Good day, and welcome to the KEI Industries Limited Q1 FY 2023 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 conference 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, Anju. Good afternoon, everyone. We are pleased to host the senior management team of KEI Industries today, and we have with us Mr. Anil Gupta, Chairman and Managing Director of the company, and Mr. Rajeev Gupta, our CFO of the company. We'll start the call with initial remarks from the management, followed by Q&A. Thank you, and over to you, sir.
Yeah. Good afternoon, everybody. Thank you very much for taking out time for this conference call. I'm Anil Gupta, Chairman and Managing Director of the company. I'll give a brief about the performance of Q1. In Q1 of financial year 2022-2023, the company has achieved a net sales of INR 1,565.41 crore against INR 1,017.56 crore in the same quarter last financial year. The growth in net sales is 53.84%. EBITDA in this quarter is INR 163.16 crore. This has led to a growth of 40.05% compared to previous quarter of the last year.
EBITDA/net sales margin is 10.42% as against 11.45% in the same period previous year. Profit after tax this quarter is INR 103.76 crore against INR 67.12 crore. Growth in the profit after tax is 54.59%. PAT/net sales margin has improved to 6.63% from 6.6% last year same period. The total sale of domestic sales and international sales through the B2B is around 49% of the total sales. Domestic institutional cable sale of high tension and low tension cable is INR 472 crore in the first quarter against INR 414 crore last year.
Growth is approximately 14.06%. However, the domestic institutional cable sale of extra high voltage cable is INR 100 crore in the first quarter against INR 29 crore in the previous year same period. Export sale of the cable in this quarter is INR 247 crore against INR 93 crore. The growth in the export sale is approximately 167%. The sales through distribution network, which is B2C, was INR 652 crore in the first quarter against INR 387 crore in the last year same quarter. The growth is approximately 68%. We are continuously in the process of strengthening our dealer and distribution network. The total active working dealer of the company as on 30th June 2022 was 1,800.
The distribution sales through distribution network contributed approximately 42% in the first quarter against 38% in the last quarter same period last year. EPC sales, engineering procurement construction project sales other than cable is INR 84 crore. We had INR 86 crore, almost flat. Out of the total sales of EPC, the extra high voltage EPC is 36 crore in this total 84 crore sales. The sales of stainless steel wire in the Q1 of FY 2021 is INR 61 crore against INR 48 crore same period last year. Growth is approximately 26%. Pending order as on 23rd July 2022 is approximately INR 2,741 crore.
Besides that, we are L1 in another INR 229 crore worth of orders, which are expected shortly. In this INR 2,741 crore, the EPC orders are INR 878 crore, which is basically Nepal ADB funded project and Gambia World Bank funded project. Extra high voltage cable projects is INR 353 crore. The domestic cable orders pending are INR 1,428 crore, and export orders of cables are INR 82 crore. The 42% sale which the company is doing through KEI retail network or distribution network, we do not you know add up any orders to the order book because these orders come and executed from the stocks or executed within a week to 15 days.
We do not add them into the pending orders. India Ratings and Research has upgraded and assigned IND AA/Stable rating to long-term bank facilities from IND AA- and reaffirmed the IND A1+ rating to short-term bank facilities and commercial paper availed by the company. The book value of the company per equity share is INR 248.62 as on 30th June 2022, as against INR 236.98 as on March 31, 2022. The total borrowing, including channel finance, as on 30th June is INR 88 crore. Sorry.
Total borrowing is INR 101 crore and cash and bank balances of INR 172 crore as on 30th June 2022, as against total borrowing of INR 331 crore and cash and bank balances of INR 360 crore as on 31st March 2022. Acceptance creditors as on 30th June is INR 103 crore as against INR 299 crore as on 31st March 2022. The net debt, including acceptances of LC, has reduced to INR 32 crore as on 30th June, as against INR 270 crore as on 31st March 2022 and INR 336 crore as on 30th June 2021. During this quarter, finance cost has decreased to INR 9.23 crore as against INR 11.42 crore previous year same period.
