HPL Electric & Power Limited (HPL) Earnings Call Transcript & Summary

Ladies and gentlemen, very good afternoon to you all, and thank you for joining us today for HPL Electric & Power Limited's Q1 FY '27 Earnings Webinar produced by ElevEase. So I'm Shankhini. I'm the Director of Investor Relations from Dickenson, and I'll be moderating our call today. Great. So joining us from the HPL management team is Mr. Gautam Seth. He's the Joint Managing Director and CFO. So before we start, please note that this conference is being recorded and that some statements in this call may be forward-looking, subject to current expectations and to risks that could cause results to differ materially. You can also download HPL's Investor Presentation and Press Release from the company website or the NSE. Perfect. So I'll now hand over to you, Gautam, to begin with opening remarks.

Yes. Thank you, Shankhini. Good afternoon, everyone, and thank you for joining us today. Q1 FY '27 has been a strong start for the year for HPL Electric. Revenue from operations grew 35% year-on-year to INR 515 crores, our highest ever first quarter revenue and remained above INR 500 crore level despite Q1 typically being a seasonally lighter quarter. EBITDA grew 9% to INR 63 crores, while PAT increased to INR 19 crores. More importantly, the quarter further strengthens the 2-engine growth model we discussed in FY '26. Consumer and industrial is scaling as a faster cycle product and channel-led platform, while Smart Metering continues to provide long-cycle growth and order book visibility. Together, these businesses are giving HPL Electric a broader and more balanced growth base. Consumer and Industrial delivered its highest ever quarterly revenue of INR 278 crores, growing 55% year-on-year and contributed approximately 54% of the revenue during the quarter. The important point for us is not simply that C&I has become larger, it is that growth is becoming broader across various product baskets. Wire & Cable continues its strong momentum with revenue growing 79% to INR 146 crores. Demand remains diversified across builders, industrial OEMs, solar, telecom, retail and institutional customers. The business has already achieved more than 40% of its full FY '26 revenue in the first quarter, and we continue to see increasing evidence of volume-led scale. We are also seeing encouraging participation from other C&I categories. Lighting grew 78% to INR 56 crores. Industrial Switchgear grew 19%. The breadth is important because our objective is to build C&I as a diversified electrical product platform rather than depend on any single category for growth. Our distribution platform remains central to this strategy. HPL Electric today reaches the market through more than 900 authorized dealers and over 85,000 retailers. As the product basket becomes stronger across Wires & Cables, Switchgears, Lighting, Fans and other categories, we have an opportunity to drive greater reach through an established network while continuing to invest in products, brands and channel relationships. At the same time, Smart Metering continues to be an important long-cycle growth engine. Metering and System grew close to 17% year-on-year to INR 234 crores. As the Smart Metering market matures, we are entering a more stable execution-led phase with improving visibility and greater consistency in deployment and execution. Our order book stands at INR 3,200 crores as on 7th August '26, with metering and systems accounting for more than 96% of the total orders. This provides a strong medium-term visibility and allows us to remain focused on execution, technology and service levels. On profitability, EBITDA grew during the quarter, although EBITDA margins moderated to 12.26%. Cash profit increased to 21% -- increased by 21%. This reflected an input cost volatility, particularly across Metals and Industrial Plastics due to the geographical disruptions, together with the changing revenue mix. We have initiated pricing and product mix actions and remain focused on progressively improving margin quality as the year develops. Higher depreciation following our capacity investments also moderated the translation of operating growth into PAT. The broader direction remains clear. We want to scale both engines with quality and scale. In C&I, that means widening participation across product basket, strengthening channel productivity and building scale in Wires & Cables, likewise for other products as well. In Smart Metering, it means disciplined execution of the order book, technology differentiation and maintaining financial discipline. As we progress through FY '27, our priorities remain growth with improving margin quality, working capital discipline, calibrated capacity utilization and continued investment in R&D. Our objective is to convert the scale we are building today into sustainable earnings growth and a stronger HPL on a longer term. On this note, let's open the floor for questions.

