HPL Electric & Power Ltd

NSE:HPL

Good afternoon. Welcome to HPL Electric and Power Limited Q3 and 9 Months FY '25 Earnings Webinar hosted and produced by ElevEase. I am Shankhini Saha, Director of Investor Relations from Dickenson, and I will be moderating our call today. Joining us from the HPL management team is Mr. Gautam Seth, Joint Managing Director and CFO.

Please note that this conference is being recorded and that some statements in this call may be forward-looking based on current expectations and subject to risks that could cause results to differ materially. You can download HPL's investor presentation and press release from the links in the community chat or from the company website or the NSE. Here are the links to download HPL's press release and investor presentation for Q3 and 9 months FY '25, will be present in the chat shortly.

I now hand the conference over to Gautam to make a few opening remarks. Over to you, Gautam,

Thank you, Shankhini. Good afternoon, everyone. Thank you for joining us on our Q3 FY '25 and 9 months FY '25 earnings webinar. It is a pleasure to connect with all of you this afternoon and share our performance updates. Even with a slower overall pace of growth of the economy, our financial results have shown momentum. For 9 months FY '25, we have a 16% overall growth in revenue. Smart Meters expanded by 27%, Wire & Cable revenue rose by 25%, while domestic Switchgear increased by 21%.

PAT increased by 51% year-on-year in Q3 and by 89% over the 9-month period. EPS reached INR 8.81 for the 9 months, a notable rise from INR 4.64 in the prior year. EBITDA climbed 12% in Q3 and 26% in 9 months. These figures reflect our efforts to enhance both operational efficiency and market responsiveness.

To meet growing demand and maintain a competitive edge, we are expanding our manufacturing facilities, focusing on smart meters, switchgear and energy efficient electrical solutions. During 9 months FY '25, we introduced new products, including solar lighting options to complement our advanced metering portfolio and further align with the industry needs.

I'm also pleased to highlight our recent NABL accreditation under ISO/IEC for our laboratory, which reinforces our commitment to high quality R&D and rigorous testing capacities for wires and cables. In Smart Metering segment, HPL Electric continues to hold a leadership position. As of 10 Feb 2025, our order book stands at over INR 3,400 crores, with more than 95% linked to metering and 99% for smart meters. This demonstrates our steady involvement in India's journey towards grid modernization.

Our diversity across both B2B and B2C market continues to drive sustained growth. We now have over 900 authorized dealers and 83,000 retailers nationwide, and we aim to surpass the 100,000 outlets by June 2025. This shows our intent to improve last-mile reach and ensure better product availability for consumer and institutions alike.

Moving forward, our strategic focus will include smart meter growth. With 99% of our metering orders devoted to smart meters, we remain well positioned for India's advanced metering needs.

Enhanced manufacturing scale. We are actively investing in production capacity for our key product lines to keep pace with the rising demand while preserving the cost efficiency through automation.

Product expansion beyond metering. We will continue strengthening our presence in switchgear, wire and cables, fans and lighting to capitalize on emerging opportunities.

Innovation and R&D. Continuous investment in automation and new technologies will enable us to provide cutting-edge solutions that reflect changing customer expectations.

Distribution network. We remain committed to growing our retail footprint, which will further strengthen brand visibility and revenue expansion in both urban and rural markets. We believe these priorities along with the proven execution capabilities will allow us to positively contribute to India's infrastructure landscape in the years ahead.

So thank you for your continued trust in HPL Electric. I now open your questions as we begin the Q&A session.

[Operator Instructions] Our first question will be from the line of Viraj Mahadevia.

Congratulations on the solid results. Given that you're likely to finish FY '25 with roughly INR 1,600 crores odd top line, do you foresee a 40% to 50% growth in top line over FY '26 as the higher priced smart metering order book kicks in for execution?

Yes. So we -- definitely we will be looking at a good growth. Maybe if it's -- you said about 40% to 50%, I think. But I think it's going to be -- I would say we'll probably give out the guidance by the end of the year as we see the executions picking up. On a short-term basis, if you look at the Q4, we are looking at a much better execution and lifting by the AMISPs. Next year, we continue to see -- in fact, next 2 years we will continue to see a good amount of growth. Our order book right now covers the 2 to 2.5 year period of what we anticipate, plus more requirements are due to come from the AMISPs as and when we are delivering the meters. So that is it.

But yes, I would say on a more conservatively basis, maybe it could be maybe a 30% or 25% to 30%. But I think by the end of the next quarter, we'll be much more clear. In the current period, in the last, in fact, 2 quarters -- although our manufacturing capacities are fairly good now, we are able to churn out much more. But we have seen the -- based on the pace of implementation by the AMISPs. So certain -- maybe ground level challenges are there with the AMISPs, which are getting sorted out.

So I would assume that by the mid of next year, the pace of executions will become much faster. Like we did see certain gap even in Maharashtra. But now again, the executions are at, I would say, a fairly good level. So overall, the growth is definitely going to be there. It is going to be a high double-digit growth. So whether it is 30% or 40% something, I think we can probably give a better guidance as we reach the end of the fourth quarter.

