HPL Electric & Power Limited (HPL) Q3 FY21 Earnings Concall Transcript

HPL Electric & Power Limited (NSE:HPL) Q3 FY21 earnings concall dated Call Jan. 18, 2021.

Corporate Participants:

Gautam Seth — Joint Managing Director

Analysts:

Nandish Shah — Moneycontrol Research — Analyst

Harshit Kapadia — Elara Securities Private Limited — Analyst

Pankaj Bobade — Axis Securities — Analyst

Atul Kothari — Progwell Securities — Analyst

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Aniket Patil — AB Consultants Private Limited — Analyst

Anoop Nambiath — Equity Intelligence India Private Limited — Analyst

Aditi Sawant — AIF Investment — Analyst

Devendra Pandey — DP Financial Advisory Services — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the conference call to discuss Q3 and 9M FY ’21 Results hosted by Elara Securities Private Limited. [Operator Instructions].

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

Harshit Kapadia — Elara Securities Private Limited — Analyst

Thank you, Mallika. Good evening, everyone. On behalf of Elara Securities, we welcome you all for the Q3 FY ’21 and nine month FY ’21 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. We will begin the call with a brief overview by the management followed by a Q&A session.

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

Gautam Seth — Joint Managing Director

Yes. Thank you, Harshit. Good afternoon, everyone, and a very warm welcome to all of you present on the call to discuss our financial results for Q3 and 9s of FY ’21. At the outset, I would like to wish everyone a Happy New Year, and expect you and your loved ones are healthy and safe.

After facing multiple headwinds in H1, FY ’21 due to the COVID-19 induced disruptions, the company witnessed a sharp recovery in third quarter. During the quarter, our overall consolidated performance in terms of revenue and profitability reached the pre-COVID level led by robust growth in our Consumer segment. This is the testimony of a strong, resilient business fundamentals, efficient marketing strategies and enhanced dealer and retail network relationships.

Discussing our segment wise performance, the metering business witnessed a Q-on-Q revenue growth of 17%. However, the performance during the quarter remained subdued on a year-on-year basis as the inspections continued to remain low due to COVID-19-related disruptions. Revenue for the metering segment for Q3 FY ’21 stood at INR109 crores as against INR93 crores in Q2 FY ’21. We are expecting the metering segment to perform better for the fourth quarter onwards, as the inspections are likely to pick up. We remain bullish on the opportunities present in the metering segment, especially in the Smart Meter segment given the trust by the ACBs and the government to install the smart meters.

One-time liquidity injection of INR1,200 billion into Power Discoms is likely to improve their financial positions materially. This will help support the demand for new metering orders over the next year, while also ensuring timely payment of dues to equipment suppliers like us. We are very much focused on enhancing our smart meter technological base and become the market leader in the smart meter segment. We remain fully geared up in terms of technology and the capacity, as we are anticipating huge growth in the smart metering segment in the medium and long-term.

As expected, the Consumer segment continued to witness strong traction. Pick up in the economic activities coupled with various marketing and growth initiatives undertaken by the company, aided the growth. Revenue for the non-metering segment stood at INR135 crores as compared to INR107 crores in last year. The robust growth in the Consumer segment was driven by a healthy double-digit growth in the switchgears, lighting and wires and cable categories, which grew by 29%, 18% and 45% year-on-year respectively. The revenue share of B2C segment to the overall revenue for Q3 FY ’21 stood at 61% as compared to 44% in Q3 FY ’20. Given the better working capital cycle and margins in the Consumer business, the overall balance sheet strength and profitability are expected to improve with the increasing share of the Consumer segment to the overall revenue.

To give you an outlook, at present, we have a robust order book of INR354 crores. This ensures us revenue visibility for the near-term. We have moved towards a leaner cost structure by rationalizing the operating expenses and the overheads. As a result, despite an increase in the raw material prices during the quarter, rationalization of overhead expenses helped the company to report an EBITDA of INR34.7 crores, EBITDA margin of 14.2% in Q3 FY ’21, while Cash PAT increased by 24% year-on-year to INR19.6 crores. However, as the business scenario improves, certain operating overheads are anticipated to increase on a proportionate basis. We maintained a low capex in nine months for FY ’21. Further, no significant capex is currently required for future growth. Our leverage and liquidity profile continues to remain comfortable.

To share an update, we have rolled out the implementation of Smart Street Lights with Centralised Controlled Monitoring System at Jalandhar Smart City. We have also commenced implementation of the Smart Meter project in Punjab. This prestigious order execution of the company will further enhance the company’s performance.

Looking beyond the short-term challenges, we are excited with the opportunities in the Smart Metering and Consumer segment. We as a company remain fully geared up both in terms of the product, technology and capacity to leverage the opportunities that smart meters will offer going ahead. We have continued to focus on increasing our touch points and distributor base as we remain bullish on the growth trajectory of the Consumer segment. Overall, the company is confident of overcoming near-term challenges and create sustainable value for shareholders.

I would now request the operator to open the floor for Q&A. Thank you.

Questions and Answers:

Gautam Seth — Joint Managing Director

Thank you very much. [Operator Instructions] The first question is from the line of Nandish Shah from Moneycontrol Research. Please go ahead.

Nandish Shah — Moneycontrol Research — Analyst

Yeah. Thank you for an opportunity. Sir, my first question is, whether the current EBITDA margins are sustainable going forward?

Gautam Seth — Joint Managing Director

Yeah. So our — this quarter, our EBITDA margin is at 14.2%, and even last time we had said that although we are witnessing certain higher EBITDA margins. But you must realize one thing that the current EBITDA improvement has happened mainly because of reduction of our salaries then on other expenses on the traveling and advertisement. So on a short-term basis, we have been able to control it, and we have seen the last two quarters having a much higher EBITDA. But nevertheless, maybe there could be a little drop as we go ahead, because proportionately certain expenses will come back as the business resumes.

