HPL Electric & Power Ltd

NSE:HPL

Q1-2026 Earnings Call

[Shankhini Saha]

Ladies and gentlemen, good afternoon. Welcome to HPL Electric & Power Limited's Q1 FY '26 earnings webinar produced by ElevEase. I'm Shankhini Saha, Director of Investor Relations from Dickenson, and I'll 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.

So we'll get started. I'll hand over the conference to Gautam to begin with some opening remarks. Over to you, Gautam.

[Gautam Seth, executive]

Yes. Thank you, Shankhini. Good afternoon, everyone, and thank you for joining us. Let me start with the Metering & Systems, a key pillar of our business with high potential for growth. In Q1, revenues were a bit lower as a few dispatch clearances got delayed with execution slowdown mainly due to the monsoons. These are timing issues, not structural ones, and we expect things to pick up immediately in Q2 and also in H2 of FY '26, as these projects move forward. This is a long business cycle, so it's not something to look at only quarter-on-quarter basis, but on a longer basis, the bigger picture for Metering is steady. Our smart metering order book stands at INR 3,000 crores, backed by government's push on RDSS with major AMISP orders lined up for us. This gives us a long-term visibility and a clear path for high growth momentum in the Metering segment as FY '26 unfolds.

On the Consumer & Industrial side, the quarter was good. Revenues grew 16% year-on-year. EBIT was up 23% and margins crossed 11%. Wire & Cables grew well at 35%, and switchgear demand remained steady. This segment is supported by the distribution network we have built more than 900 dealers and 85,000 retailers across the country. With its shorter working capital cycle, this part of business helps strengthen cash flows and adds more stability to earnings. At the consolidated level, revenues were down slightly by 2.5%, but profitability improved. Gross margins expanded by 230 basis points, EBITDA margin by 85 basis points and PAT was up 8.5% to INR 18.5 crores. This shows our product mix is moving towards higher-margin products and that scale benefits are beginning to show.

Looking ahead, both sides of the business have an important role to play. Consumer & Industrial is becoming a key earnings driver, while Metering & Systems provides long-term visibility an opportunity for exponential growth. Alongside this, our investments in R&D across smart meters, automation and energy-efficient products keeps both verticals competitive. All in all, HPL is steadily moving from being just a product manufacturer to becoming a wider electrical company with a sustainable foundation for quality growth.

With this, let's open up for the questions.

[Shankhini Saha]

Thank you, Gautam. We'll now begin with the question-and-answer session. [Operator Instructions] Our first question will be from the line of Viraj Mahadevia.

[Viraj Mahadevia]

A bit disappointed by the Q1 results, while I think the 3-year runway -- 3- to 5-year runway of the company remains intact. Can you give us a sense if some of these inspections that were held up have happened now and have they started shipping in Q2? And as a result, are you expected to see things coming back on track Q2 onwards?

[Gautam Seth, executive]

Yes, we did see certain delays in lifting on materials from the AMISPs, which were, we believe, mainly because of the monsoon delays in the execution and also probably more on them gearing up because on more on -- because eventually, now the pace has been picking up, and I think it is -- with the government also now almost monitoring on a weekly basis and pushing the AMISPs pretty hard to ramp up the execution part. So I think a lot of push is happening from the government also, but when we look at India as a country, the whole area as a -- it's a massive execution which is happening on the field level. So I think those certain challenges are coming, which are probably coming up and which are being addressed. So we have seen certain challenges with what our AMISPs have been facing. So they are beyond our direct control.

Coming to your question. Yes, certain -- like we had certain material, even pre or even post inspected materials with us. So some things have picked up. We've had a decent, I would say, good July. So hopefully, within Q2 itself, we should be well back on track. But just to reiterate that this is a very strong medium- to long-term business. I would say at least a 5, 7, 10 year is a very strong forecast when you look at the overall metering industry. And I'll put some numbers on it because if you see right now, as per government, about 3 crore meters have been installed. And right now, out of -- even if you look at 22.5 crores of sanctioned meters, 25 crores is what the government started off about 3, 4 years back.

By the time we reach the last part of their installations, probably these requirements will go well above 30 crores. So we are actually only 10% of where we need to be. So it's a pretty strong medium- and long-term story which is there, and HPL is well aligned to that. So we have started -- so although -- we were also expecting that, had these inspected materials also moved out, we would have had fairly decent numbers and much better this thing. But I think that will happen in Q2 and the H2 also seems to be much better.

But yes, one has to recognize that the challenges because as more and more installations are happening, the AMISP will be facing a lot of challenges, which I think the government together has been addressing them because on the other side are the utilities, then there are field issues and other things, which are always there. But I think in -- like in any business, this part is, I think, getting addressed. But from our side, we are well equipped to even handle, let's say, even double the business if that delivery schedules are there.

