hpl2HPL Electric and Power Limited, an established multi-product electric equipment company with products that include  switch gears, Lighting solutions, meters, cables and wires. Lately, it will launch its initial public offering (IPO) scheduled for 22 September., Detailed IPO Report and  analysis is with a view to help investors to evaluate whether to subscribe to the ipo  issue or not

About the Issue:

Price band: Rs 175 -202

Issue Date :  Opens  22-Sep-201626- closes Sep-2016

Issue Size :  To  raise Rs 361 crore through a fresh issue of 1.78 crore shares.

Face Value: Rs 10/-

Lead Managers :  ICICI SEC, SBI CAPS, IDBI BANK

The proceeds of the issue, Rs 130 crore will go for repayment of debt, Rs 180 crore for working capital requirements and the rest will be utilised for other general corporate purposes.

About the Company:

HPL Electric & Power 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. It has the  largest market share in the market for electricity energy meters in India in fiscal 2015, with one of the widest portfolios of meters in India and the fifth largest market share for LED lamps during the corresponding period. HPL Electric & Power Ltd manufacturing capabilities are supported by a large sales and distribution network with a pan-India presence. It currently manufactures and sells its  products under the umbrella brand ‘HPL’, which has been registered in India since 1975. HPL Electric & Power Ltd supplies its products through a network of authorized dealers or distributors to institutional, non-institutional and corporate customers. The company  supplies switchgears, lighting equipment and wires and cables, primarily through our pan-India authorized dealer network, which comprised of over 2,400 authorized dealers or distributors as on March 31, 2016, from warehouses located in 21 states and union territories in India that are managed by carrying and forwarding agents. The sales and marketing activities are managed through over 90 branch offices and representative offices in India as on March 31, 2016.

The company also carried out research and development activities and has  established two in-house research and development centres, one each at Kundli (Haryana) (the “Kundli R&D Centre”) and Gurgaon (Haryana) (the “Gurgaon R&D Centre”. HPL Electric & Power Ltd also operates two tool rooms at Gurgaon (Haryana) and Kundli (Haryana), within our R&D Centres (“Tool Rooms”), where it has  in-house component designing and tool designing facilities. As on March 31, 2016, HPL Electric & Power Ltd employed 97 engineers at  itsR&D Centres, with a dedicated team of engineers to manage itsTool Rooms. The Tool Rooms are used for making rapid prototypes, followed by tools that are used to ensure efficient moulding. The data for  Tool Rooms is generated using computer-aided design (“CAD”) software and computer numerical control (“CNC”) machines that assist in maintaining accuracy of the tools produced therein.  The company has  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 the company itself. For fiscal 2016, its total consolidated revenue was Rs. 11,212.51 million.

Financials:

Particulars As at March 31,    ( Rs. In Million)
2016 2015 2014 2013 2012
Revenue from Operations 11,163.81 10,471.27 10,109.45 9,114.38 7,212.36
Revenue Growth (%) 16.04% 16.04% 6.05% 18.01%
Profit  Before Tax 483.94 439.5 376.67 417.02 379.74
Net Profit 366.16 345.43 297.14 317.83 287.38
NPM 3.28% 3.30% 2.94% 3.49% 3.98%
EPS (Rs.) 7.89 18.6 16 17.11 15.98
Share Capital 464.29 185.72 185.72 185.72 179.8
Reserves 3,078.27 2,996.28 2,913.61 2,632.08 2,230.08
Net Worth 3,542.56 3,182.00 3,099.33 2,817.80 2,409.88
FV 10 10 10 10 10
RoNW (%) 10.00% 11.00% 10.00% 11.00% 12.00%
NAV 51.78 60.37 74.29 89.77
Issue Price 207  Rs.
Post issue equity 64.3  crore
EPS (on Post iPO equity) 5.7
PE Ratio (on Post IPO equity) 35.44
CAGR  Sales 3 Years 6.99
CAGR Sales 12m 6.61
CAGR NP 3 years 4.83

Comparison with Peers :  http://ipoandmore.com/2016/09/16/hpl-electric-power-ltd-ipo-comparison-peers/

Products, Demand  & Competitors

Electricity Energy Meters:  The market for meters in India was estimated to be Rs. 3,000 crore in fiscal 2015, with organised participants contributing to over 80% of the total market. There has been a continued and visible shift from demand for traditional meters to demand for metering solutions, which helps in energy management as compared to mere monitoring and billing functionalities. The key participants in the market for meters are our Company, Secure Meters Limited, Genus Power Infrastructures Limited, Larsen & Toubro Limited and Landis+Gyr, contributing to approximately 79% of the market for meters in India. Our Company was the market leader with a 20% share in the market for meters in India, followed by Genus Power Infrastructures Limited with 19% market share and secure meters (15%) in fiscal 2015. Leading global market players such as Itron and Lester Inc currently have small market share, but are expanding operations in India to capture larger shares in the market for meters.

