HBL POWER SYSTEMS: Booting-up for the Race of the Century

Absolutely, learned this the hard way. Bought this stock at 80 and sold it around 400 levels just on the back of TTM valuations which at that juncture looked very high in a already crazy market. I think the biggest lesson is to adjust the P/E with the growth rate for a better picture. PE in isolation can be very deceiving.

From a minority shareholder’s perspective a big negative point when the company is growing at this scale is they should be hosting concalls for the benefit of the minority investors so we can get better insights of the business.

Disc: Not invested but tracking very closely.

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Recent updates by the company:

Invested from much lower levels and the biggest allocation in the portfolio.

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FIIs and DIIs started increasing the stake

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Couple of observations:

  1. In their news paper publication of quarterly results there is a footnote which says:

Board of Directors of HBL Tonbo Private Limited (HTPL) have resolved to make an application for striking off the name of the company undersection 24B(2) of the Companies Act, 2013. There are no operations in the company.

Also in the Outcome of Board Meeting Held on 7th Feb 2024 there is a mention of investment in Tonbo Imaging:

Board noted that an amount of Rs. 86.67 crores was invested in 2023. Although, the plan was to
invest Rs 150 crs, a higher valuation was expected by Tonbo for the balance, which was not
accepted by HBL. No further investment in Tonbo is proposed.

So it looks like the relationship with Tonbo has soured and any plans for joint development of missile seekers/other opto electronic equipment have been scrapped.

  1. In the Outcome of Board Meeting Held on 7th Feb 2024 there is a note on CAPEX:

A sum of Rs 175 crores was approved by the Board for capital expenditure during FY 25.
The largest single item is for Rs 60 crores, for the Lithium lon cell production plant.
There will be no borrowings needed to finance the total capex.

60 Cr for Lithium Ion cells. Not assembly of battery packs but manufacturing of individual cells. The company has been into industrial batteries (VRLA or lead acid) and military batteries (thermal batteries), which are an entirely different chemistry/tech as compared to Lithium Ion. If I am not wrong this is the first time that the company is venturing into Lithium Ion batteries. Not sure if they will tie up with someone or develop the expertise inhouse.

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HBL Power corrects 9.8% with more volume. There is a blood bath in Mid and Small cap stocks. Still some good stocks have not corrected. Even if they have corrected, it is marginal .

What could be the reasons for this sustained correction in HBL stock in spite of good results.

The possible reasons could be…

  1. Tonbo Imaging India Private Limited (Tonbo)
    Board noted that an amount of Rs. 86.67 crores was invested in 2023. Although, the plan was to
    invest Rs 150 crs, a higher valuation was expected by Tonbo for the balance, which was not
    accepted by HBL. No further investment in Tonbo is proposed.

Market apprehension might be that this developement may affect future cooperation between the partners .

  1. The recent announcement of Lithium Cell mfg when the Li cells price have fallen substantially.

I may be wrong.

Discl: Invested.

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The lithium battery announcement is nothing new.It has been declared in mid 22 and was clearly described under low growth opportunities in annual report released in Sept 23. So this is not a cause of price movement in any way .A month ago ,the share price was at around 440 and it crossed 540 in anticipation even before the results came .Good results took it to 600 but profit booking and panic selling has caused the price action since then. Since there was no fundamental reason for the move from 440 to 540, no fundamental reason needs to be assumed for the fall from 600 to 530.

Disc: Invested .

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It’s Mr. Market typical behaviour, we don’t have to find the reason for every down or up move, the situation is for taking the advantage either to buy or sell considering current and future prospects.

Lesson from Ben Grahams Intelligent Investor.

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