HPL Electric

CM RATING37/100
HPL Electric & Power promoted by. Lalit Seth, Havells Pvt. Ltd., HPL India Ltd. and Havells Electronics Pvt. Ltd., is an established electric equipment manufacturing company in India, manufacturing a diverse portfolio of electric equipment, including, metering solutions, switchgears, lighting equipment and wires and cables, catering to consumer and institutional customers in the electrical equipment industry. The company had the largest market share with 20% in the market for electricity energy meters in India, with one of the widest portfolios of meters in India, in fiscal 2015. The company is one of the oldest manufacturers of low voltage (LV) switchgears in India with nearly 50% market share in changeover switches in fiscal 2015. It manufacture a wide range of light-emitting diode (LED) lamps (including down-lighters), lights and compact fluorescent lamp (CFLs) at varied wattages and had a market share of 5% in fiscal 2015 in the market for LED lamps (Source: Frost & Sullivan Report, February 2016). The company currently manufactures and sells its products under the umbrella brand HPL, which has been registered in India since 1975.

The company supplies its products through a network of authorized dealers or distributors to institutional, non-institutional and corporate customers. It supplies switchgears, lighting equipment and wires and cables, primarily through its pan-India authorized dealer network, which comprised of over 2400 authorized dealers or distributors as on March 31, 2016, from its warehouses located in 21 states and union territories in India. The companys authorized dealers or distributors further sell its products to over 15000 retailers in India. In addition, the company supplies its products to power utilities, which primarily includes supply of meters under direct contractual arrangements to electricity boards and power distribution companies, as well as through project contractors. Further, it supplies portfolio of products to developers of residential and commercial building projects, original equipment manufacturers (OEMs) and to industrial customers through a mix of direct sales and supply through its authorized dealer network. The sales and marketing activities are managed through over 90 branch offices and representative offices in India as on March 31, 2016.

The company currently owns and operates seven manufacturing facilities located across the states of Haryana and Himachal Pradesh, having in-house testing capabilities, including one manufacturing facility owned and operated by its subsidiary. The company has made capex of Rs 230 crore between FY 2012-FY2016. All manufacturing facilities have been accredited with management system certificates for compliance with ISO 9001 requirements. Further, certain of products are also certified to be compliant with various national and international quality standards, including the Indian Standards Institute (ISI) mark issued by the Bureau of Indian Standards (BIS), the Conformite Europeenne (CE) mark and Keuring Van Elektrotechnische Materialen (KEMA) certification for conformity with requisite European quality standards.

The company has established two in-house research and development centers: the Kundli R&D Centre and the Gurgaon R&D Centre. The research and development efforts include design and development of all types of energy metering solutions, including interactive communication between metering devices and metering infrastructure that includes automatic meter reading (AMR) and Advanced Metering Infrastructure (AMI), prepayment metering solutions, solar net metering solutions, smart meters with two way communication and a complete range device language message specification (DLMS) compliant meters, amongst others, and technologies and solutions that allow for active monitoring of energy consumption for electric equipment. For instance, the company has developed a street lighting system that helps in saving manpower through automatic settings for sunset and sunrise timings and remote energy metering and dimming of such lights during off-peak hours to save energy. It also operate two tool rooms at Gurgaon (Haryana) and Kundli (Haryana), within its R&D centers,

As on March 31, 2016 and March 31, 2015, the company had confirmed orders amounting Rs 188.19 crore and Rs 193.45 crore, respectively.

Litigation with Havells India

Pursuant to a deed of assignment dated October 9, 1971, the trademark Havells was transferred, without the goodwill of the business, to the members of Havells Industries. Consequently, the Havells trademark is a property of Havells Industries (now Havells India) and HPL Electric & Powers Promoters and members of Promoter Group are not associated in any manner with Havells India Limited or its promoters. HPL Electric & Power and its Promoters are involved in a suit for permanent injunction (C.S. (O.S.) 1333 of 2004) instituted by Havells India Limited and Q.R.G. Enterprises (together, QRG), against the use of the word Havells as part of its trademark or in the corporate name of its Promoters, Havells Pvt. Ltd. and Havells Electronics Pvt. Ltd, alleging infringement of their trademark.