Thanks, Gautam. [Operator Instructions] So we'll start with the first question that's come written in. So Gautam, this question is on the C&I segment. So we've seen some good progressive growth in the C&I segment for this quarter. Can you give us a breakdown product-wise on how you are seeing this progress in the next coming 2 quarters?

Yes. So C&I has seen a growth for the last 5 quarters now. And each time the absolute value of sales and the percentage of growth are getting larger. So initially, it started off more with the Wires & Cables. But now we are seeing the growth happening in Switchgears. We are seeing it happening in Lighting also. So overall, we are very confident of the growth, what is happening. There has been an expansion in the channel in terms of dealer, distributor and more on the retail side where the retailers are expanding and our products are also expanding in a bigger way. We have also -- we have a concept of one consumer, one family, which encourages dealer and incentivizes them on taking more products and cross-selling more of the products within the same channel. So overall, the strategy seems to be working. The numbers are coming up, not only in Wires & Cables, which again looks very strong in the next 2 quarters, but also we would see growth on the Lighting. MCBs are set to grow, which is the final -- the complete range of final distribution product, accessories and also on switches. If you see our deck, in fact, last month, we did launch of our new range, new generation switches of -- by the name of KYRO. So that is one segment, again, which we are looking to launch in a bigger way across pan-India. We have 3 more states launched lined up for August. So overall, the next 2 quarters seem to be pretty good for the C&I segment, we see a growth as well as a channel expansion going forward. We are also monitoring sales based on existing channels as well as the new channels, sales are monitored separately just to ensure that the efforts of channel expansion are getting us the results. So there are a lot of changes what we have done within the team, within our strategy and also on sales and marketing and the digital marketing as well, so to reach out to our consumers.

We'll take the next question from the line of Viraj Mahadevia.

Congratulations on the fantastic growth in the business -- to a new execution plan. But something that I noticed, which is highlighted in the deck, gross margins have compressed from 38% last year to 30%, and that was probably driven by the raw material inflation. So what steps is the company taking to ensure that we can get up to historical margins? Are you entering into hedging contracts going forward on the day you take the order because presumably, these were legacy orders taken at a different price. And then when you actually go and buy the raw material, you face the price hike?

So yes. So if you look at the results and more importantly, on the margins, the way we look at it, the revenue growth has been good. C&I as earlier, we had talked about also in our last 2, 3 calls, the momentum on C&I is building to a bigger level, and we see the growth going forward. Even the smart meter is -- because last year, sequentially, we grew 4 quarters. Even now from here on also, we see the good growth coming in, of course, more at a matured level. But again, both these segments are set for a good growth on a revenue point of view. Now when we look at the margins, primarily, there's a single point like -- on the cost of materials, that has gone up. And that has gone up mainly from February onwards because of the West Asia conflict, all mostly on the geopolitical issues. So for that, we are looking at -- there's a lot of work happening in our R&D, especially when we look at the Smart Metering where the contracts are fixed, the sales prices are fixed and then the variable part is the cost factor. So we are having -- of course, we have long-term contracts, which protects us sometimes on the pricing. We also are looking at a couple of design changes, which is, of course, a continuous process, but sometimes driven by external factors, we take it in a bigger way. So there are ways to ensure that alternative materials can be used within the same specifications. Even other than metering in the Consumer and Industrial also, a lot of work is going on, on alternate materials, alternate designs. Of course, these have to be -- it takes time. Plus the prices are -- the price increases are also getting passed on to the consumer. So like we've just had a couple of increases in the Wires & Cables. Of course, that is much more -- the prices get passed on much more quicker than if you look at the Switchgears and Lighting. But even in Lighting in the past quarter, we have seen certain increases happening, which have been first time in last, I think, 7, 8 years, we have seen first time an increase happening in the Lighting because till now, historically, only the prices were going down. So the pass-on in the Consumer and Industrial is possible, but with a time lag. So there are a couple of various things, I would say, a combination of them happening to ensure that we come back on the margins. And at the same time, we just hope that maybe these conflicts see some logical end in the next 1 or 2 quarters and maybe the prices cool down. But in the meantime, the teams, the supply chain teams are making full efforts to ensure that the margins are back. But if you look at the other things -- the finance cost has come down in the next -- even in absolute terms in the last 3 quarters, the -- even the other expenses have been flat, though there has been a 35% increase in the top line. So there are a couple of positives. Although depreciation has gone up, and that is mainly because of the investments, the higher investments what we have done in the last 2, 3 years. So that has gone up. But overall, the cash profit is -- there is a growth in cash profit. And the best thing is that because it's the start of the year, Q1 is typically much [ slower ]. C&I also, it's the weakest quarter normally. So we have been able to get off to a good start. And the revenue visibility in both the segments, even in the near-term seems to be good. So I think we are all set for a good year in this year for sure.