LV Switchgears : Switchgear The LV switchgear market for fiscal 2015 was estimated to be Rs.  5,650 crore, and witnessed a moderate growth of 3.8%. Significant market players include Larsen & Toubro Limited, Schneider Electric and ABB Limited, which have a presence across all consumer segments. In comparison, Siemens AG has a strong presence in the industrial segment and among power utilities relatively low prominence in the residential segment. Participants such as Havell’s India Limited, Legrand India Private Limited and Anchor Electricals Private Limited have a presence primarily in the residential and commercial segments. The market for LV switchgears is highly competitive and there are more than 40 participants operating in this market and dominated by multinational companies with domestic manufacturing capabilities. L&T commands the largest share of 22% followed by Schneider (18%),  Siemens 911%), ABB , Legrand(10%) Havells India(9%). HPL has a market share of 5%.

Lighting- LED (Light Emitting Diode): The global LED lighting market is expected to cross revenues of Rs. 150,000 crore in fiscal year 2015 with a market penetration of over 30% in the overall general lighting market space. The global LED lighting market is likely to grow at a CAGR of over 40% until 2020. .Due to the low domestic manufacturing capabilities, over 75% of LED lighting products are imported and the remaining 25% accounts for low value-add assembly activity. More than 10% of the LED lights assembled in India are exported to countries like Europe, the United States, Australia, Asia-Pacific, the Middle East, Latin America and South Africa. The Indian LED lighting market is expected to reach 31,010 crore in 2020, growing at a CAGR of 62% between 2016 and 2020. The Government of India’s increased interest in converting existing street lights into LED is expected to increase demand for LEDs in coming years and the deteriorating power situation across the country and limited budget allocation for starting power projects have directed the Government’s focus towards ‘energy conservation and efficiency’.With over 350 participants comprising OEMs, traders, assemblers and importers, operating in the market, the Indian LED lighting market is highly fragmented and competitive in nature. With growing demand the prices of LED lighting products have been declining over the last two years, thus companies such as Philips, Wipro, Havells, Bajaj and our Company are focusing on LED lighting products to cater to the growing demand. The range of contract manufacturing varies between 50% and 100%. Philips continues to be the market leader for LED lights in India. Other significant companies include Surya Roshni, Bajaj, Havell’s etc. In this segment HPL has market share of 5%.

Lighting CFL :The CFL market in India was estimated at Rs. 3,500 crores during fiscal 2015. In  Indian CFL market, companies like Philips Lighting, Orbit, Surya Roshini, HPL, etc. have manufacturing capabilities, while other major participants like Bajaj Electricals and Crompton Greaves engage other vendors to manufacture for them.

Electrical Wires & Cables : The overall electrical wires and cables market in India is estimated to be Rs. 180,000 million in fiscal year 2015. The low tension electrical wires and cables are estimated to account for a majority share of this market at nearly 70%.and is accounted by the unorganized and regional market players. The organized sector has been manufacturing high tension and specialty cables along with low tension domestic wires whereas the unorganized players limits themselves to the voluminous low tension domestic wires market. The market is ruled by unfair trade practices, where small cable companies compete by selling products of dubious quality at low prices.

Assessment:

  • HPL Electric considers the government’s smart cities and affordable housing projects as the major opportunities for their growth.
  • In March 2016, HPL Electric & Power Ltd received credit ratings of IND A-/Stable/IND A1 with stable outlook for its working capital facilities and IND A-/Stable with stable outlook for our long term loan facilities from India Ratings and Research.
  • Revenue from exports over the total revenue is quite low and has gone down to 35%.
  • The Indian electrical equipment industry is estimated at grow at a CAGR of 8–12% during 2016–2020, varying across electrical equipment. Low tension (“LT”) electrical equipment such as switchgears, energy meters and wires and cables are expected to witness a faster growth in comparison to generation equipment.
  • HPL Electric & Power Ltd competitive strengths include its  Established brand in the electric equipment industry, Large product portfolio,  manufacturing facilities, Pan-India sales and distribution network, Established relationship with institutional customers .
  • On Post issue equity of 64.3 crore the PE being asked by HPL Electric & Power Ltd works out to be 44 which is considered quite high.
  • At this stage i am inclined not to subscribe to this issue purely due to high price

Related Post : Comparison with Peers :  http://ipoandmore.com/2016/09/16/hpl-electric-power-ltd-ipo-comparison-peers/

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligences as stock market investments have high degree of inherent risk.

 

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