So currently, we are on a very low budget on advertising and even certain on the traveling and other things. So some things as we go ahead, we may see an increase in the expenses. So the EBITDA will come down. But one more thing I would like to say that we’ve also realized as a business model that there are many expenses, even overheads and others, which are not required, even while the business resumes.

So in a way the internal effort is to make sure that we are able to enhance our EBITDA from the traditional levels what we were seeing in the past two to three years. So — but on a very short-term basis, maybe it may go down a little further in the short-term, but in the longer term as the product mix improves, we would like to see it coming back to in excess of 14%.

Nandish Shah — Moneycontrol Research — Analyst

Okay. Yeah, thanks. Sir, my second question is, how is the dealer responses towards all your product in your consumer space? Do we expect the consumer demand to be stronger going forward?

Gautam Seth — Joint Managing Director

Yes. I would say, in fact, we’ve been positively surprised by the response we have got from our trade and from the dealer retail network. And I would believe I would be pretty optimistic, but if you look at the last two quarters, we have seen a very steady growth in all our dealer-facing B2C segments, whether be it switchgears, lighting or wires and cables. So even going forward from here, we are seeing the demand continue to grow and that is there. Even internally, there has been certain re-strategizing of our approach to the market, which has also helped in the sales growing. So at least in the near-term, even if you see six months or even one year, I would be quite optimistic on the consumer business going ahead and having a good double-digit growth.

Nandish Shah — Moneycontrol Research — Analyst

Okay. Thanks. Sir, and my last question is, can you what you say bit elaborate on the Punjab State metering orders and even the Smart Lighting to be provided at the Jalandhar’s, what you say, Smart City? And also, we have a similar kind of orders for any other states or the Smart City?

Gautam Seth — Joint Managing Director

Yeah. So I’ll — Yeah. So I’ll independently talk on both these because both of them are independent and unrelated orders. So first is on the Street Lighting project, what we are doing. If you recall, we had done the Bhopal Smart City Lighting, which was done a couple of years back. And almost a similar one, but with a little higher technology, we are currently doing the Smart Street Lighting for the Jalandhar Smart City. So that installation has commenced. And I think in the next three to four months, we should be able to finish the complete installation and do that. So the main Jalandhar City today is getting a Smart Street Lighting network, again that is linked to also the smart meters eventually and that has a CCMS system, which is going to have a much more smarter way of functioning for the entire street lighting system in the city.

After the lockdown, we did get certain good orders on smart meters. And this Punjab State order is one of them where recently, just about — I think about a week, 10 days back, the Chief Minister of Punjab has inaugurated the installation of the smart meters. So here again, there are three-phase meters, which are being installed across the state, and HPL is doing the supplies for that.

So for us, it’s a — both these, of course, both coincidentally happens to be in the same state, but it’s a very — these are prestigious orders, and this is something which makes our R&D proud. So if you see post the lockdown, we have even enhanced our R&D setup. And now almost we have 200 engineers who are working on different technologies, even various communication technologies and others, which are making the products much more smarter and much more easy, usable along with various technologies.

So this is something what we are doing, and constantly we have been getting these projects now. So this gives us much more better pre-qualification to start doing more projects, especially in the street light. Of course, the smart meter is a very big story and we are well qualified for that.

Nandish Shah — Moneycontrol Research — Analyst

Okay, thanks. I’m done with my questions. Thank you.

Gautam Seth — Joint Managing Director

Thank you.

Operator

The next question is from the line of Pankaj Bobade from Axis Securities. Please go ahead.

Pankaj Bobade — Axis Securities — Analyst

Thanks a lot for taking [Technical Issue]. You mentioned about the smart metering business, well, we [Technical Issue] the run rate of I suppose INR100-odd crores every quarter. And in your presentation, you have mentioned that the Discoms would be spending around INR65,000 to INR70,000-odd over the next three years. So just wanted to understand what is our [Technical Issue] and what is the current capacity utilization? Our capacity I suppose is [Technical Issue]

Gautam Seth — Joint Managing Director

Pankaj, your voice is not very clear. We are missing out certain words. Can you just repeat the last part of the question?

Pankaj Bobade — Axis Securities — Analyst

Sure. So I wanted to understand about [Technical Issue] the Discoms would be having a deadline of converting the meters to smart meters, current conventional meter to smart meter over the next three to four years. So what is our market share? What is our current capacity utilization? And what would be the peak revenue which we would be able to get from this segment?

Gautam Seth — Joint Managing Director

Yeah, sure. So if you see post the lockdown, the business of metering and then certain smart meters, especially in — uptick of the deliveries has been a little slower. But what is very positive is that the number of tenders and inquiries what are going on right now from various central and state utilities are very high. In fact, I can personally say that if you look at the inquiry band right now, and including the tenders which are out, and under various stages of evaluation, they are almost like an at an all-time high.

And a lot of these tenders, even at the state level, are concerning the smart meters. So the overall industry is today moving towards a smart meter, although it will take time. So there is — the government has talked about to do that in three years, but I would say that will take much longer than that. Although the industry, even the domestic industry is fully geared up and fully capable of meeting the schedules given by the government, but still the process of evaluation and other things takes time. So the industry is moving at a very rapid space — speed to focus on the smart meters.

As a company, we are fully geared up. We have the complete BIS licenses. In fact, last quarter, even our subsidiary, Himachal Energy has also got independently the BIS license for the smart meter. So that makes almost two of our companies qualified for going into — independently going for the smart meter.

So in a way that is moving fast. Currently our capacity utilization in meters is about maybe 70% to 75%. But as the orders flow-in, because even the finalization of the orders has been a little slow over the past four to six months, but at this stage, currently where we are seeing a lot of tenders being evaluated, we expect this to pick up.

Both the speed at which the order finalization will happen is also likely to go up in the coming months and also the pickup of the material, more inspections are happening and even the deliveries, the confirmed deliveries, which were deferred by the utilities. So even their pickup schedule comes within the fourth quarter and some maybe going even to the first quarter. So as an industry, we are seeing the next few months to be much better and a pick up in this business.

