HPL Electric & Power Ltd. allocated shares worth Rs 108.3 crore to anchor investors in India and abroad, ahead of its initial share sale.
The electric equipment company issued 53.61 lakh equity shares at the upper end of the price band of Rs 202 per share to anchor investors, it said in a press release on Wednesday.
HPL roped in 13 anchor investors including Copthall Mauritius Investment, Jupiter and Nomura Singapore. Domestic mutual funds like HDFC, Birla Sun Life and Baroda Pioneer were also part of the list.
The price band for the issue, which closes on September 26, has been fixed at Rs 175 to Rs 202 per equity share. At the upper end of the band, the offer would be worth Rs 361 crore, which implies a market capitalization of Rs 1,299 crore.
The fresh issue will constitute around 28 percent of the post issue paid-up equity share capital of the company. The company plans to use the proceeds from the fresh issue to repay debt and fund working capital requirements.
ICICI Securities, IDFC Securities and SBI Capital Markets are the merchant bankers to the issue.
HPL’s Business Model
HPL Electric & Power manufactures and sells electrical equipment including meters, switchgears, lighting equipment, and wires and cables under the HPL brand, to both retail and institutional customers.
The company has six manufacturing facilities in North India and has a network of 2,000 authorized dealers and distributors.
- Havells India Ltd.
- Crompton Greaves Ltd.
- Finolex Cables Ltd.
- V-Guard Industries Ltd.
The company posted revenue of Rs 1,115.3 crore and net profit of Rs 37 crore in financial year 2015-16, according to its red herring prospectus. The margins on its earnings before interest, taxes, depreciation and amortisation remained in the 5-6 percent range since 2012, with FY16 operating margin coming in at 5.7 percent. Over FY12-16, HPL’s revenue grew at a compounded annual growth rate of 9.3 percent, while net profit grew 5.2 percent.
Segment-Wise Revenue Breakup (FY16)
- Metering: 46.7 percent
- Switchgears: 21 percent
- Lighting equipment: 17.2 percent
- Wires and cables: 9.3 percent
Debt increased from Rs 306 crore to Rs 548 crore over this period. The company is looking to reduce its debt by Rs 130 crore using the IPO proceeds.
Angel Broking has rated the issue ‘neutral’ considering past financial performance and poor visibility on future growth.
On the valuation front, at the upper end of the price band, the pre-issue price to earnings works out to 25.6 times of its FY2016 earnings, which is lower compared to its peers. However this discount is justified considering its low return on equity, high working capital conditions, and low profitability compared to its peers.Angel Broking’s IPO Note To Clients
Religare Broking said the company faces risks from delay of payment due to disputes with power utilities.
At the upper price band of Rs 202, the stock is available at trailing price to earnings of 37.8 times, which is at a premium compared to its peers.Religare Broking’s IPO Note To Clients