Ladies and gentlemen, good day, and welcome to the APAR Industries Limited earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask a question after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ambesh Tiwari from S-Ancial Technologies. Thank you, and over to you, sir.
Good afternoon, everyone. This is Ambesh Tiwari from S-Ancial Technologies. I welcome you all to the Q3 FY 2024 earnings call for APAR Industries. To discuss the business performance and outlook, we have from the management side, Mr. Kushal Desai, Chairman and Managing Director, Mr. Chaitanya Desai, Managing Director, and the CFO, Mr. Ramesh Iyer. I would now pass on the mic to Mr. Kushal Desai for the opening remarks. Thank you, and over to you, sir.
Yeah. Thank you, Ambesh. Good afternoon, everyone, and a warm welcome to APAR Industries' Q3 earnings call. I'd like to provide first a brief overview of our performance, then follow that up with a few industry updates, and then we can get into some of the specific segmental performances of the three businesses. Post that, we'd be happy to host questions. During Q3 FY 2024, the consolidated revenue came in at INR 4,013 crores, which is 2% higher than the same revenue previous quarter, previous period. The revenue growth was a little bit lower, subdued due to very high volumes of export, especially of cables that had happened to the U.S. market in the last quarter of Q3.
There has been a level of de-inventorization and that whole process taking place, as we've mentioned in some of our previous calls. The global sales growth, ex the U.S., however, grew by 17.2% in Q3. The ex-export mix was 39% versus 50.2%, compared to the period last year. The EBITDA is up 24% year-on-year to INR 432 crore at a margin of 10.8% versus 8.9% a year ago. Profit after tax came in at INR 218 crore, which is 28% higher than in the previous year. So this represents 5.4% tax versus 4.3% in the year-ago period.
Now, if you look at the nine months, the consolidated revenue is up 14% year-on-year and has reached INR 11,711 crores. The export mix is at 45.6%, which is pretty much the same as what it was for the nine months last year at 45.4%. The EBITDA for nine months is at INR 1,174 crores, which represents a 42% increase compared to the same period previous year. The EBITDA margin is at 10% versus 8% from a year ago. Profit after tax is up 49% to reach INR 589 crores, with a profit after tax margin of 5%, and that's 120 basis points higher than nine months of last year.
In terms of a few updates in the power sector as such, the Central Electricity Authority has reported that 3,841 circuit kilometers of transmission lines were added in the third quarter, which is ahead of the target that they had set of 3,590 circuit kilometers. In the nine-month period, 9,047 circuit kilometers of transmission lines have been added, and this is against a target of 16,600 circuit kilometers. So we are hoping that in the fourth quarter, that's the January-March quarter, the pro rata additions will be higher than in the previous nine months, given that this is some of the best climatic conditions for project execution.
On the substation front, India saw an addition of nearly 38,336 MVA of substation or transformation capacity in the nine months, which is 61% of the planned addition of 61,404. So here they are lagging a little bit behind. But the order books that various transformer companies and other component suppliers into substations continues to remain pretty strong. If you look at the Ministry of New and Renewable Energy, they have set a target of awarding 50 GW of renewable energy capacity, including 10 GW per annum from wind energy between 2024 and 2028. In the recent COP28 summit, 118 countries have agreed to triple the global renewable energy capacity by 2030.
So the current level is 3,400 GW, and these pledges are to take it to 11,000 GW. In addition to this, the Prime Minister, a short while ago, has also announced a very ambitious plan of about INR 1 lakh crore of rooftop solar, which should be implemented across India. So there is still a lot of discussion and movement going forward for this renewable energy addition to happen as part of the increase in energy consumption and as part of the energy transition. Now, coming to the individual business performances, our conductor business revenue in Q3 FY 2024 grew by 4% year-on-year to reach INR 1,985 crore. However, the volume has grown by 14% in this quarter.
Aluminum prices have been lower, and that is what has. It's almost 11% lower than in the same period previous year, which is why the revenue number has been lower. Sales at the U.S., because the U.S. is the second largest market after India for us, even for conductors, actually recorded a 28.3% growth year-on-year. The domestic deliveries of aluminum AL-59 and HTLS conductors, as well as aluminum rods, have remained in fairly good demand. The export revenue contributed to 40.2% of the division's overall revenues, versus 49.6% in the year-ago period. The premium products contributed to 42% of the revenue mix.
The EBITDA per metric ton, post Forex adjustment, is at INR 41,530 per ton from a good product mix of these premium products, and also a higher share of exports to countries where the margins have been relatively good. Our overall order book is at INR 6,081 crores, with a share of about 40% coming from premium products. Mind you, that in terms of the standard products on conductors, a transition is happening from ACSR to AL-59 alloys, which is definitely more beneficial to technologically focused companies like ourselves. Furthermore, the slowdown in the U.S. market order inflow due to the inventory rationalization that I spoke about earlier has been pretty much offset by strong domestic demand.