But again, just to repeat, the inquiry base and tenders is at the high. So as the orders will start getting finalized, there is a good likelihood that in a short time suddenly we may see a very higher flow of orders coming in. And our market share where we have consistently over the past couple of years where we have maintained almost 23% to 24% of the market share, I would expect we would continue, if not increase, but we would continue to be around there. And our endeavor is definitely to be a market leader in the smart metering segment.

Pankaj Bobade — Axis Securities — Analyst

So that INR110 crores of top-line this quarter from metering side and capacity utilization of 70%, would it be right to — will it be safe to assume that every quarter at 100% capacity utilization we would be doing INR150 crores, INR160 crores of top-line from metering side? And what would be the EBITDA margins for the same?

Gautam Seth — Joint Managing Director

Yeah. We are already sitting on certain ready stock, the finished product stocks right now, which is awaiting only the inspections or the dispatch clearances happening. But if you see in the past, maybe I think maybe in the past two years, we had been doing a run rate of almost INR150 crores of regular electronic meters per quarter. But when — if you see going forward when we look at the smart meters, and if we look at — if we just assume a full capacity, in terms of value that will go much higher.

And I think the capacity utilization what we talk about, there are still a lot of hidden ways in which we can enhance our production without putting in any additional capex. So like probably run certain of our productions on maybe two shifts or three shifts or even certain non-critical items can be outsourced. So what we have done is just a very relative way of working out the capacity utilization.

So in either way, when we look at a long-term growth, especially when smart meters are coming, because in terms of smart meters, the unit value goes higher. So even when we are doing the number of meters, let’s say, per day or per month, the — once the smart meters are replacing the regular meters, the value would jump up and that will not — there will not be any constraint of any capacity coming in, at least in the near future.

Pankaj Bobade — Axis Securities — Analyst

And what will be the EBITDA margin?

Gautam Seth — Joint Managing Director

In — only in the metering or the — you’re talking about the combined?

Pankaj Bobade — Axis Securities — Analyst

Yeah, metering I mean.

Gautam Seth — Joint Managing Director

We have an EBIT margin of…

Pankaj Bobade — Axis Securities — Analyst

Currently we are having around 14%, right?

Gautam Seth — Joint Managing Director

Yes. But in the past, these have been fluctuating from either 14% to even probably going up to 16%, 17% depending upon the product mix. So when we see the share of the smart meters increasing, definitely we would see the EBIT margins to be on a higher side.

Pankaj Bobade — Axis Securities — Analyst

Okay. My question — next question would be on Consumer Durables business, if I may?

Gautam Seth — Joint Managing Director

Yeah, sure.

Pankaj Bobade — Axis Securities — Analyst

Where do you see our company over the next three to four years given that this segment will be buzzing and assuming that our metering segment is done, I mean is doing well and we would invest into the Consumer Durables, which is a long-term story. So where do we see ourselves in this scheme of things in — the overall scheme of things as far as Consumer Durables segment is concerned?

Gautam Seth — Joint Managing Director

Yeah. So if you look at the — because we are currently into the Consumer Electrical segment and which are the switchgears, including the domestic switchgears and then we have lighting, wires and cables. So if you look at it, for us to go ahead for let’s say about three to four years, we would see a good growth happening. We would also see more consumer-related electrical products coming out in the market. Hopefully, within this year or within the next financial year, we would see more categories being launched. So definitely we have a long-term plan.

For this company, as we see it, there is — smart meter is a very big opportunity and equally big opportunity is the Consumer Electrical part of this. So there would be a big expansion, network expansion, which is continuously happening. We would see that going ahead in a big way. We will see more products coming in, more touch points coming into this. And also, next year, we will be resuming our brand building and the advertising, but more on a smarter way. So that would be more need-based. But definitely, as the kind of growth we are looking and the kind of growth to sustain those growth, definitely a lot of brand building will also be required. So we do understand that. And definitely this will — we would like to make it a strong segment for us and also chill [Phonetic] certain good market share in each of the categories and the combined Consumer Electrical segment.

Pankaj Bobade — Axis Securities — Analyst

So currently we are having around INR150 crores of quarterly revenue, right? So three, four years down the line…

Gautam Seth — Joint Managing Director

Non-metering — yeah, the non-metering is about INR135 crores in the last quarter.

Pankaj Bobade — Axis Securities — Analyst

But the margin there?

Gautam Seth — Joint Managing Director

It depends. Like switchgear has a EBIT margin of 18% that has been pretty constant. Of course, we have seen certain — the commodity prices have been going up in the last two to three months, I’m sure you must have read about it. The steel has gone up, copper has gone up and also a lot of the industrial plastics have gone up. But the advantage in this segment, in the non-metering segment has been that we have been able to pass on certain increase already to the consumer.

So in the last two months, we have seen our selling price or the dealer list prices increased so that we have been able to recover the added cost what has happened. So the margin remains there. The lighting is a little — the lighting is typically around 10% to 11% EBIT margin. Wire and cables is at a lesser one, maybe about 3% to 5%.

Pankaj Bobade — Axis Securities — Analyst

So which segment is expected to drive growth for us?

Gautam Seth — Joint Managing Director

Currently we are seeing switchgears and especially — you are talking about the trade segment?

Pankaj Bobade — Axis Securities — Analyst

No, I’m talking about FMEG.

Gautam Seth — Joint Managing Director

Yeah. So in that we will see the switchgear and lighting to drive a lot of our growth and — but over a period, because that’s how this segment works where the customer or whether it’s a retail or a channel network or even a dealer, they expect a complete basket of products. So to some extent, although we are pushing each of the products, but beyond the time, the complete basket will start where we will see a lot of synergies happening where our cost can be leveraged on that we can see a reduced cost happening and a better realization happening. So that would be the endeavor in the long-term. But yes, for the main products to drive this segment currently will be more from the switchgear and the lighting segments.