[Viraj Mahadevia]

Understood. Gautam, one of your competitors has talked about a very strong order book coming of about INR 45,000 crores in the next 6 to 9 months. And the large Chennai DISCOM order, I think, of about 3 crore meters. Can you comment on that? And what are your views? And -- because recent order wins have been probably a little slower than what you saw 6, 9 months ago.

[Gautam Seth, executive]

No. So you are talking about the orders to the AMISPs...

[Viraj Mahadevia]

Potentially, potentially.

[Gautam Seth, executive]

Yes. So even as per government, if you see their official website, they are still talking about only 17 crore orders given to the AMISPs. So there are still, even if you have to reach 25 crores, so they are still talking about 8 crores more meters to be given out to the AMISPs. So yes, I think that pipeline is still there. And then the orders from the AMISPs to the meter manufacturers, which is more important for a company like us, we're focused on the supply. So I think there are also, again, a huge amount of pendencies are there.

[Viraj Mahadevia]

Understood. Sorry, last question, for your existing order book of INR 3,000-odd crores, which is largely smart meters. When do these deliveries start picking up? So forget incremental orders, just for the existing order book, can we expect meaningful deliveries to start happening in H2 going into FY '27?

[Gautam Seth, executive]

Yes, Viraj, I think when -- as we stand now, like earlier, let's say, this conversation had we had about a year back or 2 years back. At that time, there were many issues, like 2 years back, when I remember in one of the meetings when the government and -- let's say, all the stakeholders were there, the biggest question was whether the meter manufacturers would be able to supply such a quantity? That was the initial thing.

Today, I can easily say that from an industry point of view, I think the delivery of 25 crores and even 30 crore meters is no issue. I think the industry is well, well equipped to manage that. Similarly, at those points, there were a lot of clarity coming in from the government on the policy on adoption of smart meters and by the states and other things. Today, as we stand, the point now remains on execution and execution by the AMISP. So -- now just to put that, that orders are firm with us, we have the manufacturing capacity, even others similarly have it. As the execution speed on the ground level picks up, the business will pick up. That is how it is.

So at least from many factors, which were probably affecting the long-term business, now it boils down to execution, which is obviously expected. So it's not -- the execution is going to take time. There's no doubt in that. But yes, it will -- it is picking up the execution, what they are doing currently in the first quarter and the second quarter is well above the figures what they were doing last year. So I would say -- I don't see any reason why the execution will not pick up. But then there are some factors may be like maybe the monsoons or maybe certain other factors could come up in individual states.

But overall, the pace is picking up and the government -- I'm aware of that, that the government on a weekly basis, they are reviewing, they're pushing up their each and every AMISP for faster installations. So I think it is more dependent on the pace. But yes, we are fully ready. And I'm sure I see this going up in Q2 for sure, between Q1 and Q2 also, we should expect a growth. And going forward also, this will pick up here.

[Shankhini Saha]

Next line of questions will be from [ Samarth Saraogi ]. Okay. We'll move on with the next question. So our next line of questions will be from the line of Sahil Patani.

[Sahil Patani]

So Gautam, I wanted to understand that you mentioned there were some delays in picking up. So -- but if I look at one of your peers, they kind of said that the ramp-up was really good in this quarter. So just trying to understand, broadly, was it -- like why was it specific to us that there were these delays? Why did the other players not face these issues in this quarter?

[Gautam Seth, executive]

No. So yes, so I cannot comment on what others faced it. But yes, we definitely face this. And not from 1 or 2, but I think most of the AMISPs what -- whom we have been supplying. Second, our business -- like we do not have a dedicated platform or an AMISP where we are supplying them. So we are dependent upon the pace and the execution of independent AMISPs. So I think it's just -- but again, we also don't feel it as a long-term trend. It is more of a one-off thing, which already, as I said earlier -- in the earlier question also that the pace is picking up, and I think that should go.

But yes, we definitely face certain pickup delays. So now we are aware, yes, it's due to stocking at the AMISP and already which they have been having stocks. It's obviously, monsoon delays are there. I'm sure those of the people who are sitting in Mumbai and Maharashtra, they know it's already -- it's difficult to move out, so let alone go and install the meters. So these type of things are always there, but I think that should pick up. But I cannot comment on an individual company on what -- whether they faced it or no, I won't be able to comment on that.

[Sahil Patani]

Understood. Understood, Gautam. And then as you said, the pace has been picking up. You've been kind of seeing that in Q2. So you're expecting like on a sequential basis, I think the year would end well like Q2, Q3, Q4, like I think they kind of get -- it gets better from here?

[Gautam Seth, executive]

Yes. Definitely. I think I would say that, yes, because the way we are seeing Q2 going, I think that should be much better than the Q1. And the H2, the second part is always better. Last year also we have seen it. So I don't see any reason why there should be a delay. And in fact, the AMISPs have been gearing up their infrastructure for installations. And that typically involves having more manpower and because the smart meter installation is very different to a normal meter installation because this is a system which is getting installed. So you need a better trained skilled manpower on the ground level. And I think that is being ramped up already by most of the AMISPs. So I think we should see an incremental effect going forward.

