HPL Electric & Power Ltd
NSE:HPL
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HPL Electric & Power Ltd
Earnings Call Analysis
Q3-2024 Analysis
HPL Electric & Power Ltd
The company anticipates robust demand next year, particularly in its LV switchgear and consumer side, bolstered by robust R&D and product development. They expect to maintain comfortable debt levels with a current debt-to-equity ratio of 0.77. The firm foresees ample growth opportunities across various sectors including smart meters, infrastructure, housing, telecom, and government initiatives such as the solar scheme. The company plans to continue its revenue and margin growth, while keeping operational expenses under control. The firm intends to improve key balance sheet ratios like the return on capital employed.
Capacity utilization is on the rise, and while currently satisfactory, the company is gearing up for anticipated surges in product demand by selectively enhancing capacities. With seven manufacturing plants, capacity enhancements have been seen in electronic production areas and industrial plastic division. The company expects additional requirements to meet next year's projected significant demand.
To stay ahead in securing more AMISP contracts, the company leverages its robust R&D and extensive experience in manufacturing electronic meters since 1996. They aim to offer reliable and certified smart meters required by AMISPs to maintain service level agreements that result in 10 years of assured revenue. This experience and product quality set them apart from competitors, positioning them to win more orders.
The company's rollout of smart meters is not influenced by state election results. The RDSS scheme, overseen by the central government, drives the deployment, illustrating a significant and consistent demand unaffected by political changes.
The Wire & Cable segment witnessed considerable growth, and the company seeks to further expand beyond domestic cable focus to infrastructure-related areas due to opportunities stemming from 5G business. They anticipate that wire and cable will be among the substantial growth segments within the company, alongside meters and switchgear.
The company operates at about 70-75% capacity utilization in meters, with future orders set to increase quarter-on-quarter. Current EBIT margins are close to 15%, suggesting room for margin improvement alongside operating leverage gains. Prices are fixed for roughly 2.5 years, and commodity stability is crucial for sustained growth. The working capital cycle is also expected to improve as supplies increase to AMISPs, with payment timelines from AMISPs being significantly better than from utilities.
Investors raised concerns about the company's tax rates, which appear higher than industry averages. Management responded by highlighting the ongoing utilization of MAT credits, which provides them a more beneficial rate under the current tax regime. They are considering a review to maximize benefits within the 10-year timeframe for MAT credit utilization.
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Ladies and gentlemen, good day, and welcome to the conference call for Q3 FY '24 HPL Electric, hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mudit Kabra from Elara Securities Private Limited. Thank you...
Thank you, Tushar. Good afternoon, ladies and gentlemen. On behalf of Elara Securities, we welcome you all for the Q3 FY '24 and 9 months FY '24 earnings conference call of HPL Electric & Power Limited.
I take this opportunity to welcome the management of HPL Electric & Power, represented by Mr. Gautam Seth, Joint Managing Director and CFO of the company. We will begin the call with a brief overview by the management followed by Q&A session. I will now hand over the call to Mr. Seth for his opening remarks. Over to you, sir.
Yes. Thank you, Mudit. Good afternoon, everyone, and welcome to HPL Electric & Power Limited's Q3 and 9 Months FY '24 earnings call. I'm delighted to present to you our financial performance and our commitment to sustained growth and innovation as part of our active participation in India's energy and power sector transformation.
In Q3 FY '24 and the first 9 months of the current year, HPL Electric has achieved significant milestones, driven by our dedication to excellence and our strategic focus on diverse product segments. Our revenue from operations for 9 months stood at INR 1,036 crores, reflecting a robust year-on-year growth of 15%. This growth was particularly notable in our Metering & Systems segment, where revenue grew by 28% year-on-year to INR 216 crores in Q3 showcasing our strong market position and the increasing demand for advanced metering solutions.
Similarly, in the Consumer & Industrial segment, revenue saw an increase of 13% year-on-year to INR 149 crores in Q3, underscoring our diverse portfolio with switchgear and wire & cables. We are facing a value erosion in pricing for the Lighting segment, which we expect to stabilize in the current period.
Our focus on operational efficiency and strategic investments has resulted in EBITDA growth for 9 months amounting to INR 137 crores representing a year-on-year growth of 22%. This trajectory is further exemplified by our reported PAT for 9 months, which stood at INR 30 crores, showcasing 57% growth year-on-year. As India continues its pursuit towards becoming a global economic powerhouse, the importance of smart metering and modernizing the power sector cannot be overstated.
We're proud to be at the forefront of this transformation, providing innovative solutions that not only meet the evolving needs of our customers, but also align with the government's vision for a sustainable and energy-efficient future. Our proactive engagement with the government initiatives such as AMISP contracts under the RDSS scheme has further strengthened our position as a trusted partner in the smart metering landscape.