Pankaj Bobade — Axis Securities — Analyst

Okay. That’s all from my side. In case I have anything, I’ll get back to the queue.

Gautam Seth — Joint Managing Director

Yeah. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Atul Kothari from Progwell Securities. Please go ahead.

Atul Kothari — Progwell Securities — Analyst

Well, thank you sir for the opportunity. Sir, I may have missed the starting part of the con call. So if I’m repeating the question, kindly pardon me. Sir, what is our total manufacturing capacity when it comes to metering business?

Gautam Seth — Joint Managing Director

Yeah. It’s about 90 lakh meters per annum. So that’s the — you can say like an installed capacity.

Atul Kothari — Progwell Securities — Analyst

Okay. 19 lakhs meters?

Gautam Seth — Joint Managing Director

9-0, 9 million.

Atul Kothari — Progwell Securities — Analyst

9 million?

Gautam Seth — Joint Managing Director

Yes.

Atul Kothari — Progwell Securities — Analyst

Okay. And sir, also this 9 million would include both conventional as well as smart meters, right?

Gautam Seth — Joint Managing Director

Yes. So this is typically in unit of meters. Now, you must realize that as the market is changing from the conventional electronic meters to the smart meters, you will see that — we can — because a lot of electronic manufacturing even software and other things are all flexible manufacturing. So for us, technically we can even make 9 million smart meters in the same capacity. Only it may require certain work to be done or rather the manufacturing process needs to be a little different. But technically we can do that, yeah.

Atul Kothari — Progwell Securities — Analyst

Okay. And sir, what will be — what is our current capacity utilization?

Gautam Seth — Joint Managing Director

As I said earlier, it’s about 70% to 75% currently, yes. It depends on the product mix, because we are talking about very — right now, if you see the manufacturing in our factory, we are currently doing a lot of single-phase meters for various utilities, then we are talking about three-phase meters, trivector meters, then there are a host of panel meters. So in total, if you see the variety of meters what we are making will be at least 15 to 20 different meters what we are doing.

So each and every meter may have certain — the time required for manufacturing, the processes may be a little different as we see that, plus we also have the smart meter manufacturing happening. So it may happen. And then there are certain calculations — certain parts of the manufacturing because it’s not a single process manufacturing, there are multiple stages of manufacturing. So some parts could be working on a single shift, some on two or three shifts. So that is how we calculate the overall this. But broadly, as a ballpark figure, you can say at least 70% could be the current capacity utilization.

Atul Kothari — Progwell Securities — Analyst

Okay. So sir, it would mean that we are manufacturing close to 60 million meters, that’s what right now we are basically manufacturing, right? Around 60 million.

Gautam Seth — Joint Managing Director

Yeah.

Atul Kothari — Progwell Securities — Analyst

Okay. Sir, if you can throw some light as to in terms of the pricing between smart meters and conventional meters. What is the difference and what is the delta in margins? Margins — delta margin between smart meter and conventional meter?

Gautam Seth — Joint Managing Director

The pricing depends upon the specification of the smart meters. So it’s something that today when we are looking at couple of tenders have come out from the state utilities, then we have the central utility coming out with that. Now, the government has come out with the specifications or even when you see the BIS mark what is there, the ISI mark by the Bureau of Indian Standards, which is as per the IS 16444. In that, there are certain specifications what are there. So when we look at the — eventually, it depends on the specification what each customer picks up. But yes, the cost may go up even 1.5 times, 2 times, depending again on the specifications. So it’s very difficult to give just a single figure like that. But margins are definitely higher for the simple reason that the conventional meters were just ended, supply of meters. Here, we are talking about a software where it involves certain installation. So definitely the realization per meter is high, in fact, quite considerably higher in that. But again, there is no single figure one can define on that.

Atul Kothari — Progwell Securities — Analyst

Sir, if you can just provide some range in terms of — any range which you can provide for both conventional as well as smart meters?

Gautam Seth — Joint Managing Director

It is — it can be maybe INR4,000, it can even go up to INR8,000 depending upon the specifications. So it’s just like your smartphone. You can have a smartphone starting at INR4,000 and even at INR1,04,000. So it again depends upon what you load into it, what kind of data or features one would wanted. But yes, if you compare with the conventional one, the realization per unit is definitely higher and the margins also will be higher. But you must also realize that once the kind of quantities what the government is talking about and they have been talking about 25 crore smart meters. And currently what we are seeing the tenders which have been decided or even what are under evaluation, the under evaluation is now gaining much more strength. But we are still on the tip of the iceberg. So there is a lot and lot and lot of business which is to come by. But once those volumes are hit, definitely the standardizations will come in and the cost will eventually — then cost will come down and I think even the realizations will then start coming down based on that. But in either ways, the margins per unit will definitely be higher than the conventional one.

Atul Kothari — Progwell Securities — Analyst

Okay. Sir, and do we provide — sir, basically, of our total order book of smart meters, how much would be conventional and how much would be smart?

Gautam Seth — Joint Managing Director

Right now, a little more than one-third of our pending orders of meters is smart meters. And I would say, a good considerable tenders are also out in the market, which also represent a high volume of smart meters under evaluation. But I think in the next one to two years, we will see the smart meter’s share to be much higher, probably even crossing 50%, 70% of the entire basket.

Atul Kothari — Progwell Securities — Analyst

Okay. And sir, after the — may I know how much we have gone and we did for smart meters and conventional meters as of now? Any ballpark figure which you can provide?

Gautam Seth — Joint Managing Director

No. Sorry, can you repeat your question?

Atul Kothari — Progwell Securities — Analyst

Sir, you have said that the tendering process is now very active.

Gautam Seth — Joint Managing Director

Yes.

Atul Kothari — Progwell Securities — Analyst

So can you give me a ballpark figure as to what is the total tender or how much worth of tenders we have participated in?