[Sahil Patani]

Okay. And just finally, last question. In terms of the order book and order book pipeline, like how is that looking? Are there, fresh orders that you're expecting? Or are there like the -- are there like tenders that are supposed to be floated now over the next few months or in FY '26? Like how is that broadly that pipeline looking like?

[Gautam Seth, executive]

Yes. So when we see right now, we -- as we stand, we are talking to certain -- couple of new AMISPs who have never bought from HPL earlier. So we are expecting business from them. With the existing AMISPs, we again have certain delivery schedules or, let's say, the negotiations for the newer circles what they have. So that is also going on. The tenders what we were talking about in the earlier question of Viraj that was -- that there are a lot of tenders which the utilities would be finalizing on the AMISP. So again, that gives us a big opportunity because being a leading player in smart meter, we would expect those orders to eventually come down to meter manufacturers like us.

So overall, yes, there are there. We have also -- even in the Q1, we have gotten orders, but now looking at the overall INR 3,000 crores, so let's say, an order of a little -- let's say, even a INR 50 crores, INR 100 crores, INR 200 crores is still a smaller order. When you see a material -- from a material point of view. So I think everything is not getting reported, but there are inquiries and orders coming in, yes. So I think based on that, we are still hopeful.

As I said in my opening remarks also that this business needs to be judged at least on a medium and a long-term basis. The numbers are there, the execution capability of us supplying the smart meter is very strong. So maybe going forward also, we may see 1 or 2 quarters maybe on different reasons, the executions of AMISPs could go down. But overall, the numbers are set to pick up for sure.

[Shankhini Saha]

We have now a question submitted by [ Prateek Toshniwal ]. So Gautam, the question is, which are the most important geographies in terms of our customer base of installations? Also, is there an approval process for a new meter manufacturer? What prevents a new player from establishing themselves in the smart meter business?

[Gautam Seth, executive]

Yes. So I'll take the second part of the question first. The -- I would say -- I would say nothing stops a new manufacturer from coming in. It's an open market. There are -- we have seen a couple of new players who have come in into the market. So it's an open competitive market. And now the customers are private AMISP players, so they are well equipped to evaluate and take the meters from anybody whom they want. So I think, obviously, they must be having a process of evaluating them, so which probably -- because we've been very much into the business earlier. So we have done these things a couple of years back. So I think there, I will not be able to comment on that, but it's an open market for them, for sure, like that. And as regard -- sorry, can you just repeat the first part, please?

[Shankhini Saha]

Sure. So it's what are the most important geographies in terms of our customer base of installations?

[Gautam Seth, executive]

So we are now supplying to, I think, most of the active AMISPs we are supplying. So there -- of course, there are -- like the bigger ones are working in various geographies and different states, different circles within the state. So we are in a way supplying to them, most of them rather. And now the couple of ones who have come in a little later or new ones, we are also getting approval over there. So all independent AMISPs, eventually, we will be supplying. So I probably cannot comment on the specific geographies, but we are present with them. And wherever they are present, I guess, we are going to be present here.

[Shankhini Saha]

Our next line of questions will be from the line of [ Riddhesh Gandhi ]. Looks like we'll move on to the next. So our next line of question will be from the line of -- or we'll rather do a submitted question.

So Gautam the question is, our company had an order book of INR 3,500-plus crore as of 22nd of May 2025. They executed around INR 204 crores sales in smart meters. So as per our presentation, our order book as on 13th August was INR 3,000-plus crore. So are we expecting delivery of around INR 250-plus crore already executed in Q2 till 13th of August, 2025?

[Gautam Seth, executive]

No. So like I won't give you a specific financial guideline -- guidance on the second quarter. But definitely, we are -- we've had a good July, as I said. And we do hope that we would have a good growth sequentially from the first quarter through the second quarter. And the mainly pickup will be on the pickup from the AMISPs. And we expect their execution to pick up from now on.

So generally, always the first half is a little slower and the second half picks up. So that guidance, I would say, remains. But within the -- between first and second quarter itself, we should see a good amount of growth coming in here. But on an exact number, I probably will not be able to say it now because these are dependent on they're picking up. Ultimately, there are inspections happening, then once the inspection clearances are there, then we get a clearance for dispatch. So unfortunately, even in the first quarter, certain materials, which probably now have left, but even the inspected materials could not leave. So I think this is part of the business. It's -- so I think something can get pushed back from one month to the other one based on the process.

[Shankhini Saha]

So on state level orders, which states are looking most promising for HPL? Where are we seeing the bulk of recent wins?

[Gautam Seth, executive]

Yes. So we -- as I said earlier also, so we are not seeing the -- like we would monitor it based on the AMISP. And so they are -- as I said earlier, they are spread into various states and into various circles. So probably we are not tracking them on a state-wise basis. But yes, when the AMISPs do the state-wise tracking.

