Good afternoon, everyone. On behalf of Nuvama Institutional Equities, we are glad to host the senior management of KEI Industries Limited to discuss the Q2 earnings. We have with us Mr. Anil Gupta, Chairman and Managing Director of the company, Mr. Rajeev Gupta, Executive Director of Finance and CFO. We will start the call with the opening remarks from the management and then move to Q&A session. Thank you, and over to you, sir.
Thank you very much. I am Anil Gupta, CMD, KEI Industries Limited. Thank you for attending this conference call. I will give a brief of quarter two of FY 2027 financial year. Net sales in Q2 of FY 2027 is INR 3,776 crore. We have achieved a growth by 38.52%. However, the total wire and cable sale in Q2 has grown by 39.5% against previous year same period. During Q2 FY 2027, operating margin is almost at par at 9.97%, against 9.88% previous year same period. EBITDA in this quarter is INR 401 crore against INR 311 crore last year. The EBITDA margin over net sales was 10.62% in this quarter. The growth in EBITDA is 28.69%. Profit after tax this quarter is INR 262.45 crore against INR 203.51 crore in last year. Growth in the PAT is 28.96%. Profit after tax/net sales margin is 6.95% versus 7.46% previous year same period.
Domestic wire and cable sale is INR 3,184 crore, with a growth of 46%. Export sale in this quarter is INR 493 crore against INR 472 crore last year. We have very good order book position from overseas market, particularly U.S. We are quite hopeful that in coming quarters, exports will grow substantially. Total EHV sale this quarter is INR 217 crore against INR 172 crore in the previous period last year. EPC sale is INR 46 crore against INR 47 crore. Stainless steel wire sales is INR 61 crore against INR 53 crore previous year same period. Domestic institutional wire and cable contribution is, that means B2B sale is 26% contribution in the overall sale. Sale through B2C sale means distribution network is 59%, and contribution of export is 13%. The balance 2% is domestic EPC and domestic stainless steel wire. For first half of six months in FY 2027, net sales achieved is INR 6,961 crore.
The growth in H1 is almost 31%. However, total wire and cable sale growth is 32% against previous year same period. During H1, operating margin has improved to 11.09%, and EBITDA achieved is 11.73% against 11.46% in the same period previous year. Growth in EBITDA in first half is 34%. Profit after tax is INR 536.59 crore. Growth in the PAT is 34.4%. Domestic wire and cable sale, total growth in domestic wire and cable growth is 38%. Export sale is INR 834 crore as against INR 846 crore last year. Total sale of extra high voltage cable is INR 403 crore as against INR 298 crore last year. The total active working dealers of the company as on September 30th is 2,146. Total order book at the moment in wire and cable segment is INR 4,927 crore. EPC INR 258 crore, and out of this order book, around INR 991 crore are export orders.
External rating. Long-term rating from CARE, India Ratings, and ICRA is AA+, and that of short-term is A1+. Book value of the company per equity share is INR 753 as against INR 697 as on March 31, 2026. Cash and bank balances on September 30 is INR 698 crore, which includes QIP balance of INR 169 crore. During H1 FY 2026-2027, company has incurred a capital expenditure payment of INR 402 crore, out of which CapEx is INR 333 crore. Till September 30, 2026, total CapEx payment incurred for Sanand is INR 1,876 crore. Another INR 200 crore approximately will be spent in balance six months of FY 2026-2027. Company is expected to incur capital expenditure of approximately INR 600 crore annually for next three to four years. At present, company is having total metal consuming capacity of approximately 183,000 metric ton per annum, including both copper and aluminum.
The planned commercial production of phase two of the extra high voltage cable and HT cable in Sanand will commence by end of March 2027. Capacity utilized during H1 2027 is approximately 77% in cable division, 64% in house wire division, 91% in stainless steel wire division, and 43% in the communication cable capacity. Sanand capacity addition is taking time to ramp up, and in coming months, capacity utilization will increase month-after-month. Also, we have sufficient capacity to grow house wire production and sale for next two to three years. Based on the strong demand in domestic and overseas markets, we are hopeful to grow in the current year by more than 25%, and in next three to four years by 20% CAGR.
There is a good demand growth of our wires and cables in data centers, power T&D, renewable energy like solar and wind, and also even the thermal power projects now coming up in a big way. Electric vehicles infrastructure, railway electrification, metros, urban infrastructure as well. Also, new manufacturing projects in domestic as well as in global markets are also attracting good demand. Wire demand is strong in housing and commercial spaces. Thank you very much. This is a brief from my side. I would be glad to answer any queries if you have. Thank you very much.
Thank you, sir. We will now begin with the question- and- answer session. Anyone who wishes to ask a question may press star and then one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to all the participants, you may press star and one to ask a question. We have the first question from the line of Natasha Jain from PhillipCapital. Please go ahead.
