HPL Electric & Power Limited (HPL) Q1 FY23 Earnings Concall Transcript

HPL Electric & Power Limited (NSE:HPL) Q1 FY23 Earnings concall dated Call Aug. 10, 2022.

Corporate Participants:

Gautam Seth — Joint Managing Director

Rishi Seth — Managing Director

Analysts:

Harshit Kapadia — Elara Securities — Analyst

Neha Sharma — Pearl Global Investment — Analyst

Abhishek Kothari — SG Growth — Analyst

Akshay Kothari — Envision Capital — Analyst

Rahul — Sunshine Capital — Analyst

Shweta Kadam — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the HPL Electric & Power Limited Q1 FY ’23 Earnings Conference Call hosted by Elara Securities. [Operator Instructions]

I now hand the conference over to Mr. Harshit Kapadia from Elara Securities. Thank you. And over to you, sir.

Harshit Kapadia — Elara Securities — Analyst

Thank you, Renju. Good afternoon to everyone. On behalf of Elara Securities, we welcome you all for the Q1 FY ’23 conference call of HPL Electric & Power Limited. I take this opportunity to welcome the management of HPL Electric & Power represented by Mr. Rishi Seth, Managing Director; and Mr. Gautam Seth, Joint Managing Director and CFO. We will begin the call with a brief overview by the management followed by a Q&A session.

I’ll hand over the call to Mr. Seth for his opening remarks. Over to you, sir.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, thank you, Harshit. Good afternoon, everyone. And thank you for joining us for this earnings call of HPL Electric & Power, to discuss the financial and operating performance for Q1 FY ’23. At the outset, I hope all of you and your family and loved ones are safe.

On the financial performance front, I’m happy to inform you that HPL Electric posted solid results for the first quarter of FY ’23. For the period Q1 FY ’23, our revenues surged by 129% year-on-year to INR295 crores compared to INR129 crores. Our EBITDA also grew handsome by 283% to rupees INR37.6 crores as compared to INR9.8 crores in the previous year. The company’s EBITDA margin expanded by 512 basis point and stood at 12.7%. Our PAT for Q1 stood at INR6.3 crores compared to a net loss in the previous year.

Of course, these figures may not be fully comparable, as last year was a disruptive quarter due to COVID. Nevertheless, there has been a good volume and value growth as HPL has posted its highest-ever first quarter revenue. On the business segment front, you will note that we decided to change our segmental reporting by redefining our segments on the basis of similar economic, market and business characteristics. As a result, we now have two new reportable segments identified which are metering and systems and consumer and industrial. The metering and systems segment now includes the company’s metering systems and project businesses under one head, while our consumer and industrial segment comprises the wire and cables, lighting luminaries and switchgear business. The former is more institutional and B2B-centric, while the latter is more consumer and B2C-centric.

Looking at the performance of each of these newly defined segments, the metering and systems segment revenue grew by 185% to INR146.9 crores in the first quarter compared to INR51.6 crores the previous year. The consumer and industrial segments revenue grew by 92% to INR148.7 crores compared to INR77 crores. We have delivered robust performance despite a backdrop of a challenging geopolitical business environment. Both our B2B and B2C segments received good traction and resulted in outstanding numbers. Clearly, we are now living a post-COVID-era of rejuvenation and new impetus. We are very hopeful that the same momentum of Q1 FY ’23 will continue in the coming quarters as well.

With a healthy order book of INR832 crores, we are very positive about the future visibility of our business. We have received a multitude of inquiries into the smart metering category in particular, and we expect to see sustained and solid demand from both the public and private sectors. Looking at the Indian economy, we continue to see it to be a global outliner, outperforming other large economies despite the looming threat of global inflation, supply chain constraints and commodity price volatility. We expect that the demand of our products from the domestic markets will continue unabated over the rest of FY ’23.

Today HPL has developed a well-diversified portfolio of electrical equipments, catering to various market segments, affording us stability and secular steady growth across multiple market segments. Our research and development team is working 24/7 and continually enhancing and strengthening this backbone. We are also steadily expanding our vast network of dealers and retailers, especially in Tier 2 and Tier 3 cities where demand is growing rapidly and where we see future opportunities to grow from.

On the manufacturing side. We are implementing several long- and short-term cost efficiency initiatives, including automation, and we are optimistic that these efforts will lead to improved profitability and better value creation for our stakeholders in the medium term.

Now we can open the floor for the Q&A session.

Questions and Answers:

 

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Neha Sharma from Pearl Global Investment [Phonetic]. Please go ahead.

Neha Sharma — Pearl Global Investment — Analyst

Hello, am I audible? Hello. Am I audible?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes.

