Ladies and gentlemen, good day, and welcome to the KEI Industries Limited Q2 FY 2024 earnings conference call, hosted by Monarch Networth Capital. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Dani from Monarch Networth Capital. Thank you, and over to you, sir.
Yeah. Thank you, Ray. Good afternoon, everyone. On behalf of Monarch Networth Capital, we're delighted to host the senior management of KEI Industries today. We have with us Mr. Anil Gupta, Chairman and Managing Director of the company, and Mr. Rajeev Gupta, CFO of the company. We will start the call with opening remarks from the management, and then we'll move to Q&A. Thank you, and over to you, sir.
Yeah. Thank you very much. Good afternoon to everyone. I'm Anil Gupta, Chair, CMD, KEI Industries Limited. Along with me, Mr. Rajeev Gupta is there, CFO of the company. Thank you very much for joining us on this conference call. I'll give a brief about this quarter results, as which you must have gone through. The net sales achieved is INR 1,946 crores. There's a growth in net sales at 21%. EBITDA in this quarter is 10.87%, which is grown by 27.53% compared to last year.
Profit after tax in this quarter is INR 140.2 crore, so which is 7.2% of the net sales and grown by 31% compared to last year same period. The major highlight is that the export sale in this quarter has jumped significantly to INR 249 crore, with a growth of approximately 79% compared to previous period last year. Sales through dealer network has grown by 14%, so it is INR 923 crore against INR 808 crore last year. So the sales through distribution network is 47% of the total sales in the Q2. The sales of extra high voltage cabling is INR 169 crore, which is...
which has grown substantially compared to last quarter and last financial year. It is mainly because the, in Q2, so in the Q1, some cables manufactured could not be dispatched due to non-clearance from the customer due to ROW issues. But we will see a healthy trend in the EHV cable in the coming quarters.
The net sales in first half, six months, in H1, in financial year 2023-2024, is INR 3,729 crore. And growth in the net sales in first half is 17.51%. EBITDA has grown by 21% compared to the same period last year, and EBITDA on the net sales margin is 10.68%. Profit after tax in H1 is INR 261.59 crore.
So the PAT has grown by 24% compared to same year, last year. Profit after sales, net sales margin is 7% as compared to 6.64% last year. The total volume increase in the cable division on the basis of production, for consumption of metal in H1 is around 26%.
The pending orders book at the moment is INR 50,363 crore in the company, which does not include the retail orders, which we do not count in the order booking because, they come and dispatched, from the stocks or from the depots, within a few days. The rest of the commentary is already available with you, which you may please go through, and we are there to answer your any questions.
I'll brief you about the industry outlook. Yeah, we have, we see a reasonable and good outlook for the wire and cable segment in the coming quarters from the government infrastructure pipeline as well as from the, you know, real estate. We also are seeing good traction of core demand from our overseas customers.
I would like to talk about the I mean, actions taken by the company for incremental capacity creation. Company has incurred a capital expenditure of INR 221 crore during first half of current financial year. Earlier company had planned a brownfield CapEx of INR 45 crore-INR 50 crore at our Chinchpada plant at Silvassa.
Now that we have increased the CapEx to INR 110 crore in Chinchpada plant, which will increase our capacity for house wires and LT-low tension power cables by approximately 800-900 crore per annum, out of which INR 240 crore per annum capacity has been in place in October 2023, and balance capacity and another similar capacity will be available by December in this year, and the rest will be available for production by end of this financial year.
Another greenfield with brownfield expansion is being done at our Pathredi plant in Bhiwadi, with approximate cost of INR 110 crore, which will increase our capacity of low tension power cable by approximately 800-900 crore per annum.
It will be operational in the Q1, quarter one of 2024-25 financial year. That means, by May or June 2024. This will enable us to grow by approximately 16%-17% in current financial year, and also, 15%-16% growth in the next financial year as well. Apart from these brownfield CapEx, in financial year 2023-24, the company has planned to increase INR 250-300 crore CapEx on greenfield expansion for cables and wires in Gujarat, at Sanand.
The construction has already started. We expect the first phase of the commercial production will commence by Q4 of FY 2024-25. Further, we will spend every year in capital expenditure approximately INR 300 crore-INR 350 crore for next 2-3 years, and to maintain a CAGR growth of 15%-16% per annum.
The demand generation.
So we expect a you know good growth in the company's business from domestic market as well as exports in the coming financial year and the subsequent years. We are focusing on geographical expansion in the export markets and also you know expansion in the customer base, and we expect we are getting reasonable and good results from our efforts. I would like you to now come back with your questions, and we are ready for the questions and answers in on these aspects. Thank you very much for listening.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press * and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press * and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press * and one. The first question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Thank you so much for the opportunity. Good afternoon. So first question was, is there a reclassification of dealer sales? Because I can see revisions in Q1 numbers.