Understood. My second question is regarding your gross margin. So the #1 player does gross margins of about 40%. You are on track for about 35%, 35.5% for this year. Can you see the gross margins trending up closer towards 40% over the next 2 years with higher margin smart meters again coming in?

I think -- when you're comparing -- because our revenues are purely based on the meter supply, the smart meter supply. And I guess where you're comparing from, that includes the margins of the AMISP business as well and even going beyond smart meter into other services which are there for either in the software or the installation part.

So I would say right now, we have seen a margin improvement. Last 2 years, our EBIT margin on the smart meter is now almost around 16%. So I would say on a EBIT margin side, the smart meter would continue to have -- that is sustainable. At least in the near future, we see that as a sustainable part. The gross margin of 35% is again a product mix of meters and the consumer and industrial. And already we have seen that from a near 50-50 percent, it's almost moved to a 65 or 60-40 kind of a ratio. So I don't see that change so much immediately in the near future.

But because we are purely a metering company, we are purely like a switchgear or even a consumer and industrial, we are mainly a product company which is supplying this thing. So I would say the margin improvements have been there.

In this particular quarter, we have seen certain -- the consumer and industrial part, the margins came down mainly because of the fluctuations on the commodities and with -- probably the wire and cable and the industrial switchgear also showing -- going down. So I think a little bit the margin came down, but that's more of a temporary thing. I think that would come back in the future. But broadly, the gross margins moving from 35% to 40% I don't see that happen until a change is there.

When you look at the revenue of Smart Meter, already we are seeing those, and the margins and the higher price, already that has kicked in, in the last 2, 3 quarters. So a major part has happened. And I think the future because -- since most of the orders are currently the smart meter orders only, so the future supply is going to be smart meter. And we will work on that for sure.

Our next question will be from the line of Sahil Patani.

Congrats, Gautam, on a good set of numbers. I want to understand that -- usually we are a H2 heavy business. So could you explain why was there a revenue decline on a quarter-on-quarter basis?

Yes, so mainly it's because of the pickup of the smart meters. So although the orders are there, the schedules were also there for picking it up, but we did find that certain AMISPs because of slightly -- probably a little delayed executions what they were having, so certain inventory has got -- did get postponed from Q3. But hopefully, it should be out in the Q4 going to them. So that helped it. Otherwise, we could have easily had maybe another INR 40 crores, INR 50 crores plus of sales happening in the Q3.

So it's mainly because of that. But again, whenever -- like we've been supplying to most of the AMISPs. So whenever new areas are there or new something, so there are always some challenges at the ground level. And these are very common while the executions are happening. So I think that kind of sales will get covered up.

Okay. Got it. And you see this trickling down into Q4? Like you've -- have you been like -- since we are already in the middle of February, have you seen that coming through in this quarter?

Yes, Q4 should be better. But when we go towards March, because there are good schedules up to March as well. So hopefully, if they get picked up in March, then it's good. Because many times on year end, every corporate is very conscious of holding inventories. So I just hope that if the schedules are being met, then we, I think, should have a very good quarter, no doubt on that. But sometimes if they don't see the execution happening, they can always postpone it till first week of April. So that can cause certain delay.

But otherwise, overall, in terms of production, in terms of our supplies, and even the picking up is fairly there. But these are all temporary phases what can happen. So right now when we look at it, we are looking at a good quarter right now based on the schedules given by the AMISPs.

Got it. Okay. And my second question was that, in your media release, you mentioned that you are scaling up manufacturing capabilities. So you're doing some sort of CapEx. So is that -- is this more like through internal accruals? And can you just explain what this CapEx is about?

Yes. So in the -- if you see in the last 2 years, a major part of the CapEx has been on the smart meter side. And we have enhanced our -- the plastic manufacturing capabilities. Then the electronic, a complete new setup was put in. So wherever selectively we require the enhancement of production, that is happening. Right now, we are investing into the automated manufacturing lines and testing this thing.

So we already have 4 lines. So if you go on our social media, you'll probably see that -- I think last month we opened our fourth automatic line. Two days back, we opened the first line for our subsidiary, Himachal Energy, for the metering. So these are automated lines. They will give us better outputs with lesser manpower. The quality will be better. The production gets much more enhanced. So these are -- so these kind of CapEx initiatives are happening. And so that will continue.

So other than that, I think we still -- right now, as we speak also, we have a very large capacity for the smart meter. And I think looking at even the next 12 or 15 months, even the peak demand, what would arise, we can cater to that.

Got it. And so is this like -- you're doing this through internal accruals or you're taking on some debt? Just what's...

So mainly internal -- mainly through internal accruals, yes.

Okay. Got it. And just final question that -- since you opened up like the Fans segment not a long time ago, what kind of response are you seeing? Because we obviously have so many established players in the country and you have a lot of local manufacturers that manufacture fans. So what kind of response are you seeing there?

So we have currently launched in the 3 areas. And I think for this particular summer, up to July, we will be present in maybe about 40% of the areas in the country. Right now, we are -- we have a fairly good range.