Thank you. Good afternoon, team. I have two questions. First on gross margin. Could you explain the year-over-year gross margin decline? What I understand is EPC losses, if I take that even as a percentage of gross profit, that explains 80 basis point decline, leaving another 100 basis points. Your commentary on export is bullish. EHV has grown very strongly. B2C growth has been strong. Today morning interview on CNBC also, the CMD said that Ultravolt entry will not trigger pricing wars. In 1 Q, you had said that we will maintain the gross margin guidance with a further 50 basis point improvement. Could you please categorically explain the 100 basis point decline? Second question is on the wires and cables outlook. If we see copper has been oscillating close to almost INR 14,800.
How do you see this wire and cable market evolving if copper crosses the INR 15,000 mark? Could there be a dent in demand itself? What are the key risks that you see standing today in the wire and cable market? Thank you.
Yeah. Thank you, Natasha. I am Rajeev Gupta. First of all, Natasha, in the earlier call of the first quarter, we maintained that the overall EBITDA margin will be 11%, mainly because the quarter one was not the representative of the margin because of the certain valuation of inventory. If the valuation increase in the first quarter, because of some reason, it has to affect in the subsequent quarter. Because of that, it looked like that. If we compare the whole half year position, you will find the same thing which we have said earlier also. In the past, if you compare our five years number, our operating margin was close to 10.27%-11% in H1. Slowly it is increasing, and it has reached to 11% now in H1.
We should not compare as we earlier requested for Q1 or Q2, it is an annualized basis. We always guided in the past that annualized basis, the margin will be there. Because the growth is also on annualized basis, because in Q1 or Q2 or Q3, growth may here and there because of certain dispatches or certain inspection get delayed. Because of that, year -after- year and quarter -after -quarter, we always guided that the growth rate will be for the full year, and the margin will also be for the full year basis because of the valuation impact and everything else.
With respect to the wire and cable market demand, since last 15-17 years, in spite of so many new competitors came in last 15-20 years, company has grown almost 17%. If we talk of the last three years, we have grown more than 18-19%. That kind of history we are maintaining, and we are communicating, and we are guiding. Whatever we are guiding in terms of the growth or in terms of the margin, keeping in mind the new competition, keeping in mind the geopolitical situation, everything we keep in mind, that is why we give you the guidance. Whatever guidance, this year we have upgraded to grow by 25%. We are still maintaining that we will grow more than 25%, because nobody knows that in future copper price will go up or copper price will go down.
Whatever conditions at present are available, whether it is the pricing or it is a geopolitical situation or some other environmental or some other political situation, we need to consider each and everything into the aspects. That is how we are guiding. Our guidance is still maintaining that we will be growing at a 25%+ growth rate, and our EBITDA margin will be close to 11%. In our EBITDA, mainly income part is very small. It is basically the interest on our FD or some exchange gain or loss. It depends on quarter-to-quarter. It is not very heavy amount. If we exclude the interest or exchange gain or loss, then another 0.3% or 0.4% we may exclude. Whatever Anil ji is saying that we will be maintaining 11% EBITDA margin, in the past also we were saying. In the last quarter, we maintained that 11%-12% guidance.
That was a range bound guidance because of the Sanand. Once the Sanand is fixed and the capacity is ramping up and we are going to utilize to 60%-70%, our EBITDA margin will definitely cross to 11%. That is how we have guided, and still we are firm on our guidance, whether the competition was there or the competition in future will be there. Export is increasing robust way and in the coming quarters the export will also grow. Our growth rate will be depending on the geopolitical situation competition, as we repeatedly saying that we will be 25%+ and EBITDA margin will be 11%, whether we grow from export or we grow from the dealer distributor or we will grow from the domestic institution side. As of now, the pending order position is very strong. Export order is also very strong.
Demand has very strong, and the visibility of the demand is also very strong. Yes, Natasha, from my side is over. If you have any query, please let me know.
Thank you, sir. That is comprehensive. Thank you very much and all the best.
Thank you. We have the next question from the line of Aditya Bhartia from Investec. Please go ahead.
Hi. Good afternoon, sir. My first question is on the revenue growth that we saw this quarter. Historically, you have always kind of maintained a very tight range of, let us say, 20%-25% revenue growth. In first quarter also, you had kind of spoken about keeping revenue in a similar range, irrespective of whatever happens to RM prices. This time around, we have seen a stronger revenue growth. Should we start thinking that the focus would be on getting volume growth as opposed to anchoring ourselves to a revenue number?
