Delhi-based HPL Electric and Power is selling 1.78 crore shares to the public through its initial public offer (IPO), which opened today and will close on Monday (September 26). The IPO, priced in a band of Rs 175-Rs 202, can garner Rs 361 crore for the company. Investors can subscribe the issue in multiples of 70 shares.
Here are 10 things to know:
1) HPL Electric and Power, founded in 1991, is in the business of manufacturing energy meters, switchgears, lighting equipment, wires and cables. Promoters hold 99.92 per cent stake in the company. Post this IPO, promoter stake in the company will come down to 72.1 per cent.
2) Out of the proceeds of the IPO, HPL Electric plans to utilize Rs 130 crore for repayment/prepayment of debt while Rs 180 crore will be utilized for funding working capital needs. The remaining amount will be used for general corporate purposes.
3) HPL Electric and Power has seven manufacturing facilities located in Haryana and Himachal. In FY16, HPL Electric and Power got 47 per cent of its revenue from energy meters, 15 per cent from switchgears, whereas lighting equipment and wires & cables segment contributed 24 per cent and 14 per cent respectively.
4) HPL Electric and Power has around 20 per cent market share in the energy meters segment. However, this segment witnessed a weak compounded annual growth rate of (CAGR) of 5 per cent during FY14-16. Angel Broking however thinks that the smart city projects announced by the government will benefit the company. Its switch gear segment has witnessed a negative CAGR of 11.3 per cent in revenue between FY14-16. HPL Electric competes with bigger players like L&T, Schneider Electric, ABB and Havells India in this segment. Overall nearly 75 per cent of HPL's business has seen slow growth for last three years affecting its operational performance.
5) Overall, HPL Electric and Power's revenue has grown at a CAGR of 14.6 per cent between FY2011-16 to Rs 1,121 crore, mainly due to the contribution of its lighting segment, which grew at a CAGR of 29.3 per cent between FY2014-16. Lighting is the only segment which has seen consistent growth. Meanwhile, net profit of the company has been stagnant at around Rs 37 crore over FY2011-16. High working capital requirement, interest cost and low margins have impacted its profitability, analysts say.
6) HPL Electric and Power's long working capital cycle is a concern, say analysts. It takes 150 days to the company to convert working capital to actual revenue as sizable portion (around 45 per cent in FY16) of its revenue come from debt-ridden power utilities. However, HPL believes that the UDAY reform initiatives announced by central government last year will ease its working capital conditions.
7) Debt is another concern for HPL Electric and Power. Its debt has increased 2.73 times to Rs 601 crore in FY16 from Rs 220 crore in FY2011. In FY16, its interest cost was more than 60 per cent of its operating profit (EBIT).
8) Long working capital cycle, high debt and rise in depreciation cost have impacted its return on equity (RoE) over the last five years. In FY16, its RoE stood at 10.3 per cent down from 17 per cent in FY11. This compares with RoEs of 23 per cent for its peers Havells India, V-Guard and 19 per cent for Finolex Cables.
9) At the upper end of the price band, HPL Electric and Power's shares are valued at 25.6 times its FY16 earnings. This compares with 42.6 per cent for Havells India, 49.2 per cent for V-Guard and 21.2 per cent for Finolex Cables. Although HPL Electric and Power's valuation is lower compared to its peers, Angel Broking said it is "justified considering its low ROE, high working capital and low profitability." The brokerage has a "neutral" rating on the issue.
10) HPL Electric and Power's significant exposure to state utilities, geographic concentration of manufacturing facilities are cited as key risks in its business. The company is also exposed to forex volatility as some of its raw materials are imported from other countries.
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