The upgrade in the specifications that I mentioned of ACSR to AL-59 alloy has actually created a win-win situation for manufacturers like APAR, as well as for transmission line owners, because it results in reduction in the total cost of ownership of the transmission line. So this effect has started, and we believe that the full effect of this is going to play out over the next few years. In the nine-month period, revenues came in at INR 5,703 crores, which is up 17% year-on-year. Export sales contributed to 46.7% of the revenues, versus 43.4% compared to a year ago period. The volumes are up in this nine months by 36% year-on-year.
The EBITDA per metric ton is at INR 39,777, which is 5% higher than in the previous year. Coming to the oil division, the Q3 FY 2024 revenues came in at INR 1,244 crores. The volumes are up by 8%. Transformer oil volumes are up by 16% year-on-year. Export contributed 44.3% of the revenue. The EBITDA post Forex adjustment for the quarter came in at INR 8,157 per KL, which is higher than what has been not only last year, but in the previous quarters, and this is reflected from slightly better pricing and a lower cost profile that we had.
Part of this increased profitability was due to a delay in shipments of base oil, and given that Q2 cost structure was lower than Q3, there has been some the weighted average cost of inventory has been a bit lower. That has added to some incremental profitability in this quarter. Lubricant revenues came in at INR 281 crore, with a volume of about 17,945 KL. During the nine-month period, oil revenue is up 5% at INR 3,640 crore. The volumes are up by 13% in the nine-month period. Transformer oil volumes in this period are also up by 12%, and the EBITDA per KL came in at INR 6,257 per KL.
Our lubricant revenue is at INR 703 crore, with a volume of 52,812 KL for the nine-month period. Now, coming to our cable business, revenue growth remains flattish versus the previous year, and as I mentioned, this is almost fully attributable to the de-inventorying process of U.S. customers. Now, if you exclude the U.S., the rest of the geographies grew by 24.1%. Export has contributed 31% of sales versus 60% in the year-ago period. The EBITDA continues to post double-digit margins at about 11.5% in the current year. For the nine months, cable revenues are up 20% year-on-year at INR 2,773 crore, on the back of an increase primarily in coaxial cable.
Global sales, excluding the U.S., is up 43% year-on-year, and the export mix for nine months is at 43.7% versus 50.7% a year ago period. The EBITDA post foreign exchange for the nine months is at 11.4% versus 9.8% in the previous period. The U.S. order intake is showing signs of revival post this inventory rationalization that we've just spoken about. We are clearly seeing an increased level of inquiries, and orders which are getting finalized do have delivery periods which are coming towards the end of FY 2024, early part of FY 2025. So that means in March of this month and largely in the first quarter onwards. We are also receiving similar feedback from the European Union countries, where a similar process is also happening.
On the downside, we have seen that, you know, the wars skirmishes in the Red Sea has affected the shipping rates and the frequency of vessels plying back and forth has also increased due to it having to travel around the Cape of Good Hope in Africa, as opposed to through the Suez Canal. So markets on the other side of the Suez Canal, like the U.S., EU, LatAm and West Africa, there the effect is higher. When you look at east of India, then there is relatively a much lower effect. There has been a sudden increase in freight due to diversion through the longer route.
But we also see some of the price increases that carriers are charging as being opportunistic, and therefore, over a period of time, there is a possibility that these freight prices will start getting rationalized again. The higher freight is hurting competitiveness of future business from locations like India and the UAE with respect to the markets that I just mentioned. It is really unclear how long this will last, but, you know, we are quite optimistic that this, upward trend and upheaval in, freight prices will settle down in the months to come. Having said that, we remain optimistic that the basic growth drivers that we've been talking about for the last couple of years, both in the domestic and global markets, remain intact.
We have further updated our corporate presentation, and the company profile and its performance, which is available on our website. We would encourage you to please access the same, as it does carry a great level of detail, but beyond what can be discussed on this, on this call. So, with that, I'd like to come to the end of my comments. I thank all of you for joining this call, and we can now open up the floor to questions, please.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets only while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar, from ICICI Securities. Please go ahead.
Good afternoon, sir, and congratulations on a very, very good quarter. So my first question is on the HTLS opportunities. Are we seeing a larger traction from the state utilities or Power Grid? Are we seeing more tenders compared to last year? That's the first.
Yes, we are seeing, there is a increasing interest in putting up more HTLS lines. But some of the timing of those tenders is unclear to us as to when exactly those will fructify. But nonetheless, the trend is definitely positive and upward.
You know, there is a statistic that you know sort of indicates what the trend of this is going to be, that if you see quarter-on-quarter the delta in power consumption, that's the growth in power consumption in India, has been increasing, and in the last quarter it touched almost 9.x% over the previous year. So as this trend takes place, the opportunities for reconductoring with HTLS lines is going to continuously increase. A number of tenders and have been lined up, but, you know, you will have a small period due to maybe the Indian election from where, you know, awarding of some of these tenders may get delayed by a couple of months. But the trend is very positive.
