KEI Industries Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. We have our first question from the line of Praveen Sahay from Prabhudas Lilladhar Capital. Please go ahead.

Thank you for taking my questions and many congratulations for a good set of numbers for Q1. So the first question, sir, is related to the expor t. What exactly happened in the export for a decline for the quarter?

We had around INR65 crores worth of cables lying fo r export, but the logistics was in the container placement was in customer's scope, and they delayed the placement of containers due to which a substantial amount of cables around INR65 crores could not be dispatched, which is now being dispatched in July. So we'll be able to m ake up the shortfall in the Q2. We have explained that there is a substantial order books in the export itself, more than INR550 crores at the moment.

So container delay or availability has sorted as pe r you, now we will see in the Q3 Q2 those numbers?

The container placement was not in our scope. It was in the customer's scope, and they delayed the placement.

Okay. Got it. Second thing is related to the dealer-distributor based revenue which has increased 29% and also leads to a 50% to 53% contribution of overall. So is that including the export number? And also, it includes the cable business of ours?

Yes, it's a dealer-distributor business, the wire and cable both.

And we are not exporting any cables through dealers , so it is all the dealer's business is all domestic. The export business, we are doing directly.

Okay. Got it sir. And the second the third clarification is related to the housing wire and winding wire. From the last several quarters, observing tha t's a very good growth in this segment, you are reporting. So if you can give some color of lik e, is it from the housing wire you are getting a growth or the winding wire, which has bring the growth in that segment?

It's basically the wire and flexibles used in the real estate and the rental market etc.

So it's largely real estate based what the growth you are reporting?

Yes, sir. Many real estate.

Okay. And lastly sir can you give some volume growth number for wire and cable, how you had a growth for the quarter?

In volume terms we have done a growth of 18% on the basis of consumption of metal in the field.

Okay. And lastly, sir, on the EHV. Last quarter cal l, you had given that the EHV FY'25 would be flat on the Y-o-Y side. But this quarter also, you had given a very good growth. So is that the guidance for last quarter of a flat EHV for this...

It is flat because the first quarter number last ye ar was very low because of the non-clearances from the customers due to ROW issues. That is why w e are seeing a growth compared to last year. But otherwise, on a quarterly capacity basis, it is flat.

Okay. So your guidance related to flat EHV stands it holds?

Praveenji one thing is we have given the guidance o f 16% - 17% growth for overall for all the products with all the segments for the full financi al year. It is in the normal course, sometimes EHV sales goes up, sometimes goes down also. Someti mes export goes up, goes down also. Sometimes retail goes up, goes down. So it does not matter to us. What matter to us is how we are utilizing our capacity and ultimately, we are a chieving the growth of 16% to 17%. It is not on individual segment or individual product.

Right sir. Got it. Thank you, sir and all the best .

Thank you, sir. We have our next question from the line of Natasha Jain from Nirmal Bang Equities. Please go ahead.

Thank you for the opportunity, sir. My question is a follow-up on the previous question. So you said that there was container unavailability in the export market. Can you also just throw some light as to how the U.S. market performs for you? A nd is there an inherent slowdown in that market?

Madam first of all there was this was not a problem of container's availability from our side. I said that container placement was in the scope of the customer, the overseas customer. And they delayed the placement of the container due to the reasons known to them. So we can't comment on it. But all that material is being dispatched in the month of July. Your second question was?

Sir in terms of the export market especially the U.S. market how does the outlook look like there in the short term?

Yes. The customers we are dealing with in the U.S t he outlook is very good, and we are going to substantially grow business in U.S. in this financial year. Because the base was last year, very low, so we expect that a ballpark figure of INR 200 crores to INR 300 crores coming up from U.S. markets this year.

Understood sir. Sir, can you just give us some sens e in terms of your geographical split in your export market?

Exact I cannot give, but our we have substantial ex ports in Australia and Middle East. Some countries in Africa and US and Europe have started only last year, but Australia is our very big market for last 10 years?

Understood. Sir and one last question can you just call out what kind of cables are we exporting in these markets?

We are exporting medium-voltage HT cables like up to 33 KV to 66 KV. And also cables for oil and gas industry in Middle East and U.S.