There are 2, 3 factors what we have in mind. One, there has been a lot of change in the fan segment based on the government regulations for BLDC compliances, the Star Rating and the BIS -- the ISI mark coming in. So with this, there is a lot of churn in the industry. People are getting the testing done. We believe this will help the overall quality levels to be much better, and the unorganized segment will diminish.

And with BLDC coming in, the electronic -- the use of electronic in fans will definitely increase. And that has been one of our big strengths since the last 2 decades. So these factors really push us to get into a new technology product. So the future is going to be BLDC. It is going to be the 5-star rated fans.

Second, we already have a good distribution network. So currently -- looking at our consumer portfolio, where we have the MCB/DBs, switches, wires, lighting and now with fans. So we have 5 strong product categories which can be pushed into every retail, every -- if you look at a house or a commercial establishment, anything, we have a bigger product basket. So I think combining these 2 -- seeing a change in the industry, where we feel that the order of the day will change, the existing old companies will -- the new ones will come in, it will give opportunity for the new ones to come in. That is how we are looking at it.

And this is what we did in meters also. In 1996, when -- from electromechanical when things changed to electronics, that is when we entered the industry, and there was a big churn. The bigger players who were there for 20, 30 years, they went out, a lot of new players came in. So I think with the change in technology definitely there's a new opportunity. And we are known as a very good technology player, as a good quality player. So overall, I'm sure in the next 2 years, we will set up a niche for ourselves.

And looking at the existing spread of dealer, retailers and our manpower and offices across the country, I'm sure we will -- we should be able to pick up this line in a good manner and complement it with our existing portfolio of consumer products.

Our next question will be from the line of Sandeep Mathivanan.

Congratulations on good set of numbers. So sir, I have one question regarding smart meter tenders. So how many smart meter tenders have you bid for like in value terms? And what's the value of orders that you have won so far?

Yes. So we are not directly bidding as an AMISP for the tenders. So already, I think -- I'm going by the public data, what is available. I think almost 12 crore meters are already given out to the AMISPs. There are couple of -- again, 6 crores, 7 crores which are under evaluation. As I understand from the industry, for the next 3, 4 months, not too many tenders are coming out.

Our business is dependent on the orders which these AMISPs win, and then they give it out to the meter manufacturers. So we are not directly tendering with them. But today because of our -- the quality and because of our size and the advantage we bring to the AMISP, I think we are supplying to most of them. So as and when we are supplying, so the fresh new orders will be coming out from these AMISPs.

So we are not directly bidding on any meter tender. But still a lot of -- as I said earlier also, a lot of orders are there right now with the AMISPs which they need to give out to the meter manufacturers. So definitely, we stand an advantage to gain from that business coming in.

Right now, on the pending orders, we have almost INR 3,400 crores of orders. 95% of these are meter orders. And out of the meter orders, practically -- almost 100% now is the smart meter orders. So it's a huge -- well over INR 3,000 crores of smart meter orders we are sitting on.

Our next question will be from the line of Pranjal Mukhija.

Congratulations on a -- like a good set of numbers. Sir, I have a couple of questions. So the first question is, I know like we have a yearly capacity of 1.1 crore meters. But I just wanted to understand like what is the current monthly run rate of production? And like how do we see this scaling up in the coming months given that the on-ground execution of meters is also picking up? So just some clarity here.

Yes. So our capacity utilizations are nearly 70% to 80% of the capacity right now. But we can -- but the way the orders will be coming in, we can go up to even 100%. And even some of these are flexible capacities. Like we could -- wherever the constraints are, we could work even 24 hours, work on 3 shifts and others. So in terms of that, we are still -- we have not seen the peak right now, which, hopefully, by first, second quarter we should be seeing the peak coming in with more AMISPs picking up much more.

So of course, the -- when we talk to them, the schedules are high. They also got a lot of orders to be executed. But again, the ground level -- let's say, when they're implementing it, they must have -- there must be certain slowdowns, things -- challenges they must be facing. So a little bit the schedules get pushed back, yes.

Okay. And sir, the second question was around this investment that we've done on these automatic lines. So I just wanted to understand like -- so what is the cost per line? And like generally, what is the production capacity of a line -- automated line versus, let's say, a manual line? Like what is the difference?

So I'll -- maybe the cost, I will not be able to just say it here. But these are, of course, expensive lines. They like -- it's -- you can imagine a single row of a machine, let's say, extending up to 120 or 150 feet. From the start, you put in the materials, and by the end of the line, the entire meter gets packed and it comes out. So there are various testing in terms of components. And then in middle, the assemblies happen. Then again, the final testing.

So everything. Like it's a single process from start to finish what happens. So earlier -- so definitely in terms of manpower, there is a good -- maybe a 30% plus saving on the manpower cost also. This gives us consistency. The output is much better. So each of these lines -- so as -- we are yet to get much more lines. So eventually, the entire production will be only through these automated -- semi-automated lines where certain manpowers are required, of course, but also the machine does a lot of the work on testing.

Plus the entire data is well captured in the system through the software. So it gives us -- in future in terms of looking at the warranty or in case of any query or failure which may come up maybe even after 5, 7 years, so we at least go back, we have a traceability on a lot of things. And these follow the Industry 4.0, things like that. So there's a lot of automation, IoT, things built up in this whole line. So definitely, the product which comes out through this will be much better.