Sir, earlier in the past also, we repeatedly saying that value growth will be there because government makes the budget in value, corporate makes the budget in value, and individual makes the budget in value. Ultimately the value will prevail. Whatever capital we will be having, to that extent we will be growing because at present we do not have the concern for the capacity because of the Sanand phase one is started. So capacity is not concern as long as we have the working capital availability because at present we are running a debt-free company. We will be running a debt-free company. So we will be maintaining and we will be increasing our top line.
Sure. Given that we still have a net cash position, will it be fair to assume that revenue growth can be far stronger than what we have seen in the next few quarters as well? We have capacity, we have net cash position, and realization benefit is likely to persist at least for another one and a half more quarters. Can we assume a much stronger revenue growth than what we have become habitual of seeing?
Sir, you see, at one side everybody is concerning about the new competition. At the other side everybody is also expecting to grow. If we can grow faster and you are expecting we can grow faster then why there is a concern for that? Basically because all the things we need to balance because of the balancing we are guiding for a 25% growth but whatever we can add we will be definitely adding. As I said in the past 15, 17 years our history is available. In past 15, 17 years so many new companies have come but we will be able to maintain because of our large customer base position and our large export base position.
Mm-hmm. The reason why I am asking a 25% kind of a revenue growth essentially implies a significantly slower revenue momentum in second half versus the first half. That is why I am kind of trying to get greater clarity.
Sir, for the guidance purpose, it will be 25%+ , but whatever it will be, it will be available in the balance sheet. Because as you have already seen in the first half, we have grown almost 30%, 31%+ .
Sure. Understood, sir.
Because whenever we guide more and if we something lose, then we have to answer. So we need to be cautious about guiding.
Sure. That's a fair point, sir. Completely understand. My second question is on margins. Wherein, only in the last quarter we had spoken about 11%-12% margins. This time around, you're speaking about 11% margins. I know it's not a big deal. It's a small kind of a change that we made. Should we read anything more into this? Is it that margins are likely to be lower than what you were envisaging earlier? And what is really leading to this change?
Sir, our guidance was close to 11% for the current financial year because in the same call we were referring in the month of May, at that time also we have said that first we will go to 11%-11.5%, then we will go from 11.5%-12%. Because as the Sanand capacity will ramp up, the margin will get improved because of the export market, because of the EHV increase, because of the economy of scale. So our guidance is intact. As I said that 11%, as we said, we are maintaining, and as the Sanand capacity ramp up, we will be moving towards 11%-12%.
Sure, sir. Understood. Thank you so much.
Thank you. A reminder to all the participants, you may press star and one to ask a question. We have the next question from the line of Kunal from 361 Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. Sir, my question was similar to what was asked by previous participant. So essentially what we are seeing is that this year's margin will be around 11% and margin will slowly move towards 12% because of the various factors that we mentioned, right?
Yes, Kunal ji, you are right. Because the Sanand capacity as it is ramping up, margin definitely will improve towards the more than 11% side. So because of the current year environment and competition in mind, the 11% EBITDA margin will be there.
Sure, sir. Sure. Thank you so much.
Thank you. We have the next question from the line of Soumil Mehta from Kotak AMC. Please go ahead.
Yeah, hi. Good morning. So one question from my side, Rajeev ji. As rightly highlighted that no one really knows how copper prices will play out. Assuming copper prices stay stable and not believing in either going up or going down meaningfully, are you still confident of maintaining a 20% revenue momentum into FY 2028 for the full year?
Definitely the CAGR which we highlighted on the basis of the working capital available and the cash flow available, we will grow at a 20% CAGR in future.
Even if the copper prices remain stable. Essentially, next year we are looking at a more volume growth and less pricing growth given we will have incremental capacity from Sanand. Is that the way how we should look at?
Sir, volume, every time we all discuss about volume, but I always keep reminding you that everything sold in the volume comes, sir.
No, sir. I was just looking at it on mathematics, assuming copper price do not really move. Essentially 20% to me says revenue growth.
Sir, if copper price do not move from here, then definitely 18%-20% volume growth will be there automatically. If copper price goes down from here, then the volume growth will be higher than that. It is implied, sir. Because in the past 15 years, when I was saying that 17% CAGR, so few of the years where the copper price was going down and down and down, but still we were growing at a 15%, 17%, even in the downward trend.
Absolutely. Sir, my second question is with respect to working capital. Obviously first half we saw it increase, which was an industry wide, not particular to us. Do we believe from here on working capital number of days has peaked and we should gradually see that number going down into second half and going into FY 2028?
Sir, if you see the debtors number, it is already down. Only the inventory portion because of the new Sanand capacity is ramping up, so there the whole inventory will get started because at one time we need to fill the full factory. Because of that, the inventory has gone up. But at the same time, the creditor level has not gone up because our cash was available, so we saved the interest cost and we used the cash. So working capital is the factor of inventory plus debtor minus creditor. We have not increased creditor because we are having the cash. So that is not the case, our working capital has increased actually.