Understood. And lastly sir EHV that we manufacture is completely used in India?

EHV some EHV cables we are exporting to Australia a lso, but mostly we are selling in India. But we are working on developing exports of EHV cables which may start from next year.

Sure sir. Thank you.

Thank you. We have our next question from the line of Venkatesh from Axis Capital. Please go ahead.

Thank you for the opportunity. Just one very simple question I mean one of your most important competitors in India and who also exports a lot of cables outside India has been telling the broader market that they have been actually rejiggi ng the distribution network. Just like you, they used to also sell all their cables directly to customers, now they are trying to sell it via distributors. Now but you do continue to sell through directly to the customers and you are not trying to set up a distribution network. So can you kind of tell us what are the pros and cons of each of them and why you are not attempting to do it? And why wh at you're trying to do is better for KEI, some kind of perspective.

Our export model is has always been direct business . We are not developing any distributor in overseas markets. And because we feel that access to the end user and the end customer and the contractor gives us better margin and better sustai nability and regularity in the business as compared to distribution.

Now while you are at current levels, let's say, 2 t o 3 years down the line when your size is significantly bigger on the export side. Will the fact that you're only going directly impact your reach to how many customers you can reach? So any particular thought on that?

I think we will definitely review that strategy may be in the next 6 months to 1 year. At the moment, we are not working on that strategy of developing distributors, but we may review it.

Okay. And one last question from my side. When we actually see the exports of cables and wires from India to the U.S., we are actually seeing that one is calendar year for calendar year '23. Because the data is available on a calendar year ra ther than on a financial year, there is a deceleration in terms of exports from India to U.S. , in terms of exports of wire. What was 30% to 35% for the past 2 years, in calendar year '23, the growth is only 6% for the full year, exports of wires from India, And especially in the U.S we are seeing last two to three quarters exports have started declining. Now what I'm trying to drive is this something related to there is some issue with the end market? Or it is just that amongst the people supplying, on e of your key competitors is a large exporter and they themselves are having a problem that is why these numbers are showing to be weak or is there a problem with the end market?

I don't think there is a problem with the end marke t. Maybe the problem with their individual company exporting from India. Secondly, our export to US was very small last year because we just started last year. And we are only selling cables. We are not selling conductors or any other materials. So we will be comparing our exports comp ared to very small numbers of last year. But our export into US should be substantial this year as per the order availability with us.

We are not exporting wire to any country.

We are only exporting cables that to for power cables and for oil and gas industry.

Understood. Thanks a lot. All the very best.

Thank you, sir. We have our next question from the line of Amit Mahawar from UBS. Please go ahead.

Anil ji and Rajeev ji congratulations on a very sta ble growth and profitability. Sir you have multiple expansions. By 2027 most of the capacity t hat you're planning will be normalized and available for full year, right, first full year, so roughly around by that time, if you do INR13,500 crores turnover, your exports should be mostly arou nd INR2,000 crores by then. Is that a right assessment?

Yes, maybe more than that.

Amit ji house wire business in our company is growing close to 20% plus year after year because our base is also low. But still we are focusing to grow at 20% to 22%. Because in all the aspect, we are adopting a disciplined approach so that over all growth of the company should be 16%, 17% plus. Accordingly, we are creating the capacity either for wire or for cable. And continuously, we are increasing the capacity in our existing factories for the wire also. That's how we are growing in a disciplined manner.

Great sir. Thank you so much. One last question, so in the next 2-3 years, the kind of growth we have, your cash flow will still be maybe much better than what you had in the last 3-4 years. So Anil-ji, beyond the current capacity, and I am more talking about the next progression in business beyond just cables, how should we think about the next 4 to 5 years on this company in terms of more B2C businesses if you have in mind around adjacent segments?

At the moment we have no plan to add any new produc ts in the B2C business. If something comes up in our mind, we will definitely let you kn ow in advance. At the moment there is no plans.

Okay. Thank you sir and good luck.

Thank you, Amit ji.

Thank you, sir. We have our next question from the line of Manoj Gori from Equirus Capital. Please go ahead.