Percentage of the financial charges on net sales has decreased this period to 0.59% from 1.12%. The company has used operating cash flows for cash purchases, resulting into reduction of trade payables, acceptances, and substantially by INR 195 crore. As for the future outlook, as communicated earlier, working capital of approximately INR 100 crore is expected to be released during financial year 2022-2023 from EPC data retention money, which will be used for increased B2B and B2C sales of the company, and as well as the CapEx requirement of the current financial year. The company will be having sufficient cash flow to meet its working capital and growth requirements in the future.
We are aiming to increase the sales through distribution network by approximately 30%-35% this year, so as to achieve a projected 16%-17% overall turnover growth in this financial year. The capacity utilized during Q1 financial year 2022-2023, 78% in cable division, 65% in house wire division, and 80% in stainless steel wire division. The company has already capacity in place to achieve growth for the next financial year by the time new capacity will also be available.
The company expects to have a CapEx of approximately capital expenditure of approximately INR 200 crore to INR 250 crore for next three years to maintain a CAGR growth of 17%-18% per annum as against achieved CAGR of 15% during last 15 years. The industry outlook. We see a strong growth in the infrastructure segment, especially from power generation through solar and wind and other energy sources, transmission and distribution and industrial sector like steel, aluminum, cement, fertilizer and refinery expansions which are underway at the moment. The government's emphasis on infrastructure development projects such as National Infrastructure Pipeline in important areas such as energy, railway, metros, construction, road and highways, building projects, hospitals, ports and airports and modernization, among others.
Increasing government attention and funding support for rural and railway electrification projects and higher and more efficient transmission and distribution infrastructure is also attracting good demand for underground cables. This is a commentary from management side. You are requested to raise any queries. We'll be happy to answer those. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone.
If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for the moment while the question queue assembles. The first question is from the line of Naval from Emkay Global. Please go ahead.
Yeah, thank you for the opportunity, sir. Couple of questions. First, you stated in your opening remarks that target is for 30%-35% distribution expansion. This number for revenue to achieve that 16%-17% revenue growth is for consolidated, if I'm not mistaken. Is that correct?
Yes.
Sir, because if I look at you had guided for 16%-17% revenue growth at the end of June also in one of your media interview, and since then commodity prices have seen a sharp correction. You still see this number achievable because of the strong volume growth outlook?
Yes, we still feel that these numbers are achievable.
Because we are having sufficient order book position now.
Okay, understood. Second, in terms of the land parcel acquisition, Rajeevji, last time you had stated that almost 35% of the total land parcel has been kind of acquired. Can you give some update on that? What is the status and progress over there?
It will take further more one month and half month more to acquire the full land because these are the agricultural land. They are taking some time, but we are in the process and definitely we will do expenditure in this financial year.
There is no delay because of this one and a half months delay on capacity expansion outlook.
No, that's because in these kind of projects, 1-3 months delay is not the delay. But for the capacity expansion, Anilji has taken a step further ahead because in our Silvassa plant, we are putting a low tension power cable facility there, where our house wire unit is there, so that for the upcoming financial year and the last quarter of this financial year, the growth momentum can be maintained from there itself. We are taking care for the growth of 17%-18% in the next financial year also.
Understood. On the balance sheet, as you rightly stated on retention money recovery and other aspects which have been benefiting you on working capital aspect. The current net debt number of 1Q, is that fair to assume that should be the ongoing run rate going forward as well because cash generation will be enough for CapEx as well as working capital incrementally?
Yes, that's right.
Understood.
We are already having the INR 170 crore+ fixed deposit in our account. Whatever CapEx requirement, that fund has already been accumulated. There will not be any further requirement from any loan or et cetera. The loan has already been availed. The working capital loan has already been repaid in full. Only the INR 13 crore term loan is outstanding, which will be repaid in the next three quarters. By March 2023, all the term loan will also be repaid because this is external commercial borrowing, so we cannot pay it early. That is why it is there in the books.
Got it. Sir, lastly, if you can repeat your order book breakup, I missed a couple of numbers there.
Order book number is INR 2,741 crore, in which EPC order book is INR 878 crore and extra high voltage power cable order book is INR 353 crore and cable, low tension, high tension and other cable domestic order from institution is INR 1,428 crore and export order of cable is close to INR 82 crore. Apart from this, extra high voltage power cable, we are L1 in INR 229 crore order book. If we include this, then it will be closer to INR 3,000 crore order book.
Got it. Thank you so much and wish you all the best. I'll come back in the queue.