No, I understand that. I am looking from here on, do you believe inventory days have stabilized?
Sir, inventory days from here it will go down.
Perfect. Okay, Rajeev ji. Thank you so much and all the best for subsequent quarter.
Thank you, sir.
Thank you. We have the next question from the line of Anupam Goswami from SUD Life. Please go ahead.
Hi. Good afternoon, sir. My question is on how we have passed on the prices for cables, and what's our strategy now, how frequent we can pass through it.
Sir, as I said, in last 15, 17 years, price trend was increasing or decreasing trend. We have the mechanism under the natural hedge because we are carrying three to four months institutional order book, and we are carrying three to three and a half month inventory in factory and in transit. So our inventory and order book is under natural hedge. So old order gets served with old inventory. That's how we are passing on. Whenever we are quoting a new contract, we are quoting on a prevailing market price. That's how we are passing on month -after -month, quarter -after -quarter, these prices to institution. In the case of retail, twice in a month, price gets revised either upside or downside, depending on the movement of the metal. So practically, prices are passed on.
Got it, sir. Sir, and next question, if you can throw some light how the consumer behavior, let's say, if the copper prices stays stable from here or even slightly goes down, do we see higher traction in the volume stocking or so? How do we see from here, both in cables and wires?
Sir, one thing is very simple. When the prices of the copper will go down, the volume will get increased. Prices will go up, the volume will get decreased, but the overall sale value will increase.
Okay. Got it.
In the history, like financial year 2016-2017, 2017-2018, 2018-2019, the copper price trend was going down and down and down. But our industry was growing at 16%-17% CAGR.
Got it, sir. Thank you.
Thank you, sir.
Thank you. We will take the next question from the line of Achal Lohade from Nuvama Institutional Equities. Please go ahead.
Yes, sir. Thank you. Just a couple of quick clarifications. Firstly, EBITDA margin, what you are saying is including the other income, right? Just to clarify.
Achal ji, in our case, in the past also, we have discussed so many times in EBITDA versus operating profit, there is not much difference. Hardly in a quarter, INR 15 crore-INR 20 crore difference is there because of interest on FD or the exchange gain. Sometimes exchange loss also, sometimes exchange gain also. So it is not much difference actually. It is hardly 0.2%.
Right. No, for the second quarter, sir, the difference was 60 basis points and given-
Achal ji, so many times in the past we have discussed that whenever we are guiding or always we are guiding EBITDA margin. So EBITDA margin is 11%, operating margin, it may be 0.2% slightly less. Because in the last year only, in last two years, when the QIP money was there, FD income was higher actually. But now it is not the case. So interest income will be very less actually.
Got it. In terms of the institutional momentum, how has been the offtake? Is there any weakness, slowdown, or how was the demand scenario in various pockets of the electrical cables?
Achal ji, since last seven, eight years, whenever we are discussing, you say you are not seeing the demand, you are not seeing the offtake. But every year we say that we are seeing so many offtake because so many projects in the private sector or government sector is on the ground. At present, you see the energy sector is very strong, whether it's the renewable wind, solar, even the thermal, even the nuclear. If you go for the infrastructure projects, whether it's a road, rail, metro, airport, seaport, everything is in the traction. The government is investing INR 11 lakh crore -INR 12 lakh crore. But everything will remain in the value, not will be in the volume terms. That we need to keep in our mind, that government makes the budget only in the value terms.
You see the expansion in the refinery, expansion in the steel, fertilizer, pharma, even the real estate, whether it's a commercial or it's a residential project. Each and every city, there is a construction going on, sir. Because of that, if the GDP is able to grow by more than 7% and there is no estimation that GDP will not grow. Unless and until the GDP is growing and there is no indication of GDP will not grow 7%, how we can say the demand will not be there?
No, fair point. I was just trying to check the current trends as to if there is any weakness given the increase in the price of the raw material, if the institutions are taking it or not.
Sir, raw material price increase or decrease, it always passes on. It has nothing to do with our margin. If you see the latest five-year result, you will not find much volatility in the EBITDA margin. EBITDA margin is always 10%-10.5%. So now it is moving towards 11% because the new capacity and the new sale is increasing. So economy of scale.
Got it. Just a quick clarification. Is there any exchange loss or anything in this quarter? And also in 1Q?
At present there is exchange gain, there is no loss.
Okay. Can you quantify, sir, exchange gain for 2Q?
Let me just scroll down. Sir, INR 8 crore exchange gain is there. Hello? Achal, INR 8 crore.
What is it for 1Q also, sir, if you have it handy?
Q1-
For first half. Yeah.