Neha Sharma — Pearl Global Investment — Analyst

Yes. Sir, can you please provide a fair idea about the debt and equity structure of the company for the coming years?

Rishi Seth — Managing Director

Sure. Yes. So our current debt equity ratio is at 0.76% — 0.76. So on a company level, we are at a stable and comfortable level right now when we look at the debt situation. Even going forward, if you see last year our growth has been over 16%. And even in the current year, of course, with a good quarter and the outlook, what the company has for the current year, we expect a good growth of, let’s say, good high-double digit growth. With that happening, we see our debt levels to remain at the same level. So, over the last year and even the next two years going forward, we definitely see an improvement in the — out debts to remain at the similar level with our sales going up. So overall, the ratio should get better as we go forward.

Neha Sharma — Pearl Global Investment — Analyst

Okay. And sir, one more, if I can ask. So how do you see your export business potential? Can you explain how is your R&D strength aiding in your export market?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, that export business has seen a good traction since last two years. In fact, post the COVID, in 2020, just immediately when the businesses resumed we have seen a good amount of growth happening almost with growth levels of 30% to 40%. Now of course, our export base has been small, but in the last two years we have seen a very good traction in lot of markets. Currently we are exporting to about 42 markets with switchgear being the primary product range going in. Since last year, we have seen even the other ranges, including wire and cable, lighting, certain solar products, all these, including even meters, the nonutility meters. So even we have seen all the product segments really going well into the export market.

And as we look at even the — at the end of the first quarter, there is a 19% growth right now. But if you look at the order book situation right now and the visibility what we have in the near-term, the export business again is set for a good growth in the current year, at least 20% 25%-plus growth would happen. And our penetration in a lot of international markets are increasing. So, when we look at this, of course a lot of this penetration and the growth is happening because of the R&D what we have because our product range what we have been selling till now in the Indian market is all compliant based on the international standards.

So for many of the products we have now got actual certifications because there are of course, international IEC certifications which are globally acceptable, but then there are many country-level certifications and approvals required. So our teams have been working to get those approvals also done, and the penetrations are increasing. In fact, even in the last call I did share that our MCB factory, our laboratory is approved by DEKRA, Netherlands. So our lot of product range of MCBs or RCCB, all these are now getting certified which will be valid in over 52 countries.

So, overall, the potential is high post to what we have seen in the last two years. And even the current geopolitical situations what we have seen the — there is definitely a big shift from other countries where the multinational companies have been manufacturing now. That shift is coming to India. And with a player like us who have very strong manufacturing and R&D capabilities, we have a good way to exploit that. And I think that’s what we are doing. Right now there are lot of inquiries coming in from OEMs who are looking to set up or look at Indian manufacturers for the global markets. So in all, on a near-term or even on a medium-term, we see the export market to be growing much better and with good revenues coming in.

Neha Sharma — Pearl Global Investment — Analyst

Okay, sir. That’s it from my side. Thank you.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Thank you, Neha.

Operator

Thank you. The next question comes from the line of Abhishek Kothari from SG growth. Please go ahead.

Abhishek Kothari — SG Growth — Analyst

Hello. Am I audible?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, Abhishek.

Abhishek Kothari — SG Growth — Analyst

Yes. So I have two questions, sir. And first of all, it’s very nice to see that you have consolidated your business, which brings more easy way of tracking the things out here. Sir, at your — in your opening speech, you mentioned that we have done metering into the one part of it, and add switch gears and cables and lighting products into another one. So, the later part being B2C. But the same in your presentation when I see, we see that you have 20% share marketed in domestic electric meters, you have 5-plus percent market share in low voltage switchgear market, and you’re the fifth largest led manufacturer.

So, if I want to try to break it up, in one part of a segment where is the — the metered segment, we are already 20% market share. And when, say, in B2C, we are almost, we are the fifth largest or we have negligible 5% market share in the switchgear market. My question pertains to here is that in both the segments what — the headwinds are quite clear.

In metering solutions, we are finding that the e-meters will be the revolutionary thing or the thing of the past rather than the revolutionary. When you say LED, it’s very intense, competitive. Our players are not even making a single, competitive player are not making a single digit margins in LEDs. So is this switch gear market. Whereas there has been a — there is no entry restrictions so far. So I’m trying to understand that what could be the driver for the growth, one being the macro growth, what we’re talking about. So what could be the unique things what we can propose? For example, in smart meters, we have our challenges in getting some registers and buy metal strips, whatever we want to coat it that way…

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, so Abhishek let me answer. Yes, I have got what you’re looking at. So what I’ll do I’ll — because broadly what you have asked covers all the product segments what we have, so let me just give you certain growth drivers, what we expect and like that, but overall you have to understand one thing that although there are — all these spaces are pretty competitive when you — especially when you look at the LED and the switch gear and others. But it’s not that the entry restrictions are not there, but still if you go by what is happening in the market, it’s not that every anybody is coming into and really making a mark. So when we look at the LED market, if you go back about four years back, there were almost 80 to 90 players and almost everybody at one time was looking to come into LED.