Yeah, Rahul, like, binding wire products here, that we have reclassified. Earlier it was shown in the institutional sales, so it has been reclassified. And some other regrouping also, so that's why we have reclassified, but the total sales remain same, only institutional versus retail has reclassified.
Actually, binding wire was always sold through dealer network, so it was never a, I mean, institutional sale.
Okay. Okay, get it. So, you know, after this reclassification, could you help me understand, overall, the dealer distributor sales? I think my sense was we were growing faster there. What is the full year outlook for this segment?
This outlook is also there, because in the wiring segment, if you see, we have, we have grown in, first half level is close to 22%. And in the cable, because of the capacity, we are diverting this capacity to the export now.
So it is sometime export is higher, sometime dealer distributor is higher, sometime EHV is higher, so that will remain the same. But as an overall, we will grow 16%-17% in the current financial year, and the same kind of growth we will see on the basis of the capacity expansion which, our team just highlighted in the next financial year also.
Got it, sir. Very clear. Second question on EHV, full year, I think INR 550 crore-INR 600 crore, that guidance remains?
Yes, that guidance remains.
Okay. Anything specific on steel wire sales? Because that looks like it's a bit volatile.
Steel wire is basically metal. It all depend on the pricing.... So sometimes it goes up, goes down, but the production level is same. See, we, the capacity is, segment, we are not, increasing the capacity over there. Our production in, quantum, in quantity is, has grown, but because of the substantial fall in the stainless steel prices, the, the, value sales has gone down, but in, in tonnage, it is, it is, it has improved.
Got it, sir. What is the peak revenue here we can achieve in assuming current pricing for steel business?
We can achieve 750 tons per month at our best capacity, and at the moment, we are operating almost between 700-750 tons per month, month after month, month to month.
Got it, sir. Last question, after this brownfield, which got completed, I think, Silvassa INR 240 crore is completed, and it will come in phases. Just to understand this better, the peak revenue potential for the company overall across all segments put together, if you would help me with that number as of September?
As of September, the capacity utilization in the wire and cable segment is close to 97%-
Yes.
in the cable segment. But in the case of the housewire segment, it is 89%.
Seventy percent.
So now we are adding the capacity in the housewire also, which Anilji has said that it will be added in by March, and in the cable also, which will be added in the phase, some in December, some in March. And then in the Q1, our Pathredi plant will add. So approximately, new capacity addition, like October, we added INR 240 crore, another INR 240 crore will be added in December, and another INR 500 crore will be added by the, by the
Eighty-nine percent.
Our housewire division capacity utilization was 70%, actually, so we have sufficient capacity over there. So these additions in Chinchpada will be there. And then the Pathredi plant, approximately INR 800 crore-INR 900 crore capacity for next year, it will be there. So because of this new capacity addition in our existing locations, we will be able to grow the same kind of growth which we are growing in this financial year. And after that, the new greenfield capacity will be available.
Correct, sir. So basically, Bhiwadi and Silvassa adds about INR 2,000 crore of top line. Is that correct? Approximately.
What are you saying?
I'm saying, Silvassa, the brownfield additions are adding up about INR 700-INR 800 crore of top line, and the Bhiwadi-
Basically INR 1,100-INR 1,200 crore.
So overall, INR 2,000 crore-
Plus Pathredi is 800, so you are right, INR 2,000 crore addition.
Overall, INR 2,000 crore worth of capacity will be available by end of this financial year.
Perfect, sir. I'll come back in with you. All the best. Thank you so much.
Thank you, Rahul.
Thank you. The next question is from the line of Shubham Agarwal from Axis Capital. Please go ahead. Shubham Agarwal from Axis Capital?
Hi. Hi, thanks for the opportunity. Just a question on the greenfield capacity additions that are coming. So can you give a sense what are the percentage increase in capacity or the peak revenue or the revenue potential of these capacities in phase one, phase two, and phase three, similar the way you've given for the brownfield capacity?
So in greenfield, we are spending around INR 1,000 crore over there. We will generate 4,000-4,500 crore capacity. The phase one will be approximately 2,000 crore capacity will be added by the Q4 of the next financial year, and the last we will be adding in 2025-2026.
Okay. So on the brownfield, just reconfirming if I've got it right. In the Silvassa plant, INR 240 crore revenue potential capacity has been added in October 2024. INR 240 crores will get added in Decem... Sorry, October 2023. INR 240 crores will get added in December 2023, and the balance about INR 300 crore will get added in March 2024.