Q1 also is what, close to Hello?
Yes, yes. Q1 also similar, sir?
No, Q1 was very less actually. Less than INR 1 crore.
Less than INR 1 crore. Okay, okay. Got it. Thank you. Swapnali, we can take the next
Actually, interest cost was higher earlier because of the QIP money.
Correct.
Now that is not there.
Interest cost means interest-
Interest income.
Income.
Got it. Thank you.
Thank you. We will take the next question from the line of Umang Mehta from Kotak Securities. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, on exports, you were targeting 17%-18% salience this year. The first half we have flagged because of the war. But you mentioned about a very strong order book. Two questions there. One is, how much is U.S. in your order book of INR 1,000 crore? And second is, how do you see exports growth for the full year as of now?
Sir, export growth, almost it is flat because INR 493 crore versus INR 472 crore in this quarter. But the export order, which is INR 991 crore, it is from the Middle East, from Australia, from America. America order is almost 50% of the order book.
50%. Okay, got it.
And the current-
Thank you.
At the current timing, America is very, very strong demand, whether it is industry or it is from energy side. From both the sides, the demand is very strong from U.S.A.
Understood. Sir, from a full year perspective, any guidance you can share in terms of absolute export revenues or growth versus last year?
Sir, first of all, if the export increase so much, then little bit decrease in the domestic institution because if the overall growth will remain the same. Because we need to be sub-part of the export, retail, or institution. Overall growth either from here or from there.
Okay, sure, sir. Thank you so much, and all the best.
Thank you. We will take the next question from the line of Vidit Trivedi from Asian Markets Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. Just quick question on the CapEx related side. So our CWIP has increased to almost INR 1,300 odd crores as of September. Could you please provide an update on the key projects driving this increase and the commissioning timeline and expected-
Basically, the Sanand project is only driving. By March 2027, our phase two of EHV and HT cable will commence. Then almost all the CWIP will go towards capitalized.
Got it, sir. Just wanted some clarification on the inventory side. We have seen an almost INR 1,200 crore odd of increase in the inventory in first half, significantly impacting our operating cash flows. Could you please elaborate on the key drivers of this buildup? Additionally, when can we expect the inventory to-
Our main inventory increase in the Sanand because it is a new plant, so as the capacity is increasing, at one time we need to keep the full factory, almost more than INR 600 crore-INR 700 crore inventory increase only in the Sanand. And balance because of the valuation from the existing factory, the copper and-
Got it.
price have because of that only.
Sir, and when can we expect it to normalize post H2?
It is by the end of the year, it will get normalized to the earlier level. The holding level will remain same by March 2027.
Got it, sir. And can you please call out the volume growth for this quarter?
Sir, volume growth, as I earlier said repeatedly, that everything we sold in the value. The government budget is always in the value. And we have the capital constraint, so we can sell only in the value terms. That's why the-
Got it.
Value growth is always prevail because balance sheet we make only in the value terms.
Got it, sir. Thanks a lot.
Thank you. We will take the next question from the line of Rahul Agarwal from Ikigai Asset. Please go ahead.
Good afternoon, sir. Just few clarification. You said balance sheet inventory should go back to 90 days of COGS by March 2027, is that correct?
Yes, it is correct.
Okay. Sir, I joined the call a bit.
Sir, by that time the sale will also increase. Rahul ji, by that time the sale will also increase. The holding level will remain same.
Yes, sir, I understand that. I joined the call a bit late. I just wanted to understand the reason for the EPC segment, whatever small EBIT loss we have reported, what is the reason for that?
EPC, since we are closing down, whatever left out job is there because the new job in EPC is not there. Small closure issues will be there. It will be like in the first quarter also there was a INR 5 crore loss, in second quarter INR 8 crore. Next one or two quarter, the INR 5 crore-INR 7 crore loss will be there because we are almost closing down the EPC.
Okay. So full year we should budget like about a INR 20 crore kind of EBIT loss for the full year, and then from next year there is no EPC. Is that correct?
Almost EPC revenue is close to 1%-1.5% as of now.
Okay. Got it, sir. Just one clarification on exports to the previous participant's question. So first half flat, I understand full year will grow 25%. It does not matter whether it is domestic, export. This INR 990 crore order book will have a finite timeline, right?
Yeah, it will be sold within three to four months. Sir, whatever pending order book is almost three to four months. Not more than that.
So you are saying this entire INR 1,000 crore of export order book will get fulfilled in next four months?
[Non-English content] So order book will be there, but it will be sold within three to four months.
Okay. Got it. Last question on EHV. After the plant commissions for Sanand by March, the peak revenue for EHV would be how much? What should be the capacity?