But now if you look at this, the market has matured, it’s become much more consolidated. And most of the players who had just come in, very, very few new players are actually in the market, and otherwise all the old traditional companies of lighting are again dominating the markets in the LED. Of course that’s more on the market front. But when you look at this thing, we are, our focus in LED is pretty strong. We have been seeing good numbers coming in over the last two years also. And here, I would divide the overall business into — the trade segment has been growing. We’ve been continuously — we have a lot of new launches coming every quarter, and that is going, although the bulb and the other — the certain consumer luminaries is a fairly very competitive space. But still, nevertheless, the competitive scenario was there some years back and what is today.

Today, it is much more better, the hygiene is better. And even the cheap imports coming in from China and other places are also now reduced. So the focus is back on R&D, it’s back on manufacturing. And I think the — when you ask us what would be the growth driver, I would say the sheer demand and the consumption story is going to be the biggest growth driver. Of course, that growth is not for everybody, it’s for people. We would include ourselves into that where we have a strong R&D, we have a strong manufacturing base, including the electronic manufacturing. We make the drivers ourselves. So that will give us a huge upside on the LED front. And mind you, we make right from an LED bulb up to the consumer luminaries, we are focusing also on the commercial and industrial luminaries, then the street lighting part, and we are also doing the smart city. So we have earlier done Bhopal and Jalandhar smart city lighting. But now currently we are doing Karnal and Dharamshala.

So, overall, our range is pretty wide. We cater to a very wide set of customers in there. Now coming to, you just also mentioned switchgear very briefly, but I would say if you look at switch gear, the margins are very different. The switch gear margins are much better. The growth drivers are, of course, again, the building segment, which selectively has started picking up, and we have been seeing the movement since the last one year. So overall, our idea of clubbing the whole thing into the consumer and industrial segment was that we — and this clubbing apart from the reporting is also on — at an operational level where we can focus on growth, we can use the synergies which the market and the manufacturings offer, although the product-wise focus will always remain and the teams have targets initially.

But overall, at least the business has its own go-to-market strategy or the kind of characteristics, unique characteristics, what it has. So that is what we will see. Overall, we see the consumer and the industrial business, which has done almost the last seven quarters we have seen a good and consistent growth. So we see that to be happening as we go forward. And so that is one thing. Meters, we have been having over 20% market share over the years. But yes, the scenario is changing, the conventional electronic meters is shifting to smart meters, and that is going to see a huge, huge upside as we go forward. So a lot of things are in place.

Our own — we are currently sitting on over INR200 crores of smart meter orders out of our almost 420-ish — I think, I would say, INR427 crores of meter orders. So more — almost nearly half of them are the smart meter orders. The inquiries are pretty strong. So definitely, we — while the whole thing is changing, a lot of new opportunities come in. But for us, existing players who are quite dominant, we again see ourselves in a very strong point going ahead from here. So as the industry progresses, I’m sure we see a very good upside as we go forward.

Abhishek Kothari — SG Growth — Analyst

I understand. So as I said, when you talk about the macro headwinds, the industry size growing, that’s one part of it. But that will be for every player to grab that, the growing market size. What I want to hear, sir, is that one thing you clearly mentioned which is appreciable that — it’s back to R&D. But again when you said that the market has gone back to a few players, that too because of the low margin profile and already competitive industry, that will be one thing and people are not able to flow back enough money into R&D with those wafer thin margins.

What I’m trying to mention is that when we’re trying to grab a market share, we are just 5, 7 market share in the switchgear market or say in electric markets we are. So what could be the tipping point of us in putting in the market spec. So first thing, which is the first mover advantage or the pricing strategy or what really differentiates that we will able to take over the market share aggressively and we will be able to dominate the market share at any given point of time. I’m trying to understand from the company’s headwinds not from the industry headwinds perspective.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Okay. So when you look at — so then we focus on the consumer and industrial segment. So if you look at in this, our biggest strength currently is the product range and the back end of manufacturing which makes our quality and technology pretty strong. So I would rate that much ahead of our competition. Now obviously we need to grow much more in the sales front. And I would say, the reach, expanding the network is probably one of the big areas what our teams need to focus on.