Financial Highlights

The companys net sales for year ended March 2016 (FY16) have increased by 7% to Rs 1116.38 crore. The OPM increased by 70 bps to 12.6%. The net profit has increased by 6% to Rs 36.62 crore.

For FY 2016, gross sales of metering business grew by 15% to Rs 580.36 crore, which accounted for 47% of total revenue. Switchgear business gross sales de-grew by 22% to Rs 191.10 crore, which accounted for 15% of total revenue. The lighting business gross sales grew by 15% to Rs 298.32 crore, which accounted for 24% of total revenue. Wires & cables business gross sales grew by 16% to Rs 173.49 crore, which accounted for 14% of total revenue. The project business gross sales de-grew by 45% to Rs 1.12 crore.

Currently, 40% revenue comes from the Business-to-Business (B2B) segment and 60% from the Business-to-Customer (B2C) segment.

The company has long working capital cycles and significant working capital requirement. Presently, its working capital cycle extends up to 150 days. The company is focused on reducing working capital intensity by introducing measures like channel financing and clearing & forwarding (C&F) agent model for inventory management. Impact of UDAY should also help improve payment cycle from state electricity boards (SEBs).

Issues Size and Purpose

The company is coming out with an initial public offering (IPO) amounting to Rs 361 crore at a price band of Rs 175-202 per share of face value Rs 10 each. Out of Rs 361 crore, the company will spend Rs 130 crore towards repayment/ prepayment of certain indebtedness; Rs 180 crore towards funding working capital requirements and remaining for general corporate purpose.

Strengths

The company had the largest market share with 20% in the market for electricity energy meters in India, with one of the widest portfolios of meters in India, in FY 2015. The company is one of the oldest manufacturers of LV switchgears in India with nearly 50% market share in changeover switches in FY 2015.

The company has large product portfolio. The product portfolio comprises industrial and commercial electric equipment as well as domestic electric equipment, catering to requirements of a diversified customer base. Key products include a range of air circuit breakers, molded case circuit breakers (MCCBs), miniature circuit breakers (MCBs), on-load changeover switches, control gear, modular switches, LED and non-LED bulbs and tubes, LED lights for domestic, commercial and industrial use, single and three phase meters, low tension current transformer (LTCT) meters, prepayment meters, net metering, smart metering and transformer metering solutions with remote communication capabilities, domestic and industrial wires and specialty cables.

The company has strong distribution network of over 2400 authorized dealers or distributors spread through out India (as on March 31, 2016) to sell its products to institutional, non-institutional and corporate customers.

There are good opportunities for electrical equipment companies in India under various government initiatives. The government of India has implemented several initiatives such as private participation in the transmission segment and development of the National Power Grid to boost growth in the transmission and distribution (T&D) industry. Additionally, the GoI has announced various plans, including recasting 100 cities in India with an estimated expenditure of over Rs 3000 billion under its smart cities program and the Housing for all initiative. Government initiatives such as the Deen Dayal Upadhaya Gram Jyoti Yojna and Integrated Power Development Scheme and UDAY are also positive for the companys business. The scope of work under these initiatives includes rural electrification, monitoring of distribution transformers, setting up new grid and substations and setting up metering infrastructure.

Weaknesses

The company operates in a highly competitive industry, with participants in the organized (including MNCs) and the unorganized sector.

The company has long working capital cycles and significant working capital requirement. Presently, its working capital cycle extends up to 150 days.

