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industrial batteries. These segments are highly concentrated by NSE Code HBLPOWER
organized players owing to high entry barriers in the form of Bloomberg Code HBPS IN
rigorous & lengthy approval processes and high engineering and ISIN INE292B01021
technical complexity. HBL markets its batteries, such as industrial
Market Cap (Rs. Cr) 932
electronics, defence electronics, and railway electronic signaling.
Outstanding shares(Cr) 25.3
52-wk Hi/Lo (Rs.) 40.85 / 8.85
Investment Rationale
Avg. daily volume (1yr. on NSE) 495,476
Diversified Product Base Face Value(Rs.) 1
HBL Power System Ltd offers a wide range of products. The broad Book Value 22.2
Ashika Stock Broking Limited
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Ashika Research - Equities
The lower per capita use of battery in India is a huge opportunity for battery
manufacturers to witness unprecedented growth in long run. Currently it is estimated
that the battery use per capita in India is around USD 1.6/ per annum as against a
world average of USD 10.1/ per annum and US consumption of USD 48.7/ per annum.
In raw materials, lead account about 60% of total manufacturing costs, thus decline in
lead prices amid slowdown in global commodity prices would be margin accretive for
HBL. Going ahead, it is expected that the revival in domestic economic growth would
drive the demand for battery primarily due to higher power and technology intensive
development and increase in renewable energy requiring storage of power. Further,
rebound in telecom sector could be the key revenue driver for HBL, as telecom
batteries accounts major part of the revenue. Defense battery contributes about 5%
of total turnover, however management is very upbeat on the prospect of the sector
post NDA government increased FDI ceiling in defense from 26% to 49%. Indian
defense sector usually import batteries from overseas markets but now it can be
expected that new reforms implemented in the sector would lead Indian defense
industry to rely on domestic battery suppliers. Moreover, the margin is high in the
segment with 30-35%.
1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com 2
Ashika Research - Equities
Railways , Canada, Ametek, USA and Etisalat, Dubai. In September 2014, company has
revised its lead acid battery price by 10%, which would reflect in 3rd and 4th quarter
of FY15 earnings. Company expects 2nd half in lead acid battery segment to be much
better. Going ahead, company is expecting better pricing in per ampere hour thus
improving the margins of the company. Currently the company has to incur average
cost of Rs 10-15 per ampere hour. In raw materials, lead account about 60% of total
manufacturing costs, thus decline in lead prices amid slowdown in global commodity
prices would be margin accretive for HBL.
Key Risks
As lead accounts for about 60% of total manufacturing cost, increase in lead
prices may adversely affect the margins of the company.
High working capital requirement.
turning around, pricing power is coming and raw material prices falling are the key
catalyst for the stock to outperform going ahead. On valuation front, the stock is
trading at a P/E of 6.7x of FY16 EPS of Rs. 5.4. So we recommend our investors to buy
the stock with a target price of Rs. 55 from 12 months investment perspective.
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