It gives us great pleasure to inform you that your Company is at the cusp of a positive transformation that promises to grow business profitably over the medium term.
This positive divergence was already evident during the financial year under review: even as our top line declined marginally, our profit after tax grew 33% over the previous year.
Earnings per share, operating cash flow and other Balance Sheet metrics have shown appreciable improvement. We believe that this improvement is not fleeting or coincidental; it showcases our commitment to transform into an attractively profitable and financially prudent organization.
At the heart of this transformation is an ongoing consolidation process, which is expected to be completed by March 2017.
In this phase of consolidation, the organization''s emphasis is on enhancing operating efficiencies and finalizing plans to leverage the extensive product development efforts made in the past, in the electronics and defense business verticals, based on emerging opportunities in India. More such inspiring initiatives are yet to unfold, which will make our future increasingly exciting.
The positive transformation expected to unfold over the next three years is based on some of our recent products, in electronics business, enjoy opportunities where the ''idea-to-market'' cycle is much shorter than our earlier portfolio. This change occurred because we altered our opportunity selection criteria two years ago. Added to this is the emphasis to improve operational efficiency across all areas of our operations.
Further, every new opportunity is now being looked upon from the perspective of return on resources committed (money, time, people, knowledge and infrastructure). As a result, the future scenario at our organization is changing for the better.
To ensure that the consolidation initiatives and the medium-term growth aspirations transform into on-ground reality, your Company made a decisive organizational structural improvement by entrusting the business management responsibility to professional leaders.
Further, we subdivided the Engineering vertical into Electronics and Defense, to enhance more focus.
While efforts to enhance Balance Sheet credentials and operational efficiency are the main areas of interest, asset utilization has became centre stage too, with a focus on consolidating infrastructure, filling in capacities and monetizing surplus assets -these initiatives will definitely yield results in streamlining business operations, enhancing resource availability and strengthening business profitability.
Even as we continue to grow existing product verticals, we are adding new products that promise interesting growth opportunities. Our product innovation and development efforts shall continue to enlarge the pipeline of opportunities and the Company continues to invest in R&D for the future.
While we make the best efforts to grow our share of business with existing customers, we are working on forging business associations with new customers. Even as we continue to strengthen our presence in existing markets, we continue to explore business opportunities beyond current marketing canvas by leveraging our overseas footprint.
The combination of these factors, will help us scale and sustain profitable growth, thereby increasing shareholder value.
In the telecom segment, we increased the customer base and consolidated our status as the second largest player, even as we continued to improve battery performance and service standards.
We entered the UPS; Solar and e-mobility battery spaces, in a limited manner in 2015-16, in which our product range has received promising customer response.
The superior performance Pure Lead Tin (PLT) batteries, designed for high power requirement application, have a NATO part number, which will help us to market this product across the globe for battle tank applications. Moreover, these batteries are being aggressively promoted for engine cranking and data centre power back-up needs, providing an attractive total cost of ownership to customers.
We completed the process of redesigning the entire range of UPS batteries. The UPS and PLT batteries are expected to make a considerable contribution to growth of our batteries business.
Exports are projected to increase faster with the acceptance by customers of our advanced 2V-VRLA products, which help improve margins and compensate for possible erosion in margins contribution from the domestic telecom battery business in the near future.
We have concrete plans to supplement our telecom dominated lead acid batteries business with additional growth levers -each of which should start contributing to sales growth from 2017-18. Although the telecom batteries business is expected to grow slowly, its share in the overall sales would reduce significantly in 2018-19.
In the Industrial Nickel Cadmium (Ni-Cd) battery business, where our Company is globally number two, demand has improved. In the domestic market, demand is driven by investments in metro rail, power sector and oil and gas. The Company''s export markets continue to grow steadily.
For many years, we had been asked why HBL did not make Lithium Ion batteries. We have now initiated a plan to manufacture prismatic Lithium Ion cells and batteries for specialized applications - not for consumer products. The project is likely to be implemented in the near term.
After working for the Indian Railways in developing various solutions for 15 years, our Company received approvals for numerous products. We shortly expect to participate in tenders and receive profitable business. We have already been receiving orders for some of the products, namely data loggers and integrated power supply systems.
