HPL Electric IPO, which opened today for subscription, has received divided feedback from analyst community. The Delhi-based electric equipment manufacturing company plans to raise INR361 crore (INR3.61 billion) through the IPO. Analyst view on HPL Electric IPO is polarized as some analysts have taken a positive view of the company while research notes from several brokerage houses have pointed out the downsides in the IPO including high leverage, low-margin business, and low brand visibility. We highlighted most of these points in our review of the IPO which can be accessed on this page. Here are the analyst recommendations from different brokerage houses.
Sounding a bullish note on the IPO, analysts at IIFL have said the IPO is offered at a discount to industry peers. “Though we believe the company should trade at a discount to its peers due to low return ratios and inferior product mix, the quantum of discount is warranted,” said the note, while referring to high valuations of Havells, V-Guard and Finolex Cables. “We believe there is upside room in the stock and recommend investors to SUBSCRIBE to the issue,” said the brokerage house in its analysis of the IPO.
Analyst view on HPL Electric IPO was positive at Prabhudas Lilladher which gave a SUBSCRIBE call citing improving brand visibility, reducing leverage; strong growth opportunity, lower working capital intensity and improving utilization. The brokerage noted that these factors should help HPL deliver healthy earnings growth over the next few years.
SPA Securities has advised IPO investors to SUBSCRIBE to the IPO but for long term gains. “We are positive on the stock on account of improving utilization level, de-leveraging balance sheet, improving return ratio and improving brand visibility. HPL is favourably priced at P/E of ~13.1x based on FY18E earnings as compared to its peers, like Genus power/ Havells/ Bajaj Electric/ Finolex Cables, which trades at P/E multiple of 14.0x/33.0x/14.0x/ 21.7x FY18E earnings respectively. We recommend investors to SUBSCRIBE to the issue for long term gains,” said the brokerage report in its review of HPL Electric IPO.
Similar cautious view was offered by Choice Broking which noted that most of its manufacturing facilities are not operating at optimum capacity utilization. “At the higher price band, HPL is priced at a FY17E P/E and P/BVPS multiple of 16.5x and 1.7x, respectively, which we believe is at discount to its peers. Considering HPL’s FY17E profitability and return ratios and its concern on the working capital, we recommend a ‘SUBSCRIBE with Caution’ rating for the public issue,” recommended the broker.
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The fact that analyst view on HPL Electric IPO is divided can be gauged by the measured approach brokerage houses are taking.
NEUTRAL is the call of Angel Broking on the IPO. “On the valuation front, at the upper end of the price band, the pre-issue PE works out to 25.6 times of its FY2016 earnings, which is lower compared with its peers. However this discount is justified considering its significantly low ROE, stretched working capital and low profitability compared to its peers. Considering past financial performance and poor visibility on future growth, we rate this issue as neutral,” said Angel’s IPO note.
Citing high valuations, analysts at HEM Securities have recommended investors to AVOID HPL Electric IPO. “At price band of Rs 175-202, p/e multiple of co will turn out to be 22-26 on pre issue FY16 eps of Rs 8/share. Co’s financial performance is not attractive when compare to its peer which doesn’t instil confidence in company. Also, valuation of company looks expensive to its peer Havells India Ltd (p/e of 22). Hence, we recommend “Avoid” on issue,” said the brokerage house’s note reinforcing divided analyst view on HPL Electric IPO.
The IPO has also failed to gain traction in the informal market and is not traded regularly in the grey market. Few deals took place at the application rate of around INR300 – 350 per but this may not be a good indicator of the eventual performance of HPL Electric shares post listing.