So I just checked, had you done the same level of gross margin as earlier on your [ delivered ] top line your EBITDA margins would have been as high as 20%, 25%, right? So that's really the operating leverage kicking in on a normalized raw material cost basis. But when you take an order, do you fix the prices and the raw material inflation is not a pass-through and normalizes with a lag of 1 quarter where you take the price increases in accordance with the raw materials or how does that work?

No. So no, you're talking specifically for Meters or for?

Meters, I guess.

Yes. So Meters, you have to realize that the competitive scenario has been changing. The customers are, of course, buying repeatedly. The volumes are big. So certain prices have been coming down. And even historically, minus the specific -- this war situation happening, prices also -- the costs also have been coming down in the last 2 years. And even the end customers because typically, they are big AMISPs, so they also understand the trends what are happening. Now here, specifically, we have seen certain prices going up. So when we take an order, especially the semiconductors and certain critical electronic components, more on the active and the passive components. So those are -- typically, we book them. And some of the supply -- like the time period for supplies for certain semiconductors are even going up to 52 weeks. So they anyway have to be booked in advance as we get them. But then the exchange rates are fluctuating. So there are some factors in it. But I would say more or less, if you -- because we have been reviewing the way our procurement systems are. So more or less, we are well covered under that. The margins have been fairly good. But you will see that in this quarter, there's been almost a 3% drop in the margins on the metering side, which is mainly because of the sudden price hikes, especially on the industrial plastics, which have gone up and which are more crude dependent. Then the metals have gone up for sure. The copper is high, all the aluminum, everything, almost every metal has been at a high. But I think these are things which are out of the control of anybody, but they cannot be hedged because every time -- so although we gain many times on the prices going down, but we also sometimes lose. But the critical parts are more or less covered and which is the semiconductor and the ICs and everything. So those are typically covered at the time when the orders are received.

Understood. So going forward, would you be able to pass these on in terms of the new metering tenders?

Yes, for sure. Because the metering tenders, prices are open. And even with the newer requirements what are coming, definitely, I think our teams are highlighting the price increases with the AMISPs. But again, it's a competitive scenario. The customers are also -- they understand it, but they also understand the value of having strong partners like us who understand technology, who have consistency in supplies, in quality. And I think that is how the -- it is emerging out. So maybe in future, definitely, as a company, we would be hopeful that certain price increases would be given in the further orders as they're getting finalized. And we are already asking them and highlighting the same. But again, I said it's a competitive scenario, and it's a trade-off between -- for them going on -- whether it's on getting some cheaper prices or going for an experienced partner like us. But one has to also understand that the competitive scenario on the Smart Metering is also changing. And it's personally my view and the way I look at the market that people, the AMISPs, the bigger customers, they will understand the relevance of going with experienced players who understand technology, who have been -- who are able to give products which actually are top in quality, which will work for the 10-year warranty period. So I think those type of benefits or perceived benefits what are there are definitely -- I would say, we qualify for that. And that is going to definitely help us. It is helping us to get better pricing, better -- more orders in future. So I think overall, things should be good. So this could be a temporary, maybe 1 or 2 quarters, certain disruption on the pricing part, the cost part could be there. But overall, the industry is steady. The demand is very strong. And the next 1, 2 years, again, we should see a very good growth in the Smart Metering part.

Our next question written in is more on the C&I Wires & Cables. So we've seen some really good growth in C&I Wires & Cables. What are we doing to invest more in the channel network and growing this segment? Is it sustainable for next quarter?