New capacity additional will be more than INR 1,500 crore-INR 1,700 crore in terms of value, or maybe more, depending on the metal valuation. But it will take some time to reach peak. But quarter -after -quarter from the September quarter of next year, the EHV sales will get increased. Because March we will start the commercial production. Three months time it will take to settle down and for the approval process. Then from the second quarter, the sale will heading of EHV from the Sanand plant.
This is over and above the existing INR 700 crore of capacity?
Yeah, definitely.
Is that correct?
Sir, existing is now INR 700 crores sale.
Okay. Sir, full year CapEx, you said INR 600 crore every year for the next three years. That is what we should budget.
Yeah, sir, because we need to increase the capacity to grow by 20% CAGR. Now we have just started the Salarpur, so it will take another two years' time. Their investment will be going. That is how we are targeting and allocating the budget for CapEx.
Does this include the maintaining CapEx for existing factories?
Yeah, maintenance CapEx is INR 100 crore-INR 150 crore, not more than that.
Got it, sir.
In all the plants.
Got it, sir. Thank you so much. And festive greetings to you.
Thank you.
Thank you so much.
[Non-English content]
Thank you. We will take the next question from the line of Kevin Shah from Aditya Birla Capital Institutional Equity. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. My first question is on the volume front. In the interview today morning, you mentioned that volume for FY 2027 will be somewhere around 10%, which is more a bit conservative than your earlier guidance of 16%-17%. Can you throw some light why that conservative and how much-
Sir, if you see if the volume growth 16%-17% and price has increased by 50%, this means you are talking of a 67%-70% sale value growth. Is it right or wrong?
Yes.
Hello?
Yes, sir. Got it.
So-
Hello
70% growth is not possible at all, sir.
For growing any company, it needs the working capital, and working capital does not support more than 25%-30% growth rate. So it is very clear, sir. So whatever we will grow, we will grow in value terms. That's why we are again and again emphasizing on the value terms because of the capital requirement to grow.
Got it. And how much of this will be coming from Sanand contribution, and what is the current utilization at Sanand?
Sir, Sanand, as of now, until last month, it reached to INR 100 crore per month revenue. Within this quarter, we are targeting INR 150 crore -INR 200 crore per month, and third quarter will be close to INR 250 crore -INR 300 crore, something type of thing in the monthly basis.
Right. Secondly, on the margins, if we compare the QoQ margin decline. So in Q1 you mentioned that the operating efficiencies, EHV, and the retail contribution was the key levers for the solid margin trajectory. If we see even in this quarter, those three levers are intact. Could you help understand the key reasons for the sharp decline in QoQ margin?
Actually, there is no decline. When there was a last quarter call, at that time also I clarified because of the valuation, inventory is high. Because of that, the margin was looking like improving. If the closing stock somewhere the high value, again it has to adjust it in the subsequent quarter. So that it has adjusted. If you combine for two quarters, it is average out. It always happens because of the current price fluctuation. So there is no decline. Practically, annualized basis if you see, it will not be declined, rather it will be increased. Whether it's operating profit, which we are talking.
Okay. Yes. Lastly, to get a sense on your strategy in the dealer channel. So we are seeing an increase additional capacity with the new entrants coming in the retail channel. Are you looking at a strategy to lower channelize your mix between the retail and MV, and can we see the retail mix going down from here due to that, or is there a deliberate approach to that, or will you be taking as it goes on?
Sir, dealer distributor contribution is already 55%-60% range, and we will be operating in this range. Because those dealer distributors are working for us, they will be working for us.
Mm-hmm. Have you seen any pricing changes or any dealer incentive change in the dealer channel?
Pricing, it is a continuous process. It is increasing or decreasing because depending on the metal price, as I said, twice a month price gets revised for the retail. Twice a month. So it is a continuous, regular, normal process. Nothing new, nothing abnormal.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address all the questions from the participants in the question queue, we request you to kindly limit your questions to two per participant. If you have a follow-up question, please rejoin the queue again. We will take the next question from the line of Rahul Maheshwari from Ambit Investment Advisors. Please go ahead.
Yeah. Good afternoon, sir. I have two questions. First, if we see from past two, three years, your active dealer count, if we look at this time, you have disclosed at 2,146, and last year same period it was at 2,340 something. Why the active dealer count has been remained steady state? Have we reached to our full potential in terms of distributor count or the penetration, et cetera?
Sir, dealer distributor count is normally in the range of 2,100, and our existing dealer distributor are, few of them, those who are not working, we are closing down, and few of the new potential dealer distributor we are increasing. That's how the number is in the range. Our existing dealer distributor are working hard for the company. That's how our overall retail dealer distributor sale in last five years has grown from 40% contribution to now 59% contribution. So we are quite satisfied with our existing dealer distributor, and they are also very loyal to the company, those who are still involved.