Thank you, sir.
Thank you. Next question is from the line of Parin Gala from Sage One. Please go ahead.
Thank you. Sir, the export number for [Q3] is INR 193 crores, you know, and YoY it's a very large growth. Is it just cyclicality and in the last quarter being COVID affected and the numbers were lower or this was a steady target or something one-off has happened in exports?
We should not assume anything on the quarterly number. Sometimes the order is to be deliverable in a particular quarter, so we have to deliver in this quarter itself. Normally the composition of the exports will be 10%-12% of the total business, total profit and loss.
We expect a total export from the full year basis of between INR 700 crore- INR 750 crore.
Okay. Is it order book based or this generally or even on a spot basis, like we do sell it as a
This is order book based.
Okay. Sir, last, lastly, again, the CapEx number which you mentioned of INR 200-250 crore, this will be over and above the retail investment which will happen, right? Of about INR 600-700 crore which was mentioned earlier. Is my understanding correct?
In the new project happening in the Gujarat region, wherein we are acquiring the land, there the investment size on a per annum basis will be INR 200 crore-INR 250 crore for next three to four years.
Okay. INR 800 crore. Got it. Okay, sir. Thank you.
Thank you. Next question is on the line of Rahul Agarwal from InCred Capital. Please go ahead.
Hi, sir. Good afternoon, and congratulations for a decent set of numbers. Sir, few questions from my side. Firstly, you know, your peers, Havells, you know, when we talk about Polycab, they saw some kind of destocking during the quarter. Could you share your own experience between, you know, across your cable and wire segments? What was the experience with KEI? How did the channel behave? What is the channel inventory right now? And, you know, copper obviously last two weeks has bounced back again by 10%. How do you see second quarter, third quarter panning out in terms of demand? That's my first question.
Yeah, Rahulj i, thank you for that. First of all, copper is always fluctuating. Sometimes it is more fluctuating, sometimes little bit in the range-bound fluctuation. Last year there was the full year which was increasing. Now again it has come to the situation where the copper will increase or decrease in a particular quarter. It will increase also, it will decrease also. This momentum we are seeing in last so many years, we are used to it. With regard to the destocking in the channel, sometimes people are worried about the price of the copper very going down. Sometimes they are holding the position for eight, 10 days. It will not impact much because everybody has the inventory of 15 days each dealer distributor.
They are playing with that inventory, and by that time the price is stable. They are again start buying.
Rahulj i, you are right that some destocking has taken place and because it is very natural when the prices are unstable and going down, naturally anybody will not stock. They will take the material, whatever is immediately needed by an actual customer. But we have not seen a very big impact of this in the first quarter, and we are trying to revise and adjust our list prices as soon as possible so that the sales are maintained.
Got it. To understand it correctly, the channel inventory right now should be pretty low and it should see a pickup in second quarter. Is that the way to understand?
Yes, it should be. It should be very low.
Okay, got it, sir. We couldn't see, you know, your numbers have not really fluctuated in the first quarter, been very stable for KEI. That is why I was wondering, you know, that destocking didn't really impact KEI versus, you know, the other players actually reported lot of degrowth. Any specific reason for this?
See, the companies who are very heavy in retail, I think they are impacted more like Havells or Polycab. I mean, we are also now going heavy on retail, so maybe in future we may face the same problem. Now, at the moment we have not faced.
Rahulj i,[audio distortion]they have also grown in the first quarter.
Yes, for sure I undersatnd where you're coming from. So I'll move ahead to my second question, on the CapEx, sir, I just need a recap on the entire Baroda CapEx this INR 200-INR 250 crores per year we have broadly talking about INR 800 crores in CapEx in total for the project between that could you help me break down into what is the land cost and what is going to be the construction plus the machine cost just to get a clear opinion how much is maintenance CapEx for the company every year and how much is Baroda CapEx in total and you spend obviously INR 200, INR 250 every year but, if you could help me understand the project cost better will really help.
So, our maintenance CapEx in our company is hardly INR 20 or INR 25 crore in a year that is number one. The Project cost for the new project costs it will be decided only once the land is fully acquired, because construction cost will depend on how many acre we have acquired. But overall, in our industry the CapEx ration is 1:5 so we want to create a INR 4,000-INR 4,005 crore, INR 4,500 crore sale from there. So, that we are in resizing investment of INR 800 crore over there. Put together all, the land cost will not be mre than INR 50-INR60 crore because it's agricultural land so land cost is less amount.