So let's say, if Tamil Nadu is coming out with their, let's say, 3 crore meters or something like that, then it's for the various AMISPs to quote the tenders, and that too on various circles within that. So they will do it. And our role comes in once the orders are received by the various AMISPs because that is when our role would begin to approach and then take the orders from them. But we are approved by most of them or preapproved by most of them. So that gives us a big opportunity going ahead.

[Shankhini Saha]

So this is a question from [ Riddhesh ], so I think he's referring to the meters segment. I understand that this is a 5- to 6-year huge growth opportunity, but post that numbers could materially go down. So from a terminal value perspective, what is the longer-dated plan beyond smart meter opportunity in the next 5 to 6 years?

[Gautam Seth, executive]

Yes. So I would answer that, like, of course, if you look at Consumer and Industrial, that's got a long-term perspective for sure. Similarly for meters, so when -- the way we look at it, we are probably in our active second or third year of the metering part. And in the next couple of years, let's say, in the 5, 7 years going ahead, we should see most of these 25 crore meters getting installed. And I would say this is Phase I of it. Eventually, post the 10-year closure, which would happen once these are installed, all these meters would again come up for the -- for a replacement.

And we have seen this earlier in the last 25 years of being in metering. At that time, every 5 years, we would see the meter happen. So every year, there would be certain churning happening. And within 5, 7 years, the meters would eventually get replaced here. That is how the whole process works. So eventually, there will be newer technology, there will be much faster ways of communication. And then accordingly, as required once the timings are over, let's say, about the 9, 10 years are over, all these meters would eventually come back into it. So I think it's a very long-term perspective, what would happen.

So it's not something that once these are installed, it's the end of the story. I think it's the beginning. Only it's a beginning on a new platform on a new technology, which has endless growth potential here. So that would happen. Plus, the company is also looking at international markets. We have already started a certain focus on metering for international markets. So it would take time. I think by the time we start seeing some results because we need to do certifications, some we have, but certain certifications and country-specific certifications need to happen. There are certain other compliances to be done.

So maybe in 2 years' time, we should start seeing certain international business, maybe few countries to be focused on where the metering business would start in a larger way. So that opportunities definitely remains because with the Indian experience, what HPL would have dealing in crore of meters, installing it in India, making sure that they are working properly. So I think that this -- with that experience, we can probably enter any global market and perform well over there. So that's a big opportunity, not only for HPL but for the entire industry as such.

[Shankhini Saha]

This question is on the Consumer & Industrial segment. So the C&I segment has grown 16% and Wires & Cables specifically 35%. So can you tell us what the C&I business is looking like in the next 3 years' time? Can you share more on how we see growth in this segment?

[Gautam Seth, executive]

Yes. So there is a -- in C&I -- in fact, if you see in the last 2 years also, barring lighting, there has been a good growth like -- the Wires & Cables last 2 years has done 25% growth annually. So that has -- some how we've seen almost 2.5 years of growth in the Wires & Cables segment. We are upbeat on that. So next 2, 3 years also, that will be good, and we are expanding the product range and the product portfolio in that. So that is happening.

Switchgear has been a steady business. The domestic part has been growing much better than the industrial part. But I think, again, in this year also by second, third quarter, the industrial part also will pick up. So overall, with now lighting also the last 2, 3 quarters, the price falls have fairly stabilized, I would say, though for competitive reasons, the pricing can always keep falling or reducing. But generally, the price erosion what happened earlier that has kind of reduced much more. And now we are seeing a single-digit growth. Even in our last quarter, we registered -- in the Q1, we registered a 7% growth on Lighting year-on-year. So I think that growth is coming back.

So overall, normally, I don't put a number, but just to put it, let's say, in the next 3 years, maybe by FY '28, we should be INR 1,000 crores-plus in the Consumer & Industrial. And I think that would make it a much more serious business, what is happening. Our focus on expanding the channel remains into that. Three years back, we put a target in the team that we need to reach 100,000 retailers. And I think by end of FY '26, because we are 85,000-plus, we should reach 100,000 hopefully.

So that is -- the channels are expanding. The new areas are going in. Even our spend on the mark on the brand is also increasing. So overall, I think this part of business will grow steadily right from switchgears, wire and cable for sure, and then we have fans, which have been added. So that also by next year, we are expecting certain substantial revenue should start flowing in. And with Lighting improving, because Lighting used to be, in the past our main growth driver. But then when the price erosion happened, definitely, the volume had -- the sales values had come down, although there were slight volume growth. So overall, I think we are upbeat on this one.

[Shankhini Saha]

This is a question on metering, again. So are we in a position to provide smart meters to industries like aerospace, defense or shipbuilding, railways, et cetera, considering bulk of government CapEx are focusing on these sectors?

[Gautam Seth, executive]

Yes. No, so you have to understand that the metering, if it is a tariff meter application, then those are serviced by the AMISPs and eventually by the utilities. So there, in our regular channel, what we are supplying, those can be done. But we are -- apart from the single-phase meter, what generally we talk about on smart meter, we're also doing the 3-phase smart meter, we are doing the LTCT metering and the grid metering as well.

