HPL Electric and Power share price skyrockets 37% in just five sessions; should you buy?

Shares of HPL Electric & Power continued their winning streak for the fifth consecutive trading day on Tuesday, rallying 5% to hit a fresh all-time high of ₹287.20 apiece, taking the stock's overall five-day gain to 37%. This stellar rally came after domestic brokerage firm ICICI Direct Research maintained an optimistic outlook on the company, owing to robust growth in the smart meters segment.

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Incorporated in 1992, the company is among India’s leading electric equipment manufacturers, with a formidable presence across two major segments: metering and systems and consumer and electrical.

In the metering & systems segment (which is largely institutional and B2B), the company is involved in the manufacturing of smart and conventional metres, while in the consumer & electrical segment (which is largely B2C), it is engaged in three sub-segments: switchgear, LED (light-emitting diode) lighting, and wires & cables.

Well-positioned to capture a significant share in enduring 'Smart Meters' opportunity: The brokerage believes that the ‘metering & systems’ segment will be the key growth-driving segment for HPL in the coming period, as the Indian government is targeting to install 25 crore smart meters nationwide with the ambition of firming the transmission & distribution network and reducing distribution losses.

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With an annual meter capacity of 11 million units (utilisation at 70–75%), the brokerage said the company commands the market leader position in the domestic electric meters market with a 20% market share. The company's order backlog, which stands at over ₹2,000 crore (with over 70% contributed by smart meters), ensures medium-term revenue visibility, it noted. 

Strong manufacturing & R&D capabilities with a comprehensive product portfolio: The brokerage highlights the company's strong design, development, & manufacturing capabilities, led by backward integrated manufacturing facilities & R&D centres.

The in-house R&D capability has helped the company innovate and develop new products on a consistent basis. With this prowess, the company has diversified its product portfolio, which now covers a wide range of low-voltage electrical products, including metering solutions, switchgear, lighting products, wires & cables, solar solutions, and modular switches, the brokerage underscored.

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Growth projections: The brokerage estimates the company's revenue to grow at a 20% CAGR over FY23–26E to ₹2,166 crore in FY26E, mainly led by the execution of a strong order book and expected healthy order inflows in the smart meters segment.

The brokerage anticipates a gradual improvement in EBITDA margin to 15% by FY26E, led by a pick-up in execution in the meters business (where margins are relatively better) and positive operating leverage. It estimates an EBITDA CAGR of 28% over FY23–26E to ₹329.3 crore in FY26E from ₹156.9 crore in FY23.

Further, the brokerage estimates a PAT CAGR of 53% over FY23–26E to ₹108.3 crore in FY26, led by strong revenue growth and improvement in margins. Given these growth factors, the brokerage recommended a 'buy' rating on the stock with a target price of ₹305 apiece (based on 18x FY26E EPS).

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