Through these initiatives, we have played a pivotal role in supplying smart metering solutions with cutting-edge communication infrastructure for various projects. Looking forward, we remain committed to value creation as we enter into a new chapter of growth of HPL Electric with a growing order book of INR 2,400-plus crores.
Our investments in research and development, capacity expansion and channel network expansion drive our readiness to participate in the emerging opportunities and fulfill the evolving needs of our customers.
On this note, let us begin with the Q&A session. Thank you very much.
[Operator Instructions] The first question is from the line of [ Aman ] from [indiscernible] Investments.
Sir, my -- I have 3 questions initially and then I'll join back in the queue. First, sir, we are a prominent player in the low-voltage market, which is a consumer-facing brand. Sir, I just wanted to know our road map so that we can create our brand much more powerful, so that it becomes much more consumer...
Aman, your voice is not clear.
Am I audible, sir?
No, your voice is not clear. Can you just repeat the question, please?
I'll just repeat the question. Is it clear now, sir?
Yes. A little slowly, yes, please.
Yes. Perfect. Okay, sir. Sir, we are a prominent player in the low-voltage market, which is a consumer-facing brand as everyone knows. Sir, I just wanted to understand our road map in just positioning ourselves as a much better brand in terms of brand recall and customer loyalty so that we become in future, say, 5 to 10 years down the line, we become a brand which every home wants to apply in their applications or electronic, other things. So I just wanted to know how can our R&D also be a catalyst in this brand positioning and brand recall strategy of us?
Okay, sure. So if you see our -- the Consumer & Industrial products what we have, which are typically in the low-voltage segment. Primarily, we have switchgears where we cover the entire basket of products required for any kind of installation, be it residential, commercial or any kind of industrial or even -- little beyond the city infrastructure installations.
So as a package, when we look at going through the B2C segment, going to the retail and through our dealer and the channel partners, we have a product basket of switchgears, we have MCB switches, then we have the wire and cables lighting and we are adding some more products now categories on the consumer side.
So in a way, our focus is that for any kind of installation, we need to be as a one-stop shop in -- for any kind of requirements by the customers. So our focus has always been very deep because in every segment you see where HPL Electric is present, we like a control on the complete design.
So we always have an R&D involved in this, then we like to go into a well backward integrated production what have. And then -- that's how then we have the sales, marketing and the servicing networks aligned for each type of product. But when we approach the channel and the trade, for that example, we then we like to leverage our -- the cross-selling between the products. So we go in as a basket.
So it's for a residential owner, he gets in or, let's say, even a builder who's doing it, he gets multiple products coming from a single house from HPL. So that is what our focus has been. R&D is very deep rooted in our company because like you've heard so much about meters from us earlier where everything depends practically on the R&D what is happening.
Similarly, if you look at switchgear is 1 segment where we are very much deep-rooted into the R&D. Any kind of new products or new applications, whether in India or internationally, HPL has been really working on that. And similarly, it goes with the wire, cable, with lighting and now a couple of other products which are coming out.
Okay, sir. So what I'm getting it that you're focusing much on brand recognition and the brands to be much more deep-rooted into the Indian consumers as well. So yes...
Yes. So if you see in the last couple of months, our brand-building exercises have also picked up. And in terms of the spend also, that has gone up. Post COVID lockdown, the 2 years post that our advertising expenses and other things, the brand-building expenses were slightly on a lower side, I would say. But now since this year, we have started spending a lot again on doing a lot of activities on the branch side.
As a percentage of sales, if you can just quantify, sir, as a revenue percentage you're spending on advertisement and brand building?
I think if you look at the advertising and brand promotion, at least on the last quarter what we are talking about, it is about 1.5% on the -- overall revenue. So that is it. So the thing what we have -- because we have not been traditionally a very big ad spenders, we've been -- we always believe that our product and technology does speak for itself.
But since last couple of months, we have started a lot of activities on the brand and consumer reach programs and including a lot on the trade side, on the -- in the channel development. So that is how you see -- if you see our retail network, today at over 80,000, has been growing and about 2.5 years back, we kept a target of reaching 100,000 retailers. And these are all registered retailers what we are talking about. So I think by mid of next year, we expect to reach that figure. So overall, a lot has been happening on the LV switchgear on the consumer side and also on the brand, of course, backed by a very strong R&D and development on the product side.
Okay. Sir, second question I have ask on the debt. Sir, our debt-to-equity ratio is around 2.2:1. So in the future, we have the visibility of revenues and also we have certain growth levers also. So do we -- what is our first...
So Aman, again, sorry....
Sir, am I audible now?
Yes. I think you're coming close -- very close to the mic where you're speaking. [Foreign Language] if you can speak a little slow, please?