Gautam Seth — Joint Managing Director

No, in terms of — I can just give you one figure, because I think we will not be able to break up the figure like that, but we are current talking about tenders of over INR1,000 crores right now. The total inquiry bank, including the forthcoming tenders and all are more than INR2,500 crores. But if you look at the active tenders where we have participated, just if you have to ask me my estimate, it would be over INR1,000 crores which we have already participated in that.

Atul Kothari — Progwell Securities — Analyst

Okay. And majority of them again would be in smart meter category, right?

Gautam Seth — Joint Managing Director

It’s a mix. So it’s very difficult to — for me to just give you a figure like this, but then some things, especially on the tender front, we will like to keep it as a confidential, just on what tenders are coming out and how — what is happening. But yes, the overall — just if you need a sense of the way the industry is moving, the tenders for smart meters and even the other meter are on a high right now. But one thing I’d like to just say that in the last three to four months, the finalization rate has been a little slow for obvious reasons that post-COVID the utilities have been a little slow starter, but the tenders are still coming out. So eventually, and even on the — the pick up has been slow. But eventually, the governments, the various governments will need the meters. So we may see a stack up of orders or even a lot of tenders coming out and getting finalized and the whole business getting stacked up. But I think that should be something very positive for us and for the industry also.

Atul Kothari — Progwell Securities — Analyst

Okay. So sir, are you planning for any capex, because already we are at 75% capacity utilization and considering that…

Gautam Seth — Joint Managing Director

No. In fact, no, not at all. I think we have passed the main capex phase. So we are just about some maintenance capex, but even the way we are reviewing all the expenses, so we are also now very strict as an organization on the capex part. So in fact, we have also centralized certain things, even the decision making, just to make sure that in the various plants whatever capex is required that has to be purely need-based. And at least for some time, we would like to run it that way so that we are able to utilize our existing capacities to the full.

Atul Kothari — Progwell Securities — Analyst

So sir, in the event of you getting orders, because you are saying there is a huge momentum of orders which is coming in smart meter category. So how you will be able to expand or cater to the requirements which would be much more than your 90 million per annum capacity?

Gautam Seth — Joint Managing Director

Yeah. So we can do that on running the plant on various shifts. So let’s say, if the entire process — let’s say, if you have to divide it into five to seven different processes happening, today everything is not running on three shifts or even some maybe not even on two shifts. So running it on additional shifts is something which can easily enhance our capacity and technically even we can go beyond the 9 million pieces if required.

Atul Kothari — Progwell Securities — Analyst

And sir, do we also…

Operator

Sorry, Mr. Atul Kothari?

Atul Kothari — Progwell Securities — Analyst

Yeah.

Operator

Sir, I would request you to rejoin the queue, sir. We have several participants waiting for their turn.

Atul Kothari — Progwell Securities — Analyst

Sure, definitely. Thank you.

Gautam Seth — Joint Managing Director

Yeah. You want to complete your question?

Atul Kothari — Progwell Securities — Analyst

Yes, sir. Sir, my last question was, there is a government scheme which has come, I have recently read it, where in they are planning a JV to provide common background infrastructure to all the Discoms. So can you throw some light as to what exactly it is? There is a JV worth around INR2,000 crores by various government-led companies?

Gautam Seth — Joint Managing Director

No, I’ll need to check up. I don’t have the details. But this could be something of an interesting meaning for us as well. But I need to check up. So if anything, I can probably just look it up with my team and then get back to you more specifically on this.

Atul Kothari — Progwell Securities — Analyst

Definitely. And sir, just one last question. So from two, three years perspective, will you see your smart meters or your metering business revenue to at least double from here or how is it?

Gautam Seth — Joint Managing Director

Yes. We have said it earlier also. The way — our — if you compare the business what one can do with the regular meters and the smart meters, definitely this is one opportunity maybe in the last, if you look at since the last decade, this is one good opportunity where the revenues can actually go much higher than the regular business what we are doing, because the government is looking at replacing all of it. So it’s not only a replacement demand, it is something which normally was happening, but it is more that in mass they want to change the entire metering. And so the volumes are expected to go up, the industry is expected to grow exponentially in this.

So this is, yes, one good chance. If the implementation happens in a faster pace in the next two to three years, definitely our sales can double up from here. But again, it depends upon the speed of implementation because the implementations also requires a lot of effort by the Discoms. There is a lot of training involved. There is lot of infrastructure which needs to be put at the customer end prior to the installation and the working of the smart meters. So it’s a complete process.

I think — but I think the process has started. Now it depends upon the speed of implementation and how it rolls out that will determine what kind of revenues we can do. But from our point of view, whether in terms of R&D, manufacturing, supplies, we can get up to that. Even if we have to double up from here, we can easily do that. I don’t see that as a constraint.

Operator

Thank you. The next question is from the line of Gautam Bafna from Wisdom Torch. Please go ahead.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Sir, our debtor number was around INR440 crores at July [Phonetic] 31, 2020 as well as September 30, 2020. What would be the current number, sir?

Gautam Seth — Joint Managing Director

It’s almost similar level. It’s about INR479 crores. So it’s almost at a similar level there.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

So sir, what is the specific reason for having high debtor days? Is it because we get late payment from SEB?

Gautam Seth — Joint Managing Director

Yeah. There has been — the SEB payments are typically coming in about six months. And so that has been maintained. Of course, during the post lockdowns in some months or sometimes, certain utilities we have seen certain delays happening. But overall, as the business is picking up in the utilities, we will also maybe see an improvement in that. While if you look at the trade business, the trade business debtors are at a much lower level. But over the last couple of months, we have also seen the sales going up. Yeah, but mainly it is that. The bulk of the debtors are from the utilities, which are generally at six months.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Okay. So our borrowing level also remains at [Technical Issue] as on 30 September or…

Gautam Seth — Joint Managing Director

In fact — no, our borrowing has come down by almost INR14 crores since the last quarter result. So from 30 September, our net borrowing has come down by about INR14 crores here.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Okay. And like other electrical companies, do we also avail general financing facility?