Yes, I think when we look at the Wires & Cables, we've been seeing an all-round growth because although there has been an increase in the commodity prices, but if you look at our specific growth numbers, Q4 was well over 80%, 78% in Q1. So the levels even in terms of tonnage of copper, what we are using have really gone up. It's almost 1.5, 2x than what we were doing just a year back. So from -- the volumes have gone up. And we've seen an all-round growth, whether it is in the solar part, in industrial, in real estate and retail for that matter. So what you are talking about the channel part when we look at the retailer, dealer, distributor network, so that has been growing. And while this is -- so this is really growing, and we are also investing a lot into the -- into BTL marketing. We are also doing a lot of activities at the last mile sales front. Supporting this whole concept, we also have our third -- what we have, the last mile sales team, which is the third-party manpower, what we say, which is -- which has a beat plan going into each and every retail market. So there has been -- it's a combination of a lot of things. And definitely, it's sustainable. In fact, not only sustainable, you will see growth on the retail front happening not only in this quarter, but as we go forward also, it's a long-term expansion, ultimately, what we are looking at. Since when we look at the way we have seen the growth in the next -- in the last 5 quarters, so that definitely gives us certain -- we are also filled with enthusiasm when we look at it. And now the strategies are much more stronger, not only to grow the Wires & Cables, but also to put all HPL consumer products in a basket, whether they are switch, lighting, fans, wires altogether into the retail network. So I think we are definitely seeing certain interesting times and the Consumer and Industrial will see a growth as we go forward.

We'll take the next question from [ Kunal Dubey ].

Gautam, great set of numbers. Congratulations. I had 2 questions, a follow-up from the previous participant. If I have been hearing con calls from Polycab buyers or KEI, the wire company, they see AI being the next big thing for cable demand and all. Your view in our C&I segment about the cable industry, you see we catering to that segment as of now or any plans on that because that is one big thing which is there in every cable company's con call is the first question that I.

Yes. So by AI, you mean is on the data centers?

Yes, yes, yes. On the data centers.

So we have studied those segments. So we are coming into -- like certain new cables, which would be more specific to the data centers. So we don't have the full range right now. And -- but hopefully, by May, June of next year, we should be having those kind of cables with the international certifications, what are required because a lot of these data centers have international customers or international consultants. So they do require that. But that is a segment which we would definitely be looking at. Currently, looking at our existing product portfolio, we don't have the full range. So we are not focusing on that while we are focusing on many things, but that is one segment, and it's a long-term segment again. Next 5, 10 years is going to see a huge growth in the data centers even in India and globally as well. So I think we should be out with those products next year for sure.

Gautam, on the second question, which you just highlighted a couple of back, the EBITDA margins have dropped, but now what I understand basis your commentary, you say that it will improve from this. It will not worsen off, right?

I cannot comment on geopolitical things. But yes, hopefully, if that's the worst level we've reached, so we are making efforts to make sure that we go better from here for sure. Yes. But please, I think you still have some questions left.

Yes. But my question was like if you see Q2 as such, the crude price was basically in the range of $80, $85 compared to Q1. So I see crude had come off a little from Q1. So my question is, like I just want to understand when you say you cannot assure what is the lead time as such? What is your ordering? You order a couple of months in advance? How is the lead time as such you determine? Is there a lead time around it?

Yes, there is -- our lead times because we have proper standard suppliers of PVC, plastics and all and some of them are international suppliers. So the lead time could be anywhere between 15 days to even 2 months because some of the -- especially the polycarbonates are all imported. So they could have up to 2 months because they come in containers from outside. But the local suppliers are typically 10, 15 days is the time, and they're all very large suppliers in the country.

Kunal, there is some background noise. I request you to keep yourself on mute while Gautam is answering.

Yes, Kunal. Yes. So that is it. But typically, the crude would have direct impact on the inputs, what go into it. So let's say, for a PVC, the resin or the DOP or those things have a direct impact. And probably those impacts will come into the PVC in the next 30, 50 days. So it's not that if crude goes down today, that the price would become cheaper. And similarly, when it goes up, I guess there is a typical time lag. So I will not know the -- too much on their supply chain, how it happens, but it takes a time for things to go up and as well as come down when you look at the industry plastics.