And sir, like on an estimate basis -- like generally I wanted to understand like what would be the production capability difference, let's say, with an automated line versus a manual line? Like just wanted to understand.

Yes. So one thing. Right now, the production what we were achieving earlier, we achieve the same thing but with lesser manpower. That's what I'm saying. So like -- let's say if we are looking at, let's say, 1 million meters per month. So we can do that manually. We can do that through these lines. Only thing we are using lesser resources while we do this. That is what I'm saying.

So the manpower cost should come down, the workers, this thing. Plus with lesser manual intervention, definitely the product becomes much better. And then there is traceability and there is full accountability and data capturing happening in this process.

And we're saving time as well?

Yes, definitely. I think in 8 to 10 minutes one meter starts from one end to the other end. So definitely that helps. Plus the production areas are much more better organized now because there is no -- at end of every stage -- the materials used to be kept, like it moves from one to another, then it moves to the next stage. Now there is a free flow. It moves in one direction. On the conveyor, tests are happening. And by the time it comes out, it is packed. So I think that's the future way of manufacturing the smart meters.

Our next question will be from the line of V.P. Rajesh.

Most of my questions have been answered. Just on the margin side, given the commentary you have articulated on the cost savings and on the growth side, what kind of EBITDA margin can we expect over the next couple of years?

As a company, we are doing about 14% EBITDA margin. And internally, when you break down, the smart meter is around 16% and the other one is at 10% to 11%, the consumer and industrial. So I would say in smart meter, right now the 15%, 16% is sustainable, yes. But now -- the more the product mix changes and tilts towards smart meter, yes, the overall EBITDA will change to that part.

And in consumer and industrial, like earlier we were -- like the lighting, for about 1.5 years, we did face issues of the sales coming down, the unit cost coming -- the prices really coming down. We did see some fluctuations. But overall, we also endeavor to bring the EBIT to at least an 11% or going up to even 12%. That is what our endeavor is, to like this.

Overall, to answer your question, I think we are around 14%. If we -- because compared to a lot of our peers, if you see even on the consumer side and others, our EBITDA margin is fairly good. So I would say that is a sustainable level. So I don't see it going up drastically. Of course, meter has a much higher margin. So if it really tilts and if, let's say, suddenly the delivery schedules are -- people really want meters, which we can, of course, give, that will shift and increase the margins to some extent.

In terms of -- if you look at the other costs which are there, the other expenses or -- so we have been working to bring down those costs, which I think even in this quarter we have been able to keep it at a good level despite the increases in the revenue. But there has been a lot of investment on the manpower side, where we have strengthened the R&D, even in the switchgear part. The meter, of course, has a very strong R&D. And so there has been certain investments in that. Now with more automations happening even in the switchgear side, even in the things, so definitely we should get in the next 1 to 2 years a saving on the manpower side as well.

Got it. Just a follow-up. On the metering side, do you think the margin can go to high teens from currently 16% that you talked about? Is that at all possible with the volumes going up and your capacity utilization increasing and you using the semi-autonomous machines?

Yes. So theoretically what you're saying, I would say yes is the answer, because we are working on all of it. Like automations we are working. We already have a visibility of the revenue. And so we are working out on the -- so it becomes easy for us to plan, work out on the -- to get better rates from the suppliers to bring down the bill of material cost. So those efforts are anyway happening.

But on the other side, you have to see that the exchange rates have gone up. So some of the commodities which are there, which are -- like electronics is all coming from outside. India doesn't make them. Or even the polycarbonate. So those -- the exchange rates also have an impact on those costs. So that is one part which is there.

Second is that the overall -- the industry is competitive. And we've been saying it for last 2 years also that whatever rates we are selling at, definitely the repeat orders there will be competition. People -- newer players are coming in. Even the customers are also becoming much more wiser. They also understand. They are also -- so certain rate pressures and competitive pressures will also be there.

So our endeavor is that even if -- while -- probably if the rates are coming down or the exchange rates are going up, at least we should be able to maintain the same margin because of our competitive edge what we have. We have the visibility on the revenue. So it's like this, yes. But our aim is definitely to increase it even further from here. But then you have to keep in mind the macro -- the scenarios also.

Our next question will be from the line of [ Shah Janish ].

I have a few questions especially on the margin front. Basically, I think earlier -- on our earlier con calls, you mentioned that the contract generally you have is a fixed price contract and you need to execute it. A few questions around how much of an import component you have right now? And especially you need to import it from China -- because that's something where the government has been very watchful about in kind of the dependence which many industries, including yours, is having. So if you can give your comments on that as to how you are going to reduce your dependence? And the rupee depreciation generally can have how much impact on your cost? That is one part.

Second, you mentioned about the CapEx, especially on the automation and capacity expansion. I think you also mentioned in earlier communication that you want to increase your capacity with cables and wires, and that's where the growth probably is much -- I mean the visibility or probably the growth potential is much bigger. And if you can just share your view with that as well.