Yes. Okay. I'll speak a little slow. Sir, our debt-to-equity is 2:1, if I'm not wrong, you can just correct me. So in future...
0.79 -- 0.77, sorry. 0.77.
Okay, 0.77 currently. Okay. Okay, sir. Then -- okay, do we -- okay, when we have such a, what you say, revenue visibility and growth levers, what is our first priority, sir, reducing the debt? Or do we see FY '25-'26 there are much more opportunities lying ahead of us, like RDSS is one of them, multiple other opportunities are we exploring so that our cash can be invested there? Or are we -- our first priority will be reducing the debt? What is your view on the collections and the repayments? I just wanted to understand.
So our debt equity, as I said, is 0.77. So I would say we are still at a comfortable position, though every time anything can be better, there's no doubt in that. Right now, what we see in front of us is a huge opportunity coming in each of our product segments. Smart meter and the RDSS scheme, I think we have talked endlessly always on that. And that is one thing which is going to see from here also a tremendous increase in terms of the business, the inquiries which are floating.
And the actual -- the sales and the revenue and the margin growth, what would happen. Apart from that, the infrastructure spending, the housing, revival of the housing is also seen as a good factor right now within our company. And we are seeing a lot of traction, a lot of inquiries flowing in from that.
Telecom also has been a good segment for us where we have been growing on multiple products. The recently announced the solar scheme that the government has been talking that, again, there is a huge opportunity. So in a way, whether it's from the government or government business coming in through the private contractors or through the private players, and also the private business of the housing and other things also coming in.
Overall, the opportunity is big. So although we are very cautious on -- we have an eye on the debt and other things. But for us, the top priority going forward, what you are seeing it already in a couple of quarters is that we will see, again, a jump in the revenue, improvement in the margins right from EBITDA, until PAT and also the operational expenses being under control.
So automatically, once a better cash flow, a better margin comes in, I'm sure we will see a betterment of the ratios. Apart from that, like I said in my earlier calls also, as a company, we are definitely conscious on a lot of other balance sheet ratios, which we are improving, I would say, quarter-on-quarter basis also. And right from even the return on capital employed or even the other ratios, what are there in the balance sheet, we definitely look to have them improve going forward, yes.
Okay. So the last question, after which I will join back in the queue. Sir, what is our current capacity utilization on -- as a company as overall? And if we are measuring metering separately and that also would be fine, what our current capacity utilization?
Since we are talking about almost 7 manufacturing plants. So -- it's sometimes difficult to give a ballpark figure. But generally, the capacity utilizations are going up, what we have seen last year and -- or the year before that. And what we are seeing now, the capacity utilizations are much better, although we still have a headroom to grow within that, in meters especially because we are seeing the peak demand, which will come next year will be very, very high.
So although we have a sufficient capacity for that. But still, we will -- we are already selectively enhancing the capacities to cater to the, let's say, the boom or the big demand, what would emerge out next year. And so we have -- few months back, we opened up the new electronic production areas, which were again augmented from the earlier ones also.
Recently, we have just enhanced injection molding and the industrial plastic division in a bigger way. So a lot of machines are being added. So in a way, while our capacity utilizations are good, they are improving. The order inflow is also coming at a fast rate. But going forward, we do anticipate that an additional requirements would be there, looking at a huge demand coming in next year.
Perfect. Sir, just a follow-up on this. Recently in this quarter, we have...
Hello, [ Aman ] sir, sorry to interrupt. Sir, can you...
Yes, I'll just join back in the queue. Okay. Sure.
The next question is from the line of [indiscernible] from [indiscernible] Investment Advisors.
I had this doubt regarding the execution period. So we have a very good order book of INR 2,400 crores. And what will be the execution period that we might be looking at right now?
Yes, typically, any order which comes in through the AMISPs, they have, let's say, an initial period of about maybe 6 months to -- can even go higher, but generally, I would say 6 months before the supply start. This is just to prepare the ecosystem, just to receive the smart meters. But the delivery periods are generally 2.5 years. So definitely, the orders which are coming in, you can say almost 2.5 to 3 years is the supply period for these orders.
Okay. So the revenue will be split in, like, in a period of 2.5 to 3 years, right, from right now?
Yes.
Also, sir, in the metering segment, how much is the only meters that we're -- so only the supplying part? And what is the communication and the head-end system part of order book?
So generally, if you see, let's say, out of the INR 2,400 crores, roughly a little more than INR 2,100-some crores are for the metering. And...
Meters supply only?
