CRISIL stated that the rating upgrade reflects the improvement in the credit risk profile of the HPL group. The business risk profile has strengthened backed by robust growth of 25% on-year in sales to Rs 1,262 crore in fiscal 2023 from Rs 1,014 crore in fiscal 2022. The growth in sales was driven by increasing demand for the metering segment, which contributes 45-50% of sales, along with focus on increasing share from smart meters.

Smart meter sales have started picking up, with sales contribution increasing to 14% in the first quarter of fiscal 2024 from approximately 6% in fiscal 2023. The group is expected to witness healthy revenue growth of 10-15% over the medium term.

It had orders of more than Rs 2,100 crore (1.6 times of fiscal 2023 sales) as on 30 June 2023, out of which the major order book is from metering segment (of which more than Rs 1500 crore is for smart meters). Sales from smart meters are expected to grow aided by the government's focus on this segment.

The operating margin of the group remained stable at 12.43% in fiscal 2023. The group is focusing on increasing its sales share from smart meters over the medium term, and hence, the operating margin is expected to improve to more than 13% aided by stable commodity prices.

The ratings reflect the established presence of the group in the metering industry, its sound operating efficiency owing to in-house research and development (R&D) facilities, diversified product profile and robust networth and healthy capital structure.

These strengths are partially offset by large working capital requirement, modest return on capital employed (RoCE) and susceptibility to risks inherent in tender-based business.

HPL Electric & Power is an established electric equipment manufacturing company in India, manufacturing a diverse portfolio of electric equipment, including metering solutions, switchgear, lighting equipment and wires and cables, catering to consumer and institutional customers in the electrical equipment industry.

On consolidated basis, the group reported sales of Rs 320 crore and profit after tax (PAT) of Rs 6.94 crore in the first quarter of fiscal 2024, against Rs 296 crore and Rs 6.32 crore in the corresponding period of the previous fiscal.

The scrip fell 1.28% to currently trade at Rs 219.25 on the BSE.