Thanks for the opportunity and sir congratulations on a good set of numbers. So my question here if you look at if we go back in FY'24 and then we see that we grew by roughly around 17% on top line front. So can you bifurcate like probably what was growth from government related orders or probably private orders and probably how you are expecting this to shape up in the coming years? Any qualitative answer over there that would be helpful?

Sir private orders are mainly coming from solar power developers and industrial projects in the domain of cement, steel and other miscellaneous ind ustrial projects like pharma or any type of industry which is coming up. So far as government o rders are even a lot of transmission and distribution project orders are now coming from private discoms. A lot of private distribution companies a lot of di stribution companies in various parts in India are privatized and like CESC like Torrent Power and like that. So a lot of orders are from such companies also. At the moment we don't have any quantification of and dealers when they buy, I mean we have to collate that whether they are sel ling to a private sector or to a they may be selling to a contractor whose end customer is may b e government, but we don't have available data at the moment.

Correct sir. Got it. So secondly if you the sectors that you just mentioned, anything you see in the coming years probably you're getting incrementa lly positive demand drivers from these sectors or probably in some of the sectors you are seeing some headwinds. Any read over there?

I think if we talk of any individual sector at the moment, I think solar has as an individual sector has substantial demand in this year, but otherwise all sectors are doing well. And we hope that from next year, a good demand should come from the newly started extensions in thermal power projects and even pump storage projects for generating power.

Correct, sir. Sir, lastly, on the margin side, obvi ously, you have been very kind in highlighting the top line guidance. Can you throw some light like where we see ourselves at the end of FY'25 on the margin trajectory?

Close to 11%. We have earlier also guided the same thing and growth of 16% -17%.

Yes. And sir, what would be the price hike at the e nd of June month versus, let's say, February of FY '24?

Price hike?

Yes.

Depends on the copper movement. See if we say as co mpared to February and June, average price hike might be 7.5% to 8%, but we keep on adjusting our prices depending on the input cost and the metal prices like copper and aluminium.

Correct sir, thank you and wish you all the best.

Thank you, Manoj ji.

Thank you. We have our next question from the line of Ananya Purushottam from Cogito Advisors. Please go ahead.

This is Andrey Purushottam. Anil ji and Rajeev ji congratulations once again for giving such consistent and great numbers. I just heard you say about the margin guidance for FY '27. If you look at the various years, you've delivered between 10% and 11% consistently. Is there a possibility and the promise of upping this margin a spiration from 11% to 12% or somewhere between 11% to 12%. Is it possible? Is it aspirational?

See earlier also commented on this topic. As our capacity get in place, then because of economy of scale, we will be achieving higher margins. That is possible. Next 3 to 4 years, we will be adding into the margin at least by 1% plus mainly because of economy of scale.

In the 3-4 years' time period you are saying?

Pardon?

Maybe '26, '27 because by '26, our capacity will be in place of extra high voltage.

Right. Okay. And one more clarification I had. You have shown this amount of channel financing that you are doing has reduced. That actu ally means that the amount of channel financing availed by dealers have been...

Channel financing is reduced mainly because of the basically, the FLDG amount increased by the bank. Earlier it was used to be 50%. Now all th e banks have reduced to the level of 15% to 25% FLDG. So the recourse has basically reduced.

Sorry what is the FLDG?

It's basically First Loss Default Guarantee. We need to give to the bank. It's basically a recourse. So the recourse percentage has decreased.

So our risk for channel financing has reduced by 50%.

So therefore, the amount of channel financing by t he availed by the dealer has increased. Am I right?

Yes, that has increased.

It has increased.

That is increasing because our sale is also increasing.

Right. Also the proportion of dealers who are avai ling for channel financing how much is it in today’s date?

Close to more close to 550-plus dealers are under c hannel financing and close to 70% of our total dealer distributor sales are covered under the channel financing scheme.

Okay. And can that move further or since you have. ..

It is improving further because as the dealer is ge tting old by 7 to 8 months, we are covering under channel financing because we are making a new dealer distributor also.

Okay. And just one comment...

And apart from the channel finance or the recourse reduction, we have taken the receivable insurance for all the receivables, whether it's an export receivable or it's a domestic receivable or it's a retail distributor receivables.