Got it, sir, that really helps. Sir, could you help with volume growth number for cable and wire segment for this quarter, the revenge growth was 61%, how much was volume?
Volume growth for the, the mental has grown by 27%. Aluminum and copper put together.
This is YoY, right?
Yes, it's YoY.
And you are talking about aluminum copper consumption for first quarter?
Correct. First quarter yes.
Okay, got it. Lastly, just a follow up on exports. As you said you are targeting 10% to 12% and this quarter number looks high and INR 700-INR750 crore for the full year as Anil said, overall. How does the pipeline look like, is there anything happening for certain geography where we would see something like a Dangote happening again, where you could see a very large number or it's right now pretty steady state?
No, no. Nothing of the sort of Dangote happening now. It will be the sales export to our regular and stable customers.
Okay, thank you so much, sir. Got it. All the best, and I'll come back in the queue. Thank you.
Thank you, Rahul.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question is on the line of Tanush Mehta from JM Financial. Please go ahead.
Firstly, congratulations on decent set of-
Yeah, Tanush, little bit loud, please.
Firstly, congratulations on a decent set of numbers. Sir, I have a couple of questions. The first question is, sir, do we have some kind of hedging policy in our wires and cables business on a overall company level?
No, we are not hedging. We are under natural hedge, as we have communicated earlier also, because we are having three to four months pending order position from the domestic institution side, and close to two to two and a half months we are carrying inventory in our shop floors. That is under natural hedge actually.
Okay. My second question is that, you know, when we see a business between the dealer and the institution part, how difficult or easy or, you know, how do you define the lag in which a price increase can be passed on in both the cases? Or the price increases at the same time?
See, in the price, in case of B2B sale, whenever we are making an offer to anybody, it is based on the current prices and also the forward-looking outlook that what do we perceive as the price situation during the validity period of the offer. Maybe the validity period is one week or 15 days. In case of utilities, whenever we are making tender, 80%-90% tenders are on the price variation basis, and only 10%, 15%, 20% are on firm prices basis. That much of inventories we are always carrying. Validity periods normally we are maintaining within 15 days to one month.
As far as distribution network is concerned, I think in case of cables, we are, you know, adjusting the prices on every two weeks basis, fortnightly basis, and so is the hardware and flexible.
Okay. Sir, just a last question. We've seen a lot of traction in the renewable sector that's you know catching a lot of pace and a lot of power companies and et cetera putting up good money there. Actually, I mean, how much quantum of wires and cables, or maybe you know from our order book, how much of our sales are we seeing there, or is there any inquiry coming from that end, or what is the potential from that sector?
We are having substantial sales to all the solar power developers who are setting up the projects, either to them directly or through the EPC contractors who are constructing their projects. I can't give you immediately any numbers that how much is out of solar, but we can take it out and send it to you later. At the moment, I cannot take out, tell you exact number, but the sales to solar companies are substantial.
Okay. Thank you, sir, and good luck for the coming quarters. Thank you.
Thank you. Next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.
Thanks for the opportunity, and congratulations on good set of numbers. What would be our channel finance as a percentage of retail sales currently, with recourse and without recourse collectively?
Almost 65% is under channel finance.
I'm assuming that our with recourse has come down because without recourse has increased, I guess.
Yes, yes. Now the limit was set up with the banks wherein they are recourse of it's in in one bank is 50%, in another is 30%. In a few banks it is 100%. As a whole, recourse will be close to 60% on average.
Okay. What would be the percentage of RMC, like, copper, aluminum, and can you give the breakup, if possible?
No, it depends on the order to order actually, because sometimes the copper order is more, sometimes the aluminum order is more. Like in this quarter, we consumed around 18,109 metric tons aluminum and copper. Out of which copper was 7,600, aluminum was 10,400 metric tons.
Okay, that's great. Sir, this release of INR 100 crore working capital, when is it expected, in which quarter?
No, in the whole financial year.