Gautam Seth — Joint Managing Director

Yes, we are doing that, and that is something which is picking up fast. On a quarter-to-quarter basis, more and more dealers are getting into that. And I think that has also helped certain of our — the trade debtors to come down. But as we have more and more debtors — the dealers coming in, we will see that, yeah. So that exercise post-COVID we have even enhanced that. Initially the banks were a little slow, but now since post-October, we have seen that part of financing also picking up here. So now, maybe in next, maybe six months, one year, we will see a large part of our debtors on trade move towards channel financing here.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Okay, thanks. So is there any possibility to get SEB debtors also on the same line? And anything — I think it can only be for trade business?

Gautam Seth — Joint Managing Director

No, I think the SEB debtors — I think we have explored that our teams have done that, but that’s not possible to have a channel financing on that. Normally, I think the banks or even other institutions are not giving it for the government procurement more because I think the exact date of payments or other certain procedural things are there which the government normally may not comply with.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

So in that case, sir, as we grow significantly in coming few years because of smart meters, how would we manage our working capital requirements?

Gautam Seth — Joint Managing Director

No, we would see that — because we are expecting even the trade business to grow. So it’s not — of course, it’s not one is for funding the other. But as a ratio, even as we go ahead, I think we would probably have a 50-50 ratio going ahead. But there are other things as we look at because in certain central utilities, especially for meters, we have seen the payments to be a little much better. So I think there are efforts going on on how — because the kind of volumes the government is talking about, definitely it will have to be funded. And if it is — the government has also been specifically giving funds for smart meters with the end use being for smart meters. So probably that can also help the industry as a whole.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Okay. So as we go forward, we expect that our debtor days would improve from here?

Gautam Seth — Joint Managing Director

In the trade business, yes, definitely it will improve. In the utility, it will happen depending upon how the governments take it up. But right now, when the — even post the lockdown, government has been talking about smart meters being on their priority. So I would assume maybe they would like probably have it on their priority to pay. But still, the process is such that it will still take about five to six months of payment. So it’s not — I don’t see that happening in a very short payment cycle.

Gautam Bafna — Wisdom Torch Consulting Solutions LLP. — Analyst

Sure, sure. Thank you so much for clarifying.

Gautam Seth — Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Aniket Patil from AB Consultants. Please go ahead.

Aniket Patil — AB Consultants Private Limited — Analyst

Yeah, hi. Wish you a very Happy New Year to the team. And I have some questions. Can you share the segment-wise working capital days, like the inventory, payables and receivables? On which front have you seen an improvement in the recent quarter?

Gautam Seth — Joint Managing Director

Yeah. Since the last quarter, we have seen certain improvement in our net working capital. In fact, our net working capital since the last quarter is down by almost INR18 crores, and even the net bank borrowing has come down by INR14 crores. So although it’s a small step towards improvement, but still it’s a good positive step by the company. So we expect to take certain steps.

You must realize that currently we are coming out from the COVID period, so there have been certain short-term borrowings, which were more of COVID loans coming in. But we have almost paid almost 90% of the short-term COVID loans. I think by 31 March, almost all the short-term loans will be paid off. So we will see definitely an improvement happening on the bank borrowing side.

On the inventories, there have been certain finished good products, which are almost either ready for inspection or already inspected, waiting for the dispatch instructions to come in from the utilities. The utilities have their own issues that their absorption of these meters were not happening in the domestic market or in the individual household, but things are improving. So we would see certain of these inventories also getting build out in the fourth quarter. So as that happens, even a INR20 crore, INR30 crore figure will make a positive step for the company. So we are just working towards that. But if you see more specifically in the last quarter, on both these fronts, we have seen a good improvement.

Aniket Patil — AB Consultants Private Limited — Analyst

Great. That’s good to know. And my second and last question is that, like from your overall outlook you have shared on the call so far, you seem bullish on the Consumer segment, which is maybe about 60% of the revenue. And as you also rightly said that metering opportunity has always been there and will continue to be there, proven by the INR2,000 crore worth of contracts pending. So what is the expected revenue mix going ahead? And — because that will enable us to sort of describe or estimate the margin total.

Gautam Seth — Joint Managing Director

Yeah. No, I would say like this year has been a little subdued year for the metering, but next year, first thing, we will see the metering come back to its normal level. Also when the smart meter kicks in that will give some kind of an exponential growth in the metering segment. But still going ahead, if we have to look at the next two to three years, we can say easily that both these segments will be almost as a 50-50% going ahead, but this is when the smart meters kicks in.

On the short-term, which we have been saying from the last two quarters and maybe going ahead even in the next one, two quarters, we may see the consumer part to be a little more than maybe a 55% or 60% share as compared to the meters. But eventually, once the smart meters comes in a big way, the volume growth also will be high. So for us, these are two clear strategies and segments for us which can really drive the company to a different level and that is what we hope for it. So roughly, in your estimate if I were to take it, I would still take it as a 50-50, at least in a medium-term basis.

Aniket Patil — AB Consultants Private Limited — Analyst

So would you prefer it to be 50-50 or you would prefer Consumer segment to be higher and focus more there?

Gautam Seth — Joint Managing Director

One thing. In terms of standalone margins, especially when the smart meters come [Technical Issue] have a very good margin, no doubt on that. The benefit with the trade businesses is that the working capital requirements are lesser. So it’s of course — but from a company point of view when we look at it, we have a very wide set of customers. So if you look at HPL Electric as a company, we are today catering to the utilities. We are catering to a lot of government department, municipal corporations, institutions, industries, real estate, then one comes into the domestic household and whether it is wholesale or retail. So we are — actually the business is quite derisk in that.

