Best Smart Meter Stock: Genus Power vs HPL Electric & Power

Energy Efficiency Services Limited (EESL), a joint venture of all state-run power companies, announced that it installed 3.6 million (m) smart meters until April 2023.

It plans to install 230 million smart meters across India to drastically reduce the cost of operations such as billing and collection.

Given the huge demand, the market size of the Indian smart meters market is expected to grow at a compound annual growth rate (CAGR) of 34.5% between 2023 and 2031.

This presents a huge opportunity for smart meter manufacturing companies in India, allowing them to grow their revenue and profits exponentially.

Two major companies that are primary beneficiaries of this growth are Genus Power Infrastructure and HPL Electric & Power.

Let's compare both these companies on various parameters to understand which one's better.

Business Overview

# Genus Power Infrastructure

Genus Power Infrastructure, incorporated in 1992, is engaged in manufacturing a wide spectrum of meters and smart meters that provide end-to-end metering solutions.

Some of its products include high-end multifunction single-phase and three-phase meters, pre-payment meters, a smart street light management solution, a net-metering solution for rooftop solar, and gas meters.

The company also offers Engineering, Construction, and Contracts (ECC) turnkey services to the power, transmission, and distribution sectors.

It has four manufacturing facilities with a capacity to produce 10 million (m) meters and state-of-the-art research and development (R&D) to develop new products.

The company has long-standing relations with its reputed clientele, which includes state electricity boards, Reliance Energy, and power distribution companies (DISCOMs).

# HPL Electric & Power

HPL Electric & Power is a leading manufacturer of electric equipment in India. Its product offerings include metering solutions, modular switches, switchgear, LED lighting, wires and cables.

It has seven manufacturing facilities, 2 R&D facilities and a well-established distribution network of over 900 authorised dealers and 45,000 retailers across India.

The company also exports its products to over 42 countries across Asia, Africa, Europe, and the UK.

It serves clients in various segments, including power utilities, government agencies, and retail and institutional customers.

Particulars	Genus Power Infrastructure	HPL Electric and Power
Market Cap (in Rs billion)*	64.8	18.6
Order book (in Rs billion)**	169	15
Market Share**	27.00%	20.00%

Source: Equitymaster, company presentation|*as on March, 13, 2024|** as of September 2023

If we compare them based on market cap, Genus Power Infrastructure is leading with a market cap of Rs 71.8 billion (bn), and HPL Electric and Power has a market cap of Rs 20.5 bn.

Genus Power also has a higher order book of Rs 140 bn, compared to HPL Electric and Power, which has an order book of Rs 15 bn, out of which 82% is dominated by meters and systems.

In terms of market share, Genus Power Infrastructure is leading with a 27% market share in the meters industry and a 70% share in the smart meters industry.

HPL Electric and Power is right behind Genus Power Infrastructure, with a 20% market share in the domestic electric meters market.

If we compare the two companies in terms of their performance on the bourses in the last year, HPL Electric is leading with a 280.9% return, compared to Genus Power's 163% return.

# Revenue

In the last five years, HPL Electric and Power's revenue has grown moderately at a CAGR of 1.7% whereas Genus Power's revenue saw a degrowth of 5.1% during the same period.

High orders from the government and other clients and a diversified revenue profile have helped HPL Electric to grow its revenue.

For Genus Power, a shortage of semiconductors led to a fall in capacity utilisation, which ultimately caused a fall in its revenue.

Both companies have high-order books, which provide revenue visibility in the medium term.

In addition, capacity utilisation is also improving, indicating that companies are poised for growth.

Revenue

Net Sales (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Genus Power Infrastructure	10,663	10,765	6,539	7,444	8,221	-5.10%
HPL Electric and Power	11,632	9,811	8,792	10,182	12,658	1.70%

Source: Equitymaster

# Profitability

In terms of profitability, HPL Electric again outpaced Genus Power.

The company's earnings before interest, tax, depreciation, and amortisation (EBITDA) grew at a CAGR of 3.3%, whereas Genus Power Infrastructure's EBITDA declined by 6.9% (CAGR) in the last five years.

Both companies saw a fall in net profit in the last five years. However, HPL Electric managed to expand its operating profit margin, while Genus Power's margin contracted slightly.

High margins in smart meters segments have helped HPL Electric maintain its margins, whereas a fall in revenue affected Genus Power's profitability.

Going forward, the profit margins of both these companies are expected to expand due to high demand and a strong order book.

