Key takeaways of the call

The metering and lighting segments posted strong double-digit growth on a sequential basis as per guidance given post the Q1FY20 results.

Q2FY20 EBITDA Margins expanded by 123 bps to 12.9% driven by increased revenue contribution from higher margin metering business (61% in Q2FY20 Vs 56% in Q2FY19) and efficient cost management

Metering business continued its growth momentum in the second quarter as revenues grew by 22% QoQ and 3% YoY driven by timely execution of orders.

Lighting business witnessed robust growth with revenues growing by 48% QoQ and 12% YoY to Rs 52 crore. Growth was majorly led by network expansion, and offering a wider range of products to consumers . Continue to focus on offering more comprehensive range of value added products and network expansion. HPL's association with the Haryana Steelers Pro Kabaddi team as its ‘Official LED lighting partner' is yielding positive results in the lighting trade segment.

Contribution of the switchgear segment remained muted due to lower demand in real estate, industrial and infrastructure (that include Government segment as well) markets.

Wires business – The conscious strategy of the company to increase in price has short term impact and led to lower sales volume. But given lower margin and lower share of this segment in overall business of the company has limited the impact of this in overall profits. Once the market accepts the price there will be substantial gain in this segment.

Consolidated current order book (Net of GST) stands at Rs 390.3crore and of which metering orders were Rs 361.4crore; Switchgear orders of Rs 19.6 crore; Lighting orders of Rs 8.2 crore and Wires & Cables orders of Rs 1.1 crore.

Going forward, the company expect its metering, lighting, and wires & cables segments to see strong growth on a year-on-year basis in Q3FY20. Looking ahead confident of double digit growth on yoy basis in meter, light, wires & cables segment in H2FY20. Overall for current fiscal there will be mid to high single digit topline growth along with improvement in profitability.

In the meters business, healthy order book combined with increased enquiries and tenders provides good revenue visibility for the rest of this year. Enquiry base for Metering tenders are at a healthy level. Tenders amounting to Rs 2000 crores (about 1.6 crore meters) have been floated or expected to be floated in the near-term. This provides good visibility and positive outlook for the coming quarters.

On the product innovation front, the company is continuously looking to launch innovative products in various categories.

GOI's favourable policy measures such as plan to set up a Rs 25000 crore fund to revive stalled housing projects and the increased government spending is expected to further boost demand for HPL's products especially for domestic switchgears.

Over 900 dealers and distributors 27000 retail points. All may not be dealing buying wires and cables. Quarter back company increased the prices substantially and that resulted in lower offtake and expect the network will come back to patronage the cables and wires going forward.

Capacity utilisation for cables and wires is much below 50% looking at Q2FY20 against usual about 65%. It is easy to achieve higher volume but the company has taken a conscious call to increase the price and get right price for the quality the company offers. The price increase is to improve the margin.

Currently the margin of wires and cables are around 4-4.5% and that can easily be in the range of 7-9%. Currently the volumes are lower and thus the margin also will not improve much, once there is strong acceptability and traction in volume the overall margin will also move to high single digit of about 7-9%.

Going forward most of the network or touch point will come back to patronage the cables and wires products of the company with increased off-take. Expect there will be volume and value growth in Q3FY20 for wires and cables over Q2FY20. By next year the company expects to ramp up in volume for wires and cables but with different level of margin.

The outlook for meters from short-medium- long terms basis is good. The execution is steady for the last few quarters and the company is sitting on an order book Rs 360 crore that will provide revenue visibility for next two quarter. Moreover there are orders worth over Rs 2000 crore at various stages of bidding giving strong visibility for medium to long term. The orders are from SEBs, WESL as well as normal demand for single, 3 phase as well as smart meters. The company will be bidding for all tenders in case for meters.

Enquiries since last month and half there is increase in enquire from contractors for government projects especially Sowbagya Schemes and other schemes. This enquires were not much for the last 3 quarters. Since electricals and lighting requirement comes at last stage of real estate project the recovery will happen in next fiscal only if the sector bounce back now.

Switch gears - may see a sequential growth after last 2 quarter of dull performance. Growth on yoy basis is still some time away.

Sharp drop in lighting margin (10.2% of EBIT margin in Q2FY20 from 12.6% in Q2FY19) is due to product mix. It traditionally used to be 10-11% and the company is working to reduce procurement cost and look to come back to 10-11% margin.

More sustainable EBITDA margin for the company is about 11-12% in medium term basis.

B2B revenue (utility and EESL) in H1FY20 was about 54% and balance 46% is from B2C (including metering non utility sales, switchgears, lighting and W&C)

Smart Meter opportunities – Apart from EESL, there are tenders from about 5 states. The tenders will be initially for below 5 lakh pieces expected each of these states Jharkhand, UP, Maharashtra, TN and Karnataka.

At retail market the product basket is very important and wires and cables were important to complete the basket with switchgear and lightings. The volume dip for W&C is short term reaction for the increase in price and reduction in discounts for certain projects. Strong actions were taken by the company to improve the margin which may be a pain in shorterm but will be good in the long term. Current W&C capacity can support annual revenue of Rs 350 crore and thus capacity is not a constraint.