The company earns a significant portion of revenue from sales of its products to power utilities, particularly electronic metering solutions, pursuant to direct contractual arrangements with them. For FY 2016, FY 2015 and FY 2014, revenue from sale to power utilities was 45.21%, 31.81% and 38.80% of the net consolidated revenue from operations for the respective periods. The sales to state electricity boards and power distribution companies require it to incur significant amounts of working capital on account of contractual terms stipulating payments to be made after delivery, which may further be delayed due to their weak financial health. Any delay in payment or disputes with these power utilities may have a material adverse effect on business and financial condition

The companys consolidated debt as on 31 March 2016 stands at Rs 578.99 crore, with D:E ratio of around 1.5.

Conflicts of interest may arise out of common business objects shared by the company with its corporate promoters and group companies.

Slowdown in sectors, such as the power sector or the real estate sector, and any adverse changes in the conditions affecting these markets can adversely impact the business, results of operations, financial condition and cash flows

Valuation

At the lower price band of Rs 175 per equity share of Rs 10 face value, the P/E works out to 32.1 times EPS of Rs 5.5 (on post-IPO equity) for financial year ended March 2016 (FY 2016). At upper band of Rs 202, P/E works out to 35.5 times the FY 2016 EPS of Rs 5.7 (on post-IPO equity).

Among the comparable listed companies Havells India is trading at P/E of 42.9 times FY 2016 EPS. V-Guard is trading at P/E of 51.2 times FY 2016 EPS. However their size, market stature and growth record are far superior than HPLs. Another listed player Genus Power Infrastructures, which is mainly in to metering solutions, is trading at P/E of around 15 times its FY 2016 EPS.

HPL Electric & Power: IPO Highlights 
SectorCapital Goods - Electrical Equipments
Price Band (Rs)175-202
Issue Size (Rs Crore)361
No. of shares on offer at Rs 175 per share(lakh)206.29
No. of shares on offer at Rs 202 per share (lakh)178.71
Post issue equity at Rs 175 per share(Rs crore)67.06
Post issue equity at Rs 202 per share(Rs crore)64.3
Post-issue promoter and promoter group stake at Rs 175 per share (%)69.18%
Post-issue promoter and promoter group stake at Rs 202 per share (%)72.15%
Issue open date22-Sep-16
Issue close date26-Sep-16
ListingNSE & BSE
Rating 37/100

HPL Electric & Power: Consolidated Financials

Particulars1203(12)1303(12)1403(12)1503(12)1603(12)
Net Sales721.24911.441010.951047.131116.38
OPM (%)11.512.110.412.012.6
OP82.83110.45105.13125.35141.13
Other Income3.124.315.104.734.87
PBDIT85.95114.76110.23130.08146.00
Interest41.2961.7159.2769.9378.24
PBDT44.6753.0550.9660.1567.76
Depreciation and Amortization6.6911.3513.2916.2019.37
PBT after EO37.9741.7037.6743.9548.39
Tax9.5910.289.309.3311.78
Net Profit28.3931.4228.3734.6236.62
EPS (Rs)*4.24.74.25.25.5
EPS (Rs)**4.44.94.45.45.7
* Annualised on post-issue Equity of Rs 67.06 crore; Face value Rs 10 (issue price Rs 175)
** Annualised on post-issue Equity of Rs 64.3 crore; Face value Rs 10 (issue price Rs 202)
Figures in crore
Source-Capitaline corporate database

HPL Electric & Power: Segment-wise breakup

Particulars1203(12)1303(12)1403(12)1503(12)1603(12)
Segment Revenue (Gross)
Metering391.33489.84526.61502.76580.36
Switchgear160.03207.00243.82246.23191.70
Lighting122.77162.61178.53258.93298.32
Wires & Cables110.78140.79169.27149.30173.49
Project - Revenue5.508.203.762.021.12
Total790.411008.431121.991159.231244.99
Result (Net)
Metering77.3089.8178.2371.55102.68
Switchgear38.3650.4256.4346.8036.76
Lighting16.3419.9221.6750.4154.29
Wires & Cables5.306.818.088.347.68
Project - Revenue-0.370.00-0.180.18-0.43
Total136.93166.97164.24177.28200.98
Figures in crore
Source-Capitaline corporate database

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