For the meters, yes. And out of that, you can see almost 90% are the smart meter orders. So our -- we have stated it as our very clear objective that we are into supply of smart meters to the AMISPs, and that is where our focus lies. So if you -- so we are not an AMISP, nor are we -- so although we do have certain orders where we are doing value adds a little beyond the meters, just the smart meters, but still bulk of it, I would say, almost 95%-plus or almost 100% is the supply of meters. So we are not into financing or not -- we are not into the other parts. Though on the communication technologies, we are working on it, where we will have a specific value-add to our AMI customers along with the smart meters.
So if I understand this scenario correctly, we are not servicing the communication technology as of now, but we are going to enter?
Yes. We have -- like last time, we did -- we have a tie-up with a company. And as we are developing that. So those things will become value-add as we go forward.
Correct. sir. Very well, sir. Also, sir, so which are the AMISPs that currently we have received orders from, if you could tell us the names?
Normally, I will not name them, but frankly, all the big ones are either already -- either they have placed orders or they are buying from us or are under negotiation with us. So I would say we are catering to the majority of the ecosystem in terms of the AMISP players. And if you recall, the approvals what these AMISP people, while getting pre-rated before they could get the eligibility to take -- become an AMISP, they had to do a lot of testing prior to that. So many of the AMISPs have done their qualifications based on our meters. So that also gives us an advantage while we are doing business with them.
Also, sir, I had this 1 last question. So what are the percentage of orders that have already been floated in the -- floated by the AMIs -- so floated by the government and converted into meters by the AMISPs?
No, I think this information are available on some websites because I also keep getting updated from the market, in fact. But I think the government is putting up these figures. So probably you'll have to check up the websites to get those figures. But I believe, I think, over 10 crore meters orders have been given out to the AMISPs.
Now for sure, all these orders have not gone to the meter manufacturers yet, but because some are -- a lot are in negotiation and others. But I think the process is on, and all these would be translated to orders to the meter manufacturers.
Yes, sir. So my question was how many of these 10 crores have already been passed on to the manufacturers?
No. I'm sorry, I won't have the -- industry data is not with us like this. But we do have sufficient idea, but you will frankly have to check up their websites or get it out from them. Yes.
And the next question is from the line of [ Viraj ] from MoneyGrow India.
Congratulations. Future looks very bright for your company. Just a question regarding the -- that was already asked on the debt situation. Given the company is growing so rapidly to service this market opportunity and working capital needs of the business will go up, have you considered some kind of primary rates or a [ RAC ] issue to pay down debt? Currently, as I see it for the 9 months, half of your EBITDA is eaten up by finance costs?
Yes. So we have been -- there's nothing else yet what we have on the table. But just we do see a huge opportunity in the business. And we are definitely thoughtful of the fact that the interest cost needs to come down, especially looking at the huge opportunity, what is there. So we have been evaluating various options of how the debt can come down or how we could have more funds for looking at the growth potential that is coming in.
So I think nothing what I can share right now and nothing as yet. But definitely, yes, we are evaluating a lot of options, which are available. And as and when we have something specific, I'm sure you learn it from us or from the market, definitely.
Understood. Sir, my second question is, out of your INR 2,400 crores order book, how much is from the AMISPs, which are sort of a 2.5-year delivery? And how much are shorter-term delivery orders?
Yes. So out of, let's say, over INR 2,100 crores and -- almost -- let's say, INR 2,150 crores orders, which are now in the -- on the metering side, you can see roughly 90% of that is through AMISP. So 85% to 90%. So the majority of them are all through the AMISPs, which are longer-term orders. So roughly, if you see, this is the math, it's almost maybe INR 1,900 crores or INR 1,950 crores, which are through the AMISPs.
Understood. So then would it be sensible for me to assume a 20% growth by FY '25 and then a 40% growth for the year after as these AMISP orders kick in?
So I think the growth -- no, the 20% you said is for the next year or...
Yes. FY '25, yes. Next year, next...
No, I think -- no, you're talking as a company or on the metering part?
No, on the overall company, revenues. Total revenues for the company.
I think the revenues, I would say, should be a little more than that because the meter, like I said in my earlier answers also, the meter is going to see a certain peak in the mid of next year because right now, a lot of orders are coming some from new AMISPs, but maybe after 6 months or 9 months when their execution gets into at a peak level, the demand for meters will go up. And when this will happen with many of the AMISPs simultaneously, that is when the demand would go up and then our capacity utilizations can be definitely increasing.
So just to answer your question, I would say the growth will be a little more than that, probably -- I cannot just give you a specific figure, but the right now, also the orders what we have, our focus is on execution because that is the key to the whole thing right now. And while the execution is improving quarter-on-quarter, and I see that improving as we go forward.
The order book is going to, I would say, still a lot of inquiries are there, and the order book would again swell up from here. So that would happen. But then beyond that, then the execution would happen. So maybe end of the fourth quarter, we should be able to give a specific number of what we expect as a growth. But, yes, it should be definitely north of 20%, yes.