Years of efforts in developing TCAS (Train Collision Avoidance System) for use in Indian Railways will fetch large gains from FY 2017-18. Further, our new Electronic Interlocking System is undergoing approvals and should be commercialized in the next 18-24 months. This product is state-of-the-art and is exportable.
We expect to complete the development of permanent magnet alternators for the modern coaches of the Indian Railways during this financial year. The testing may take all of 2017-18 and sales should begin in 2018-19.
We are working to establish a significant presence in two important business verticals - electric mobility and grid-tied solar inverters.
Electric mobility: We have developed energy efficient Brush Less DC Motors used in electric rickshaw (three-wheelers) which is ready for field trial. Our batteries are already under trial in electric three-wheelers. We plan to launch these products in the market during the current financial year.
Solar inverters: We have successfully developed the Grid Tied String Inverter(s) for on-grid solar application which converts DC power into AC power for feeding it into the grid. Seed marketing and field trials will be the focus of this financial year, ahead of full-fledged commercialization in 2017-18.
We have a long association with India''s defense R&D and production establishments. The domain knowledge, extended service for user organizations and relationships with defense equipment suppliers abroad, have thrown up several interesting opportunities. The Government''s Make in India Policy and the Defense Procurement Policy 2016 will open up enormous prospects for us.
We have a rather unique position in this industry; to put it simply, we are neither large nor small - but of optimal size and this helps in providing cost effective products. Our engineering talent and infrastructure allow us to offer high value products, which do not require significant additional capital investment. This will lead to rising returns on equity.
We had been awarded a large contract for supplying Digital Control Harnesses for 6,800 army combat vehicles. The supplies are expected to be completed by December 2016. We have also quoted for new vehicles being built.
We are currently working on many opportunities; one such large opportunity is in ammunition. Our focus in the current financial year is development of such products. The Ministry of Defense (MOD) in October 2015 announced a policy to buy several types of ammunition from manufacturers in the private sector, with guaranteed indicated minimum volumes for 10 years. Ammunition being a consumable and the prevailing technology gaps in the defense production system in India together provide your Company a sustainable competitive advantage. However, we should be prepared for continued efforts for at least another two years before we can realize the benefits.
Our effort to enlarge the aviation business in the overseas market is bearing results with a steady increase in volume. The demand for Missile and Torpedo batteries is also strong in the current financial year. The business in naval electronics is steady. Approval for our batteries for Kilo class submarines has been received. Testing on the battery for the Scorpion class submarine is expected to end in the current fiscal year.
As a result of these opportunities and initiatives, the electronics and defense business verticals should increase their contribution to the Company''s top line, and the contribution to the Company''s bottom-line promises to be even more pronounced.
Last year, we had hoped that revenues from the Railways and Defense businesses would begin in this fiscal year (2016-17), but had also stated that the next year (2017-18) was more likely. The hope has not materialized for this financial year, but the next year now seems certain.
The road map of Central Government''s key initiatives and programs such as Make-in-India, Digital India, Rural development, reliance on renewable energy etc., offer substantial opportunities to leverage our capabilities.
These are exciting times for the Company as we see years of painstaking efforts yielding results. While fiscal 2017 would be a continuation of our consolidation exercise, we are confident of making the big leap in the subsequent two years. This is in line with what was earlier projected to shareholders.
Our Endeavour is to position HBL as a strong and credible manufacturer with visible global presence in the specialized battery area, while in the electronics and Defense verticals we are working to strengthen our position with our key customers, namely the Indian Railways and Defense. Electronics products will show results in next 24 months, with Defense products adding to this, in the subsequent year.
As you are aware, our Company has received SEBI approval for a reverse merger with Beaver Engineering and Holdings Private Limited. This merger will effectively reduce our long term debt. It will also lead to greater liquidity of our stock in the market because additional shares will be issued, as a result of the merger, which will be widely held.
In doing all this, we hope to grow the business profitably and enhance shareholder value significantly.
On behalf of the Company, we take this opportunity to convey our sincere appreciation to all stakeholders, governments and shareholders.
With warm regards,
The management team