It gives us great pleasure to inform you that your Company is at the cusp of a positivetransformation 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 topline declined marginally our profit after tax grew 33% over the previousyear.
Earnings per share operating cash flow and other Balance Sheet metrics have shownappreciable improvement. We believe that this improvement is not fleeting or coincidental;it showcases our commitment to transform into an attractively profitable and financiallyprudent organisation.
At the heart of this transformation is an ongoing consolidation process which isexpected to be completed by March 2017.
In this phase of consolidation the organisation's emphasis is on enhancing operatingefficiencies and finalising plans to leverage the extensive product development effortsmade in the past in the electronics and defence business verticals based on emergingopportunities in India. More such inspiring initiatives are yet to unfold which will makeour future increasingly exciting.
The positive transformation expected to unfold over the next three years is based onsome of our recent products in electronics business enjoy opportunities where the'idea-to-market' cycle is much shorter than our earlier portfolio. This change occurredbecause we altered our opportunity selection criteria two years ago. Added to this is theemphasis to improve operational efficiency across all areas of our operations.
Further every new opportunity is now being looked upon from the perspective of returnon resources committed (money time people knowledge and infrastructure). As a resultthe future scenario at our organisation is changing for the better.
To ensure that the consolidation initiatives and the medium-term growth aspirationstransform into on-ground reality your Company made a decisive organisational structuralimprovement by entrusting the business management responsibility to professional leaders.
Further we subdivided the Engineering vertical into Electronics and Defence toenhance more focus.
While efforts to enhance Balance Sheet credentials and operational efficiency are themain areas of interest asset utilisation has became centre stage too with a focus onconsolidating infrastructure filling in capacities and monetising surplus assets - theseinitiatives will definitely yield results in streamlining business operations enhancingresource availability and strengthening business profitability.
Even as we continue to grow existing product verticals we are adding new products thatpromise interesting growth opportunities. Our product innovation and development effortsshall continue to enlarge the pipeline of opportunities and the Company continues toinvest in R&D for the future.
While we make the best efforts to grow our share of business with existing customerswe are working on forging business associations with new customers. Even as we continue tostrengthen our presence in existing markets we continue to explore business opportunitiesbeyond current marketing canvas by leveraging our overseas footprint.
The combination of these factors will help us scale and sustain profitable growththereby increasing shareholder value.
In the telecom segment we increased the customer base and consolidated our status asthe second largest player even as we continued to improve battery performance and servicestandards.
We entered the UPS; Solar and e-mobility battery spaces in a limited manner in2015-16 in which our product range has received promising customer response.
The superior performance Pure Lead Tin (PLT) batteries designed for high powerrequirement application have a NATO part number which will help us to market thisproduct across the globe for battle tank applications. Moreover these batteries are beingaggressively promoted for engine cranking and data centre power back-up needs providingan attractive total cost of ownership to customers.
We completed the process of redesigning the entire range of UPS batteries. The UPS andPLT batteries are expected to make a considerable contribution to growth of our batteriesbusiness.
Exports are projected to increase faster with the acceptance by customers of ouradvanced 2V-VRLA products which help improve margins and compensate for possible erosionin margins contribution from the domestic telecom battery business in the near future.
We have concrete plans to supplement our telecom dominated lead acid batteries businesswith additional growth levers - each of which should start contributing to sales growthfrom 2017-18. Although the telecom batteries business is expected to grow slowly itsshare in the overall sales would reduce significantly in 2018-19.
In the Industrial Nickel Cadmium (Ni-Cd) battery business where our Company isglobally number two demand has improved. In the domestic market demand is driven byinvestments in metro rail power sector and oil and gas. The Company's export marketscontinue to grow steadily.
For many years we had been asked why HBL did not make Lithium Ion batteries. We havenow initiated a plan to manufacture prismatic Lithium Ion cells and batteries forspecialised applications - not for consumer products. The project is likely to beimplemented in the near term.
After working for the Indian Railways in developing various solutions for 15 years ourCompany received approvals for numerous products. We shortly expect to participate intenders and receive profitable business. We have already been receiving orders for some ofthe products namely data loggers and integrated power supply systems.
Years of efforts in developing TCAS (Train Collision Avoidance System) for use inIndian Railways will fetch large gains from FY 2017-18. Further our new ElectronicInterlocking System is undergoing approvals and should be commercialised in the next 18-24months. This product is state-of-the-art and is exportable.
We expect to complete the development of permanent magnet alternators for the moderncoaches of the Indian Railways during this financial year. The testing may take all of2017-18 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 inelectric rickshaw (three-wheelers) which is ready for field trial. Our batteries arealready under trial in electric three- wheelers. We plan to launch these products in themarket during the current financial year.
Solar inverters: We have successfully developed the Grid Tied String Inverter(s) foron-grid solar application which converts DC power into AC power for feeding it into thegrid. Seed marketing and field trials will be the focus of this financial year ahead offull-fledged commercialisation in 2017-18.
We have a long association with India's defence R&D and production establishments.The domain knowledge extended service for user organisations and relationships withdefence equipment suppliers abroad have thrown up several interesting opportunities. TheGovernment's Make in India Policy and the Defence Procurement Policy 2016 will open upenormous prospects for us.
We have a rather unique position in this industry; to put it simply we are neitherlarge 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 donot require significant additional capital investment. This will lead to rising returns onequity.
We had been awarded a large contract for supplying Digital Control Harnesses for 6800army combat vehicles. The supplies are expected to be completed by December 2016. We havealso quoted for new vehicles being built.
We are currently working on many opportunities; one such large opportunity is inammunition. Our focus in the current financial year is development of such products. TheMinistry of Defence (MOD) in October 2015 announced a policy to buy several types ofammunition from manufacturers in the private sector with guaranteed indicated minimumvolumes for 10 years. Ammunition being a consumable and the prevailing technology gaps inthe defence production system in India together provide your Company a sustainablecompetitive advantage. However we should be prepared for continued efforts for at leastanother two years before we can realise the benefits.
Our effort to enlarge the aviation business in the overseas market is bearing resultswith a steady increase in volume. The demand for Missile and Torpedo batteries is alsostrong 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 thebattery for the Scorpene class submarine is expected to end in the current fiscal year.
As a result of these opportunities and initiatives the electronics and defencebusiness verticals should increase their contribution to the Company's topline and thecontribution to the Company's bottomline promises to be even more pronounced.
Last year we had hoped that revenues from the Railways and Defence businesses wouldbegin in this fiscal year (2016-17) but had also stated that the next year (2017-18) wasmore likely. The hope has not materialised for this financial year but the next year nowseems 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. offersubstantial opportunities to leverage our capabilities.
These are exciting times for the Company as we see years of painstaking effortsyielding results. While fiscal 2017 would be a continuation of our consolidation exercisewe are confident of making the big leap in the subsequent two years. This is in line withwhat was earlier projected to shareholders.
Our endeavour is to position HBL as a strong and credible manufacturer with visibleglobal presence in the specialised battery area while in the electronics and defenceverticals we are working to strengthen our position with our key customers namely theIndian Railways and Defence. Electronics products will show results in next 24 monthswith defence products adding to this in the subsequent year.
As you are aware our Company has received SEBI approval for a reverse merger withBeaver Engineering and Holdings Private Limited. This merger will effectively reduce ourlong term debt. It will also lead to greater liquidity of our stock in the market becauseadditional 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 shareholdervalue significantly.
On behalf of the Company we take this opportunity to convey our sincere appreciationto all stakeholders governments and shareholders.
With warm regards
The management team