Okay. And just one comment I wanted to make that A nil-ji just now clarified that you have no intention of getting into B2C enterprises at this point of time. That actually is very reassuring to us because it means that you are sticking to your c ore strength and businesses, and that is reassuring to investors?

Yes, Purushottamji we are focusing in our strength, and we are focusing in our product domain where we are having the specialized.

Okay. Thank you very much sir.

Thank you, Purushottam ji.

Thank you. We have our next question from the line of Keyur Pandya from ICICI Prudential Life. Please go ahead.

Thank you. Sir a couple of questions. So first, on the capacity side. Just to get clarified so Silvassa INR100 crores of capex and Bhiwadi INR110 crores of capex for LT cable, these two are the capex which would be available for FY '25? And am I missing any other capex which got commissioned or is about to commission in near term?

In FY '25, a little bit capex will go into the Silv assa plant because that plant since last 2 years, we are adding the capacity because we are adding th e capacity of cable, we are adding the capacity now into the wire also. So now even every inch of land is completing by second quarters. So nothing will be available for us to further expand in those places. Only now expansion will go on for the new Greenfiel d projects of the Sanand which is Ahmedabad. So as Anil-ji said that in the current y ear INR900 crores to INR1,000 crores and next year INR 500 crores to INR600 crores will go i nto the same place for all the Greenfield expansion completion.

No sir, what I was asking is, I mean, we were suppo sed to start Silvassa expansion around INR100 crores in March '24 and Bhiwadi expansion fo r LT power cable for exports from June '24, which you mentioned that which will start in J uly, August. So these 2 are the additional capacities available for 2Q in FY '25? Or is there anything else also or rest of the capacities are fully utilized?

It will be available for capacity addition and that 's how we are growing in the current financial year 16% to 17% kind of things.

Okay. One follow-up is on the EHV side. Now EHV is fully utilized and the next EHV expansion would come in Gujarat Greenfield. So till that time , saying, including FY'26, the EHV would remain more or less flattish, is that a correct understanding?

Yes, sir but Product wise it sometimes grows up or sometimes goes down also, but the capacity utilized not only for EHVs, capacity utilized for the basically medium voltage power cable also, the same capacity.

No, he was saying that it's a continuous process to add more strength in dealers and to increase the geography also to reach increase. So just a continuing process actually. It is not a one time I would say continuing process.

Okay noted. I have a couple of questions. We will get back in the queue. Thank you and all the best.

Thank you, sir. We have our next question from the line of Achal Lohade from Nuvama Institutional Equities. Please go ahead.

Good afternoon, sir. Thank you for the opportunity . Just wanted to check in terms of our categories in cables and wires, is it possible to g et what kind of market share? And is there any wide space, is there any particular SKU which we can still look at adding over medium term?

We have already covered, I think.

I think we have already covered market share. I mea n, close to 12% in the cable. And what do you mean by wide space you mean to say that where t he capacities are demand is more and capacities are less. That is what do you mean by wide space?

No, I mean like you mentioned about the oil and ga s industry the exports for the oil and gas industry sector something on those lines whether it is railways, whether it is solar, wind, etc.

Yes, we are mostly exporting cables for solar proje cts, wind projects, oil and gas projects and transmission and distribution projects. These are t he main and, in some areas, we are even exporting to some industrial projects as well.

Got it. And just to clarify, you said the metal co nsumption growth is 18% Y-o-Y for the quarter. Have I understood right, sir?

Yes.

Actually, this 18% for the production. So we have p roduced more, actually. Like Anil-ji explained some of the export materials which we'll be selling to in this financial year in the second quarter, it is like this only.

Understood. Apart from exports, is there any incre ase in the inventory days, in terms of finished goods?

No, inventory because almost our 50% sale is to the institution and close to 50% to the retail. So in that 50% institutional sale, it is a normal figu re. Sometimes material get delayed because of the inspection or something else. But overall, ultimately, the growth rate will be 16% to 17% for full year basis.

Yes.

Got it. Understood sir. Thank you and wish you all the best.

Thank you. We have our next question from the line of Arshia Khosla from BOB Capital Markets. Please go ahead.

Thank you for taking a question, Sir can I just ge t the order book bifurcation?

