High Energy Batteries (India) Ltd Management Discussions

High Energy Batteries (India) Limited was established in the year 1979 for manufacture of Silver Oxide Zinc batteries for MIG Aircraft starting and emergency application with the technical collaboration of M/s. Yardney Electric Corporation, USA.

HEB Aircraft battery was type tested and approved for bulk manufacture in the year 1981. Over the years, design features and product range for all the three services have been constantly upgraded to suit Indian conditions and improvements in life achieved through in-house R&D.

Silver Zinc Batteries, Nickel Cadmium Batteries and Silver Chloride Magnesium batteries designed, developed and manufactured by HEB are power sources intended for high-rate critical applications. These batteries are very strategic in nature and custom-designed for use in aviation, torpedo propulsion, Satellite Launch vehicles and Army Battle Tanks. The demand for our batteries is not regular in nature, as the ordering schedule is cyclic and also not in large quantities (volume based) since the application is for strategic Defence use.

The principal customers of the Company are the Department of Defence Supplies and VSSC / ISRO and therefore the Company is subject to certain provisions of the Official

Secrets Act, 1923. The Company also requires prior permission from Ministry of Defence for export to other countries. The Defence applications require high reliability products including mid-life upgradation of technology to meet the global challenges and any eventual system obsolescence.

DRDOs and Defence establishments have technology driven applications and provide us opportunities for even ab initio Engineering development which acts as a catalyst for the growth of our Company. The procurement policy currently pursued by the Government with thrust on Indigenization and "Atmanirbhar" in Defence procurement, encourages the domestic manufacturing sector and it augurs well for our Company with Design, Development, manufacturing cum testing capability to perform better. HEB is a manufacturer of hi-tech batteries for use in Army, Navy, Air force and launch vehicles. The Company has a strong base of in-house R&D to design, develop and establish the manufacture of alkaline electrolyte-based silver zinc, nickel cadmium and seawater-based silver chloride magnesium for stringent applications such as under water propulsion, control guidance, communication, emergency starting, rail-road, industrial and aerospace applications. The Company regularly undertakes development activity and establishes the technology for the manufacture of electrochemical systems, for use in many critical applications.

The back–up power requirement is rapidly growing in Defence with the induction of advanced machinery/ weaponry. The Company received a number of awards for establishment of technology and Indigenization.

A major player in silver zinc battery for Defence.

In–house capability for technology development.

Part of established business group. Dedicated talented pool of human resource with scientific and engineering background.

Availability of dedicated Production cum Testing facility for the Manufacture of High-Power Batteries for Strategic Defence Applications.

Huge capital expenditure planned by the Government of India for Batteries and ESS, in the Energy sector.

Price rise in input materials.

Import restriction and / or delays in receipt of critical materials / components.

Change in Government policy of procurement, especially by Defence Departments.

Adverse change in the global scenario, with introduction of advanced / disruptive systems.

HEBs revenue grew at a CAGR of 12 % over the last five years FY 2019-2024, backed by the Governments thrust on the Defence sector as well as its focus on awarding orders to indigenous players. In FY 2023 - 24, the revenue had dropped by 17 % Year on Year basis of 77.23 crores. The Company has a confirmed order book of around

35.73 crores with a possible order value of

58.46 Crores to be realized within the next 06 months, to be executed over the next 12-18 months period, providing adequate revenue visibility cum turnover possibility for FY 2024 – 25.

HEBs EBITDA margins have improved substantially over the last five result of change in the product mix, better absorption of fixed costs and improved

Since inception, HEB had concentrated on specialized batteries for the Defence application and those used in aerospace, Railways, Army and Navy. The Company had so far developed and supplied batteries for Aerospace, various strategic applications and credited with several National awards, especially towards R&D and Indigenization. However, the procurement cycle of Indian Defence is normally of the order of four to five years which in recent years got shifted to six- or seven-year cycle or even more, in view of the midlife technical improvements done on both the dry storage life and wet service life of batteries. While some flexibility available in product pricing in the earlier years, competitive pricing requirement impacts the operating margins severely. Export potential for the present range of our products on a continuous basis, appears limited in view of obsolescence and shift in Defence Policies of the various Governments. The prevailing war / conflict situation tantamounts to global economic slowdown which impacts Defence Budget allocation grossly.

HEB has a long working capital cycle, primarily due to the higher levels of inventory that need to be maintained, being Defence based. This service need will be there for silver zinc and other battery accessories, towards supply and / or replacement on priority and to cater for any emergency situation / vigil needs of Defence services. The Companys Major revenue is from Defence sector and is dependent on Defence priorities and budget allocation. Continued thrust for indigenization and Atmanirbhar, especially of Ministry of Defence (MOD), provides a positive outlook, though there is risk as our product range falls under a niche category, catering to Strategic Defence requirements, without much

. ofapossibilityforspin off

The Company has proper and effective internal control systems commensurate with its nature of business and size of operations to ensure that all controls and procedures function satisfactorily at all times and all policies are duly complied with, as required. These are considered adequate to reasonably safeguard its assets against loss or misappropriation through unauthorized or unintended use.