And the next question is from the line of [ Pranav Shrimal ] from [ Pink Wealth Advisory ].
Yes. I had a couple of questions. One be, what would our capacity be to produce smart meters in terms of volumes?
No -- can you repeat that, please?
Yes, am I audible, sir?
Yes.
Yes. What would our capacity be to produce smart meters in terms of volume?
So we have been talking about -- I think the capacity in terms of number is almost 1 crore or to 1.1 crore meters per annum. And so right now, of course, we still have a headroom because we are maybe around 75% -- 70%, 75% of our capacity. But still in anticipation of that, we are already doing a lot of initiatives on automation, certain specific capacity enhancements have been done in the electronic side, in the plastic -- industrial plastic side. So there are certain increases happening, but maybe on the second half of the next year, we should achieve this type of capacities and then maybe even look up to grow beyond that.
Okay. And one more question. What would our share be, if have the number, our share in terms of total smart meters produced in India?
No, you're talking about market share, yes?
Yes, market share. Yes.
Yes. So it's very difficult, I think, to say that because right now, the orders what we hear about are the orders which are going to the AMISPs. Now like we were just discussing maybe the figure as per the websites are, let's say, about 10 crore orders which are given. But still, maybe just half of them or even -- I frankly don't have the number with me, they are right now being given in a staged manner to the meter manufacturers.
So to determine the market share is frankly, very difficult, even for us, and I'm sure for anybody tracking the market, right now, it would be a little difficult. But once, let's say, after a couple of months, once most of these orders from the AMISPs are passed on to the meter manufacturers, then probably a better understanding would happen. But I think -- looking at the volumes and all, definitely, I would say we are one of the leaders in it. But exact figure, frankly, too difficult to tell.
And the next question is from the line of [ Ashwini Kumar ], an individual investor.
I had a couple of questions. And what is our game plan to stay ahead with the AMISP contracts in this competitive environment? You had mentioned focusing on private sector relationship. How will this benefit our growth...
Yes. So the USP, what we offer to the AMISPs is the integration of the R&D design manufacturing and plus the vast experience of almost now since '96, so we are talking about almost 28 years of manufacturing, electronic meters. So -- and we have supplied a couple of crores of meters with warranties lasting for 5 years, which were backed by bank guarantees.
So the sheer experience, the kind of products what we have, fully certified, fully approved, backed by a very strong R&D. So I think that is something we bring on the table to AMISP. And when you look from a point of view of the AMISP, the kind of SLA levels what they need to achieve, which is typically 98% or 99%, again, backed by their payments coming in a period of 10 years, so definitely, I would say, to mitigate their risk, they need to go to somebody who can provide them actually a meter which works for 10 years backed by a very strong R&D.
And I think that is what we offer to the AMISPs, plus our experience of working in this sector for a long time. So I think that is something what would put us apart and give us an advantage over our competition here. And I think -- so that's the game plan.
So the game plan is very simple, make a great product, give it to the customers. And I think in managing relationships and managing contracts with longer warranties has some -- that we -- HPL Electric does have that kind of experience. And I would say that is something which will help us to get more orders in the near future and look for a big growth going forward. Yes.
Right. My next question is how could the recent election results impacted our plans for rolling out smart meters across the states? Also, does the National Solar Mission affect us if there -- if anything, is there on that front?
No, so you are talking about the state elections? Are you talking about that or what? Yes. So I think they were -- the -- I think the government's policy is driven by the center for the RDSS and under which the rollout of the smart meter is happening. So we frankly are not in any way concerned or the business does not depend upon any election results for that matter. And I think the government's perspective of reduction of the AT&C losses and rolling out the smart meter is pretty long term, and it is right now, I believe it is accepted by almost all states, which are right now, either they are in a process of ordering or under some kind of tendering or already the contracts have been given out to the AMISPs.
So I think that this business of the smart meter is not exactly dependent upon any election results, whether in the past or in the future. I think the government's policy is pretty long term and very well defined. And I think it's also a need of the hour for the entire sector and the industry. So that is how it is. And when we look at the National Solar, the mission, I think the new policy -- you're talking about, I guess, the rooftop policy which is there?
Yes.
So in that, if you -- we've already done a study because the government is talking about 1 crore rooftop installations. And we have a lot of products, whether they are net metering, whether they are solar cables, then there are cables in the otherwise involved in the system. We have the DC breakers, the switchgear, the junction boxes. So a lot of our products go into these type of installations.
Although these installations are very basic and low-end installations because these are -- in normal households, these are put in the rooftops. So -- but overall, the sheer volume is very good and our preparedness in terms of supplying to this scheme is definitely there. So whether the -- only the clarity needs to come on how the mechanism would be, how the procurement would happen and how that could -- I think in due course, I'm sure those also will be spelled out.