Sir, I got that dealer distribution mix is improving. I'm just asking from a penetration perspective that if in India XYZ is the number of dealer count, have you reached to that potential, that is why on a net basis it's not on an increasing trend, is my question.
Sir, slowly it is increasing also, but few of the dealers, those who are not selling our product, they are also decreasing also. Because of that, the net number is not increasing, but ultimately the valuable dealer distributor is increasing.
Okay. And sir, these would be your exclusive dealers, 2,146?
Sir, normally 15%-20% of the total dealer count are the exclusive, but the rest are the multi-brand dealer distributor. They must be selling two or three brands.
Okay.
This is a normal practice of the industry.
Right. In terms of serviceability, can we say that how many pin codes are we able to map through these dealer retail touchpoints? How many we have been able to cross?
Almost in each and every city we are available, sir. Each and every city of the country we are there.
Okay. Sir, just a second question.
Yes, sir, we are the second-largest company of the country for the power cables.
No, that's known, sir. Been tracking for more than 12, 13 years.
Yeah
just from a perspective from the peer or the new entrant who has been able to start his business. Just wanted from a reach perspective. Sir, second question from Sanand wanted to
Sir, one thing I would answer for the reach point, more than 25,000 retailers are working all across the country, and more than 2 lakh electricians we have been connected so far. Yes, sir, you were asking something.
Yeah. You have reached. Can you give on an industry basis, sir? That will be really helpful. How much more potential is there for KEI to grow?
It may be double also, sir, in next 5 - 10 years. Because the potential is huge and the country is so big.
Okay. And sir, just last question on Sanand. As in your initial remarks you said that ramping up is taking time, but last year you mentioned that it might take two to three years for full ramp-up. Can you give at what year we can see the peak utilization for Sanand? And-
2028, 2029. Sir, that guidance is still intact, so in 2028, 2029, you will see the peak revenue from there.
And how much asset turn? In the range of two to three or better?
More than three.
Okay. Sir, more than three means should we take 4x or what kind of? Because EHV will also-
As of now, more than three, sir. Less than 4x.
Okay. Sir. Best wishes, sir. Thank you so much.
Thank you, sir.
Thank you. We will take the next question from the line of Bharat Shah from Bharat Shah Capital Ideas Private Limited. Please go ahead.
Ha! Namaskar, Anil ji. Namaskar, Rajeev ji.
Namaskar, Bharat ji.
Namaskar. One long-range question. We aim to grow at about 20%+ over next four to five years.
Yes, sir.
Should I assume that our operating profit pool growth would be ahead of that top-line number?
Sir, that was always in the past also. Sir, if you compare past 15 years, our CAGR growth was 16%-17%, but our profit growth was close to 24% in the past also, sir.
Right. For the 20% value growth in turnover for next four, five years, what kind of operating profit pool growth one should probably be able to assume?
Sir, at least 3% to 4% higher than the top line.
All right. Profit after tax, will it be fair to assume will be little higher than the operating profit growth?
Sir, overall, sir, profit after tax will be higher 3% - 4% because of the interest, and above operating margin will also be higher little bit because of some operational efficiency and economy of scale. So overall profit after tax, you can count that 3% - 4% will be higher than the top-line growth.
Than the top line.
Yeah.
So 20% top-line growth will mean 23%-24% operating profit growth and profit after tax would mean probably about 25%.
Because there is a tax payment also. The growth below the line, I am talking of the below-the-line growth, basically. I am not talking of the operating growth. I am talking of the final profit after tax, because in the past history, when even the interest was there, we were growing 17% and our profit after tax was growing 24%. So there the difference was higher because of interest. But now the interest cost is less, so if we grow by 20%, at least profit after tax will grow by 24% to 25%.
And operating profit growth, should we assume 23%-24% compared to 20%?
Operating profit, I cannot comment, sir, as of now because I have not calculated because in the history I have calculated on the top line and the bottom line, so accordingly, I have given you the answer.
Okay. What should happen to return on capital employed, which was last year obviously reduced?
Sir, return on capital and return on equity, as it was in the history, ROE was 19%-20% and ROCE was close to 23%-24%. From the next year onward, you will see that kind of ROCE and ROE.
Okay. Fantastic.
Because when the Sanand will get completed and the top line will be from there, the same will get reversal, sir.
Terrific. The CapEx you mentioned, but I couldn't really get that number. Regular maintenance CapEx will be INR 100 crore- INR 250 crore. What is the growth?
INR 100 crore, INR 250 crore and another INR 450 crore- INR 500 crore will be for the new CapEx, increase CapEx.
Growth CapEx over next four, five years.
Yes, sir. We need to continue growth and we need to continue CapEx also, sir, because we need to invest two and a half year advance.