And second is the visibility. And I think these are the two things that we would need to do. Pricing strategy, of course, it pays in the short run, but in the long term that is something because eventually we need to ensure margins coming in and with such high commodity pricing or even the volatility in the pricing to have a very — just playing on a pricing strategy doesn’t work. And as HPL, we have never been the cheapest. Our focus has been to play on or focus on our marketing and on our technology. So that is where we look at it.

The market — our penetration and reach are two things which really has been one of the things which has helped us to grow in the last seven quarters. Of course, a lot has been done, but a lot, lot more needs to be done. And I think that is where — that would be one of the key areas where we should be doing. Regarding visibility, post the lockdown, we were a little bit slow on that because obviously the markets, the physical markets were closed, other things. But since April now we have started redeploying the funds into local level advertising. And as we go forward, we would see definitely a much more investment happening in that area.

Abhishek Kothari — SG Growth — Analyst

So if you may allow, gentlemen, my last question, I’m sorry to take your time. So sir, I want to understand the clear road map per se because we have been tracking the peers. So HPL as a unit, are we more focused on, say — you clearly mentioned that we are not one of the cheapest products. So that clearly indicates that we are a margin-oriented company, we have been focusing more on margin. Is that the right understanding? Or would you be — say that we are concentrating more of a market share?

What are we really trying to understand? Because when we say we are not cheap so that really signals out that we are not going for a market share and market share can be by innovative products which has a limited share in — when it comes to the B2C. They have — because you are dealing with unorganized player as well. So as a — HPL as a unit, what — or as an investor of an HPL, should I be more focused on the market share or the margin profile of the company? I mean how was it? I’m just trying to understand on that perspective.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. So Abhishek, it’s not either or. So as — like we have been market leaders in meters, and as well despite maintaining the market share for, I think, over a decade now, we are still focused on margins. So it’s not that key. One is focusing on the market share, one has to — one cannot focus on the margins or vice versa. Now just to put yours in perspective, by keeping the margins and not going very deep in discounts or something, one, it may take a little longer to grab the market share. But I think that is what our strategy is, but we are very clearly focused that we need to expand our reach. We really need to grow on the revenues.

Last year was, of course, before that was due to COVID there was some disruption, but the last year itself showed that at least we have a clear growth across all the product segments. Even this year, the first quarter has been fairly good. And with this kind of a result in the first quarter, we are hopeful that this year again should have a strong, let’s say, over 20% growth across for the company. So the next — the way we look at it, at least in the next two to three years, we are looking to grab the market share, no doubt on that. But yes, we — as a company, we also need to maintain our market share — the margins. So the focus would be on both.

For us, by making these two segments, our focus very equally is into both these segments. We see the B2B segment to be growing at a much faster pace. Of course, if you look at the potential, what the smart meters have, that is an enormous potential. Over the next three to five years, it’s going to be huge. And the overall market size, even R1 revenue expectations are expected to go really multifold. The consumer and industrial business since the last seven quarters has picked up pretty well. We see the results apart from just the revenue growth, we are also seeing the penetration in the market, our dealer distributor engagements, also the — even the channel financing coming in. So that even shows the seriousness of the dealers who are coming in into our fold. So that is again a business which we see a very strong growth over the next three to five years.

So as a company, I always say that we are one company where we have very successfully mixed the B2B and B2C segments, and we have been able to grow in each of them. And right from working on the R&D, the manufacturing, so each of the things, right from having a strong back end up to the sales, marketing and after-sales, we have been able to grow on that. And that is by putting these two segments, that there is a clear indication by the company that henceforth we will be monitoring these, and we would see both these segments in the next three years to really grow on multi-fold for that year.

Abhishek Kothari — SG Growth — Analyst

Thanks a lot. I’ll come back in the queue. I have another few questions, like in terms of dealer breakup, but I guess the following people will be in the queue. I will join back later once I get over. Thank you.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, sure. Look forward.

Abhishek Kothari — SG Growth — Analyst

Thank you.

Operator

Thank you. The next question comes from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Thanks for the opportunity sir. So what would be the growth in the consumer business that we are envisaging? And INR832 crores order, would it be executed in this year itself? And what would be the working capital cycle in your consumer business vis-a-vis your meter business?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. So if you look at the growth, as I just said in my earlier one, so we are seeing a continuous growth in the consumer and industrial segment. And we would say that would definitely continue to do that. For the very simple reason that our lighting, wire cable, switchgears, all — across all regions and across all product segments we are seeing good growth which is happening. So this would continue. Also, since as a business unit we are now trying to leverage and have a lot of cross-selling between our dealers and customers. So that means a customer of wires can take even lighting or vice versa or even switchgear dealers or customers can take lighting.