So we are there in all the segments. And -- but privately, if you see, there are a lot of builders who take our products, which are for internal metering and not for the tariff meters. So that is how the business works. So we cater to anywhere where power is measured, so be it in defense or regular requirements, what could be there. So we can supply, but normally, that is in the scope of the utility through the AMISPs.

[Shankhini Saha]

Another question on the C&I segment. We've seen a margin expansion of about 11.3% in this segment, which is encouraging. So what's really driving this? And can we sustain these levels?

[Gautam Seth, executive]

Yes. We have seen slight improvement in the margins. The commodities have been fairly good, especially if you look at Wires & Cables segment, although copper is slightly volatile, but whatever volatility happens in copper, whether it's an increase or decrease, that eventually gets passed on to the consumer. So at least the risk part is very less on us because -- and the industry is structured like that. So there, the margins are pretty much maintained. And the pass-on is, of course, with a time lag. But broadly, there, any negative does not come on the company.

Regarding the switchgears, again, the commodities have been fairly good. What we have been working across in most of our factories is also on reducing the cost of materials. And that is mainly a lot of design element goes into that, trying to redesign certain components to get a better and cheaper materials, so where we can save. Also, the centralized procurements are constantly working to make sure that the rates are brought down. And luckily, our volumes across -- like if you see metering, if you see Wires & Cables, the volumes have really gone up pretty well.

As a company, we have doubled our turnover in 4 years. So definitely, the volume increase have been there. And -- so that gives us a better leverage to negotiate with our vendors and get in the -- so that we are able to improve our margins. So I think, yes, margins are sustainable. In fact, we are -- we would pursue to enhance the margins even going forward. The product mix in our product portfolio makes a big difference because it's a very wide product.

When we talk about Consumer & Industrial. So there are 4 segments and then within those segments also, there are huge ranges of products. So definitely, the margins, the gross contributions on different products lay differently. So those, I think, also affect that. So we are continuously -- we are monitoring that. We work. Our teams are also focused on higher-margin products. We look at launching a lot of products. The new launches are typically into the premium segment, so that we are able to get a better realizations. So I think the efforts are there, which are -- the multiple efforts are there, which are definitely getting paid off.

[Shankhini Saha]

Our next question is on metering. So can you provide the volume number for smart meter business in terms of sales volume? And if one has to translate the order book into number of meters, then how much would that be?

[Gautam Seth, executive]

Yes. So Shankhini, we've not been giving the quantities into that. Yes, we have a capacity now of 1 million meters per month. So that's a huge capacity what we have. But right now for competitive reasons and with so much of business on the floor right now, which needs to be taken, so we would not be giving out the quantitative details. I've said this in the last call also. But overall, yes, I think over -- this year also, we should find a good growth. Last year, we did a good number. So I think, again -- but probably we will not be able to give this on this call, yes.

[Shankhini Saha]

Sure. A follow-up question on that is, when do we book revenue on ex works, so when meters are actually installed and go-live status is achieved?

[Gautam Seth, executive]

No. So we are supplying the meters. So once -- our revenue gets booked when we supply the meters -- when we bill and supply the meters to the AMISP. So it is irrespective of when they would install that, that is their -- their look out. But our revenue gets booked the moment supply is made.

[Shankhini Saha]

So another question on the C&I segment, Gautam. Are we looking to expand the Wires & Cables business to the African market? How big can this opportunity be? And when can we expect to see results?

[Gautam Seth, executive]

Yes, so we have been supplying wires and cables to the African market. But I think on a more focused way, we are expanding our range now going into the LT power cable. And as we have the broader range, those are more -- I think that will give us a bigger benefit going into the African market in a bigger way. The domestic house wiring and the flexible cable, which is our main business right now, those you normally find certain local manufacturers. So -- but we have our -- within the export market, our acceptability of wire and cables has picked up pretty much into SAARC areas. We have even been supplying in Middle East and in African market. But I think, yes, the opportunity is much more bigger and we are looking to exploit that.

Similarly, when we look at the Lighting also, our Lighting business on overseas market, again, is a big opportunity, which now we have started putting a big focus on that. And with -- because in Lighting, I think after China, India is pretty much a global manufacturer now. So those -- that part, we are again looking to exploit, along with the Wires & Cables.

[Shankhini Saha]

We'll take some follow-up questions from Viraj Mahadevia. Viraj, you can go ahead and ask your follow-up questions.

[Viraj Mahadevia]

Gautam, regarding the life beyond smart metering, can you comment a little bit on smart switchgears, which will be the next piece of evolution in making the grid intelligent? And also on the relays where I recollect you had a partnership with a Chinese company for technology transfers?