Third is on the working capital side. I think you've alluded earlier that as the share of smart meters or supply to AMISPs increase, that will also result into a kind of a decline in the working capital that you usually had. The number of working capital days probably will come down. Probably your view on that as to how this is going to pan out for the next couple of years. And associated with it is your debt levels. How are you going to -- how are you seeing your debt level panning out for next couple of years?

And my last question generally is on -- right now, I think there's too much dependence on the domestic opportunity, which is equally, I mean, very large. And are you looking at export opportunities as well, because over a period of time how are you going to diversify yourself in a metering business that will be full?

Yes, sure. So I'll answer all the 5 of your questions. So first thing, I'll just clarify that we don't import from China. So we are very well backward integrated in our smart meters. We probably do all the engineering plastic, the electronic PCBs, all -- everything probably we do in-house. Only thing -- India as a country is -- does not have electronic manufacturing. So everybody making electronics is dependent on international markets for importing the ICs and the active and passive components. So we do that.

And there are -- and these are all from global majors, major players, many of them having their offices in Singapore or U.S. or wherever. So that's where we import our electronics from. The polycarbonate also comes from outside India because India doesn't have the polycarbonate manufacturing.

Other than this -- and these are well within the limits prescribed by the government. They have a ratio that what should be the import and other things. And the company is already moving into -- going even beyond that, going into manufacturing certain components which are imported. So right now, everyone is importing them. So we are looking to get into those also. So our import dependence on the smart meter is very minimum, only need-based looking at the electronics and the polycarbonate.

Now coming to the expansion of -- on the -- the CapEx on the wire and cable, we -- because this has been a segment which has been now growing for us. We have seen almost a 25% growth in the first 9 months of the current year. Last 2 years also has seen a growth. Here, the growth is coming in from all the 3 major segments. Like the retail part, we've been seeing a good growth. The building segment, that part also we have been seeing a growth. And the projects, infra segment and the telecom segment which we cater to, certain specialty cables are also there. So we cater to all of them. So we have been seeing a fairly good growth despite the commodity fluctuations and other things.

So here, we have been looking to add our range with LT power and the control cables. Of course, it's still on the drawing board things. We need to have a formal approval. But this is something which is a very natural progression for us. And our customers also are looking to have this. So certain works are going on in this, and we will update you as and when they are formally structured and the whole thing is confirmed. But yes, we are upbeat on the wire and cable segment. We feel that the next 2 to 3 years, we can really grow multifold in this segment, the way we've been growing in the smart meter segment.

Now coming to the working capital cycle. If you see the last 2 quarters, in absolute numbers, the interest costs have come down. And this is -- so that is one thing. In terms of our net working capital, I think since last 2 quarters, in the 6 months, there is a reduction by almost INR 54 crores. The debtor number of days for the company have reduced by 30 days. Of course, it's more due to the smart meter -- the supplies coming -- going to the AMISPs, unlike to the utilities in the earlier one, and with a fixed period payments coming in.

So I think definitely there is some improvement. I would say maybe in the next 2 to 3 quarters once the older outstanding of the utilities are over and other things, we definitely will see a much better working capital cycle coming in. The debt-equity now is at 0.69 this thing. So it's again improved in that. So overall if you see, the interest cost is down. Of course, we've had a rating enhancement earlier on that.

And now as we go forward, at least this is my personal -- I feel that in the next 18 months, again, the overall macro environment where the interest cost would come down, RBI is already indicating that. So that benefit would come further to what has already happened. But our interest costs have come down definitely. Our absolute numbers of interest have come down. Working capital, number of days -- working capital -- net working capital has also come down. So I think there is definitely some improvement in that part of it.

Now coming to your last question on the -- the focus on or dependence on the domestic market for the smart meter and that we are -- whether we are exploring the export market. So I think right now the way we look at it, in terms of technology, in terms of the manufacturing capability, we have the product and the resources to go anywhere in the world and sell.

And I think earlier also, if you look at the last 2 decades -- we have studied the international markets, we have studied the China market and the Indian market. Indian meter industry has been quite ahead of -- in terms of volume I think it is the second largest. But in terms of technology also it's been pretty advance to the other countries because of the features like anti-tamper features or other things.

Now the smart meter what we have and which is specced by the government is fairly a high technology one. I have said it many times that this rollout of smart meter is perhaps the largest in the world, an exercise like this. So right now, as HPL, we -- the next 2 years, we will be probably more focused -- or we will continue our focus on the domestic market because that is where the action is. Huge volumes are there. We ourselves are sitting on big orders. Execution is the key. And I would say we will not spoil our focus on that.

But nevertheless, even as late as last week -- because I was in Dubai, where we did get inquiries. So our R&D is already working on developing meters, trying to get the certifications done for the international market. And these certifications typically take as much as even 18 to 24 months. So certain work is underway already on that. We have explored tenders even in the neighboring countries like Nepal or Bangladesh and other countries.

So I think the future for us, post the next 2, 3 years where a lot of meters would go, it gives us a big experience. Going forward, definitely the export market would become much more relevant for us. And that is when a lot of countries would be going in for the smart meter. And with us having a very strong experience and the product -- and a tired, tested product. So that would give us an advantage going into those markets. That's how I would say it plays out.