So somehow, I think once the focus changes like that, which we have already been following since the last two years, and the results are pretty evident. So as we go forward, we — I would say, at least a 20% growth continuously we hope to see within this year itself. So that is something what to see. In terms of dealers, our main focus, we have said it earlier also that at one time, we were having more than 1,000 dealers. But over the years we have been introducing channel financing. We have been doing lot of reevaluation of our dealers.

And the idea was that we have — we reduced the dealers to some extent just to take the — so that we have better financially sound dealers. And at the same time, in unrepresented areas we are adding dealers who are, let’s say, of a much better quality than what we had maybe 10, 15 years back. So overall, there’s a lot of churning in that.

And today, effectively we have I would say, almost about 500 dealers in the consumer and industrial segment who are really focusing on this product and where we feel that they can — they have a good upside to grow. And we are introducing channel financing in a bigger way now. And so hopefully, within the next one year, we should have majority of our dealers covered under the channel financing, which will definitely get the working capital situation to be a better one.

So when we compare the working capital from the consumer and industrial as compared to the metering, definitely that is much more better. And even if you look at the utility days, the debtor days what we have, so they are all — today, effectively, the new consumer segment gets covered well within 82, 85 days. So that is how that is. Of course, the metering has its own — that’s where the debtor days are high.

Akshay Kothari — Envision Capital — Analyst

Would be around?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. Meter has about six months of debtor days.

Akshay Kothari — Envision Capital — Analyst

Okay. And sir, on the channel financing, finance financing is with recourse or without recourse?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, there is a recourse now only about up to 15%, yes. So it’s come down. And as the channel financing is spreading much more and as the banks are also experiencing it, we look forward that in the coming years this will become without recourse, yes.

Akshay Kothari — Envision Capital — Analyst

Okay. It’s 15%, right?

Gautam Seth — Joint Managing Director & Chief Financial Officer

15%, yes, exactly. It started off with probably somewhere around almost 100% and then came down to 50%. Not it’s only 15%, but I think I’m hopeful that at least in the next — maybe in the next some time we should have this whole thing without recourse, yes.

Akshay Kothari — Envision Capital — Analyst

Okay. So that portion would also be a part of our current debt, right? So debt would reduce further thereafter?

Gautam Seth — Joint Managing Director & Chief Financial Officer

No, it’s more of a contingent liability. But the figures in the channel financing are — the limits are going up and the participation is now becoming much more active, but that comes in more of a contingent liability. And even in the 2.5 years of running, as such we have had no adverse thing on this. So it’s — I think it’s as for a procedure the way the banks follow. But our teams are — we will probably make sure that in future there is no recourse on this.

Akshay Kothari — Envision Capital — Analyst

Okay. But as per IndAS, your channel financing with recourse is generally to be added to your debt. So yes, we can take that offline. Sir, lastly, I would want to ask about the capacity utilization in each of your four segments. What would be the capacity — current capacity utilization?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Our capacity utilization would be anywhere between 65% to 70%. This particular quarter, the first quarter, we have seen the capacity utilization of meters increased much more, I would say probably a little higher on the 70% plus. But generally, it’s been — normally, the capacity utilizations are at about 60% plus.

Akshay Kothari — Envision Capital — Analyst

Okay. Okay. And sir, what will be the price differential between us and other branded players? If you can give a sense of that. Also, what would your gross margins in the wires and cables business?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. So on the — if you see the wire business, our EBIT margins are typically around 4% to 5%. And — but overall, because that is something because we have seen a lot of volatility in the pricing. And — but over the years, we are — like your first question what you asked was on with the price difference. So normally I would say, especially if you look at in LEDs or even in projects especially where the wires are involved or even the MCBs, the price differences are very low or very less, I would say, from the market leaders, all the top names, five, seven names what you probably are aware about, in any of the segments, when you look at switchgear, LED or wires.

More or less in projects, the competition is pretty much almost at an equal price, or even in LED, even in the trade, the margins are — or the price realizations are pretty much compressed. But if you look at in switch gears and — switch gears in the trade market or even the wires and the trade market, there of course there are certain distinctions where there are — the brand leaders would come on, maybe a 3% to 5% better than us. So our endeavor is also as and when we are growing and we see the business is becoming much more mature, so we are definitely looking to each time come close to those realizations. So that’s how we have been working, yes.

Akshay Kothari — Envision Capital — Analyst

Okay. And what would be our gross margins in wires and cables, please?

Gautam Seth — Joint Managing Director & Chief Financial Officer

No, I need to just check that. But right now the EBIT margin is around 4% to 5%. But I can get back to you more specifically on that. Probably I don’t have the figure right away, yes.