Order book costs close to EPC in the EPC side, the order book is INR 653 crores. Extra high voltage power cables, INR 333 crores. Institutional order for the cable and domestic market, this is INR2,052 crores and export market order is INR 552 crores, total is INR 3,590 crores.

Okay Thank you Rajeev sir and also, I just wanted to understand the advertisement expenses for quarter and what will be the trajectory going forward?

It is close to in the range of INR 10 crores and the same kind of expenditure will be on a quarterly basis.

Sure sir. Thank you.

Thank you. We have our next question from the line of Praveen Sahay from Prabhudas Lilladher Capital. Please go ahead.

Thank you for a follow up question, It's related to the increase in the debt and reduction in the cash as well. So these are because of expansion so around INR100 crores cash has been reduced, if I look at March...

Yes, for the capex, it will go on increase because we are taking the term loan of close to INR300 crores to INR400 crores for the new project wherein we will be investing around INR1,700 crores to INR1,800 crores of the total cost of the project. Close to as per the need maybe INR300 crores to INR500 crores we will avail term loan and balance we will be from the internal accruals. As of now working capital utilization is not there because we are having the cash. But for the term loan, we will start availing.

Okay. Great. And the second question sir related to the branded housing wire. As you have mentioned that the growth has been very good and th e way forward also around 15% of the growth you are expecting. So can you give some geog raphical presence where you are largely present and how much of the market share you are holding in this segment?

Our sales close to 36% plus from the Northern regio n and close to 27% to 30% on the Western region. And 17% to 19%, we are in the Southern region and balance is from the Eastern region. That is for our geographical breakup of the dealer distributor.

Because we are selling to EPC contractors, in our books, the customer is EPC contractor actually. So that's the EPC contractor is buying for the other projects also, not only for solar, but the other projects also.

Okay. Got it sir. Thank you, all the best.

Thank you, Praveen ji.

Thank you. We have a follow-up question from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.

Thank you for the opportunity again. Sir, just one question. So we have seen strong house wire, winding wire sales. I mean just if you can give some idea on how the end industry, or our industry is growing and probably we're growing faster than that. So just color on how industry is growing the end demand and the primary sales also, I mean, we have seen with other players that they have seen some impact of destocking on their primar y sales. So at the industry level has the destocking because of the copper prices decelerated. So some color on the industry in the house wire?

First of all, these are the normal things because e very time copper will go copper will increase, copper will decrease. Depending on the behaviour of copper increase, the distributor also wait and some time they buy extra. So these are the normal picture related to this industry, actually. Industry directly belongs to the consumer side for the individual houses and on bungalows. And for all the larger cities, industries belongs to th e real estate projects, which are the multi-storey buildings are coming up. So these things are continuing going up. But the nature of the industry will remain as it is actually because of the copper.

So but what has been the growth in the end-user demand that is secondary or tertiary sales? Are we seeing any pickup based on real estate deliverie s in larger cities? So any color on the end industry demand at the secondary level?

I think end industry demand is growing. It's only that sometimes due to fluctuations in the copper prices, dealers delays the lifting of material for maybe 15 days, 20 days. But beyond that they don’t they cannot delay. Ultimately, there the end user is requiring the material. So I think that any offtake due to the copper may be temporary.

It is part of the nature of the industry. It's going on every time.

No sir, I basically just wanted to understand that the industry will the consumer demand is growing into the single digit or high double digit I mean, any idea on growth rate of I mean, we have seen that cables are growing faster than house wires?

It is basically higher double demand higher double digit because lots of individual bungalows are being made in all over the country. And the rea l estate projects which was not which was earlier not there in the larger city since last 1.5 -2 years, these projects getting announced and they had started the projects. So this demand they are coming up now.

Noted. Thanks a lot and all the best.

Thank you. As there are no further questions, I wou ld now like to hand the conference back to the management for closing comments.

So thank you very much for an interacting with us o n this conference call. And we assure you that company is on the right path and will be growing as per the guidance. And if you still have any further questions, you may reach out to us. Thank you very much.

Thank you everyone.

Thank you very much.

Thank you so much, On behalf of Monarch Networth Capital, that conclud es this conference. Thank you for joining us and you may now disconnect your lines.