Yes, international export markets are going to be very relevant. We have already started some work, but it's still in the -- it's in the background. You will not probably see it. But hopefully, by the time -- we are looking to look at those markets, so we have the product and the certifications ready to go in that -- go into those markets.

Our next question will be from the line of [ Chinmayee Kapra ].

So just wanted to understand that you previously mentioned that there were certain ground level challenges that you were facing in the state of Maharashtra. So just wanted to -- I mean, if you could just elaborate on them, what were the challenges and what were the resolutions to the same?

Yes, so -- No, so these are -- I think it's a bit a little out of context. It's not -- I think all are aware, it's common knowledge and it was in the news as well that the smart meter rollout was slowed down and changed in Maharashtra. So these challenges are faced by the AMISPs and not us, because we are only supplying the meters to the AMISPs and they are the ones who are actually installing them. So right now, again, I think post the new government and other things, the rollouts have started, resumed back. So I think that is it.

So it's -- so whenever we look at these type of rollouts across the country, so certain local level challenges -- this, of course, could be more concerning the government or the government policy. But even otherwise, getting people to -- while the changing is -- the replacements are happening. So there are challenges at the ground level in terms of getting -- sometimes the data are not correct or sometimes the requisite permissions are not happening. But these are always there in anything. But these are faced by the AMISPs, not by us directly. So we have nothing to do with them. We just supply to the AMISPs based on their schedules.

Understood, sir. My next question was -- so just wanted to understand in terms of the raw material sourcing, from where do we source our PCBs? And do we mount the electric components on them at our production facilities? Or are they already -- like is it a raw PCB that we take? Or is it already mounted with electrical components and that is being sourced by us?

No, we do the mounting ourselves. In fact, we do the mounting since 1996 when we started the electronic meters. We were always doing the PCB population ourselves. And we just buy the bare PCB. And the components, of course, come in from imported sources because India doesn't make them. But we've always been doing this, I think now for almost 29 years.

Understood, sir. My last question would be, since we are a contractor to the AMISP, do we ever experience any pricing pressure from the AMISP since they have relatively multiple options in terms of whom they can approach to manufacture the smart meters, since we are just a -- I mean, an EPC player or a contractor, you can say? So do we ever face any pricing pressures from their end?

No, I would just rephrase the word contractor to a -- I can make me the...

Sorry for the...

No, I'll just -- no, Chinmayee, just -- if you look at the entire -- the smart meter, what we are talking about and the whole thing, the main technology -- the heart of the entire thing is the smart meter. So I think today despite -- of course, this is my personal opinion, but despite the new players who are coming in and other things, today the biggest challenge I believe for the AMISP is today to get a meter which is consistent, which actually works for 10 years, and getting it from a meter manufacturer who has the experience of doing it, who has the reliability. So I think that still remains the top ask by any AMISP.

So obviously, the -- everybody would like competitive pricing, maybe they compare it with newcomers. But when we look at the competition, although there might be -- maybe 10, 15 new players may be coming in, I'm not sure on the number, but still I would say it's a very -- there are very few sources right now who are still giving those meters which actually work at that level.

Now AMISPs are subjected to SLA breaches, which are very high. Their money is dependent upon meeting those SLA breaches. So for them to probably buy a meter for maybe INR 400, INR 500 lesser or buying it from a new source frankly becomes a high risk for them. So this is how I look at it. And that is the strength we are also playing on.

So obviously, everybody will -- when they're renegotiating or they're rebuying the next lots, the pricing pressures will be there because it's a competitive world and why not. But still I think the -- we play on our advantages, and I think that will, I think, really see us grow and will help us to maintain our margins in the future.

Our next question will be from the line of [ Ashwini Sharma ].

So most of my questions have been answered. Just one question. I wanted to understand what would be our strategy to improve our return ratios, especially ROE, ROCE profile? Is there a strategy which is -- company is working on to improve our overall return ratio profile? Yes, that was the question.

Yes. So yes, I think we have seen certain improvements in the last 3 years on the ROCE also and a bit on the ROE. Eventually, we are looking at improving our capacity utilizations. I think our -- right now, if you see in the last 3 years, our revenues have gone up, our margins have improved. Certain improvement in the balance sheet ratios are there.

So we are well aware that in future eventually to create a better shareholder value, we need to work on these type of ratios. So there is a lot of working which is going into that to make our -- a better utilization of our assets, a better way to grow. And so I think the work is happening right now. Maybe I cannot just spell out each and everything. But yes, looking at the next 2 years, our priority remains that, on improvement of these ratios as well.

In the near future, in the next 2 years, we do see a good growth in revenue. We do see -- orders are already there. We are seeing -- the work is happening to improve each and every -- the product verticals so that better capacity utilizations are there. Cost-wise, we are very conscious of even reducing on the overall -- the overhead costs like that.

So somewhere I think we should be able to -- as we improve the margins, as we improve our better -- on the same capacities -- we are improving our capacity utilizations, which we have drastically seen improvement in smart meters, we have seen in the wire and cable, also in the domestic switchgear. I'm sure all our -- by next year, all the divisions would be really having a much, much better capacity utilizations going forward. And that will help us to improve these ratios as well.