And so we are well prepared, whether the government buys us centrally or in a diffuse manner, it is bought by -- at the sites -- at the place where the installations happen. So either way, we have a large network and we can cater to this opportunity. I think it's a very good thing what the government has done and definitely gives a big boost to a company like us.
And the next question is from the line of [ Bhushan Sonar ], an individual investor.
Can you please shed light on Wire & Cable segment? How are we seeing the growth there for wire and [ ampere ] cables?
Yes. So this segment of Wire & Cable has been seeing a good amount of growth last year and as well as in the 9 months of this year. We are, of course, looking at a much bigger growth because traditionally, we've been focused on -- more on the domestic side, where you have the domestic cables and the -- typically, the residential installations happening.
But off late, since last couple of months and also thanks to the 5G business what we have been doing, we are now focused on a lot of other areas, even infrastructure related and other things where we see a huge growth coming in, in the next 5 to 10 years. And I think overall, other than meters and switchgear, even wire and cable is going to be a segment within HPL where we see a good amount of business picking up.
So we are right now in the process of really putting in that kind of focus. And I'm sure in the next 1, 2 years, we will see a good amount of growth, not only in the B2C, but also in B2B segment, which are primarily the private players who are catering to various government schemes or the infrastructure, even the housing is seeing a good pickup.
So that's where we see our overall segment. We are also focused -- because the focus what we have in technology and also on the R&D and the manufacturing, we see a good amount of specialty cable picking up internally. So that's also another added focus what will remain within the Wire & Cable segment.
Okay. I'm having one more question regarding the Lighting segment, which has been showing value erosion for a while now. What's behind this? And how does as a company you plan to change things around in probably quarter 4?
Yes. Lighting has been seeing certain value erosions primarily because there has been a change in technology, a lot of the way the manufacturing happens, we have seen a -- since the last almost over 12 months, we have seen a lot of cost erosion coming into that, and major of the cost benefit what has come has been passed on to the consumers.
So that has resulted in the value -- the unit values coming down, the sales coming down because even with the same quantity, the value of sales had come down. But since last, I think, 2 to 3 months, we are seeing certain stabilization. I would believe that maybe in this quarter or maybe early next quarter, the prices should be stabilized and again, certain volume and value growth to return going forward.
Overall, as lighting -- when we look at the LED lighting, I think the demand is intact. With the amount of infrastructure, housing, the constructions which are going on, every construction does require a lot of -- lighting requirements are there. So that is going to take care of -- the demand is going to be there. This was, of course, an industry-wide phenomena where we did see certain corrections in -- or change in technology and then correction in prices.
But along with -- during this time, in the last 12 months, we also find a lot of unorganized market shifting to the branded players. And I think this kind of a correction has happened. But going forward, maybe in the next year, we should see a good part of lighting growth coming back overall in the industry, and that should really help overall for us also and for the industry also.
And the next question is from the line of Vignesh Iyer from Sequent Investments.
The line for the current participant seems to have disconnected. The next question is from the line of Rahul Kothari from Grit Equities.
First of all, congrats coverage for a good set of numbers.
Yes. Thank you. Thank you.
Sir, I wanted to understand 2 things. One is from the order size, can you provide the number of meters -- order in number of meters that we have?
No. Normally -- for the smart meters you're talking about?
Yes.
Yes. Normally, no, we would not do that for more of competitive reasons, but the values are always given out as and when the orders are coming, but not the quantity, yes.
Okay. And can you provide some guidance on the -- what sort of internal estimate or internal aspiration is on the market share front currently aspired by you?
I think if you look at past over 1 decade, HPL Electric has been having a market share of about 22% to 25% in the energy meter market. And I would say, going forward, as we are -- we would definitely look at maintaining and then growing that market share.
But right now, as I said in my previous answer, it is not very easy to determine the market share initially. But as and when most of the orders from the AMISP are given out to the meter manufacturer and once the, let's say, the dust settles down, I'm sure the market shares will be clear.
But definitely, we are very aggressive. We are seeing a good growth coming in. Even though orders what we have currently are -- I would say, it still is a good starting point. But there are a lot of inquiries right now going on. And the next 1 year, again, we do expect -- although the execution is going to be strong every quarter. But probably the order input can really go up from here.
It can even grow by 50%, even 100%. That is how the market is -- the potential of the market is there. And definitely, it's for us to catch. I'm sure we are well prepared, but still definitely a lot of work needs to be done.
And one more thing to understand is like of the 25 crore smart meters, I understand almost around 10 crore to 12 crore meters, either tenders are released or orders have been -- or AMISP has secured the order. And I think in a couple of months, they would be proceeding towards releasing the orders to the meter manufacturers?
