IPO proceeds to help pare debt, boost working capital: HPL Elec

On the last day of bidding, the initial public offer (IPO) of HPL Electric & Power was fully subscribed till afternoon trade

Speaking on the company’s plans for the future, Gautam Seth, Jt MD, HPL Electric and Power told CNBC-TV18 that the proceeds from the IPO would be used to repay Rs 130 crore debt and post that the debt will be around Rs 200 crore.

The money garnered will help improve working capital going forward.

The current capacity utilisation for the company stands at 60-70 percent.Below is the verbatim transcript of Gautam Seth's interview to Reema Tendulkar & Prashant Nair. Prashant: Could you tell us how the issue is doing? A: We have seen a very good retail response including response coming in from the qualified institutional buyer (QIBs) and the other categories. As of now we are done with it but as we see more and more response coming, we will wait and watch till the evening. Reema: You are raising Rs 360 crore of which Rs 130 crore will be for debt repayment and a chunk of the other will be for working cap etc. What will be your debt post the debt repayment and are you comfortable with it or do you plans to further pare it down? A: For us Rs 130 crore would be used for repayment of the term debt. The balance Rs 180 crore would go in for margin money for the working capital, so that would bring down our debt considerably. Reema: What would be the number? A: Maybe around Rs 200 crore would still be on the books. However, we have already taken certain steps for improving our working capital efficiency and as the entire process of looking at the stocks and the account receivables, once that happens, we would again substantially have a good amount of money released which would again go into reducing the debt? Prashant: Who do you sell these meters to? A: We have a wide variety of customers but about 70-75 percent goes to the utilities. However, real estate segment uses a lot of prepaid meters; we have the institutional industries using it and the private consumer. Prashant: You are saying 80 percent is to utilities? A: Yes. Prashant: That would include State Electricity Boards (SEBs)? A: Yes that includes the SEBs as well as the central utilities like NTPC and Power Grid Corporation of India. Prashant: How much would state and central utilities contribute? A: I think it is about 75 percent last. We are India's largest meter manufacturer, in fact based on the global research reports by Frost & Sullivan, their last two reports puts us as number one and that covers a period of more than four years. So we have been consistently at number one, our volumes are very high and in terms of breakup of our customers and the spread on the trade segment, which we normally say is on the B2C segment, we again have a very high share on the trade segment on the metering. Prashant: But B2C is very small? A: Almost 20-25 percent on the metering on the B2C is quite a large amount. Prashant: You are including builders etc in that? A: Yes, it includes builders but there is a lot of sub-metering market and that is big as well. Reema: What is the reason for your earnings before interest, taxes, depreciation and amortisation (EBITDA) margins coming down and is that a trend that will continue? A: Our EBITDA margin on FY16 is Rs 169 crore - that's 14.2 percent which is very comparable with the industry. However, over the period, in the last few years, we have been able to maintain our EBITDA margins though our interest cost on the books have been going up and that is mainly because HPL has invested Rs 230 crore in the last five years into building up three new manufacturing plant. We have done a lot of automation and upgradation in our manufacturing processes. Reema: What is the capacity utilisation you are operating at? A: Our capacity utilisation would be somewhere around 60-70 percent because we have seven manufacturing units, so each one varies depending on the product line but on an estimated figure it's about 60-70 percent. However, we take it as a very positive thing because going forward with the kind of growth we see in our sector, with the economy moving up, we can encash those opportunities without going in for a fresh capex and even on medium-term basis we do not see any major capex to happen in HPL. So that is a positive part for us.