[Gautam Seth, executive]

Yes. So on smart switchgears, if you see, a lot of work has been going on. We have enhanced our R&D team. In fact, last month, we opened a new R&D center at our Kundli factory where we have the Switchgear division. So a lot of work is going on in that. We already have certain products in our industrial products, which can be communicated with the -- through the laptop, you can get in a lot of data and it's a 2-way communication again. So I think a lot of work has been going on. So we also believe that like smart metering, the smart switchgears would be the next thing. And we are already investing a certain part on the R&D for that.

Already, the hardware, the switchgears are all available with us, but those need to be redesigned. Obviously, the new technologies need to be there, a lot of electronics comes into it. So in all the -- whether you look at the material side, the -- whether it's a tooling, whether it is the mechanical side or electronic side, HPL already has a capability in all of this. So basically, it is combining a lot of our existing resources, understanding the -- so we have a new senior people in the R&D for switchgears. So I think we should be ready along with the various global players who are coming in India with this type of a thing. And when the opportunity really goes much bigger, we should be a part of that for sure, yes.

Regarding the relays or the other components for like the smart metering, yes, it's a -- we are very much committed that we need to go on a backward integration into each and every critical component, which is there. So our value addition in India is already very large ahead of what even the government has mandated. So we are definitely looking at it. There's a lot of work which is happening. And I think in some time, as we see more work on the ground level, we definitely will be communicating that.

[Viraj Mahadevia]

Understood. Just a follow-up question, Gautam. So in the evolution of the grid, does a smart meter come first and then naturally, you have to install a smart switchgears after that? And is it a one-for-one opportunity in terms of volume and size, just because you've installed, I don't know, 25 crore smart meters is the next thing that you have to install, an equivalent or a certain ratio of smart switchgear as well over time?

[Gautam Seth, executive]

No, it is -- no, it's -- look, you have to look at it in a broader way. So there is -- to answer your question, no, there is no necessity as such because things are already working. If you see electricity was working even in 1960s or '70s. So we all got our electricity in the houses and the factories and other things. Only now the systems are changing. So it's not something specific to India. It is something what we are seeing globally, it is happening. The grids are getting smarter, the meterings are getting smarter. There are less human intervention. There are more data exchanges, the communications are better, smarter, faster.

So I think one has to go with the trend. That is how it is. So obviously, the process of that electricity coming to a home will always remain, but how it is done and when the next -- and each of the installations, what you see right from a transformer, which is there or even the lines which are there. Even now, you see the cabling system also getting changed, all are going to the underground cable, the overhead lines are getting replaced. So it is part of the overall, when you look at the transmission and distribution segment, that is where we come into the picture, the entire things are changing.

So when the next replacement comes, definitely, the smarter products are going to be put into the next replacements. And that will make things much more effective, so much of manpower, it will help in better maintenances. You know exactly where the problem is, what the problems are. Even now, if you look at even the panels, what they install in, let's say, any hospital or probably the buildings we are sitting in, even through the heat sensors, through the things, the maintenance person knows where the problem could occur.

So I think those type of things, even preventive maintenances can be taken up. So that is what it is, and that is how it's going to come. And that, again, leads to that the next smart meter, let's say, when -- take a scenario in the next 7 years when all these, let's say, 25 crores, 30 crores smart meters are working and there is a communication grid, which is actually doing it, then the earlier meters, which are installed, the technologies are going to change, obviously, in 7, 10 years there will be newer technologies, much more better, maybe smaller compact. Probably we cannot think of what is going to come in.

But definitely, there will be new technologies coming in. And that -- those are going to eventually replace the existing ones. Only the next time the installations will be easier because the mapping of all the 25 crore, 30 crore customers will already be there. So this is only changing of the meter rather than the whole process getting done. So one, there has to be a pain when the installation has to really happen and people have to be mapped because now they're going to come on the, let's say, on the data grid of all the people.

And since smart meters has so much of benefits where even an individual person on the app, you can see how your home consumption is happening. Everything is so transparent. So I think people will get used to it the way we have got used to mobile. So now imagining going back into an era where the data of the mobiles are not available, it becomes difficult. So I think a similar movement is going to happen in the smart meter as well. So there's [indiscernible] only there will be a first generation, second, third generation of smart metering coming in.

[Viraj Mahadevia]

Okay. Okay. And lastly, can you comment on any progress you're making on getting impaneled with utilities and export markets because that's also a journey. So hopefully you can be ready for that higher export supply in the next few years?

[Gautam Seth, executive]

Yes. I think I took it up in the last couple of questions back that we have -- in fact, we just strengthened our manpower, and we are now moving into the better IC-compliant meters. So this requires certain general certifications as per standards, which are acceptable by various utilities in international markets. And then there are certain country-specific requirements, which have to be there. So broadly, we have the technology. Only thing the certification and compliances need to be done. And then we will definitely -- we are aware of -- because already requirements are coming in. But right now, we are not doing it.