Sir, lastly on the retail revenue growth side, we have seen that there has been significant jump in the retail and our focus is on B2C. How has this journey been and what were the triggers and how could we grow? Is it only because of our distributorship increase and what were the steps which we had taken? Going forward, how do we plan to grow this? You have given a guidance of 30%-35%. How do you plan to-
It is a whole mix of strategy when you want to grow some, you know, section or vertical of the business. It includes, you know, an efficient marketing team close to the region and stocking points where you can deliver fast. Then business development activity, who are the anchor or specifier in that area, so that we, our teams are connected to them, who are doing specification of cables in their tender documents or whosoever is buying it. Dealer is only a front. Ultimately a whole lot of business development activity has to be carried out to enable them to sell. It is a complete strategy and management of the dealers and the prevailing surrounding to enable the team.
Okay. Thanks a lot. That's it from my end.
Thank you. Next question is from the line of Sanjay Dam from Old Bridge Capital. Please go ahead.
Sir, did I hear right? You gave a guidance of 17%-18% kind of top line growth in the context of lower commodity prices. Is that correct?
Yes, sir.
Right. No, I just thought I'll confirm it. Thank you.
That maintain the 17%-18% growth.
The second question is that, you know, what would be a reasonable aspiration to have in terms of market share gain in say the next two, three years? Probably you could put it in the context of the last two, three years. Last five years and the next five years, whichever way.
The market share continuously, definitely, in the houseware segment we were very small player. Now we have reached to the level of 6% to 6.5% market share. The unorganized sector market share is shrinking year-on-year basis. Every year, 1.5%-2% market share of unorganized sector is shrinking. Apart from this, the small companies, those who are in the range of INR 300-INR 500 crore companies, small companies, few are listed, few are unlisted. They are also struggling with the working capital, and they are not having that kind of management bandwidth which the KEI is having. Because of all these factors, wherein now KEI is having sufficient working capital, we have reduced the debt. We are more focusing on increasing the market share year-on-year basis.
In last 15 years, our growth of the company is close to 15%, wherein all ups and downs in the market was there. In future, next five years time, we have taken a target, we should grow at least 17%-18% CAGR. Because earlier growth was with the EPC. Now we are reducing the EPC and we are growing in the same fashion. It is mainly because of the wire and cable segment, the market share we are able to take.
If I look at your commentary for the last two, three years, you all have, you know, outlined your retail strategy and things have worked out quite well. Could you give us some sense of, you know, how the next three, four years is going to be? From a base perspective, I understand it won't be, probably, you know, that difficult. How would you kind of like to, would you be more concentrating on the larger urban areas, or you would like to kind of spread more in proportion to how your geographical presence is? Yeah, if you could give some sense on that.
Yeah, definitely, we are putting our best efforts to increase our geographical footprint. Because when we target the larger area of delivery, the sales comes from, you know, wide spaces where we were not present. That gives you know, extra revenue without stretching a particular market. Definitely we are taking all steps for improving the sales in the existing areas where we are strong by putting more business development activity and also in the areas where we were not present or we were weak. We are strengthening our geographical footprint.
As Anil mentioned that the 30%-35% growth, at least for three years from here, we will be looking from the dealer distributor segment. That kind of guidelines we have set in, that kind of infrastructure and the manpower we are engaging to grow that kind of growth from the dealer distributor market.
Yes. I mean, see, the context actually from which I was coming is that, you know, the larger centers and larger, you know, tier one cities and the next maybe 25 or 50 cities and the next 100 towns, they have some sort of a differentiated profile of buyers, right? As you go deeper into the hinterland, the nature of distributors and the clients, both of them change, right? They could be larger in number, but maybe lower ticket size. Having traveled, you know, quite a reasonably successful journey so far, you know, is there, you know. Do you think that, you know, your next leg of journey in the retail strategy would be any different from what you've done in the last seven, eight years?
Sir, if we say that top cities still we have not covered fully, at least for two and a half years, we will be covering those cities first because that's why we are targeting a 30%-35% growth in the coming three years time. Apart from that, we will be focusing on the rural part or the town side of the country.
Do you find yourself?
Because at present we are having only 1,800 dealer distributor.
Yes.
We have to double these dealer distributors strength in next three years' time.
When you double that, would you still say that the top 50, you know, cities and towns in this country have the bandwidth of, you know, doubling your distributor base in whatever timeframe it takes?