Akshay Kothari — Envision Capital — Analyst

Okay. Okay. No problem. Sir, lastly — this is the last question. Geographical presence-wise, can you give a breakup of where are we very strong in terms of geography, north, south, east, west or Tier 1, Tier 2, Tier 3, where?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. So our — the strongest area is in the north and in the western region, yes. And I think we probably do almost — over 60%, 65% of our market we are doing in the west and the north. Now west, we also include certain of the regions in central, which includes the MP, Chhattisgarh and the Nagpur area, the Vidarbha area. So these are our two strong areas. North, I would say, contributes almost 35%; west would be about 30%, including the central; and then we have south, which is probably 20%, and east is about 15%, yes.

Akshay Kothari — Envision Capital — Analyst

I have a few more questions; I’ll join back, thanks a lot.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, sure. Thank you.

Operator

Thank you. The next question comes from the line of Rahul from Sunshine Capital. Please go ahead.

Rahul — Sunshine Capital — Analyst

Yes. Good afternoon, sir. Sir, can you share the revenue guidance for FY ’23 and FY ’24?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, Rahul. Normally we don’t give out a specific guidance. But if you look at the way we have done last year with over 16% growth, this year also we are pretty optimistic on the growth, the way we look at it. So I would say this year we should, as a company end up about over INR1,200 crores here. So that would be nearly about 20% growth on the top line here. And — but as I said earlier also in my answers, that both the segments we are seeing a strong potential, a good opportunity. And luckily, the first quarter also has gone up pretty well.

So overall, the outlook seems to be positive. Of course, for meters, one has to take into consideration the chip shortages and the semiconductor, the shortages what have been happening. And those are still continuing. So the last quarter saw a good execution. But maybe in the near term, maybe in Q2 or Q3, we might find certain time where the semiconductor shortage could affect our execution and sales here. But overall, the way the industry is talking about, hopefully, the second half, the chip shortage should become much better. But right now, definitely that is a challenge.

Of course, the figures, what we have done or what we are doing in the last six months all have been against — we’ve been working to ensure that we minimize the challenges and see what best can happen. Currently, with — as a company, we are having INR832 crores of orders. So that’s a fairly good order book what we have. So as we go forward, the revenue, I think, of INR1,200 crores this year seems much more easily achievable. The way the — even the medium-term opportunities lie for both the businesses, I would say, going ahead, the next two to three years should be a fairly good time for us to grow and then probably work on our margins and even work on cost efficiencies. That’s how we look at the outlook here.

Rahul — Sunshine Capital — Analyst

Okay. Thank you. And my, sir, second question is like, how is the demand trajectory for smart meters going forward? Can we expect a rising order of tenders being floated by the government or DISCOMs? Like what is the expected size of the tender?

Gautam Seth — Joint Managing Director & Chief Financial Officer

If you see the smart meter, that has a big upside. And if you see even just a week, 10 days back, in fact on 30th of July the Prime Minister has launched the RDSS scheme, the revamped distribution sector scheme. And that again entails a huge demand for smart meters. So now overall, if you see, there is a lot of activity by the government in focusing on the smart meters. And the demand side is going to be huge.

So of course we are well aware of it and a lot of actions have been taken since the last two years to bring about a complete readiness and preparedness for us to exploit that. And already the orders have started flowing. Our current date orders right now are over INR200 crores only on the smart meters. So the industry is changing, although there are lot of orders currently even of the smart — the regular conventional meters coming in. But smart meter tenders are today at a pretty high point.

In fact, right now, the — as you are aware, REC is conducting the empanelment of the AMISPs of all the system integrators. And once that process is done, the tender flow will be much, much higher. So already at an inquiry stage I would say lots and lot of tenders are coming out. They are under discussions. But if you look at the live tenders which are there right now in the market, which are probably out of what we have participated, that would be somewhere around INR1,500 crores to INR2,000 crores. But the share inquiry base is getting to be very large and very big here.

So probably in the second half of this year we should see a lot of tenders getting finalized. The supply of course, if you have smart meters along with the infrastructure and the complete system, then the execution would happen probably in the next three to four years, and that’s how it is. But yes, we would see a big influx of tenders coming in and a lot of orders getting finalized in the near term here.

Rahul — Sunshine Capital — Analyst

Okay. So sir, one follow-up to that. So do we have any plans to increase the capacity for catering to the market demand? Or like do we feel that our current capacity would be enough?