Correct.
Is that right?
Correct.
Okay, sir. Bhiwadi plant, Q1, the whole INR 900 crore will get added in Q1 FY 2024, Bhiwadi?
Yes. 2024, 2025.
Right. Q1 FY 2024-25. Sorry, yeah, Q1 FY 2025. And how, just a related question, how long does it take us to, you know, ramp up these capacities to 100% utilization? I believe brownfield capacities will be very, you know, the utilization can come up really fast, so if we add in October end, October 31, we added a capacity, we can reach peak utilization for that plant in, say, how many days?
Since we are having the order book position, so in Chinchpada plant, the LT power cable we are adding, we will be utilizing immediately.
Okay. It doesn't take. It's not like a phased stream. Got it. That's it. A question on, you were answering the last participant that, you're diverting your current capacities to exports, the cable capacities. I believe, last quarter you were saying that you'll be, focusing on servicing the domestic demand first and then going on to export, going on to service the export demand. With that understanding-
We are serving domestic institutional, we are continuously serving, but once we get the export order, we have to deliver on time... So that's why I said that, we are, this export has increased, but the dealer distributor, the cable division has not increased to that extent, but the market is available.
And it will always be the case, sometimes EHV will increase, sometime HT will increase, sometime low tension power cable increase within the product. And within the segment also, sometimes the dealer distributor will increase, sometimes the domestic institutional will increase, sometimes the export will increase. So overall, put together with the diversified basis, whether it is a product or it's a customer base, we will be growing in a 16%-17% per annum basis.
It is not the case like in the last quarter, where the EHV sale was low, low, but still we have grown. In this quarter, so again, our growth rate will be the same, will be, very, very stable.
Right. So yeah, so I get that. So my intention of asking was that since you were saying that we'll incrementally divert more capacities towards exports, are you sensing any kind of a slowdown in the domestic demand for cables, maybe because of elections or something? That was my intention of asking.
No, no, no, no, no. There is no slowdown, but we have to create a balance with our available capacity for, yeah. See, now we are going to create a INR 2,000 crore worth of capacity by next year, and after that, another INR 2,500 crore will be added. So if we are not tapping right now the new geographies, then how we will grow and we will utilize those new capacities then?
Right. Got it. Got it, sir. Thank you so much. That was all from me.
Thank you. The next question is from the line of Swati Jhunjhunwala from BOB Capital. Please go ahead.
Yeah, thank you for taking my question. First question is, what was the B2B contribution in the Q2?
Please repeat your question.
B2B contribution.
The B2B contribution for the Q2.
B2B contribution, 20%-27% is the domestic institutional and 15% from the export. Dealer distributor contribution is 47%. Apart from this, there is extra-high voltage power cable contribution, which is also B2B, that is 6%.
All right. And could you give me the breakup mix of the order book in terms of EPC, EHV, domestic cable and export cable?
Yeah, you can note down. EPC order book position at INR 804 crore. Extra high voltage power cable includes the little bit EPC portion attached to it, INR 725 crore. Domestic cable order book position is one thousand five hundred and forty-eight crore, and export order book is two hundred and eighty-six crore. Put together, all is INR 3,363 crore.
All right. Lastly, on the CapEx front. H1, we have done INR 221 crore. The INR 45-50 crore that we had targeted for Chinchpada, is that already included in the INR 221 crore?
Yes. Out of the 221, we spent around INR 43 crore in Chinchpada, INR 5 crore in Pathredi, and INR 140 crore in our Sanand plant. The balance is for the maintenance CapEx in our, and in our Kheda, Kheda land, which is in Vadodara.
Got it. The increment, the INR 65 crore for Chinchpada, the INR 110 for Bhiwadi, will be incurred in H2. Is that right?
Yes. In Pathredi, H2 will be another INR 75 crore, and balance INR 30 crore will be in the Q1.
Okay, and lastly, the INR 250 crore greenfield, how much of that will be done in the second half?
Repeat your question, please.
The INR 250 crore for the greenfield capacity that we are adding, how much of that INR 250 crore will be incurred in the second half of the current financial year?
See, Sanand project, we have already spent INR 140 crore for the land. Another INR 150 crore will be spent in the second half, and close to INR 400 crore will be spent in the next financial year, and INR 300 crore will be in FY 2025, 2026. That's how this INR 1,000 crore will be spent over there.
All right. Okay, that, that was all my questions. Thank you so much.
Thank you.