Next question will be a follow-up from Viraj Mahadevia.

Just to pick up on the point on employee costs. As you mentioned, there's a marked reduction in employee costs in the last 2 quarters. Plus you talked about increasing automation going forward. So can we assume the FY '26 overall employee cost is probably the peak employee cost for the business for the next few years? So this is not going to increase meaningfully as you debottleneck or add capacities for the next 2 years?

No, I'll say -- look, in the last 2 quarters -- no, our employee costs have been going up in the 9 months. They have not come down. I think you're confusing it probably with the interest cost I talked about. But anyway, I'll just put the perspective. The employee costs have gone up on 2 things. One, the general -- the production has increased, so that is happening. Second, there is certain investments in key areas on the -- especially on the smart meter side, plus enhancement of the R&D facilities also covering the switchgear and other products. So that has been an investment.

Typically, an R&D manpower investment is for 2 to 3 years. That is the way it is. But we are confident that the increased turnover and the margin will cover those costs, but that will be a longer term -- it's a long-term play where we see the advantages coming.

Have you done all the hiring that you wanted to on all these...

I think most of it. Like if you look at the smart meter, let's say, smart meter covering all the areas, I think more or less we have proper professionals covering all the areas. So I would say -- just to put it, maybe at the peak hiring, yes, I would say we are covering on that. Of course, they are due normally on performance appraisals for increment. That would continue.

Now if you look at the manpower cost of the people who are actually making the meter, assembling the meter, testing the meter, that would come down. And also the supervision cost would come down based on the semi-automated lines what we are putting up. So that will really help. And that is happening even in the switchgear part where certain automated machines have come. And sometimes a single machine is replacing even 10, 20 workers. And so the payout -- the ROI for us to recover from these machines is just about 3 to 4 years, which is very good in a CapEx. So those kind of things are happening.

So I would say that is the way it is. So we are conscious of the manpower cost because that every year increases even if you are stable in your manpower. But the automation will help. So it will help us in the manpower cost, is one. Second, it gives us a consistency of manufacturing and with a lesser time. So that also helps.

My second question is regarding the finance cost. You already mentioned -- sorry, and I did confuse the 2 lines. So you already mentioned finance cost has come down in the last 2 quarters. Now given your improved rating based on shrinking working capital cycle, better profitability, good order book, are you likely to see a reduced borrowing cost from your lenders?

No, we have already seen that. If you see our borrowing cost...

That's already kidded in?

Yes, that is -- yes, that's been -- so there are 2 things the way I look at it. The borrowing cost has already come down in the last 1 to 2 quarters. That is happening. Let's say, on the same borrowing, the borrowing costs are coming down. We are again now looking to -- we feel the way that our performance is going, maybe in future -- we are working towards maybe looking at getting a better rating in future as well. So that work is also on so that we can further bring down the cost.

Now coupled with this, the RBI has just also indicated, even the global the way it is, that the interest cost will be coming down. And once that happens, then even we also get some benefit out of that, because last 3, 4 years post COVID, we have only seen the macroeconomic -- the interest cost going up. And so I think definitely we will stand to benefit on that.

Our next follow-up will be from Pranjal Mukhija.

Sir, I see that our company is also presenting at ELECRAMA. So I just wanted to like understand if you're presenting any -- like if you're showcasing any new products on the energy management side. Some details on that.

Yes, I think -- yes, I didn't mention, but I think in the next 2 days we are in ELECRAMA and we have, I would say, a very well-placed product offering, what we'll be showing. You will find new products in practically every segment. So there are new products in metering, in switchgear there are a lot of new products, lighting, solar, wire, cable, fans. So everywhere there are energy-efficient products, there are new products, new solutions. A lot of them, even switchgears, with electronic embedded in them, even with communications. So there is a lot of new products which are coming out.

And instead I would -- all the listeners who are there, anybody who's in Delhi or if you can make an effort to come around, it will be worth seeing the industry and seeing HPL Electric, our product offering under a single roof. So there are a lot of them. I would say they are very exciting products. And definitely if one gets a chance, one should visit, yes.

Great, sir. And sir, secondly, I have a small request with the management. Sir, if possible, like could the team organize a plant visit to the Gurgaon smart meter facility, if possible?

Right now -- earlier, we used to allow the visits to the meter plant. But of late, since last 1 year, due to competitive reasons, we are not allowing anybody, a outsider -- anybody for that matter to come in and see. It's because -- you're aware the orders are there. The next 2, 3 years are very crucial in terms of having the competitive edge, and a lot of new players are looking to come in. So a little bit I think -- those restrictions we have put mainly just because of a competitive reason. But if you come around, we can show you -- we have 7 manufacturing units. So we can show you certain part of that and -- or maybe even if you're in the factory. So maybe -- just it will be very restricted.

But to let people go on the shop floor and -- this thing is a strict no right now from us. So it's a directive we have given it across anybody. Nobody can enter even with any authorization right now. So that's how we have kept it, just purely from a competitive point of view.