Profitability

EBITDA (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Genus Power Infrastructure	1,124	1,555	1,019	596	787	-6.90%
HPL Electric and Power	1,335	1,249	1,190	1,251	1,569	3.30%

PAT (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Genus Power Infrastructure	498	735	697	584	296	-9.90%
HPL Electric and Power	327	219	100	78	302	-1.60%

Gross Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	10.60%	14.70%	16.70%	8.70%	9.70%
HPL Electric and Power	11.50%	12.80%	13.60%	12.30%	12.40%

Net Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	4.70%	6.90%	11.50%	8.50%	3.70%
HPL Electric and Power	2.80%	2.20%	1.10%	0.80%	2.40%

Source: Equitymaster

# Debt Management

Genus Power is debt-free as of 31 March 2023. However, the company plans to invest Rs 800 m in capex over the next two years and raise the money through debt.

Given the company's low debt, it has enough scope to borrow capital.

HPL Electric's debt-to-equity ratio has remained constant at 0.1x. Moreover, the company has no major debt-funded capex plans, which ensures the debt levels will remain stable at the current level.

However, it plans to invest in new product development, network expansion, and brand-building initiatives to drive business growth in the medium term.

Debt Management

Debt to equity ratio (x)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	0	0	0	0	0
HPL Electric and Power	0	0.1	0.1	0.1	0.1

Source: Equitymaster

# Financial Efficiency

It is important to examine a company's return ratios to determine the amount of return it generates from its capital.

These ratios also measure the company's financial efficiency. The two return ratios are return on capital employed (RoCE) and return on equity (RoE).

For Genus Power, the five-year average RoE and RoCE stood at 6.4% and 12.4% respectively.

In the case of HPL Electric, the ratios stood at 2.7% and 12.5%, respectively.

In terms of RoE, Genus Power has the upper hand when compared to HPL Electric, and in terms of RoCE, both companies have similar averages.

Financial Efficiency

ROCE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	12.80%	17.40%	13.80%	10.30%	7.50%
HPL Electric and Power	14.10%	11.50%	9,70%	10.00%	14.50%

ROE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	6.40%	8.80%	7.70%	6.10%	3.00%
HPL Electric and Power	4.50%	2.90%	1.30%	1.00%	3.80%

Source: Equitymaster

# Dividend

Both companies pay consistent dividend, but Genus Power pays a higher dividend compared to HPL Electric.

Its dividend payments have grown by a CAGR of 5.5% in the last five years. The dividend yield and dividend payout ratio averaged 0.9% and 25.6%, respectively.

For HPL Electric, the dividend payment grew by a CAGR of 38%, and the dividend yield and dividend payout ratio averaged 0.5% and 10.3%, respectively.

Dividend

Dividend Per Share (Rs)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Genus Power Infrastructure	0.5	0.1	0.4	0.2	0.6	5.5%
HPL Electric and Power	0.2	0.2	0.2	0.2	1	38.0%

Dividend Yield	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	1.40%	0.50%	1.40%	0.40%	0.80%
HPL Electric and Power	0.20%	0.30%	0.40%	0.20%	1.20%

Dividend Payout Ratio	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Genus Power Infrastructure	30.00%	3.50%	18.50%	11.00%	65.20%
HPL Electric and Power	3.90%	4.40%	9.60%	12.40%	21.30%

Source: Equitymaster

# Valuations

The valuation ratios of a company determine its real worth.

The two important valuation ratios that are mostly used are the price-to-earnings ratio (P/E) and the price-to-book value (P/B).

A high ratio, when compared to the industry average and peers, indicates the company is overvalued, and a low ratio indicates it is undervalued.

Valuations	Genus Power Infrastructure	5-Year Average	HPL Electric and Power	5-Year Average
P/E (x)	107.7	30.2	45.2	26.3
P/B (x)	4	1.5	2.4	0.6

Source: Equitymaster

Genus Power Infrastructure's P/E and P/B ratios currently stand at 107.7x and 4x, respectively, whereas for HPL Electric, the ratios are 45.2x and 2.4x.

Clearly, shares of Genus Power Infrastructure are overvalued compared to HPL Electric.

In fact, both companies are overvalued when compared to the industry average and their historical averages.

Which is a Better Smart Meter Stock: Genus Power or HPL Electric & Power?

In terms of revenue growth, profit growth, and financial efficiency, HPL Electric has outpaced Genus Power.

However, in terms of debt management and dividend payments, Genus Power has the upper hand.

Being one of the largest companies in India with a high market share in meter and smart meter market share, the company has an added advantage.

It also has long-standing relations with its reputed clientele, which ensures repeat orders and ultimately results in revenue and profit growth.

Although a semiconductor shortage has hampered revenue growth in the past few years, the company is all set to bounce back post-capacity expansion.

HPL Electric and Power, on the other hand, has a diversified revenue profile which ensures diversification.

Moreover, the company is an established player in electric equipment, which gives it an edge over its competitors in terms of distribution network and diversified clientele.

With the demand for smart meters rising due to the Revamped Distribution Sector Scheme (RDSS), both companies are well poised to grow.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...