Thank you. Before we take the next question, a reminder to participants that you may press * and one to join the question queue. Ladies and gentlemen, to ask a question, you may press * and one. The next question is from the line of Alok Deshpande from Nuvama Institutional Equities. Please go ahead.
Yeah, good afternoon, Ramanji. Good afternoon, Vijayji. Two questions. One, on the margins, we have seen a good margin expansion this quarter. Can this be attributed to the EHV revenues going up sharply, or is it just the operating leverage playing through? That was first question, sir. And, so second question was, if you could just give me the volume versus pricing breakup for this quarter, that would be helpful.
You see, now the EBITDA level will improve towards to 10.75%-11% range because of the top line is increasing, so this kind of EBITDA level will be maintained in future also. And, what was the second question?
No, sir, that was the... Sir, it was about the volume and pricing breakup for the quarter.
In the first half of the current year, as well as compared to the last year first half, copper price more or less is same. It is hardly 1-2% difference is there. So these prices are stable. Only aluminum prices has reduced by more than 10-12%. Otherwise, prices are stable now. So close to 26% volume growth on the basis of the consumption of metal, on the basis of production we did, because our production is higher also. So that will also, because of our level of production has also gone up, because now we have to improve our sales more than INR 2,000 crore a quarter, so because of that.
Okay, sir. Thank you so much, Rajeevji. Thank you. All the very best.
Thank you, Alok.
Thank you. The next question is from the line of Koundinya Nimmagadda from Jefferies. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, firstly, bookkeeping question: Can you provide us with the interest cost breakup for 2Q and first half?
Interest cost is very, very less right now, but still you can note down. Because practically all interest is capitalized only for the bank charges right now. So in first half, the working capital interest is close to INR 12 crore, and bank charges is close to INR 2.86 crore, and processing fee of the bank is close to INR 1.57 crore. So put together all in H1 is INR 16.47 crore.
Sir, what is the breakup?
INR 8.8 crore, close to INR 5.983 crore is the interest income on FD.
Understood, sir. Sir, can you provide similar breakup for Q2 as well?
Q2, the working capital interest is close to INR 5.4 crore, and the bank charge is close to INR 1.5 crore, and processing charge is INR 0.5 crore. So put together, all is INR 7.53 crore, and the interest on FD is INR 3.8 crore.
Understood, sir. Sir, my second question is on the outlook front. I mean, you did speak about, you know, real estate front. On the infra part, you know, what are the key segments that are driving growth for you on the domestic side? Also, if you can provide some more color on the exports. I mean, we saw a strong growth during the quarter.
See, on infra side, metro, rails, suburban trains, NCRTC, et cetera, that is number one. Number two is power distribution and transmission. And thirdly, solar developers, solar power projects. They are the major drivers, but in fact, all segments are contributing, including industries, but I just mentioned some of it.
The real estate.
And real estate as well, and the construction sector and the new industries.
Understood, sir. Sir, how about exports?
Export is definitely there, and exports are from solar plants, solar wind farms, and power distribution and transmission.
Thank you, sir.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thank you. Congratulations for good results to the team. So just want to understand on the house wires side, where we are speaking about faster growth. Historically, we have spoken about faster growth since we are growing on a low base. What kind of demand are we seeing? So first is the inherent demand because of a lot of real estate completions. And second, what kind of growth we envisage for ourselves, assuming it would be higher than the rate at which industry is growing? So first question is on domestic house wires.
In house wires segment, as we have, we have guided also to grow by 22%-25%, so we are in line with that also. With regards to this, which we all are witnessing in the top metro cities since last one and a half years, so that is, that demand is already there on ground now.
Then apart from there, in individual bungalows are being made by each and every city and town, so that demand is continuing since last so many years, and it will be continuing. For our case, since we are increasing our geography, we are increasing our reach also, in the house wires segment, we are adding more and more number of retailers under the dealer distributor, so we are growing 22%-25%.
Just one follow-up: so against that 20%-25%, what would be the inherent industry growth? I mean, industry itself is also growing at healthy pace.
You see, industry will be growing 12%-13%, since all the smaller players or unorganized segments, they don't participate in the industry growth because of the working bandwidth and the capital they are facing the scarcity. So the smaller company does not grow their sales to that extent.
Okay. Okay. And second on export, the kind of growth that we, all the... including KEI, all the Indian companies are seeing, it is, I mean, anything has changed, any tariff or non-tariff barriers on, import from some specific countries? Or this is just that they're also, CapEx spend is driving growth for companies in India. So any structural change has happened?