Our next question will be from the line of Chandresh Malpani.

Sir, my first question is on the -- like since you mentioned in your last con call that Adani is our bigger customer. So sir, since Adani acquiring IntelliSmart now and also there are news that he is going to acquire an OEM, which will have a meter manufacturing capacity. So how are you seeing this overall scenario with the biggest AMISP? Is there a threat where he will acquire a player and the quantum of orders that HPL is going to cater in the future would have some impact or your view on this thing?

Yes. So on the first part of news that they have acquired IntelliSmart, I think that has been a very positive for us because we were preferred vendors and approved in both of them. So I think that consolidates our position with them as a combined entity. So I think that is good. That's been very, very positive for us. So that is it. On the second part of them buying, okay, it's a news right now. I'm not sure how that is going to do it. So -- but we are right now with every independent AMISP. And so anybody -- so our business is pretty spread out. And so we are not dependent on 1 or 2 just AMISPs for our business volumes. So that is it. So as the business -- let's also hope and see how that really closes. But I won't be able to comment more on the second part of your question.

Okay. Got it, sir. But directionally, let's say, if Adani was in -- in 3 or 6 months, he was in a process to acquire a player. So how has been our ordering with them? Like has it been steady state or I'm not asking absolute numbers, but just a directional view you can give because our order book has remained more or less around INR 3,000-odd crores in Smart Metering since last 4, 5 quarters, I guess. So just directionally, you can help us understand.

Yes. So if you see the order flow is continuous, but I've said it even 2, 3 years back that the time of big orders is from the AMISP. So what you have to understand is that a lot of, let's say, you talked about one AMISP. So maybe, let's say, they're sitting on 4 crores of orders or 5 crores of meter orders. So they are not going to give a -- the ordering now process is like any regular business, which is typically given out based on requirements, which they see -- specific requirements, which they see in the next 3 to 4 months. It's not going to be the next 2-, 3-year requirements are given to one player and locking the price. So it's not going to be like that now. That is how when an industry matures, that is how it is going to see. There, we stand to gain more on that in the way the current process is because our product speaks for itself, our technology speaks for itself. And the more we are supplying with more AMISPs, the more we are getting preferred. And the way I see the disruption in the next 2 years, I would definitely see a bigger consolidation happening even at meter manufacturer level. The bigger and established players who are consistent with quality and technology stand to definitely gain out of that. And sometimes the not so focused players or certain smaller players may definitely leave out of the industry or may not grow the way they are looking to grow. So there is already a certain level of consolidation happening at a meter manufacturer level. And I think our quality and technology speaks for itself, and that is going to get us the further business. So the more repeat orders are there, the more AMISPs become strengthen here. And I think the volumes are large. It's a huge game. No company can today look at only one supplier and work based on that. So this is just how I look at the market. So I think that's how the competitive scenario is. But we definitely are at an advantage right now, and our teams are really working hard to make sure we keep those advantages with us as we go forward.

Okay. That was helpful, sir. And second question is on the overall industry-wide tendering and execution. So there's -- I mean, no meaningful tenders that have come into the market. So what is your view because Tamil Nadu has also kind of halted their tenders. So what's your overall view because in your earlier question, you mentioned that how the ordering flows because -- if AMISP sitting with a 4 crore meter order, so how this will flow. So on the first part is the tendering part. And second, the execution, I think in Q1, the execution in the -- at the country level has gone down. So how are you seeing this year comparative to FY '26?

No. If you look at the figures, what are there in the public domain, I think almost 7 crore meters are right now installed as we talk today because it was 6.9 crore, the last official figure. So I think there is no -- it's a continuous process that is happening. And for us to -- we are dependent, we are a meter supplier. So if there are AMISP tenders coming out or no, that does not affect us because there is enough orders already finalized on AMISPs, which can take care of our requirements, our future growth in a very aggressive manner, the next 2 to 3 years. So I think it doesn't bother us. Already, we are sitting on large orders. There are a lot of orders. Still the AMISPs are holding for themselves. So right now, the pipeline is very strong as far as we are concerned. What you're talking about tenders not coming out or maybe slow, but I'm not so aware of that, but that is more for an AMISP to think for them. But if you look at the overall number given out by the Ministry, so a large part of the first phase of installation of 25 crore meters have already been tendered out. So I think that's a cycle by the industry. So that does not bother us. Even if you look at the next 3 to 4 years, there is enough volume still available for a meter manufacturer like us here.