Sir, we are working on the number at one side. Second side, we are working on the geography to be covered. Then we will be covering the rural sector. It is at least three years away in our strategy to covering the rural segment.
Your doubling of distributors would kind of take how much time?
Yeah, within three years. Because of that we are saying that at least 30%-35% growth we will be maintaining year-on-year basis.
Sure. I'll come back in the queue.
Sure, sir.
Thank you. Yeah.
Thank you. Next question is from the line of Shrinidhi Karlekar from HSBC. Please go ahead.
Opportunity, and congratulations on great performance. You gave a good guidance on revenue growth for this year as well as medium term. Would it be possible to share some guidance on margin for this year as well as medium term?
The margin in our industry, in our company, we are close to 10.5%-11% range-bound we are there. Last year also, in spite of so much volatility, we were able to close our margin close to 10.5%. This year also we will be in the range-bound, 10.5%-11% range.
Okay. Sir, isn't retail contributing more to your overall business mix should support margins in medium term or it's unlikely to happen?
Please repeat your question because something we have missed.
Yeah, I was just wondering, your contribution from the retail segment is increasing. Just wondering, can that help you in doing better margin than what you have done in the past?
No, it is already helping us, but the volatility of the material which was sharp since last one year, whether it is upward or whether it is downward. In that case, certain things it is not manageable. If these situations does not arise and the normal fluctuation are there, then definitely the margin will be much more.
Okay.
Because already, our expenses versus sales percentage has already come down.
Mm-hmm.
Because of that we are hopeful that the margin will not be difficult to maintain.
Okay. Isn't like there should be like, as the volatility kind of reduces, is there a scope to do higher than 10.5% and 11% margin band?
Definitely.
Okay, great. Sir, second is on the EHV segment opportunity. I just want to know how large is the Indian EHV cable market and how much of that demand is actually served by the import of the cables?
You see EHV market at the moment, I believe is close to INR 3,000 crore a year.
Okay.
So far as import, I think imports are continuously, you know, vanishing now. I mean, because up to the highest level of voltage grade, like up to 400 KV, we are manufacturing and we have executed the projects. We are focusing that no utility should import the cables. I mean, if some import is coming up, in some package or some overall project construction that may be there, but we are not really aware of. We are really focusing that it should be done by Indian manufacturers.
Okay. Correct me if I'm wrong, there are two players in the Indian domestic market, right, who services EHV demand. Is that right?
No, apart from us, there's a Universal Cables Limited who is significantly working on this. But
Another one player is more like LS Cable, etc., who are also doing EHV cables, which is a Korean company set up a factory in India.
This INR 3,000 crore odd compares with about INR 500 crores what KEI did last year, right?
Correct.
Okay.
Actually, last year, the market size was less. Now the markets are consistently growing. The demand is from the, you know, transmission utilities.
Understood. Sir, how much are utilization levels in the EHV cable segment?
We are almost utilizing, I mean, 80%-90% capacity, but we are having some space by debottlenecking, so we will be able to grow by another 20%-25% from here on.
Okay. The last bit on this again on EHV, sir. Is this business about 3-4 percentage points higher margin business than your portfolio margins of 10.5%-11%?
Yeah, definitely.
Okay, great. The last one, if I may. We have seen very strong performance on working capital, particularly on receivable days. If I remember correctly, in the last call you had mentioned a scope to improve working receivable days by about 15 days. Just wondering, are receivable days likely to improve much more than you provided above of 15 days?
Yeah. Receivable days will be close to 2.4-2.5 months. As compared last year it was 2.9 months, and before that it was 3.8 months. In March 2022, it has come down to 2.9 months. On an average for the current financial year, it will be closer to 2.4-2.5 months.
Okay. That's my question, and all the very best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions for all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Next question is from the line of Bobby Jayaraman from Falcon. Please go ahead.
Yeah. Hello. Could you explain what the INR 103 crores of acceptances is?
Yes. These are the LC acceptances.
From your export customers?
No, it is for the purchase.
Import.
Import.
Okay. The imports for your copper and your raw material.
Yes.
Okay, got it.
This is part of the creditors.
Okay. How long is that for usually?
It is normally 90-120 days credit.
You have to pay an interest on this?
Yeah, it is by interest bearing. It is 5%-6% interest per annum.
Why do you then take this?