See that before COVID also, in our case, our export was close to 13%, before COVID. During the COVID, we were not able to add new customers and new countries, so that's why sales dropped to 10% of the total sales. Again, now, marketing team was able to add more geographies, more new countries, so Anilji has said that this year will be close to 12%-13% of total.
And by next year or another year, his focus is to grow exports close to 15%-17% of our total sales, irrespective of the market, of our sales. So that's why the focus is there. So now, Anilji can contribute more about the, what the U.S. is going on and the Europe is going on, or the other oil and gas sector products which we are selling there going on.
Anilji, please explain now.
Yes, there is a good trending in power distribution and infrastructure in the United States, and capacities over there are definitely lacking because for over many years, they have not increased their industrial base and for manufacturing of cables. And definitely we are getting some benefit out because of, you know, China plus one policy of followed by Europe and USA. So we are getting the opportunity and those opportunities are, you know, converted into business.
Okay, understood. So thanks a lot, and all the best.
Yeah.
Thank you. The next question is from the line of Srinidhi from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity and congratulations on good set of numbers. So I have a question on exports business. There seems to be significant investments happening in the Saudi Arabia market, both in hydrocarbon sector as well as overall infrastructures. Wondering, does KEI has presence in that market from both certification point of view, business development team point of view, and execution capabilities?
We have all the certifications in place. But at present, our sales to Saudi Arabia is not significant. But in other Middle East countries, we are present significantly like Abu Dhabi, Kuwait, Qatar, et cetera. We are trying to make some inroads in Saudi Arabia, but especially focusing on oil and gas sector, Saudi Aramco, et cetera, and we hope that we will get a breakthrough very soon over there. But in other markets, like in U.S. and in Europe, we are steadily getting inroads, and we hope that we will be doing a reasonably good work in next few years in these markets.
Thanks. Are there any legacy reasons why we are less present, the company is less present in the Saudi market versus rest of the Middle East countries?
Actually, Saudi has already a substantial local capacity of manufacturing cable. There are several companies producing cables in Saudi, and it is only because of the excessive demand at the moment, we can get opportunity. Otherwise, they are themselves a you know large producer of cables within. And you know they don't allow imports easily when they have their own manufacturing capacity.
Understood, sir. Yeah. And we have seen EPC business scaling up in this quarter. Is it, is it in tune with the EHV business scale-up we saw, or is company trying to scale up the EPC business?
No, no, it is mainly because of the EHV, because in EHV, almost 20% of the supply goes to the EPC, so because of that only.
Right.
No other factor. Otherwise, the pure EPC contribution of the total sales remains 4%. Earlier it was 5%, this year it will be less than 4%.
Right. And last one, if I may, I just want to understand, would you say that in Q2, you missed some of the revenue because of capacity constraints? And if yes, is that a meaningful number?
See, our target, which we have, we have set for the current financial year, to grow 16%-17%. So we are maintaining that, irrespective of the market is available, because we want to run a debt-free company, that we are running. So under risk mitigation plan and capital allocation, we cautiously, have made the strategy that, 16%-18% kind of growth, we will be continuing maintaining for next 5-7 years. Not for 1 year, but we are saying for next 5 years.
Last one, sir, if I may, again. The 16% growth, the 16%-17% growth that you're guiding for the next year, does it factor in the greenfield plant commissioning in Q4, and there's some dependence on that? Or even if that, unfortunately, if it slips into the following year?
For the next year, we are not taking, because only the end of the Q4 that's coming. That's why we have increased the capacity in our existing Chinchpada, Silvassa plant, so that we will have the sufficient production capacity to grow 16% in the next financial year.
Right. Thank you for answering my question, and all the very best.
...Thank you. The next question is from the line of Amit Mahawar from UBS. Please go ahead.
Yeah. Hello, Anil Ji and Rajeev Ji.
Hello Amit
Great, great execution again. Sir, I just have one specific question on your expansion and export strategy. So exports may, can you just help us understand, and maybe Anil Ji can help here, next two, three years may, how will you move in, you know, LT, HT and maybe branded house wires if also that you're targeting? Because you will eventually start developing channels there, maybe in U.S. market and non-U.S. market. So how should we think about the composition of export business for KEI for the next three years?
Our exports will be mainly focused on export of cables. We are not targeting export of wires to anywhere because wire in every country there is a lot of local capacity and the competition is from the local suppliers is there. Also a lot of stocking is required everywhere to sell this product because of the instant delivery requirement from the market. So we are not. We have, we have no sales of house wires from our plant anywhere, and we, we are not focusing this.
Fair. Fair.
We are only focusing on LT, HT and EHV cables.