Okay. Got it, sir. And sir, one last question. I guess, 2 years back, we signed an MOU with a Chinese player for relay local assembly and manufacturing of relay. So are we manufacturing relay and how much captively are we doing it for our smart meter?

Yes. So I think one thing for sure that we are making efforts to ensure that we go into backward integration. A couple of components are identified, which we would be directly or indirectly ensuring that they are available and they are backward integrated into our processes. So as I have more information on this, currently, I won't be able to share much on this particular transaction. But as we have something more, definitely things are in progress. There are some things happening. But as we have more information, we would be sharing it with that -- with you all -- all of you for sure.

Okay. But currently, we are not having a manufacturing setup, right?

No, not as on today. But yes, there are probably in a different -- the way we structure the thing, that's how we will be -- we are working on that. But definitely, there is work on the particular components, work on the technology is going on definitely.

So Gautam, we'll take another written question. So this question is pertaining to margins again. The question is, are we looking at any backward integration in order to derisk from supply chain disruptions?

Yes. So as far as possible, if you see HPL, historically, if you look at even the last 25 years, every of our product division, we have 7 factories, all of them are very well backward integration. So while we are into Switchgears, Lighting, Wires & Cables, Metering, if you see we are very strong on right from tool rooms, we have 3 tool rooms. We have over 100 injection molding machines. So entire industrial plastic manufacturing is very well backward integrated. We have electronic manufacturing, which is very large. In fact, just 2 years back, we expanded that to a totally international level in terms of quality and scale. The sheet metal is again very well backward integrated. So most of the critical components, whether they are copper or sheet metal are manufactured in-house. That ensures not only a supply chain continuity, it ensures quality, it ensures that the right pricing is happening. So that is the underlying philosophy of HPL where we have always been very well into manufacturing and backward integrated manufacturing. Now coming to your question, I think it probably -- it's more because of the metering part, what we were talking in the earlier question. So here also, if you look at the existing metering, many of the components are today all manufactured in-house, which are regular. Now when we look at these relays or some of the critical components, which till now were not being manufactured in India. So with -- the government also has been giving directives on ensuring that the maximum components of Smart Metering need to be made in India. So we have also been making efforts -- conscious efforts to ensure that these are to be made in India. So I think you will hear from us as we -- because these are long -- these are highly technical products. They are long -- they have a long drawn process of ensuring the specific machines are coming in and all. So certain actions have been taken. But as we come close, as we have more material information, definitely we will be sharing it.

Thanks, Gautam. We'll take another written question. So the question is, could you share some details on R&D, especially on the Switchgear side? Which new products are we looking at to launch this year? How are our new products like ATS-370, 390 and ACB accepted in the market in comparison to big companies?

Yes. So like we have our metering R&D, where we have 170 people working in the metering R&D, even Switchgear R&D has now become much more bigger and meaningful. And we are working on new products. There have been -- the products on ATS, what you just mentioned, those are new products which have come out. If you see since last couple of years, maybe last 20 years, we've been a market leader on the changeover segment. And the ATS is a natural progression in technology because, again, it does a similar function, but on an automatic basis. So the electronics, the controllers, what we have are new. So that's a growing segment for us. And this helps us to be abreast with technology. This is a much more global product launch, which we see to sell into many countries here. And this will help us to maintain our market share and our sales growth going forward here. Apart from that, we are also working on a lot of integration of electronics and communication into the existing Switchgear. So those are, I would say, longer drawn projects which are there, but that's the future. And we would see in the future that a lot of work happening in panels, a lot of work happening with electronic integration. So those are projects which are ongoing right now, and you should see the results maybe in the next 2 to 3 years. Some immediately, but some could be much more longer drawn.

Thanks, Gautam. Another written question. So with EU FTA happening at any time, how are we positioned in terms of product certifications, channel partners to tap into this market?