Pardon?
Why don't you avoid these interest charges by paying earlier?
No, because we are avoiding while we are purchasing from the local market. We have converted into the cash purchase now. Since these are the import purchase, so we have to open the LC.
Okay. They'll reduce going forward.
We have already reduced earlier. In 2019-2020 the LC purchase was more than INR 800-INR 900 crore. Now it has further reduced to now only INR 100 crore. As of March 2022, it was close to INR 300 crore.
That's right.
Now it has reduced to INR 100 crore only. We are opening the LC only for import. We are not opening LC for the domestic purchase now.
Right. Domestic is all cash.
Yes, all cash we have converted because we have sufficient cash in hand.
The other question is how long is your dealership aggressive rollout of the dealership network gonna continue for?
Please repeat your question.
How long is the aggressive rollout of your dealership network gonna continue, till such time that it stabilizes after that?
We already have an aggressive rollout of dealer network. I mean, ultimately dealership also comes along with our marketing teams to make efforts on the business development activity and bringing dealers on board where we can help them to grab the orders.
I know. I understand that. What I'm asking is right now your rollout is very fast, right? It's a pretty aggressive rollout. At some point there will be saturation of the dealership network.
Maybe. Maybe after two, three years there may be a stability or saturation. At the moment we don't see that. With the, I mean, strong growth of the Indian economy, the demand will also be going up and strengthening. More and more people are coming into businesses across India. We'll also get to know more markets, maybe in the semi-urban markets or rural markets. It's difficult to predict that, what will be the saturation point in this.
At least for next four to five years we will be growing number of dealer distributor at least by 10%. At least for five years.
10%?
Okay, got it. Thank you. That's all.
Thank you. Next question is from the line of Amber Singhania from Nippon Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my question, and congratulations on relatively good set of numbers. One thing I wanted to understand, as you mentioned that you are aiming around 17%-18% kind of growth. We all have seen that commodity has corrected significantly in last couple of months. That would require a significantly higher volume growth of upwards of 35% plus to achieve this kind of growth numbers. What is giving you the confidence of such a high volume growth is achievable in this scenario where we are already seeing some slowdown from the offtake?
We perceive that there is a good infrastructure pipeline and projects and a good inquiry flow from our customers of I mean different project verticals. That gives us the confidence. Normally we never over-predict, and we have never over-predicted our what we say. We try to achieve what we say. Rest the year-end will tell us.
Mm-hmm. Sir, if you can give some color about the demand scenario currently. Are we seeing any deferment or delay in the demand coming in from B2B and all, assuming the prices may come down further?
No, no. We are not seeing any deferment of demand. In fact, with the commodity prices correction, the demand is coming back on the table. I mean, and in fact the demand has become stronger.
How much?
On the project.
How much prices we have reduced, sir, from the peak in the couple of months?
I think, around 10%-12%.
10%-12%. Okay. Lastly, sir-
For your information.
Yeah.
2018-2019 and 2019-2020 was the year where the commodity price has gone down, but we have grown by more than 20% year-over-year basis.
Okay. Fine, sir. Lastly, on the margin front, you mentioned that you are still will be maintaining the margin of last year, 10.5%-11%. But on a falling commodity prices when we are seeing the realization is coming down, but EBITDA per ton may remain constant, so logically the margin should go up. So how, what exactly, how exactly we work on the margin part? Are we purely focusing on the percentage terms or per ton EBITDA? How-
We are mainly focusing on percentage terms.
In that case, sir, even in the falling commodity prices, our per ton EBITDA comes down.
See, margin, whatever will come, will come definitely. What we are working is for the 10.5%-11%. This means in each and every adverse circumstances also, we need to keep fingers crossed, and we are working for that. Whatever we are quoting, we are quoting on that basis only.
Okay.
Something or others in every year is also happening. So for that reason also we need to guide properly to you.
What I'm trying-
Because we don't know what other things will come in the market.
Understood, sir. What I'm trying to understand here is that with this current kind of correction in the commodity prices, almost 20%-30% from the peak, is it possible for our margins to go significantly higher, let's say 12.5, 13% kind of range here?
Not at all. Not at all.
It won't.
No.
Okay. Fine. Fine, sir. That's all from my side, and all the best for the future.
Thank you, Amber.