Gautam Seth — Joint Managing Director & Chief Financial Officer

So our — as I said, our current utilizations are between 60% to 70%. Now of course there is an upside to that also because some of our calculations are based on single or double shifts. So as a — on an immediate basis, we can even work over two shifts or three shifts and cover up the demand. So as such, if you look at with a healthy growth plan of at least next two to three years also, I would say our capex is currently sufficient. There are of course certain maintenance capex which normally in the tools and others which keep happening and that is ongoing for us.

Also, the company is also working on many automation projects, which we are looking to automate our processes, which would make them much more faster, much more — there would be much more savings coming from the manpower. And that — but these are all self-paying projects where we see the returns coming in the next 18 months or two years. And — but that would make the production much more better. So those type of investments will continue, but any large capex as such is not required right now. And we have anticipated the upside in the market right now. And accordingly, we seek to exploit that.

Rahul — Sunshine Capital — Analyst

Okay, sir. Thank you so much.

Operator

Thank you. The next question comes from the line of Shweta Kadam, an Individual Investor. Please go ahead.

Shweta Kadam — Individual Investor — Analyst

Am I audible?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes, Shweta, please go ahead.

Shweta Kadam — Individual Investor — Analyst

Sir, so could you help me with what is your advisement and marketing spend to sales? And can you give some guidance for this year as well…

Gautam Seth — Joint Managing Director & Chief Financial Officer

Sorry, your last part, I didn’t get it.

Shweta Kadam — Individual Investor — Analyst

And can you guide us for the whole year, what would be the ad spend?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. On — in the first quarter, our ad spends are around 1.85%. But overall, as I said earlier, we — post the COVID, we have seen a certain drop in the ad spends. But now since as the markets are opening up and our own business, we have seen a good traction in the consumer business in the last two years. So now we are looking to open up and invest more into the branding. So the first quarter we have started that. But now since the second and third quarter would have the festive season and we do expect much better sales. So maybe around 2% or somewhere around 2% to 2.5% would be the immediate spending. But overall, as a year, we will probably keep it around 2%. That’s what I would say that. But with our sales set to go, the absolute values also would become much more relevant for us.

Shweta Kadam — Individual Investor — Analyst

Okay. And sir, one more. So what are the top line and bottom lines we are targeting for this year? On the strategy front, what additionally we are doing to capture more market share in B2C segment?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Okay. So on top line, I have talked individually on both the — both the segments. So we do see a good healthy growth going forward. So this year, as a figure, we could look at, let’s say, about INR1,200 crores as a top line target. On bottom line, it will probably be a little difficult to give out certain guidance for the sheer reason that the commodities have seen a lot of volatility and fluctuations. But definitely we are working continuously to see that to bring in much more cost effectiveness in our systems, even we worked on the other expenses to bring them down.

And basically the primary focus is to enhance the revenue because that would give us an overall better margin. So that is how we are looking at it, but it would be probably difficult to give out a guidance right now. In terms of for market share for the B2C, we look at the network expansion and network penetration to be the key points because that is going to ensure a lot of material availability across to our channel. So that is what we are doing.

We have streamlined our channel to a large extent. As I said earlier, channel financing is coming in. So that will, again, bring in the serious good quality players who are dealing with us. We’ve also worked on a lot of our retail channel expansion. So I think we are anywhere between today about 35,000 to 40,000 active retailers. Of course, the number is more, it’s growing on a day-to-day basis. So overall, that is one big part which we are really working on.

Of course at the factory end, thanks to our own R&D, we have been — our product range is pretty good. We are working on certain adaptations on new launches. And probably every quarter there are some launches across either of the product segments. So overall, I think our focus is definitely to increase the market share, and this is how we look to do that.

Shweta Kadam — Individual Investor — Analyst

Okay. So one last question. So as per your speech, our dealers and retailers in Tier 1 and Tier 2 cities have increased. So can you please tell me what have you planned to enhance the improvement there? And how many dealers and retailers are we targeting for this coming quarters?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. Our — over the past two to three years, we have worked on just reevaluating our dealers. So from a larger number, we have got them down to almost 500 dealers. But I would say the quality and the commitment levels with them are much more better than what they were there in the earlier times. So this is — we see lot of growth happening through them. This year, we have also worked on a lot of channels connect programs to meet all these elite dealers and work with them to ensure the enhanced growth. So that is happening. Plus, there is also another working happening where we are inducting a lot of new dealers and distributors across the country.

So now obviously our way of evaluation is much more different now when we look at a new dealer. And right from the financial capabilities or even the strength in the distribution is always taken. So overall, the way we look at it in the next two to three years, we see a very strong network coming in and with multiple product focus and lot of cross-selling happening, we see the consumer segment to be growing in a bigger way here.

