HPL Electric and Power IPO review (Apply)

HPL Electric and Power Ltd (HPL) 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. HPL had 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 as per a Report of February 2016. Its manufacturing capabilities are supported by a large sales and distribution network with a pan-India presence. HPL currently manufactures and sells products under the umbrella brand ‘HPL’, which has been registered in India since 1975. As per February 2016 report, the company enjoys 20% markets share in electricity energy meters, 50% market share in on-load changeover switches, 5th largest LED manufacturer with 5% market share, 5% market share in Indian LV switchgears market in India. The company has 7 manufacturing facilities in North India with major focus on technology upgradation in two R&D centres with team of 97 engineers as on March 31, 2016.

The company supplies its products through a network of authorized dealers or distributors to institutional, non-institutional and corporate customers. The products include switchgears, lighting equipment and wires and cables that are sold primarily through the pan-India authorized dealer network, which comprised of over 2,400 authorized dealers or distributors as on March 31, 2016, from its warehouses located in 21 states and union territories in India that are managed by company’s carrying and forwarding agents. HPL’s authorized dealers or distributors further sell company’s products to over 15,000 retailers in India. In addition, it supplies 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 its 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 authorized dealer network. Company’s sales and marketing activities are managed through over 90 branch offices and representative offices in India as on March 31, 2016.

To meet its loan repayment, working capital and general corpus fund requirements, the company is coming out with a maiden IPO of Rs. 361 crore. The issue is being made on book building process with a price band of Rs. 175-202. It opens for subscription on 22.09.16 and will close on 26.09.16. Minimum application is to be made for 70 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. BRLMs to the issue are SBI Capital Markets Ltd., ICICI Securities Ltd and IDFC Bank Ltd. Karvy Computershare Pvt Ltd is the registrar to the issue. The company has issued shares at par from 1992 to 1993 and then in 2010. It also issued shares at a price of Rs. 49.89 to Rs. 162 per share between 1999 and 2012. The company has also issued bonus shares in the ratio of 5 for 1 in February 1998, 1 for 1 in Aug 1999 and 3 for 2 in November 2015. Post IPO its current paid up equity capital of Rs. 46.43 cr. will stand enhanced to Rs. 64.30 (considering that the company may issue approx 1.787 crore equity shares based on upper price band).

On performance front, for last four fiscals, HPL’s consolidated turnover/net profits were Rs. Rs. 915.73 cr. / Rs. 31.42 cr. (FY13), Rs.1016.04 cr. / Rs. 28.37 cr. (FY14), Rs. 1051.85 cr. Rs. 34.62 cr. (FY15) and Rs. 1121.25 cr. / Rs. 36.62 cr. (FY16). In FY14, it suffered a setback in bottom lines. Furthermore, for fiscal 2016, fiscal 2015 and fiscal 2014, the percentage of revenue from exports over the total revenue was 1.35%, 2.88% and 2.90% respectively. If we attribute latest earnings on the fully diluted equity post IPO then the asking price (at the higher price band) is at a P/E of 35 plus and at a P/BV of 2.63 (based on NAV of Rs. 76.52 as at 31.03.16) that makes it a pricy bet.

On BRLM’s front, three BRLMs associated with this IPO have handled 20 issues in the past three years out of which 5 issues closed below the issue price on listing date.

Conclusion: Although the company is established player in the electrical equipments sector, higher pricing is the major concern. Long term investors may consider small lot for investment in this IPO.