But yes, maybe in the next 2 years, you should start seeing that happen. And when that happens, with the experience what we have in the Indian market, that will definitely make us stronger in the international markets because the Indian market, the conditions are pretty tough. And if one can make a meter, which survives 10 years and if you see in our factory in the last 2, 3 years, we've come on to a -- not only a campaign, but a full process we have laid out for a 0-defect meter or 0-defect products. So a lot of work has gone into it, and we can actually stand and claim that our meter actually works for 10 years. So I think that would make it a high-grade international quality meter, which can go into any -- even the first world markets. So I think with that kind of a thing, when we enter into it, so maybe in the next 2, 3 years, you should hear something good on the international part as well.

[Shankhini Saha]

We've got another submitted question, Gautam. So this is on the metering side. So given a lot of the industry is increasing capacity and not very hard to do, are you seeing any sort of increase in competitive intensity and pressure on pricing in the tenders? Are most tenders based on L1?

[Gautam Seth, executive]

Yes so first thing, I like the way you said not very hard to do, but I think you need to -- I think -- it's not -- getting into the design manufacturer of smart metering is a very, very specialized work. And I think our -- I don't know about others, but our really the 30-year active experience comes into really churning out a product, which is a 0-defect product and which can go into any AMISP and utility.

Just coming to your question, yes, it's an open market. Definitely, there will be competition. But like -- but when we look at it and why people -- it's very important for an AMISP in his entire project working where he is dependent on the O&M, but -- for the next 7 to 8 years, but with very strong predefined SLA breaches.

So I think the quality of the meter really makes the difference here in the entire thing. And the AMISP's revenues over the next 10 years are dependent on the quality of the meter and the overall metering system being up and running. So I think that is where we gain on to that. So we see that as an opportunity. There are newer players coming in, but how well they will perform or, let's say, the 2, 3 players who are there, I think our experience over the last 30 years definitely will gives us a good edge over others.

And the strengthening what we have done of the R&D and the capacity, including we've recently opened a new electronic area in our Gurgaon factory about 2 months back, that was on the social media of -- at our handle, then we will strengthen most of the areas now. So we are well geared up to that. So there will be good players coming in, there will be competition is there. But that is -- then every area is competitive, yes. But since we also have the visibility of the business for the next 2.5 years, so we also are working on ensuring that the pricing -- the costs are coming down. So that also gives us an edge to maintain even if the pricing were to come lower in future offtakes, the cost will also come down, maybe more than proportionately. So that can help us to even enhance the margins.

[Shankhini Saha]

So on the Metering segment, again, what is the warranty like on our meters? And when -- what is the life cycle of our meters with the AMISP? And what is -- when does the replacement market begin after installation?

[Gautam Seth, executive]

No, so right now, I think the replacement market will eventually come into -- in a longer time. Right now, as I said earlier, we are probably in just about only 10% installed. So still 90% needs to be installed and then that number is also going to grow up. So I think right now, the huge lineup is there. The specifications what the government framed under this that every meter or every AMISP has to give a 10-year warranty. So like I said earlier, while we were doing business for the last 3 decades, we had to really reengineer the product in a way that the product and all the critical components are made in such a way that they will perform to the optimum level for the 10-year period.

And I think the current supplies what we are giving are already into that level. So it has taken a lot of reengineering work, though we were 3 decades old in the metering business, but we had to reengineer the product to make it compatible for the 10-year period. So I think that warranty we stand by, and we don't see a big cost accruing on that period. It's just a normal business expense what has been happening over the last 3 decades. So I think that effort, that cost definitely goes into the business what is there, which will hopefully help us to get -- the performance of the metering will help us to get the future orders there.

[Shankhini Saha]

So another question on the metering side. So on state level orders, which states are looking most promising for HPL? Are we seeing that there's a bulk of recent wins from a particular geography?

[Gautam Seth, executive]

No, I think I already answered that a little while before, but I'll just repeat it that we -- the state level business is monitored more at the AMISP levels. Our focus is that -- because we get the -- once the state level orders come into the AMISP, different circles, it can be different people who are doing it, that is when the opportunity for us to supply to them.

And today, the bigger AMISPs are probably working in 5 to 7 states into multiple circles within the same states. So that is how it is. So we don't have a geography focus what we were having for the last couple of decades because we were supplying directly to the utilities. But now that changes into now more of a key account AMISP working.

[Shankhini Saha]

This is a question we've gotten on working capital. So working capital has historically been stretched in the Metering business. So now with the Consumer & Industrial contributing 47% of revenue, can we see tangible improvements now in cash flow and ROCE?

[Gautam Seth, executive]

No, sorry, I just missed the last part of it.

[Shankhini Saha]

Sure. I'll repeat it. So working capital has historically been stretched in the Metering business. With Consumer & Industrial now contributing 47% of revenue, can we see tangible improvements in cash flow and ROCE?

