HP Telecom India Ltd. IPO: Key Details

HP Telecom India

• HP Telecom India is coming out with an initial public offering (IPO) of 31,69,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 108 per equity share.
• The issue will open on February 20, 2025 and will close on February 24, 2025.
• The shares will be listed on SME Platform of NSE.
• The share is priced 10.80 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Interactive Financial Services.
• Compliance Officer for the issue is Barkha Jain.

Profile of the company

HP Telecom India operates as the exclusive distributor of Apple products across significant territories, including Madhya Pradesh & Chhattisgarh, select cities in Uttar Pradesh, and major urban centers in Gujarat. It offers Apple’s iconic range of devices, comprising the iPhone, iPad, Mac, Apple Watch, and more, catering to the discerning tech-savvy consumers in these regions. While Apple products remain the cornerstone of its distribution portfolio, it also engaged in the distribution of select other brands to diversify its offerings and cater to a broader customer base. In FY 2023-24, it secured the exclusive distribution rights for ‘Nothing’ in the state of Gujarat, allowing it to enhance its product lineup with innovative offerings.

Further, expanding its market footprint, it commenced trading operations in Karnataka in the current financial year. Its trading activities in Karnataka include Apple accessories, Nothing smartphones, and related accessories. However, the company has not entered into any formal distribution agreement with any brand for trading operations in Karnataka. Instead, it procures products through authorized channels and engages in trading to capitalize on emerging market opportunities in the region.

Despite this diversification, Apple products continue to drive a significant portion of its revenue, contributing over 80% to its overall earnings. The remaining revenue is generated through the sale of other brands, including JIO Recharge, JIO Phones, INFINIX Mobiles, etc. This balanced approach helps it to stay strong in the market while taking advantage of new opportunities in the fast-changing technology world. 

Proceed is being used for:

• Funding of working capital requirements of the company
• General corporate purposes

Industry Overview

The global electronics industry was estimated at $2.9 trillion in 2020. The Indian government has widely recognised the strategic importance and growth potential of this industry in its National Policy for Electronics (NPE) 2019. NPE was unveiled with a vision to make the country a comprehensive hub for Electronics System Design and Manufacturing (ESDM) by developing a supportive environment for the industry to compete with global peers. Moreover, the ESDM industry is one of the top 25 priority sectors in the government's Make in India initiative; therefore, it is a crucial contributor to economic growth. Indian policymakers have put great emphasis on developing sustainable manufacturing and exports of electronic devices. Overall, electronics manufacturing saw exponential growth to reach $67.3 billion in 2020-21 from $37.1 billion in 2015-16. India aims to achieve electronics manufacturing worth $300 billion by 2026. 

Consumer electronics covers any device that contains an electric circuit board that is handy in everyday use by people for the purpose of recreation, entertainment and communication. This encompasses a large category of electronic products, including cameras, digital cameras, visions, calculators, audio devices, clocks, headphones and various home products. According to the Federation of Indian Chambers of Commerce & Industry (FICCI), India's television production was $4.24 billion in 2020-21 and is anticipated to reach $10.22 billion by 2025-26, expanding at a Compounded Annual Growth Rate (CAGR) of 20%. The kind of television sets available in the market includes a wide variety of LCDs, plasma, LEDs and so on, offering high resolution and sharp picture quality. Additionally, a decreasing trend in the pricing of LED and LCD televisions is fueling the penetration of such televisions in the market.

Electronics manufacturing needs large-scale operations to be competitive globally. Moreover, different processes in electronics manufacturing are labour intensive and, therefore, would require adequate labour in developing the requirement for plug-and-play facilities like dormitories with optimum facilities. For reducing turnaround time and ensuring rapid operationalisation of electronics manufacturing units, it is essential for the government to construct dormitories on the lines of plug-and-play simulation. Such challenges bring in opportunities for countries like India and will help set the right foundation for its $5 trillion economy goal. India has the potential to be among the top electronics exports by country, and the government is dedicated to making India a global hub for exports. 

Pros and strengths

Exclusive distribution rights: The company being the exclusive rights of distributor to distribute Apple products in a Chhattisgarh, Madhya Pradesh, some cities in Uttar Pradesh and major cities in Gujarat, it provides a significant competitive advantage by limiting access to competitors and establishing a strong market presence. The exclusive distribution rights give the company significant control over the distribution and marketing of its products within the designated territory. This allows it to tailor its strategies to suit local market conditions and consumer preferences. This can also lead to increased market share, higher sales, and greater profitability.

Strong brand reputation: A strong brand reputation is a valuable asset that embodies trust, credibility, and loyalty among consumers. The Apple products are globally recognized for their quality, innovation, and user experience as its more than 80% of the revenue comes from the distribution of Apple products in the designated territories. Being associated with the Apple brand enhances the distributor’s credibility and attracts customers seeking premium technology products. A brand with a strong reputation commands respect and admiration in the marketplace, leading to increased customer loyalty, positive word-of-mouth referrals, and competitive advantage. A robust brand reputation not only attracts new customers but also fosters enduring relationships with existing ones, driving sustained growth and profitability for the business. Hence, it is enjoying the reputation of its product brand.

