energy sector also contributes to battery demand, particularly for grid-scale storage. India’s strategic government policies, energy storage technology innovation and private sector investments position it as a significant player in the global battery ecosystem. Owing to this, our choice scrip recommendation for this issue is HBL Power Systems Limited. The company focuses on manufacturing engineeringintensive products for niche markets. It began with specialised batteries for the Indian Air Force and expanded into industrial electronics and railway signalling.

HBL Power Systems, a company renamed HBL Engineering Limited, is focusing on engineering-intensive sectors like defence batteries and railways, where technology can provide a competitive advantage. The company has developed 'Kavach', a train collision avoidance system, which became commercially successful in 2022. HBL Power Systems' diversified portfolio mitigates risks and leverages technological synergies across its product lines. The company is expected to experience robust growth due to its diverse portfolio, innovative product offerings, and strategic investments. The strong demand for industrial batteries in telecom, railways, and defense sectors has improved the company's operational and financial performance in FY24. HBL Power Systems' investment in Tonbo Imaging, a leader in electro-optics and imaging systems, marks a strategic entry into advanced surveillance and targeting technologies. The company's three key business verticals - industrial batteries, defense, aviation batteries, and electronics - underpin its growth trajectory

In Q2FY25, on a consolidated basis, the company’s revenue decreased by 6.4 per cent YoY to ₹520.96 crore compared to ₹556.58 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 0.16 per cent. The PBIDT excluding other income increased by 7.63 per cent to ₹108.54 crore YoY as compared to ₹100.85 crore from the previous year’s same quarter, while it sequentially decreased by 1.73 per cent. The net profit stood at ₹76.01 crore compared to ₹67.16 crore, a YoY increase of 13.18 per cent, while sequentially it increased by 0.21 per cent from ₹75.85 crore.

At TTM, the shares of HBL Power Systems are trading at a PE of 54.2 times, higher than its three-year median PE of 43.5 times and higher than the industry PE of 32.9 times. The company has maintained a three-year ROE and ROCE of 17.2 per cent and 21 per cent, respectively. It has a three-year compounded sales and profit growth of 35 per cent and 160 per cent, respectively along with a debt-to-equity ratio of 0.05 times and a Piotroski score of 7. We therefore recommend BUY.