Hi Gokul,
The parameters for these capacity estimation blocks (whether Kalman filter or least squares) need to be fine tuned to the battery system and sensors you are working with. For example, the variance of current measurement for the Battery Capacity Estimator (Least Squares) as shown in the pictures shared seems pretty high. A 11.3 variance suggests 3.4 A standard deviation for current measurement sensor connected with a 20 Ah cell under WLTP cycle. A deviation of 3.4 A is 17% of 1C current for a 20 Ah cell.
Here is an example on how Battery Capacity Estimator is used for SOH estimation Estimate Battery State of Health Based on Capacity Fade - MATLAB & Simulink (mathworks.com).
Here is the documentation page the provides more descriptions on the parameters for the Battery Capacity Estimator (Least Squares) block. Battery capacity estimator using least-squares algorithms - Simulink (mathworks.com).
Best wishes,
Xiagnchun