Our last question for this call and last follow-up will be from the line of [ Shah Janish ].

So you mentioned about -- I think just to get some clarity, I mean, earlier on the debt side, you said the cost of debt is definitely going to come down. But in terms of absolute debt level, do you see that coming down in the next couple of years? That is one question.

Second, I think you also alluded to the ground level execution challenges by AMISPs. Given now that we are supplying to everyone, I mean, most of the AMISPs and -- if we can get some understanding as to where our order book exposure is in terms of the states which are exposed to -- because I could -- what we hear or what we read is that even though the challenges are there, but in different geographies the level of challenges are very different. And some are still going on, some are still facing issues. So if we can get some understanding with that, that will be helpful.

And the third one is on the cables and -- C&I business basically, consumer and industrial business. How is -- I mean, you have been restructuring this business for last couple of years. You have been expanding your distribution network. Product introductions have been happening. The short-term challenges are definitely there on the margins. But when you now look at the runway for this business for next couple of years, how do you see this business shaping up? Because I think there is a lot more opportunity to unlock value in this business which gets suppressed under this entire smart meter story. And if you can just help us understand the value creation part in that business.

Sorry, I just missed out your second question. If you can just put it out, then I'll answer all the 3. The first was on the debt.

Yes. On the -- second question was on the state exposure with regard to your order book, how are...

Okay. Yes. So I'll just give you a point-to-point this thing. So on debt if you see, our debt from April till now, in the 9 months, is stable. There's no increase in debt. In fact, if you look at the June levels, we have come down in our debt since the last 2 quarters. So going forward -- because we are seeing a good growth in smart meter, in the C&I segment as well. So maybe to bring down the debt in absolute numbers may not happen. But from a ratio perspective, in terms of net working capital or, let's say, the sales going up and the debt not going up in the proportionate manner, that definitely should happen. That is the way it is. And debt-equity that's why has come down to now 0.69. Hopefully, it will even better further.

Now on the state-wise, we are supplying to the AMISPs. So probably I may not be able to say that. But some of these AMISPs are operating in various geographies. Of course, the schedules and orders are all geography or specific utility based. But probably I'll need to refer to my team and then I can revert back on what are the challenges.

But I think when you look at it, the challenges are pretty -- of course, all have different challenges, but some of them are pretty common that -- like in terms of execution. Because eventually, they are interacting with the utilities and getting the change done. And the transition from a normal meter to the smart meter is a very big exercise undertaken by the government. So definitely, it was anticipated that there will be ground level challenges.

So state-wise, I probably cannot comment on that because I would be -- we would be more looking at the way the AMISP is functioning. And that was more of an internal part. But if you need any information, through IR I can then probably compile it and then have it sent.

Now when you look at the consumer and industrial segment, we are quite upbeat on that. In fact, even if you look at the last 2, 3 years, last year also, other than lighting, the other segments did pretty well. So if you look at the -- the switchgear, the wire and cable did pretty well last year as well. Lighting was facing a certain change which happened across the industry. So we did lose out some sales because of the value erosion happening. So that impacted the overall C&I. But otherwise, internally, we did see a good growth.

This year also when you look at the wire and cable, in 9 months growing 25%, the domestic switchgear growing at 21%. So here also, again -- the lighting has also, in fact, recovered. In fact, last quarter has been a first-time growth, I would say, after 7 to 8 quarters despite the values coming down already, although they have stabilized. But to achieve the same value, one has to do a much larger volume for that. Only the -- the industrial switchgear, we have seen a slowdown, which again I believe is temporary. And by the first quarter, that also will be back.

Overall, the next 2, 3 years, we see this segment -- also, you're very right. Sometimes this gets shadowed on the other products. But this segment itself is -- if you look at our manufacturing capability, our R&D, the new products which are there, and it will be visible even in ELECRAMA. This again has a huge potential and we are very well placed in that. And I think if -- only if all the segments fire up in this, definitely we will start seeing a good growth coming in.

But right now, the way it looks like the switchgear, the wire and cable are set to have a good growth even in the next year. Lighting also I'm pretty confident that with a lower base, there should be a double-digit growth going forward for the next year. And with fans coming in, we've seen an initial good response, but it will take about 18 months for us to cover pan-India to really exploit the potential what we have. And the existing channels what are there, they have also been demanding for these type of products. So that should help us overall.

And if you have any more follow-ups, if anyone has any follow-ups, you can write to us at Dickinson and we'll make sure they're answered to your satisfaction. That concludes our Q&A session. As soon as this call finishes, you'll be directed to a survey for your feedback. Kindly take a few short moments to participate in this quick survey.

I'll now hand over to Gautam for closing comments. Over to you, Gautam.

Yes. Thank you, everyone, for your time and continued support. We appreciate the confidence you have in HPL Electric, and we look forward to updating you on our progress in the quarters ahead. So thank you, everyone. Thank you, Shankhini. And have a great day ahead. Thank you.

Thank you. On behalf of HPL, that concludes our earnings webinar for Q3 and 9 months FY '25. Thank you for joining us, and you may now disconnect your lines.