HPL Electric and Power Limited IPO - Should you subscribe?

Remember that ubiquitous dusty box that lies forgotten at the bottom of every building's staircase? One that we look at only if the lights go out or if we receive an outrageous bill? That ladies and gentlemen, is HPL's principal business - electricity meters. The company gets nearly half its revenue from its metering business and it is the market leader in this segment. Its principal customers are power utilities - which after decades of inefficiency, theft and debt are now the focus of a government cleanup. Its other revenue streams are all connected to electricity - switchgears, lighting and railway electrification. The company has warehouses in 21 states and no less than 2400 dealers or distributors all over the country. As India electrifies, the company's established presence in this market holds out a promising future. A facet of this process is the shift towards LED lights which the company has positioned itself towards. However, not all is well with HPL. The company made about 1,121 crores in revenues in FY 16 but just 36.62 crores in profits (about 3% of revenues). Revenue growth has been robust over the past 5 years at 14.55% but the bottom line has been flat. Its competitors are no small fry - L&T, Schneider Electric and Phillips and whether it will be able to hold its own against them is an open question. Last but not least, its humongous levels of working capital are a worry. It has 512 crores due from its debtors (mostly power utilities). 30% of the company is being sold in the IPO which is a fresh issue of shares (existing shareholders will have their ownership diluted). The company is raising about 389 crores (at the middle of the price band). The company proposes t