Sure. Sure, sure. So, so, you know, nobody... You know, I think I definitely don't have any doubt on the potential we have for export market. But generally speaking, if you compare with the the conditions that you have, the terms of contract that you have in supplies in India, vis-a-vis, the export market, generally, how is the working capital different for us in exports?
So in export also the same, we are supplying to institution over there. Same case with India, we are supplying to institution. So close to 2.5 months or three months is the normal period for the delivery. Normal, you know, payment period is 60-75 days, even in exports also.
Okay. Okay. Sure, sure. Thank you very much, and good luck, Anil Ji and Rajeev Ji.
Thank you, Anil Ji.
Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Good afternoon, gentlemen. My first question is more of a follow-up from the previous participant's questions. Sir, I want to know, on a more macro term, as to what is the demand supply for cables in the international market? And what kind of timeframe visibility do we have in terms of getting very good orders? So, like, we have a strong tailwind in the domestic market for cables, is it also internationally? And can we assume that for the next many couple of years, that will continue to be? First question is that.
See, we don't have any data about demand and supply in the international market. It varies from the country to country. But the kind of markets and the customers we are developing, or we have developed so far, we see a consistent demand of cables into several projects over there, which we are doing, like wind farm.
I mentioned in wind farms, solar farms, solar power developers, and also, lot of customers who are using our cables in manufacturing plants over there, and also in the power transmission and distribution side. It is very difficult to, I mean, predict, you know, our capacities are not that large that we, we are trying for, you know, large international markets.
Understood, sir, but then, what I wanted to know is there is a strong opportunity, right? From the international market as well, for cables particularly.
The opportunities are there. As we said, that we have the capacity to grow 16%-17% per annum. So our focus is to add more and more geography and add more and more customers in our kitty, so that any given point of time, at any time, the retail is slow or domestic institution is slow or some export, then can be contributed to export. Otherwise, we have to grow only 16%-17%. Our target is not to grow 30%.
Understood. And so, one follow-up on this question itself. Sir, is the international market a more brand conscious market for cables, or is it not that, just some light on that?
International market is not brand conscious. International market is qualification conscious. You know, where the kind of segments we are supplying, we have to get our products you know certified by the regulatory agencies over there. Like in U.S., we have to get mandatory UL certified cables. In Europe, we have to take their own construction protocol registration in different countries, CPR certifications.
So in every country, there are some certifications required, which we have obtained and moving for the export to that country. So the certification is given to the company, so naturally the that brand got registered in their system. But if we say that we are selling branded products like Louis Louis Vuitton, like that, that is not the case in cable.
Understood. So why I asked this question was, I understand that wires is absolutely not... It's perceived more as a commoditized product internationally. So just wanted to understand where R&D spend for cable is more,
So first of all, I mentioned that we are not selling or trying to sell wires in the international market. We are only selling cables in oil and gas, in power and transmission, where it is if the product is approved by the using using the institutions or authority, and and the product is certified to be used in that country. Like in India, we need mandatory BIS, you know, BIS certification. In every country, there are some certifications required.
Understood. Sir, and my last question is on the margins over a longer period, not in the medium term or short term. Sir, given that all your greenfield and brownfield capacities will come into play, say by FY 2026, 2027, at good utilization levels, sir, then I believe that sharp operating leverage benefits should kick in. Sir, so then where can we see these margins, EBITDA margins moving to probably in the medium term, say, over three to five years?
At least 1-1.5% will improve by 27-28.
Understood, sir. All right. Thank you so much, and all the best, sir.
Thank you.
Thank you. The next question is from the line of Manoj Gouri from Equirus Securities. Please go ahead.
Yeah, thanks for the opportunity, and congratulations on good set of numbers, sir. So my question would be, so obviously, you have already commented a lot on the demand front, like, there is one bookkeeping question. So if I look at the uncollectible expenses, has there, has there been any change in classification? Because when I look at the EBIT margins for wire and cables have improved significantly, but on the other side, uncollectible expenses have also shot up. So can you throw some light, or this is just one-off quarter?
No. Expenses depend on the raw material, operating expenditure, and the EPC division. Because in EPC division, some quarter the sale is higher, so it's because their raw material is very, very less.
Right.
Expenses is mainly. So that's why you see the EBITDA margin.
Okay. Okay, okay. But there is nothing.
Okay.
Exceptional or probably it should be normal in the due course?
Yes, it is normal.
Okay. Right, sir. So and also when I look at from an export point of view, obviously this quarter on YOY basis, numbers look very strong. So probably, how, how should we build in in the coming quarters and probably from 25 perspective as well, if you can throw some light? Because obviously you have thrown a lot of, lot on the demand side, and I think-
First of all, Manojji, as we have earlier spoken also to you or some other investors, we have to grow 16% to 17% to 18% kind of thing.