Robust network and relationships with suppliers: The company’s Promoter and Managing Director, Vijay Yadav has a strong relationship with suppliers which is foundational pillars for the seamless operation and success of any business. By fostering strong connections with suppliers, a company can ensure a consistent and reliable supply of raw materials, components, and services essential for its operations. These relationships enable efficient communication, collaboration, and problem-solving, facilitating timely delivery, quality assurance, and cost optimization. Moreover, a well-established network of suppliers provides flexibility and agility to adapt to changing market demands, mitigate risks, and capitalize on emerging opportunities. Through mutual trust, transparency, and mutual benefit, businesses can cultivate enduring partnerships with suppliers, driving mutual growth, innovation, and competitive advantage in the marketplace.

Risks and concerns

Significant revenue comes from limited customers: The company has garnered 28.030%, 29.85% and 38.40% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. However, the composition of revenue generated from these customers might change as it continues to add new customers in the normal course of business. Its revenues may be adversely affected if there is an adverse development with such customer, including as a result of a dispute with or its disqualification by such major customers which may lead to decline in its revenue, cash flows and liquidity and there is no conflict of interest between the suppliers of the raw materials and third-party service providers and the company, Promoters, Promoter Group, Key Managerial Personnel, Directors and the Subsidiary/ Group Companies and its directors. Further, if its customers are able to fulfil their requirements through any of its existing or new competitors providing services with better quality and lower commission and fee, it may lose significant portion of its business and revenue.

Maximum revenue comes from the distribution of Apple’s range of devices: The company derives its majority of revenue from the distribution of Apple’s range of devices, including the iPhone, iPad, MacBook, Apple Watch, and allied accessories, as an exclusive regional distributor of Apple products for the state of Madhya Pradesh & Chhattisgarh, some cities of the state of Uttar Pradesh and for majority of cities in Gujarat. Many factors are important for maintaining, developing and enhancing brands, and retaining customers of a brand, including increasing brand awareness through brand building initiatives and ensuring customer satisfaction by providing quality customer service. In the event of further development of technology or growing popularity of alternate products which its brands partners are unable to counter, the products of brands partners may become obsolete.

Stiff competition: The company’s business is highly competitive. It expects that competition will continue to intensify both through the entry of new players and consolidation of existing players. Its competitors, may have greater financial resources, better distribution network, technical and marketing resources and generate greater revenues, and therefore may be able to respond better to market changes than it can. The industry in which it operates have low entry barriers and therefore it cannot assure that its current or potential competitors will not provide products comparable or superior to those it provides or adapt more quickly than it does to changing consumer preferences and market requirements, at prices equal to or lower than those of its products. Increased competition may result in its inability to differentiate its products from those of its competitors, which may lead to a loss of market share.

Outlook

HP Telecom India initially concentrated on distributing mobile phones and accessories. The company secured exclusive distribution rights for Sony LED TVs, Mobiles, and other brands in Gujarat during the fiscal year 2014-15. It also expanded its product portfolio to include LCD/LED home theatres, air conditioners, and other appliances. On the concern side, a significant majority of its revenues from operations are derived from a limited number of customers, and any decrease in revenues or sales from any one of its key customers may adversely affect its business and results of operations. Moreover, the company is dependent on original equipment manufacturers for the telecommunication products it distributes. Any delay or failure on part of such global technology brands to supply products may materially and adversely affect its business, profitability and reputation.

The company is coming out with an IPO of 31,69,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 108 per equity share to mobilize Rs 34.23 crore. On performance front, the company’s total revenue was Rs 1,05,891.92 lakh in FY24, which is increased by 66.10% in compare to total income from operations of Rs 63,750.83 lakh in FY23. Moreover, the company’s PAT is Rs 860.49 lakh for the FY24 in compared to Rs 635.23 lakh in FY23. The PAT was 0.80% of total revenue in FY24 as compared to 0.99% of total revenue in FY23. 

The company is in continuous efforts of increasing market share of existing products or services within designated territories. It is also in intensifying efforts to capture a larger portion of the target market through aggressive marketing tactics, sales promotions, and distribution channels. It is also making efforts to add more states in its designated territories. The long-term strategic vision of the company is to transitioning from a major regional distributor for Apple to becoming the Direct Partner of the Apple for India. This ambitious move is not merely a progression, but a pivotal step poised to unlock substantial growth opportunities. As an Apple Direct partner, the company anticipates an enhanced value proposition, exclusive benefits, and a more direct and streamlined relationship with Apple. This strategic shift positions the company for accelerated growth and increased influence within the market, solidifying its status as a key player in the distribution ecosystem.