Exactly. Yes.
And apart from that, the remaining orders of balance 25 crore meters, around 10 crores, 12 crores, is it visible that the balance orders are also expected to released from government or DISCOMS to AMISPs in the FY '25 itself?
I think so because what I hear, like you talked about this 10 crore-plus meters. What we hear and generally, I think it is there on the website, is that if 10 crores is done, I think there are almost 17 crore to 18 crore meters which are under evaluation or already tendered but not given out, something like that. So I think the overall figure is moving towards the 25 crore meters. So I think we are still in February of 2024, so by the time, I think when we move still in the next 14 months, I'm sure these all would be given out. This is what I would believe so.
And the next question is from the line of [ Shree Harsha ].
This is with regard to the smart metering capacity expansion. Now so far HPL Electric the installed capacity is coming to 1 crore meters per annum. And for our competitor, Genus Power is also it is around 1.1 crore smart metering per annum. But the requirement of the government coming to around 25 crore meters for a period of 3 years. So how do we meet the shortfall?
Yes. So -- just I want to clarify, the requirements that are coming out are eventually going to go beyond the 3 years because it's already almost 1.5 years, we've been talking about it. Still, as per the official website, about only 10 crores have been ordered. There has to be more ordering, which will happen, which probably will take some more time.
And then there is a 2.5-year period to 3-year period, which will be for installation. So while we are talking about this, I would just say on behalf of the industry and on HPL also, the capacity for a smart meter within India is fairly sufficient. Definitely, if we look at, let's say, about 25% to 30% market share, we ourselves would be targeting anywhere between, let's say, 5.5 crore to 7.5 crore meters, which is possible in the next -- looking at a period of, let's say, about 4 to 5 years.
Our -- right now, the capacity is what we have, we are nearing maybe by next year, we would reach a full capacity, but that's still on the theoretical side. As we look at various -- the kind of automation initiatives we are taking, within the same capacity, the values can be -- the quantities within the same setup can be enhanced a good amount of percentage on that, plus then we have some more specific capacity enhancements happening.
So overall, I would say in the next 2 to 3 years, this figure of, let's say, we're talking about 1 crore and 1.1 crore, whatever is there, these figures will also go up. And I think only the 2, 3 top players also can probably cater to 60%, 70%-plus on the capacity side.
So I think that is not a -- when we look at the overall opportunity, although capacity expansion is happening on a specific basis, but that's not probably a very big cause of concern when we look at the business opportunity going forward. So the only -- I don't see it happening overall in the 3-year period what was initially anticipated. But it's a huge change in terms of involving a lot of utilities, involving a lot of people, the whole mindset change is there.
And -- so these things do take a lot of time for implementation. There are softwares involved, there are a lot of other things which need to work. So I think this is something of a very big opportunity for us and a very good thing for the Indian consumers and overall for the economy that a complete system is getting enhanced and really changed for the better here. And thereafter, we would see a new -- a lot of new things happening.
And definitely, the aim of government to cut the AT&C losses would start triggering in a big way once the entire system or even a majority part of it gets rolled out, yes. So I think from a capacity point, it's not a big worry for anybody rather.
And the next question is from the line of [ Jaynesh Shah ], an individual investor.
Congratulations on the good set of numbers that you have delivered. There are 2 questions I have. One, when you're saying the current capacity utilization is around 70%, 75% in meters and given the orders that you have, which are going to get delivered probably from -- I mean, the deliveries will obviously improve quarter-on-quarter, but the peak deliveries probably will start happening in the next year somewhere.
Today, you're making EBIT margins of close to 15% in the segment, how much is the headroom available for you to improve upon the margins given the orders which you have right now and the operation -- operating leverage which you can derive from the existing operations? That is one question.
And the second is on -- I mean, last year, you were already speaking about the improvement in the working capital cycles when the supplies to AMISPs will start. Do we see that possibility? Or like when do we see that the capital or basically the debtor days or the working capital requirement in the business streamlining in the next year?
Yes. So regarding the margins, if you see this quarter, what we are talking about, the EBIT margins on meter has improved. I think it's about 15-point-some percent, which -- and overall, in the 9 months is about 14.85%. So we -- definitely, there is a certain scope for improvement in the margins, and we are seeing it.
So there are going to be 2 things: the meter margin is going to be much better, no doubt, as compared to the other one, barring the switchgears. The other -- the meter margin is going to be good, plus the share of meter at least in the next 1 to 2 years is going to go up within our own basket of products, although the Consumer & Industrial is also set to grow.
