HBL Engineering has outperformed the markets. Where will it be in the next 3 years?
In the last one month, HBL Engineering's share price has gained 5%, and in one year it has surged 36%. Let us explore the future growth potential of the stock
HBL Engineering has outperformed the Indian stock market and given solid returns in the last one year. The company, earlier known as HBL Power Systems, is well diversified, though the bulk of its revenue comes from supplying railway safety systems to the Indian Railways.
The company specialises in advanced battery technologies and power systems. It designs, manufactures, supplies, and services a wide range of specialised batteries, including lead-acid, nickel-cadmium, silver-zinc, and lithium-ion types.
The company serves critical sectors such as aviation, railways, defence, oil & gas, power, telecom, and data centres.
HBL Engineering also develops and deploys sophisticated engineering solutions like railway safety systems (notably the train collision avoidance system, KAVACH).
It’s a leading supplier to the Indian defence forces and the Indian railways. The company also exports to over 80 countries.
What is the business model of HBL Engineering?
HBL Engineering’s product range often perplexes those who first encounter it, yet it stems from a thoughtfully crafted business model that has been consistently implemented.
The underlying principle is straightforward: relying on a single product for sustained growth is impractical due to fluctuating growth rates. To address this, HBL Engineering developed a diverse portfolio featuring related products—technologically and in terms of market applications.
This approach minimises variability, stabilises the overall business, and reduces environmental vulnerabilities. The company's product-market selection strategy is guided by the following principles: Focus exclusively on niche markets—those that are either too small to attract large corporations or too complex for smaller players.
Start small and expand step by step in a modular fashion. For instance, the drive train for high gross vehicle weight electric trucks represents a specialised niche for the company.
The company also prioritises engineering-intensive businesses while avoiding capital-heavy products or business-to-consumer (B2C) ventures.
The strategy is to leverage technology as a cornerstone of sustainable competitive advantage while steering clear of offerings where technology is easily accessible.
The company also strives to achieve a market leadership position: aiming to be number 1 or number 2 in moderately sized markets, or number 3 in larger ones. If HBL Engineering sees that such position proves unattainable, it abstains from entering or considers exiting the segment.
What to expect from HBL Engineering?
Rail signalling, which includes Kavach is projected to become the dominant segment by FY30.
Kavach is an indigenously developed automatic train protection system by Indian Railways' Research Design and Standards Organisation. It’s designed to prevent train accidents, particularly collisions, and enhance the safety of railway operations.
For HBL Engineering steady annual revenue from Kavach sales is anticipated to remain around ₹13-15 billion (bn) during FY-28, after which it may taper off.
However, an increase in demand for train management systems and centralised train control solutions is expected to offset this decline.
By FY30, electronic fuses are likely to emerge as the second-largest business contributor for HBL Engineering due to prior investments in research and development and strategic business efforts.
According to the company, collectively, current operations across all segments have the potential to achieve total sales of ₹45 bn by FY30. Growth patterns are unlikely to be uniform but the profit margins are expected to vary over time.
What next after Kavach?
Over the course of HBL Engineering’s forty-year journey, one or two key products have consistently driven the majority of its revenue and profits.
These flagship products have not only sustained growth during slower periods but also financed research and development across other ventures.
Currently, Kavach occupies such a pivotal role for the company. This has prompted long-term investors to question what lies ahead for the company once Kavach is fully deployed across the Indian Railways network.
According to the company, the straightforward answer is that rolling out Kavach across the entire Indian Railways network will likely take much more than five years.
Moreover, HBL Engineering is actively working on developing other innovative solutions in rail signalling, underlining that Indian Railways has significant strides yet to make in this domain.
However, the bigger picture revolves around HBL Engineering’s commitment to its robust pipeline of future products. Historically, the average timeline for transitioning a product from conception to profitability has been 15 years — Kavach itself took a remarkable 20 years.
A key competitive advantage for HBL Engineering is its focus on in-house research and development. This allows the company to develop products for niche markets where technology is not easily available, giving it a sustained competitive edge and higher profit margins.
The company anticipates steady growth across most of its existing businesses, albeit at a slower pace due to the larger scale of each operation.
The management projects significant cash surpluses that will surpass its internal requirements, including funding for R&D as well as higher dividend payouts.
These excess funds will be allocated to investments in entrepreneurial ventures closely linked to the company’s current business areas.
Progress is already underway in this strategy. HBL Engineering is setting up Mittelstand Technology Partners, an Alternative Investment Fund under Category 2, aimed at making private equity-style investments in other technology-focused enterprises.
HBL Financial Snapshot (FY21-25)
| ( ₹m) | FY21 | FY22 | FY23 | FY24 | FY25 |
| Net Sales | 9,120 | 12,362 | 13,687 | 22,334 | 19,672 |
| Net Profit | 137 | 937 | 984 | 2,803 | 2,765 |
| Return on Equity (%) | 1.8 | 10.8 | 10.3 | 23.0 | 18.6 |
| Return on Capital (%) | 4.3 | 14.5 | 13.8 | 31.3 | 26.0 |
Source: Equitymaster
HBL Engineering has shown a three-year average compounded sales growth of 16.8%, while the average net profit growth was significantly better at 43.4%.
The company reported an impressive set of quarterly numbers for Q1 FY26 with net profit of the company zooming 84% to ₹141 crore. Net sales rose 16% to ₹601 crore.
Growth in the electronics segment, boosted by demand for mission-critical railway safety systems and advanced battery technologies, aided revenue and profitability growth.
How shares of HBL Engineering have performed
In the past five days, HBL Engineering shares have moved lower to ₹873 from ₹831. In the last one month, the share price has gained 5%, and in one year it has surged 36%.
The stock touched its 52-week high of ₹915 on 16 September 2025 and its 52-week low of ₹404.3 on 3 March 2025.
Conclusion
The electronics segment, especially in mission-critical systems like Kavach and electric drive trains, is a key medium to long-term growth driver for HBL Engineering.
Expansion into e-mobility and advanced battery markets is also expected to enhance product offerings and geographic reach.
Overall, HBL Engineering is positioned for sustainable growth driven by growing demand in defence, railways, energy storage, and advanced industrial batteries, supported by indigenous technology development and government infrastructure initiatives.
To know what's moving the Indian stock markets today, check out the most recent share market updates here.
Investors should evaluate the company’s fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
topics