You're right.
So we need to take care. It should not miss whether for a particular geography, demand is heavy or not heavy. That's why we have developed over a period of time the domestic institutional sale, which is high-entry barrier, and international export sale, which is again a very high-entry barrier. Then we developed to maintain low working capital for the dealer distribution segment.
And every time, all the three segments will not gradually increase. Sometimes one will expand more, sometimes another will expand more. So that's how we maintain the overall growth, like you are maintaining the portfolio. So we are maintaining the portfolio. Sometimes export increase, sometimes domestic increase, sometimes dealer distributor increase. So, sometimes HT increase.
Right, sir. So lastly, so when we do our checks at the ground level, so probably one thing what we are able to figure out is that cables are doing better than wires, and B2C has been a bit sluggish on a related basis versus institutional.
Sir, nothing is better or worse. Cable demand, different sector, wire demand, different sector.
Right.
First of all.
Yeah.
No, no product is comparable to each and every product.
Correct.
We are running a portfolio of the products, whether wire sell more, CHB sell more, LP sell more, SP sell more, like this.
Right, sir. So my question was, like, this is for the industry. So industry, we are getting this feedback. Obviously, you guys are doing far better. So, like, probably, how do you see the overall demand picking up, especially for wires or-
The overall demand, earlier it was 11%-12%.
Right.
Now it is 12%-13% with respect to the industry as a whole, for wire and cable segment, because lots of infrastructure projects from the government side going on, like in the road, in the rail, in the metro rail, in the rapid rail, in airports and the seaports.
The government is pushing towards affordable housing, then government is pushing towards the generation of the power through power, through the solar, through the wind, and through the traditional route of the thermal. Then the government is focusing on to attract the manufacturing, all the manufacturers worldwide to create the manufacturing hub in the country.
For that, they have started through the PLI scheme, and slowly, slowly they are adding more and more products under PLI scheme. That's why the private CapEx from overseas market is coming in India. Apart from this, lots of refinery expansion is going on because of local consumption.
Lots of fertilizer units, lots of cement units, steel industries, pharma, IT, everywhere you are thinking the or you are witnessing, lots of investment is going on because the affordable generation is there. Because of that, the consumption is higher, the demand of consumption is higher, so supplier will create the supply.
Right. Got it, sir. Thanks a lot, sir, and wish you all the best.
Thank you.
Thank you. Before we take the next question, in order that the management is able to address questions from all participants of the conference, we request participants to please limit your questions to two per participant. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Sir, thank you. Thank you for taking my question. Sir, just one question in order to understand the industry better. Like, if I look at the last many years, the sector wasn't generating a lot of cash, and which means everybody had to do a balancing act between, you know, how much is involved in inventory, how much is involved in CapEx, and how much is the free cash flow that every company in the sector was generating.
Now, last two, three years has been phenomenal for the sector. It seems everybody is making money. Do you worry that we could get to a stage where there is more investment in the sector, i.e., you are adding capacity, some of your peers are also adding capacity.
Do you think this could be a challenge like, you know, today, it's not a bad problem to have, where you are saying, "I'll grow 16, 17%," but that's because of capacity, not demand. So I'm just trying to understand, do you foresee that there is over-investment happening in this sector today, that maybe in some time we could be in a situation where industry is over-supplied? Just wanted to get your sense based on whatever you've seen and you heard from competition.
It may happen, but I think it will not happen that rapidly. The kind of investment and CapEx required to augment the capacity is substantial, and not many companies have that kind of capabilities to invest, present existing such players. I don't see any new players coming up in this. To insulate ourselves from you know variation in the demand in the domestic market, we are. That is why we are creating export markets also and in different geographies, so that we are not dependent on any particular you know area. Although domestic will always be our main bread and butter.
But, you know, maybe so that sometimes if the demand is less or many players are there, margin may be impacted by 1 or 2%. But we are already working on very low margins and operating a debt-free company. So, I don't see any risk factor so far as we are concerned, and I don't foresee too many new players coming up in this field.
Okay. So no new players you've seen really, come or announce?
Yes.
Okay. This, this is very helpful, sir. Thank you.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks for the opportunity. Sir, just to get clarification, you mentioned about 16%-17% growth for this year and going ahead also. Now, of this overall growth, if house wires is growing faster and export is also growing faster, so domestic, institutional, cable business, should steady-state grow at 12-13. Is that correct understanding?