So we are having a very well spread of all our customers. But in the long-term, yes, for us — so if you ask my preference, I would like both to grow. It’s not a personal choice of what grows in this. But yes, every segment has the kind of volumes we see in meters. Probably in the trade segment, those are distributed volumes, but those kind of large orders or bulk orders are not seen generally in the trade, but yes, it has a better working capital cycle. So as a company now we are very conscious on the working capital cycle. So over as we move ahead, we will be looking at, even in the utility business, how we can work with a leaner structure for working capital and also on the expenses side. So expenses also, if you see, we have considerably been able to work on a leaner structure. And I would say, going forward, we would continue to do that.

Aniket Patil — AB Consultants Private Limited — Analyst

Okay. That was great to know, sir. Wish you all the best and great 2021 ahead. Thank you.

Gautam Seth — Joint Managing Director

Yeah. Thank you.

Operator

Thank you. The next question is from the line of Anoop Nambiath from Equity Intelligence India Private Limited. Please go ahead.

Anoop Nambiath — Equity Intelligence India Private Limited — Analyst

Yeah. Thank you for giving the opportunity. Just wanted to check on this Himachal Energy Private Limited. What would be your percentage of holding in this particular subsidiary?

Gautam Seth — Joint Managing Director

Anoopji, your voice is cracking.

Operator

Sir, I would request you to move to a better reception area, sir.

Anoop Nambiath — Equity Intelligence India Private Limited — Analyst

Just a minute. Just a minute. Is it better now? Hello?

Gautam Seth — Joint Managing Director

Yes, please go ahead. Yeah.

Anoop Nambiath — Equity Intelligence India Private Limited — Analyst

Yeah. So I was — thanks for the opportunity. I was asking about this Himachal Energy Private Limited. What would be our holding in that particular subsidiary? And what is the advantages of having this license in a subsidiary rather than the parent company? And one small thing, in our presentation it is written as a non-material subsidiary, just was wondering why it has been described as a non-material subsidiary?

Gautam Seth — Joint Managing Director

Yeah. The equity what the parent company holds in Himachal Energy is 97.72%. So practically, it holds the most of the equity. Now, this was done some time back where it gave us an opportunity to get more business having two companies quote — simultaneously quote in certain tenders. Plus as a organization, we have sometimes like today, if you look back in our parent company and our subsidiary, it happens that we have pre-qualifications from most of the state and central utilities. We have different like the product certifications and all, all happening into this thing. So in a way, we have a better opportunity of getting more orders, and I think this was done. At one time, it was more relevant, but even today, when you look at even with the smart meters coming in, we would see a certain level of opportunity getting enhanced with having a subsidiary.

Now anyway when we look at the consolidated figures, the entire figures get merged into the main company. So it does not anyway make a difference for us. The more — why it is called a non-material subsidiary, I think this is more of a technical term where I think based on either last year turnover, I think if it’s less than 10%, you’re supposed to refer it as that, but it makes no difference for us. For us, it’s like a 100% owned subsidiary for the main company, and that’s what it is. But that’s just a technical term. So I don’t think that requires any attention from anybody in that.

Anoop Nambiath — Equity Intelligence India Private Limited — Analyst

Got it. Got it. So any packs advantage of having a new subsidiary? Are we getting any — since this is a manufacturing activity?

Gautam Seth — Joint Managing Director

No. At one time, this was setup in Himachal where there was a 10 years excise exemption. So in the past it has availed those benefits already, but today, those exemptions of course post the GST are not available. But for us, the strong part is that we have two companies which have the pre-qualifications. And in today’s time for — if you look at the metering industry for anybody to come in and independently get the pre-qualifications is a eight to 10 year process, and we have built that up. So in the past, there were certain exemptions, now they’re no more valid. And I think Himachal Energy enjoyed a little lower tax of 25% as compared to the parent company, but that’s — yeah, that’s on the income tax side.

Anoop Nambiath — Equity Intelligence India Private Limited — Analyst

Okay. Thanks for the clarification, Gautamji, and wish you all the best.

Gautam Seth — Joint Managing Director

Yeah. Thank you.

Operator

Thank you. The next question is from the line of Aditi Sawant from KIFS Investment. Please go ahead.

Aditi Sawant — AIF Investment — Analyst

Yeah, hello. Thanks for the opportunity. Just one clarification here. It’s AIF Investment. So my question is, in your presentation you have mentioned about raw material prices going up. So can you throw some light which raw material prices have witnessed an increased in the prices and by how much? Also, which is — what has been the trend in the prices as of today? Are you expecting any impact on the margins in this quarter as well due to that? That’s it.

Gautam Seth — Joint Managing Director

Yeah. So if you look at the commodity prices, in fact, this is a global phenomena where we have seen the commodity prices go up, so I’ll just take a few of them. If you look at copper has gone up by, I would say almost 35% or 40% over the last couple of months. So if you see our wire pricing, although there’s a — the growth is there, but certain part of growth is also contributed by the commodity prices going up. So — but all these increases whatever is happening is getting passed on to the consumer eventually.

Also, we have seen the pricing of industrial plastics go up. Now since the last one month, we have seen certain — the price has stabilized. Even some items like ABS and others have in fact even started reducing to some extent. Steel has gone up quite a lot. So overall, if you see the broad categories of all the commodities, in the last two to three months they have gone up.

Now as concerning the impact on HPL, in the last quarter, of course, we also — there is a lag between when the commodity prices go up and our suppliers start asking from us. And by the time we take it or consume it, there is definitely a lag. So there has been some impact in the results, which are already declared, but we will see certain impact coming throughout the quarter in the fourth quarter.

Now, if you look at the trade products, we have seen an increase in the switchgear pricing happening. That has already been passed on to the consumer, to our dealers and the retailers. The LED prices, as you have seen the industry trend, almost in the last four to five years this is probably the first time we are seeing an upward trend in the LED products, in the LED pricing. Wire prices have gone up continuously over the last four to five months. So similarly, wherever possible, the prices are getting passed on to the consumer. So although the cost will go up, but even the realizations are expected to go. And we would hope to probably continue to enjoy the same margin going forward in the fourth quarter.

