HPL Electric & Power Limited

HPL Electric reported a slight decline in consolidated revenues by 2.5% year-on-year for Q1 FY26. Despite this, profitability saw significant improvement, with gross margins expanding by 230 basis points and EBITDA margin by 85 basis points. Net Profit After Tax (PAT) increased by 8.5% to ₹18.5 crore, indicating a shift towards higher-margin products and initial benefits from scale. The management attributed the revenue dip primarily to temporary timing issues in the metering segment rather than structural concerns.

The Metering & Systems segment experienced lower revenues in Q1 FY26 due to delayed dispatch clearances and monsoon-related disruptions. Management clarified these are timing issues, not structural, and expects a pickup in H2 FY26. The smart meter order book remains robust at over ₹3,000 crore, backed by government initiatives. With only about 3 crore meters installed out of 22.5 crore sanctioned, and an estimated total requirement exceeding 30 crore meters, the company sees a strong 5-10 year growth horizon for this segment, with HPL equipped to handle double current business levels.

The Consumer & Industrial segment delivered a strong performance, with revenues growing 16% year-on-year, EBIT up 23%, and margins crossing 11%. Wires and cables led this growth with a 35% increase, while lighting also grew 7% YoY. This segment, supported by a network of over 900 dealers and 85,000 retailers, provides stable earnings and strengthens cash flows due to its shorter working capital cycle. Management targets this segment to cross ₹1,000 crore in revenues by FY28 and achieve 100,000 retailers by FY26.

HPL has shown steady improvement in its working capital cycle over the last 1-2 years. Debtor days reduced by 28 days in the past 12 months, and overall net working capital is down by approximately ₹60 crore despite sales growth. This improvement is driven by better-structured payments from AMISPs and the inherently stronger working capital profile of the C&I business. The company's debt-equity ratio stands at a comfortable 0.69, with borrowings reduced over the last 12 months, and further reductions are expected in the next 2-3 years, aided by recent rating upgrades.

HPL is significantly investing in R&D and automation across all its verticals. A new R&D center was opened at the Kundli factory for switchgear and lighting, complementing over 100 engineers dedicated to metering. Production lines for metering are fully or semi-automated, and a new automated line for MCBs is expected by Q3. The company is also pursuing international expansion, with plans to see traction in select markets within the next two years, leveraging its 10-year product lifecycle and zero-defect processes honed in the challenging Indian market.

While acknowledging the competitive nature of the smart meter market with new entrants, HPL emphasizes its 30+ years of experience and ability to deliver zero-defect products, which is critical for AMISPs bound by stringent SLAs. The company's investments in R&D and capacity, including a new electronics area at its Gurgaon factory, position it strongly. Management is confident in sustaining and enhancing margins through cost optimization, design improvements, centralized procurement, and a focus on higher-margin products and new premium launches.