By Arun Mukherjee & Soumya Malani
(Kolkatas Arun Mukherjee, and Soumya Malani have come to be known as smallcap aficionados in Indias investor community. They would show up at most AGMs, visit the remotest factories of a company and go chasing end-users to understand their experiences with a product in their passionate hunt for good smallcaps. Soumya and Arun would be sharing their experiences with companies and from the ground in this space every now and then. Keep watching…)
HBL Power has brought in a new independent director, M Chandra Mohan, on board, who has worked with P&G USA and has good experience in the field of marketing. He is very much excited in the opportunities in TCAS (train collision advance system) and TMS (train management system).
1) The AGM started with the promoter describing the past performance and how the government has taken some significant decisions, which are helping Indian companies.
2) Previously, very few TCAS (train collision advance system) and TMS (train management system) solutions were being implemented by Indian Railways, and they were majorly imported. Now, the government has decided to encourage domestic industries.
3) Margins in TCAS and TMS businesses are lucrative and the company is not going to bid for any orders with less than 20% Ebidta.
4) The company is expecting Rs 150-200 crore turnover from TCAS and TMS solutions in FY20 with 20 per cent Ebidta margins on a conservative basis (which forms almost 70% of entire net profit of FY18).
5) The companys defence vertical has secured all necessary approvals for manufacturing Rockets and other ammunition. The company has bid for a 10-year order and chances of securing the order are very high. The company is expecting Rs 150 crore turnover from this new defence vertical with 20% Ebidta margins from FY21.
6) FY19 will be similar to FY18. Not much improvement is expected in topline. But they are trying to improve bottomline with some cost cutting measures.
7) The company is venturing into e-mobility as the next strategic direction for HBL. It plans to develop and offer complete drive train solutions comprising motors, controllers, batteries and battery chargers.
8) Its plan is to collaborate with leading Logistic services companies and replace their old trucks diesel engines with their new drive train set comprising motor, controller and battery and charger.
9) The company had already developed a prototype for this and is being tested with some trucks.
10) The promoters are very clear that they dont want to enter into cars, as this type of system is beneficial for vehicles travelling 10,000km per month and improves their efficiency and reduces the logistic companies cost.
11) The promoter also cited the example of KPIT Promoters, which burnt Rs 150 core in Pune by trying this for cars. As this is not fit for cars.
12) The promoter seems to have good knowledge of government policies and the business. And they want to do the right things.
13) The company will be having a capex for their defence vertical and then establishing a new LI-Ion battery factory for their E-Mobility vertical in the next 3 years.
14) The promoter has confidently said that debt to equity will not exceed 1 under any circumstances.
15) The TCAS and TMS turnover is likely to touch Rs 200 crore in FY20. The company is confident that there is huge potential in that vertical and double that revenue from that division for every year for next 2 to 3 years. The problem is that delivery should be faster.
16) The company is going to borrow Rs 50 crore this year and not going to borrow more than Rs 200 crore over next three years and will maintain the debt under control.
17) The government is paying the company in 30 days for the revenue contracts for other orders the maximum time is 3 months. There is no problem with receivables for the company.
18) The company will start booking the new defence vertical revenues 24 months from now that is from FY21. It should be around Rs 150 crore per year for next 10 years
19) The company is slowly planning to increase the non-battery vertical revenue to 40% of total revenue from currently 20%, which will increase their Ebidta and NPMs in next 3 years. As the telecom tower battery space has become extremely competitive and companies like JIO are importing batteries from China, which is in turn reducing the new opportunity in that space. So this move of the company reducing battery share in the total revenue and increasing non battery divisions like electronics (TCAS, TMS), defence and electric mobility makes sense.
20) For the TCAS, the company received the safety audit report from ItalCertifer (Italy). With this, the company will have all the approvals necessary to commercialise this product there. Promoter said this certification adds credibility though the market in Italy is very small compared to India and is very confident in capturing Indian market.
21) The company successfully commissioned the TMS in Howrah Division of Eastern Railway and customised it to meet the new requirement of Railways for integration with controller office application (COA).
Our view: Retail investors today are redefining stock market investment better. Lokesh Gorrepati, one of the sharpest ShareBazaar app users, who has vested interest in the stock, turned up at the AGM to ensure that he gets everything clarified from the horses mouth. Coming back to HBL, based on all the feedbacks and scuttlebutt, it seems it can be an interesting story if things go as per plan. Margins can be significantly improved with TCAS, TMS and defence verticals. Electric mobility services could be an icing on the cake over next three years. Ultimately, the stock market is slave of earnings. If the company delivers or even comes near to its guidance, the stock will perform.