As regard retail is concerned, retailers are obviously sometimes through big distributors joining us. We are getting readymade channels which again are getting converted to HPL, so — plus our own sales force, which is working on the big plans. So that is where we again see a lot of work happening on the ground level, which enhances our network here. So one thing is sure, a lot of work is going on in the channel development. And I would say that is one of the key to enhance our revenue and visibility in the market here for the consumer products.

Shweta Kadam — Individual Investor — Analyst

Okay. That’s it from my side. Thank you, sir. That was very helpful.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yeah. Thank you.

Operator

Thank you. The next question comes from the line of Harshit. Please go ahead.

Harshit Kapadia — Elara Securities — Analyst

Yeah, hi, thanks for the opportunity, sir. A couple of questions from my side. Sir, just wanted to check with you, lot of your players have said that from mid of May there has been weakness in the demand. So probably how the July has been for you as well as for the industry across the multiple products that you are into? And probably what’s the initial size of August or festive season is telling in terms of demand? Is it coming back? Or is it very soft? Any color on that will be helpful, sir?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. Yes. So Harshit, we’ve seen certain drop in demand mainly due to destocking of the wire and cable segment. Now as you are aware from end of May, the commodity prices have started cooling off. And of course it’s been volatile because it went down and then again the copper jumped up almost $1,000. But overall, there was a trend of the commodity softening. So now of course the effect will come more in the second than the third quarters. But that is one time we saw the immediate pickup, up take of especially wire and cable drop quite substantially because obviously the channel and the trade, nobody wants to keep the stocks on a drop in price. So we have seen that. But I would say, towards the second half of July, we have — because the price has stabilized and in fact saw some upward movement, so that [Technical Issues] extent.

Overall, I would say the demand still remains. So if you see the — for us, if you look at the first quarter and even the July, almost a similar trend seems to be going on. And we are currently hopeful. Of course, August has a huge set of holidays and especially we are looking to a very long weekend. But I would say overall, once the markets open up post 15th, I would say that is when we see the festive season starts, up to almost October end. So we definitely — we are pretty positive, and I don’t see any sign where there could be a drop in the demand immediately or something which probably we are not aware of. But I would say the trend seems to be positive as of now.

Harshit Kapadia — Elara Securities — Analyst

And considering the correction in the commodity prices, do you think now there is — no, companies will not take any price hike? Or do you think we are still way off in terms of commodity prices have rallied such that we have to further take price hike to make sure our gross margin and EBITDA margin remains intact?

Gautam Seth — Joint Managing Director & Chief Financial Officer

No. I would say otherwise. If you look at the way the competitive scenario is and especially from a market point of view, I don’t see any company right now just taking a price hike on at least on the switchgear, LEDs and the wires. If you see, we have been passing on the increase. Of course, the increase has been on a lag. There has been a time gap, plus not everything was passed on. But if you see from the peak level, and that is where even in May most of the — a lot of price increase was done on the switch gear, on other things. Thereafter we have seen a drop in — a slight drop in the commodity prices.

So overall, I would say, effectively the increases are probably passed on. It could be. So I don’t — the way the scenario of the market is, probably the prices may not go down any further right now as of today. But I don’t see any increase coming in the near future. And whatever probably was possible to pass on has already been done, yes. That’s how I look at it.

Harshit Kapadia — Elara Securities — Analyst

And do you expect to make a very strong margin from the tenders which you have participated in the smart metering? You have mentioned that INR1,500 crores worth of tenders you have participated. Now I’m assuming that you would have quoted at a much higher end given the commodity prices were high. And right now the commodity prices have declined. If you get some of the tenders, possibly you will be making a very strong margin, is that a correct thing — assumption to me, sir?

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. Yes and no. Because if you see, yes, they were quoted at a higher price. But many times, probably people are looking at reverse auctioning or some kind of a renegotiation that may happen. But at least one thing for sure that the cost whatever are there or what we were anticipating are well-covered in it. But these are — if you look at the smart meter tenders, the meter plays only one part of it. There is a lot of services involved or even the IT infrastructure and other things which are there. So certain fluctuation only in the material cost has a much more minimum effect on the overall pricing. And the overall pricing will still be decided on certain competitive reasons there. But still, yes, it’s still safe to say that at least we are covered with our cost. And if yes, it gets finalized at those levels, then definitely the margins would be better. So theoretically, you’re right on that, yes.

Harshit Kapadia — Elara Securities — Analyst

Fair enough. Sir, I think I’m done with my questions thanks for answering those and wishing you all the best for this.

Gautam Seth — Joint Managing Director & Chief Financial Officer

Yes. Thank you.

Operator

[Operator Closing Remarks]