HPL Electric and Power IPO – Should you subscribe?
New Delhi based, the HPL Electric and Power IPO would open for subscription on 22nd September, 2016. HPL Electric and Power Limited is the leading manufacturers of electric appliances, switch gears, electronic meters etc. in India. The company revenues grew at 11.5% in the last 5 years. It earns 3.3% margins in the last few years. Can investors bet on the HPL Electric IPO? What are the risk factors one should consider for investing in HPL Electric & Power IPO?
About HPL Electric and Power Limited
They are an established electrical equipment manufacturing company in India, manufacturing a diverse portfolio of electric equipment, including, metering solutions, switch gears, lighting equipment and wires and cables, catering to consumer and institutional customers in the electrical equipment industry. We had the largest market share in the market for electrical 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. company manufacturing capabilities are supported by a large sales and distribution network with a pan-India presence. They currently manufacture and sell company products under the umbrella brand ‘HPL’, which has been registered in India since 1975.
Issue details of HPL Electric and Power IPO
- IPO opens: 22-Sep-2016
- IPO closes: 26-Sep-2016
- Face Value: Rs 10 per share
- Issue price band: Rs 175 to 202 per share
- Issue size: Rs 361 Crores.
- Market lot: minimum of 70 shares
- Minimum investment: Rs 12,250 on lower price band
- Lead Managers: SBI Capital Markets, ICICI Securities and IDFC Bank
- Listing: BSE / NSE
- Download HPL Electric and Power IPO Prospectus at this link.
Objects of the HPL Electric and Power Ltd IPO issue
The Net Proceeds from the Issue will be utilized towards the following objects:
(a) Repayment/ prepayment of certain indebtedness;
(b) Funding working capital requirements; and
(c) General corporate purposes
Company Financials (reinstated-Consolidated)
- The company generated revenue of Rs 724.36 Crores for the year ended Mar-12 and Rs 1,121.25 Crores for the year ended Mar-16.
- The company posted a profit of Rs 28.39 Crores for the year ended Mar-12 and profit of Rs 36.62 Crores for the year ended Mar-16.
- Its restated-consolidated EPS for FY 2016 is Rs 7.89 and last 3 years average EPS Rs 7.45.
Note: One of the leading newspaper published incorrect financial nos in their IPO analysis yesterday. Investors should verify such details from prospectus before making investment decisions.
Reasons to invest HPL Electric and Power IPO
- Good revenue growth at 12% CAGR in last 5 years.
- Established brand in the electrical equipment industry
- It has a large product portfolio
- Robust manufacturing facilities with a focus on technology upgradation
- Pan-India sales and distribution network
- Established relationship with institutional customers and strong pre-qualification credentials
- Experienced management team and skilled workforce.
Reasons not to invest in an HPL Electric and Power Ltd IPO
- Low margins of 3.3% in last 3 years.
- There are two legal disputes pending adjudication, seeking to obtain an injunction against the Issue, including a trademark litigation filed against company and company Promoters. In the event such disputes are not decided in company favor, company ability to proceed with the Issue may be impaired and company reputation may be adversely affected.
- Company operations are significantly dependent on the company ability to successfully identify customer requirements and preferences and gain customer acceptance for company products. If we are unable to successfully identify customer requirements and preferences and gain customer acceptance of company products, company business may suffer.
- They face competition in relation to company offerings, including from competitors that may have greater financial and marketing resources. Failure to compete effectively may have an adverse impact on company business, financial condition, results of operations and prospects.
- They have long working capital cycles and significant working capital requirements. If they are unable to effectively manage company working capital cycles or generate sufficient cash flow to satisfy any increased working capital requirements and make required payments for company business, company results of operations may be negatively impacted
- Disruption in company relationships with third party authorized dealers, changes in their business practices, their failure to meet payment schedules and provide timely and accurate information could adversely affect company business, operating cash flows and financial condition.
- They earn a significant portion of company revenue from Power Utilities. Any delay in payment or disputes with these Power Utilities may have a material adverse effect on company business and financial condition.
- Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 12 onwards.
Recommendation / Investment strategy – HPL Electric and Power IPO
1) On the upper price band of Rs 202 and on FY16 EPS of Rs 7.89, P/E ratio works out to 25.6x. Similarly, on last 3 years EPS of Rs 7.45, P/E Ratio works out to 27.1x. Means company is asking the upper band of issue price of Rs 202 for a P/E ratio between 25.6x to 27.1x. Its only peer indicated in the prospectus, Havells is trading at a P/E ratio of 21.1x. Hence the company issue price is over priced.
2) Company revenues grew at 11.5% CAGR in last 5 years. It generates low margins. The issue price is over priced. Investors can invest in such IPO at a discounted price if available after listing. As of now, investors can stay away from such IPO’s.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.
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