It always depends on the mix which we are having the order with production, because ultimately we have to grow 16%-17%, whether from export market we get or we are serving our domestic we are serving. We have to balance, because as we have said that we will maintain all the customers so that any given point of time, we should not be having any risk.
What I think is on a low base, we are growing faster in the house wires. I think 20%+ you have mentioned. So that portion of the sales is growing faster. Export also is growing as a percentage of sales, so that is also growing faster.
Okay. Got it. Perfect. Thank you, sir. Thank you.
Thank you. The next question is from the line of Anupam Goswami from SUD Life. Please go ahead.
Hi, sir. Sir, can you tell me the outlook on your EHV cables, and give me a little breakup of your segment-wise, let's say, margin breakup. Let's say, what was in the EHV, what was in the cables and wires this quarter? And the next question is on the- yeah.
I can, I can give you the broader figure at an average level, because we, we don't have any calculation on a product-wise margin, because our factories are same. But normally, while we are selling to domestic institutional side, which is a high entry barrier and a tender-driven sales, their EBITDA margin is 10-10.5%.
While we are selling to export markets, EBITDA margin is close to 11%. In extra high voltage power cable, because of the low competition in the domestic market, EBITDA margin is 15%, and the dealer distributor business, whether it is a wire or it's a cable, EBITDA margin is close to 11%. So and in the SS division, the margin is close to 12%. So put together all, the margin comes between 10.75%-11% kind of range.
Sir, what is your outlook on the EHV segment?
The outlook on EHV segment, we have the capacity of INR 550 crore-INR 600 crore, capacity, so that we are utilizing.
Do you see a strong traction going forward, or do we see some, you know, slowdown as the, election year is coming or in the, you know, last quarter or so?
After last quarter, Q2 EBITDA, because factory manufacturing capacity, capital allocation, how much we need to put in working capital. So everything is required through the capital only. Even though the market is there, if we target for 25%-30% growth, then what will happen? We will again land up with the debt position, which we don't want. We are clearly guiding to every investor that whatever internal approval we will be generating year-on-year basis, we will be deploying to increase our capacity to that extent, and it will be sufficient for 16%-18% kind of growth.
Thank you. Before we take the next question, a request to participants to please limit your questions to one per participant. The next question is from Rahul Agarwal from Incred Capital. Please go ahead.
Sir, thank you for the repeat opportunity. Just wanted to take this point on EHV forward. Nothing related to KEI, but overall, what would be the EHV consumption today in India? I mean, this current year, would you have any idea, sir?
Should be close to around INR 2,500 crores-INR 3,000 crores.
India still remains a three-player market?
I think, 3 or 4 players are there totally. So probably, any new player comes, it will take another 3-4 years to 5 years, kind of, time to put the factory and then get the approval and the prequalification process. Any new player comes in the EHV, it will take at least 4-5 years.
Yes, sir, I completely understand that. I was just trying to understand, the, you know, KEI did, like, INR 400 crore of EHV sales in fiscal 2020. Today, this year, we should doing, you know, we'll utilize full capacity. We have a large import, you know, available there. Can we increase our capacity and take advantage and do more EHV sales?
...
... Yeah. Hi, sir. Thanks for the follow-up opportunity. Just one question I had. You spoke about 221 growth of CapEx in 1H. So just wanted to reconcile, I mean, what is the full year CapEx for FY 2024 and FY 2025 that we are now looking at, and what was this number earlier?
You see, earlier, the greenfield CapEx not there. So now the Sanand project, which is the major greenfield project, wherein we need to invest INR 300 crore-INR 350 crore each year. So in the greenfield, we are investing INR 300 crore this year, and the next year, INR 400 crore, and in 2025-2026, INR 300 crore. For the brownfield CapEx, we have incurred in first half, INR 48 crore, and we will invest another INR 150 crore in the current financial year, in the second half, in our Bhiwadi utility plant, as well as in our Chinchpada Silvassa plant.
I understood. So that roughly translate about INR 500 crore of CapEx for FY 2024?
In the current financial year, because the land value is also there in that.
What was this number earlier, sir?
Earlier means?
I mean, prior to, it's okay, then.
Only, only there was maintenance CapEx. And plus the Silvassa, a little bit brownfield CapEx. Not more than 40-50 crore rupees.
Understood, sir. Thank you very much. All the best.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
To summarize, thank you very much for this question and answer session and listening to us. We are available for any further questions which you may have. Overall, I can say that company is on a healthy trend to grow and in a disciplined manner with its own, you know, internal generation of resources and the money. We'll be growing in a disciplined manner for so that to remain largely debt-free over a period of time. Thank you. Thanks, everybody.
Thank you very much. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.