[Gautam Seth, executive]

Yes. So we are -- if you look at our working capital cycle, that has been improving since the last, I would say, 1 to 2 years. Even if you see in the last year, only the debtor period in the last 12 months has come down by 28 days. Our -- even the net working capital is down by about INR 60 crores overall in the last 12 months. So certain improvements are happening, though the sales are going up, for 2 primary reasons. One, the payments from the AMISPs are much better defined and -- unlike what earlier was happening in the utilities. So that contributes to that.

Yes, the Consumer & Industrial part definitely has a much better working capital. But as I said earlier, the -- although that part of the business will grow, but the Metering business will grow to a much larger extent. So whether it is 40% or 45%, definitely a good proportion of Consumer & Industrial helps. But the bigger business of Metering also is seeing a much better net working capital. And as we go ahead, I think that should improve. Sometime by next year, again, we expect a further improvement in that.

[Shankhini Saha]

So Gautam, on the R&D front, can you give us more color on what some of our ongoing R&D is in smart meters and automation? And even on the C&I side, are we really investing in building the current portfolio in the Consumer & Industrial segment?

[Gautam Seth, executive]

Yes. I think with our experience in smart metering, where our R&D was very strong, we had over 100 engineers only working on the metering on the communication and other parts in the smart metering. Now we've strengthened, as I said earlier also, we've opened a new R&D center last month in our Kundli factory for the Switchgears and Lighting. Now in fact, all our factories, even whether it's Wires & Cables and even our domestic switchgear, we have R&D personnel appointed in each of them. So R&D has now become a key focus for HPL because we've always been focused on technology part of it.

And all our 2 major verticals, what are there, all have a huge potential of growth. But without R&D, I think the kind of the growth what we can expect or even to maintain the margins would become difficult. So definitely, we are focusing. There are a lot of projects. I think each and every product vertical and teams have various projects which are there. They could be -- some of them are like more of cost saving for this thing, certain are coming into new product categories or product within the same categories and also some on international business, like our MCBs internationally certified now.

In fact, even our laboratories internationally certified. So in a way, there are a lot of things. We have now NABL laboratories. We've got the recent one in the wire and cable factory. So these are like third-party laboratories. So most of our factories now have the NABL laboratories. So a lot of work and investment is happening on the R&D certification. Similarly, automation also, like the meter automation has really taken off well, where we have almost automated and semi-automated lines, where the meter productions are happening.

All the smart meters are -- productions are happening through that now. So that is much better, efficient, less manpower required. And plus the data what we are having, while we are doing the manufacturing gets captured. So it helps us to evaluate the performance in the future. And for us also to track the aftersales service, which is extended by up to next 8, 9 or 10 years, what is there.

So a lot of work is happening. In MCBs also, we've done a lot of automation work on this thing. We are getting certain new equipments. Hopefully by end of Q3, we should be having a real big automated line in place. So that also will help us to reduce a lot of manpower and bring in much more better accuracy. So I think a lot of work going on in that regard.

[Shankhini Saha]

Thanks for that very in-depth answer, Gautam. It's very meaningful. So I think the last question will take, before your closing remarks, is do we have any plans to reduce debt and borrowing?

[Gautam Seth, executive]

No, so our -- if you see our debt equity ratio is comfortable at 0.69. So I think that is there, including our interest costs have come down. In fact, our borrowing, if you see the last 12 months and today, that has also come down. So overall, I think it's a conscious decision. If you see last 4 years, our turnover has doubled and probably the debt has gone up marginally only. So I think the next 2, 3 years also, we should see a much more similar impact happening. And with the cost coming down -- because we have had 2 rating upgrades, so that has also helped us to bring down the borrowing costs.

[Shankhini Saha]

Thanks, Gautam. That concludes our Q&A session. I see there are some questions still left. But for paucity of time, we'll address them at a later discussion. You can also send them to me in writing, our e-mail ID is at the last page of the investor deck, and we'll make sure they answer to your satisfaction.

So Gautam, I'll hand over to you now for some closing remarks.

[Gautam Seth, executive]

Yes. So thank you for the Q&A, and thank you for joining us today. So before we close, let me reemphasize our confidence in the Metering business. While this quarter saw some delays, but those are certain short-term timing issues. Fundamentally, the business remains intact. In fact, it still remains the biggest growth driver for us, and we have an order book of over INR 3,000 crores that should help us again. And this is a long-term business cycle that gives us a steady visibility and growth momentum going forward. So we appreciate your interest in HPL and look forward to updating you on our growth journey in the coming quarters. So thank you very much, and have a pleasant day ahead. Thank you.

[Shankhini Saha]

Thanks, Gautam. On behalf of HPL, thank you for your time and attendance for today's earnings call. You will receive a feedback survey after this call, kindly take a few minutes to complete it. For any other further questions, please feel free to reach out to Dickenson, and we'll make sure your questions are answered. So thank you for your time today, Gautam, and thank you for everybody's participation in today's call.

Thank you, and have a pleasant evening. You may now disconnect your lines.

[Gautam Seth, executive]

Thank you.