But you also have to realize that what -- the orders what we are taking, the prices are going to be fixed for about 2.5 years. So -- although right now, the commodities, at least in the last couple of months, have been very stable, I would say, right from copper to the industrial plastic and everything, but looking at any eventuality, what can happen in the 2, 2.5 years, definitely, there is certain part other than the ICs or certain critical components where the prices can be locked in, balance remains open to be procured at the time when the deliveries would happen.
So -- but yes, to just put your -- to give a simple answer to your question, it would be yes, there is a headroom for growth. Maybe I cannot quantify it. But the meter and systems, as more AMISP orders are getting executed and if the cost levels remain at this level, definitely we would see the EBIT margin improve, and overall, the share of EBITDA in the company also to improve because the meter would definitely be contributing almost 65% to maybe a little higher percentage on the revenue front.
Now when we look at the -- on the working capital, this thing, the -- when we look at the overall business, the payments from the AMISPs definitely should be much better than getting the payments from the utilities because the negotiated period of credits are a little lower as compared to what we find in -- with the utilities.
But as more and more business is happening, I'm sure we should see an improvement. Initially, because there is going to be a ramp-up of the orders, the production is improving -- is really increasing. So therefore, certain fund requirements have been there on an interim basis. And that's what we said even last time that the borrowings on an interim basis will go up. But eventually, as a huge amount of business happens on -- from the AMISP, the working capital requirements should come down, that is for sure.
Could we get a clear understanding about what would be the receivables days or the credit period you are extending to your AMISPs?
These are, again -- these are specific negotiations based on the rates, based on who the AMISP is. But generally, I would say, they are much better, maybe 60, 90 days is something what is happening. Some of them working even on LCs. But as more and more volumes come in, certain competition also increases, so they would be looking at the reliability of the AMISPs, which obviously is there because they are very large typical big companies.
So that would be there. But either way, if you look at from a -- what the traditional utilities were giving in, let's say, 6 to 7 months, definitely, we are talking about a half period. That is something that should improve, yes.
And the next question is from the line of Vignesh Iyer from Sequent Investments.
Sorry, the line was not clear, got disconnected earlier. Sir, my question is on lines of -- I missed the initial commentary. Can you tell me when -- what is the time line over which we are going to execute this order book of INR 2,400 crores?
Yes, this would be done in -- since the bulk of it is the smart meter orders, so that would be done in about 2.5 years. So broadly, 2.5 to 3 years is where these orders would be executed, yes.
Okay. I mean on the smart meter side, right? And apart from smart meter?
Apart from that, roughly, I don't have the exact figure, but maybe we are talking about another 3 -- let's say, INR 300 crores, INR 400 crores, that would happen in the next 6 to 9 months. Generally, the -- those are some of the traditional electronic meter orders, which generally have a period of about 6 to 9 months for execution and closure, yes.
Okay. Okay. Noted. Sir, now more on the financial statement part of it. Just wanted to understand our tax rate is a tad bit higher than what for other companies. I mean, we used to pay around 27%, 28%, 25%. For the last 2 years, the tax rate is higher. So can you let -- I mean, explain as to what -- why the tax rate is so high?
No, but I think that's -- typically, as per the income tax rate, but I can just have it checked up vis-a-vis other people. But I think it's a normal thing the -- since we -- it's just my guess that in the last 2 to 3 years, our CapEx has been just more of a maintenance CapEx.
So that's why you see a drop in the depreciation. And -- so probably the differential depreciation of the companies to income tax, probably the gap is closed down. But that's it, but let me just run it with my people and see what the difference is. If anything is there, we can revert back to you on this. But...
I mean, usually people actually switch to the 25% tax rate that the government offer, 22.5% plus 10%, if I'm not wrong, that is the tax rate that people have switched to. So -- but since last 7, 8 quarters, we are paying around 35%. So basically, the PAT looks a bit lower, so just to get -- that's why I wanted to get that idea.
And I also wanted to know because you have a chance to switch to a new tax regime after the financial year closes, that is in April, if I'm not wrong. So I just wanted to know...
No, I think what I understand is that we have certain MAT credits, which are there. So that's why we are in the old scheme because together, when you look at with the MAT credit and -- the rates, that is much more beneficial for us. So -- but still, okay, point taken, let me just review it once, but I think the thing is that we need to use the MAT credit.
And overall, it makes a much more beneficial thing for us.
Okay. Sir, any idea over what amount of time would the MAT credit get utilized?
I think overall, it is 10 years, but I think we need to see the residual part. So let me -- I can probably just have this reviewed, yes.
I now hand the conference over to management for closing comments.
Yes. Thank you, everyone, for your participation today and being part of HPL's growth story. Please feel free to connect with Dickenson for any of your questions or insights and have a pleasant evening, everyone. Thank you.
Thank you. Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.