Sure. One last thing. Since we conceive our business plan in terms of the top line, as you have many times articulated that there may be underlying raw material price fluctuations. So volume growth also may reflect a synergistic effect. But the best way to conceive overall business model is in terms of the top line. If that be the case, should we really focus on operating margins that we talk about, that it is likely to be 11% currently and over time it will improve to maybe, say, 12%? Because that operating profit is really an outcome of this model, therefore, will it not be better to focus on top line is one number and operating profit growth is a percentage growth is not a number, rather than focusing unduly on margin percentage?
Sir, you are right. As we said that even in the current year, earlier guidance was 20% because of the capacity available and capital available, we reached to the line where we have set the target of 25%+. First half, we have already grown by 30%. In the margin, we have guided that because of the economy of scale, because of the current scenario, and the mix of the retail has increased and export has increased. Our EBITDA margin earlier was close to 10.5%, which we have guided for 11%. So both the things are intact. In future also, 11% margin will go towards the higher range. Ultimately for us as a company, the availability of the cash profit after tax plus depreciation. So profit after tax will be close in the range of 7%-7.5%.
So that will be available for our future growth. That's how we measure our growth actually, sir.
Oh. That I appreciate. My simple question is, for value creation in a business, what is important on a long-term is how the overall business is growing, how our profits are growing, and how our cash flows are growing. Along with that, whether return on capital employed, capital efficiency is improving or not. Margin is just an outcome in that number and-
Margin is improving, sir. Because earlier margin was 10.5%, it has improved to 11%.
No, that I understand.
We are guiding also for future once the Sanand gets commissioned fully. So in the next year, another 0.5% margin will get improved.
No, I understand that.
Sorry to interrupt in between, Mr. Bharat.
No, I need to complete this question, please.
[Non-English content]
[Non-English content] Basically margin percentage is not a particularly important factor in value creation. Value creation resides in top line profit and cash flow growth along with the capital efficiency improvement. So margin is merely a noise rather than any meaningful signal, and therefore unnecessarily too much discussion-
Sir, you are right.
Too much focus goes on margin.
Yes sir, you are right. But sir, [Non-English content] is that most of the analysts, they are always talking of the margin, that increase margin or decrease margin. That is why we need to focus and because they are focusing on the margin, but otherwise you are right, because as a company, we finally need the cash flow and the efficiency of the capital. That is why we always focus, whenever we make our business plan, we always make that how much cash is available with us. That is PAT plus depreciation. After paying dividend, that cash is available to us. So we as a company always focus on that only, sir, which you are guiding us.
Okay. Thank you, Rajeev. Thank you, Anil.
Thank you, Bharat. [Non-English content] Whatever we are saying, we are trying to deliver more than that.
Thank you. We will take the next question from the line of Darshan from Jefferies. Please go ahead. Mr. Darshan, you may proceed with the question.
Hello, am I audible now?
Yes, you are.
Yes, sir.
Thanks for the opportunity. I just had one clarification regarding the margins. Earlier we were guiding for 11%-12%. Now we are guiding for 11%. Is it that we are being conservative and guiding towards the lower end of our previous guidance? How do we read it?
Sir, there is no confusion. The guidance is 11%-12%. 11%-12% was also for the next financial year. In the last call also, if you read our call, we said that first we will go from 11% to 11.5%, then we will move to 11.5% to 12%. Guidance is intact. Sometimes there is a little bit confusion with the understanding or whatever we want to communicate. It's a little bit difficult there. Again, I am saying that our guidance for growth will be 25% in value terms. For the margin, our guidance will be, EBITDA level margin will be 11%, 11%-11.5%, because when the Sanand is going to complete by March 2027, it will move first from 11% to 11.5%, then 11.5% to 12%. Because until 2024-2025, our margin was 10%-10.5%. 2025-2026 even, the margin was close to 10.5% operating margin.
This margin is improving and it will improve. Guidance is intact. Please take note that the guidance of EBITDA margin 11%-12% will be completing in 2027 and 2028, two financial year.
Got it. Thank you.
It will not be quarter-to-quarter. Whatever we are saying, it is an annualized basis. Once again, I am requesting to all of you, sir.
Got it, sir. Thank you so much for the clarification. There is no guidance cut. Got it.
Thank you very much. Ladies and gentlemen, with that, we conclude the question -and -answer session. I now hand the conference over to the management for the closing comments. Over to you, sir.
Thank you very much. Thanks for this interactive conference call. If you still have any further questions, please reach out to us. Thank you.
Thank you very much to all.
Thank you, members of the management. On behalf of Nuvama Institutional Equities, we conclude this conference. Thank you everyone for joining with us today, and you may now disconnect your lines.