Aditi Sawant — AIF Investment — Analyst

Okay. That was it. That’s it from my side. All the best.

Gautam Seth — Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Devendra Pandey from DP Financial Advisory Services. Please go ahead.

Devendra Pandey — DP Financial Advisory Services — Analyst

Hi, sir. Wishing you a Happy New Year. And sir, thanks for taking my question.

Gautam Seth — Joint Managing Director

Thank you. Same to you.

Devendra Pandey — DP Financial Advisory Services — Analyst

Sir, my question is on our exports business. So what kind of growth you are seeing? Currently, what is the trend? And from which part of the globe are you witnessing the traction in the demand?

Gautam Seth — Joint Managing Director

Yeah. This year we have seen certain higher growth rates happening. So I think our growth rate in the export business in the nine months is over 50%, but we are also sitting on certain sizable orders, order book. So overall, this year, we would see a good traction in terms of sales in the export business. Although our base is still at a smaller level, so maybe this year and even the next year, we would continue to see certain higher growth happening.

In terms of exports, we are in all — exporting to almost 42 countries. And post the lockdown, we have seen the business resume and happening in over 35 countries. This is mainly — we are covering Africa in a good manner. We are seeing — we are doing Middle East, Southeast Asia, plus to some countries. So this is where we are generally focused on. But the good business has come in from Africa and Middle East post the lockdown.

There are still many of our customers and many of our countries which have witnessed extended lockdowns. So that has in fact to some extent also affected the export business, otherwise we could have probably seen a much higher growth than this also. Plus, there are no exhibitions or even the travel is now totally curtailed. So that may have impacted the business to some extent. But nevertheless, under these circumstances to have this high growth has been a very positive thing for the company.

Devendra Pandey — DP Financial Advisory Services — Analyst

So currently, which products are we exporting to these countries?

Gautam Seth — Joint Managing Director

Mainly these were switchgears, but in this — this year, we have gone beyond the switchgears. So we have seen even metering exports started not on the utility side, but on the trade side. We have also seen wires — wire and cable and the lighting products pick up much more. So earlier in the past two years if you see, we were doing almost 90% to 95% of switchgear. This time now, although the switchgear has grown tremendously, but almost 70% is switchgear and the balance is the other products. So over a period now we are pushing in our entire basket of products and that will also drive the export growth going forward.

Devendra Pandey — DP Financial Advisory Services — Analyst

And what about the margin sir in this business? Is it better than the domestic one or is it lesser than that?

Gautam Seth — Joint Managing Director

So the margins are, I would say, fairly good. Only thing when one looks at the overheads and other things, the export works on a much lower overheads as compared to the local market. That is one thing. Generally in the last two years, the exchange rate has also been pretty favorable, if one looks at that. So that has also helped it. So the margins are decent enough. It helps us apart from — it helps us also to fill up the capacities and then to gain entry into different markets, which will in fact become much more sustaining in the long-term for the company.

Devendra Pandey — DP Financial Advisory Services — Analyst

Okay. And my last question sir would be on the raw material prices. So recently, you mentioned about 30% to 35% increase in the copper prices. Are we engaged in any hedging activities for such commodities or do we take from the open market directly?

Gautam Seth — Joint Managing Director

So we are buying from certain very reputed suppliers like Vedanta and Hindalco. So our bulk of the purchase is from there. And they do allow certain short-term hedging and holding. But these are normally — so it’s not — so it doesn’t — we don’t indulge into any speculation on that. We are typically buying for our own consumption. But yes, we can have a holding of maximum 15 days or 30 days to do that. So we do buy on dips. We do buy on averages, and — but then have a consumption going ahead. So the idea is very clear that whatever trend is there, we are able to judge those trends and then pass on the same whether it’s an increase or decrease to our customers.

Devendra Pandey — DP Financial Advisory Services — Analyst

So were we will be able to pass on the entire increase to the customer?

Gautam Seth — Joint Managing Director

Yes. More or less, yes.

Devendra Pandey — DP Financial Advisory Services — Analyst

Okay, sir. Thanks. That’s it from my side.

Gautam Seth — Joint Managing Director

Yeah. Thank you.

Operator

Thank you. The next question is from the line of Pankaj Bobade from Axis Securities. Please go ahead.

Pankaj Bobade — Axis Securities — Analyst

Thanks again for taking my question. Sir, regarding the trade business, I just wanted to understand how is our presence across the country? Are we Pan-India player or we have a limited play in certain areas of the country?

Gautam Seth — Joint Managing Director

No, we are in Pan-India player. So we have dealers, distribution, even our own offices spread across the country. So we cover every state, practically every district in the country.

Pankaj Bobade — Axis Securities — Analyst

Okay. And regarding the metering business, the orders would be — it would be tender-based business, right?

Gautam Seth — Joint Managing Director

Yes.

Pankaj Bobade — Axis Securities — Analyst

So how is the raw material price escalation captures into it if there is any increase or decrease? Is there any price escalation clause?

Gautam Seth — Joint Managing Director

No, the government business. So if you look at our metering business, you can see almost 80% is going to the utilities and about 15% to 20% goes in the open market. So what goes in the open market, we have a possibility of passing on the additional cost to the customers. But whereas in the utility, we are talking about fixed prices. So whether they are increasing or decreasing, it goes — we go by the trend.

Whatever is there, we have a fixed price going ahead. But if you look at the metering business, copper or steel does not have so much impact on the meters. It is largely determined — of course, industrial plastic has an impact on the metering, plus then it goes into electronics and other things. So it has a little different composition as compared to the raw material prices. But whatever happens, one has to anticipate the increases, but one cannot pass on that to the — you cannot change the pricing post the orders. So government does not give any price escalation in these categories across the industry.

Operator

[Operator Closing Remarks]