Thank you. A reminder to all the participants, due to time constraints, please restrict yourself to one question. Next question is from the line of [Santosh Kumar Keshri] from Keshri Wealth. Please go ahead.
Hello. Am I audible?
Hello. Yes.
I just had one question. Looking at the financials for the last 10 years, I can see that our interest burden has come down. Earlier you used to pay something like INR 100+ crore of interest. Now you are paying just INR 40 crore a year. What I can see, the dividend that we are paying to shareholders, that appears to be nearly, if I can term it that way, like it used to be 10%, 12% way back in 2013. Since then it has never crossed 10% except in one year. I can see that our borrowings are now mostly paid off and there is some CapEx requirement. As you said earlier, the CapEx to sales ratio is 1: 5. I have two questions on this.
One is that are we looking at increasing the dividend payout to shareholders or buyback? One. Secondly, you are guiding about CapEx in the, in terms of 1:5 sales ratio. What is the payback period for this CapEx in terms of profitability?
Normally the payback period is close to five year, because as per industry norms, 1:5 or 1:6 is the sales versus CapEx ratio. We are going to invest around INR 800 crore worth of rupees. We can take the top line of INR 4,500 crore+ from this investment. Second, with regard to dividend, we have already paid in the month of March.
Whatever will be the cash flow and the CapEx position, we will decide in, only in the fourth quarter. Definitely the payout will be more as compared to last year, because now our borrowing has gone down. Still we will be more focusing on the growth of the company, wherein more, number of increase in EPS you may see in our balance sheet.
We will be more focused that if we are strengthening the balance sheet, that the capital appreciation also goes up, improves to the shareholders.
No, that's right, sir. Rewarding the shareholder in terms of bonus issue or dividend or buyback actually makes them a little better off because they get to have some cash.
In the second quarter, we will be reviewing this and definitely whatever your advice and suggestions we will be discussing internally in our board.
Thank you. We request you to return to the question queue for follow-up questions as there are several participants waiting for their turn. Next question is from the line of Bhavin Pande from Trust Plutus Family Office. Please go ahead.
Yeah, hi. Thanks for your opportunity and congratulations on a decent set of numbers. I just have one question. As we are witnessing that, you know, proportion of sales, why are the distributors has gone up by north of 40% now as compared to 38% in the previous quarter? I'm just wondering, like in long run, how much do we expect this proportion to be? And can you just, throw some light on economics of, going through this approach. Is it more asset light? Is it more margin lucrative? Is it more convenient? Thank you.
Distribution, as you said that, 10%-12% year-on-year basis the number is increasing because we are appointing new distributor or we are converting the weak dealer distributor to the good one. So that is the restructuring of the dealer distributor network is going on. We are focusing on to increase the sale of the existing distributor dealer network with as well as for the new dealer distribution network.
No, your question was basically that, it has the sales through distribution network has gone up from 38% to 42%. It is because of the increased focus of and geographical advancement by where we were not present appointing distributors in those territories so that our footprint in untapped areas grows. From there the scale is improving.
Within two years' time we have taken the target to reach 50% contribution through the dealer distributor network. That is also our mission.
Thank you. We may request that you return to the question queue for follow-up questions as there are many participants waiting for their turn. We'll take the last question from the line of Khadija Mantri from Sharekhan. Please go ahead.
Yeah, good afternoon, sir.
Good afternoon.
Yeah, congratulations on the set of numbers. I just have one question. What's the price hike taken in Q1 in the month of April and May? Are we looking for any price cuts in the next few quarters?
The price revision is done either up or reduce the prices based on the input costs. Because of some corrections in the input costs, I think cable prices have already been corrected in last two months, and now it is levelized. Regarding house wire and flexible also, I think the prices have been reduced by around 8%-9% in last one and a half month. It has been corrected in line with the present copper price. We don't see any immediate revision of prices in next one month.
Thank you. We have reached the end of question and answer session due to time constraints. I would now like to hand the conference over to the management for closing comments.
Thank you very much, the investors and colleagues, for attending, taking out time for this investor conference. I hope that we have been able to satisfy you with our answers. If still you have any queries, you may reach us back, and we'll definitely give you clarifications. Thank you very much.
Thank you very much to all.
Thank you. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, and you will now disconnect your lines.