My second question is on the conductors broader number, given the fact that a lot of transmission activity is picking up in this country. Do you expect the domestic contribution to inch up, and in a sense, could there be a shift for the standard conductors to be supplied to the Indian market, especially for next 2-3 years, when you see the activity is very, very high? It looks like, yeah.
So, Mohit, the Indian market remains very strong, as you mentioned, and that's how when there has been a slowdown in the U.S. market, it was completely picked up by demand in the domestic market. What is interesting for us is that the transition has happened from using aluminum conductors, which are steel reinforced, which is at the bottom of the value chain. It has moved to the next level, which is the AL-59 alloy-based conductors. So that has clearly made the Indian market more interesting for manufacturers like us, because there is a higher technology involved in providing those products. The competitive intensity is lower, and we see this trend; it's already become now the default product. So in the domestic market, you'll see less and less of this ACSR and AL-59 becoming the standard.
So in the next few years, because, you know, if you have such a strong growth on the renewable energy front, the transmission line requirements are also going to be, you know, very strong. And as we said in the previous call, because AL-59 has become the standard, and it's a win-win situation both for manufacturers like us, as well as for the end owners of the line. The competitive intensity has reduced because many players who have not invested in alloying capability and technology, they today are not relevant, and they've either shut down their businesses or reduced the amount of business that they do in conductors, especially on the transmission side.
Understood. Thank you. Understood, sir. Thank you.
Yeah. Okay, thank you, Mohit.
Thank you. The next question is from the line of Renu Baid, from IIFL Securities. Please go ahead.
Yeah, hi, good afternoon, team, and congratulations for the strong performance. I have a few very basic questions. First, so if you can share any updates on the status of the BharatNet telecom tenders, where are we in terms of order finalizations, across these projects?
So, Renu, this, the BharatNet, you know, it's, it's at the stage of industry discussion, so several rounds of discussions have happened, and feedback has been sought. So, you know, there are various packages that are four mega packages, and there are four smaller packages which are being proposed.
Mm-hmm.
The guidelines of that have been shared, and industry participants, you know, there's already been multiple rounds of discussion and feedback which have happened. So our sense is that, you know, it's a tender that, you know, could possibly come out. I know they're racing a little bit against time because of the impending elections, but it's at a really advanced stage in terms of, getting finalized.
But in your view, the tender, what would be the probability of the tenders getting pushed back because of the election code of conduct coming in by late February, early March?
The sense we have is that they're trying to do this in time, because, you know, the networks are very large and the more time that is lost, you know, t he Prime Minister really wants rural telecom connectivity to increase. So, you know, if you don't do it pre-election, then you'll probably lose 3-4 months at least.
I guess six months, then, probably will have to just knock it off.
Transition period, you know, to get yourself mobilized and these three months.
Right. Got it. Coming to the core business of conductors, I think, consistently, we have, the business has been faring much stronger than what even we have been expecting. So first, as you mentioned, that there's a structural shift from ACSR to AL-59 range. While this is beneficial for industry and for suppliers like you, what does this mean in terms of differential in, either realization per ton or EBITDA per ton, when we compare it with the conventional ACSR? So approximately what percentage differential is there, and based on this, given this transition is now very much visible, how should we look at, the longer term EBITDA per ton, numbers, for us, maybe from a fiscal 2025, 2026 perspective?
So earlier we were guiding for long-term ranges of INR 25,000-INR 28,000 per ton. So now based on this shift, how should those long-term numbers look like?
Yeah. So first, in terms of AL-59 versus ACSR, as the product itself is different and it's a much more improved product than the ACSR type, conductors.
Correct.
There are a lot of competition, a lot of players who manufacture the ACSR type, but when it comes to AL-59, there's just few players there, because the product is different to manufacture.
Mm-hmm.
The quality is different, and also the realization, more than the realization, the margins are better because the weight of the conductor is much less, because of the characteristic that it has and it's less corrosion, material also. And, we've been seeing more volumes coming from this AL-59 type conductors in the recent past. So, if you look at the overall conductor division, the EBITDA margins are high because of various factors.
You know, the export mix has gone up. We are selling more of AL-59 conductors. The premium product proportion has gone up. So it's a combination of factors that have actually led to the higher EBITDA, and this has been consistently happening over the last few quarters, more than a year now. Coming to your question in terms of how do we see it in future? Well, we give guidance on a long-term perspective. We don't give a very short-term quarterly or a half yearly guidance.
But if you look at it from a long-term horizon point of view, from a three years to five years point of view, we feel that given the mix change because of the product characteristics has evolved, you know, we feel that the conductor margin could be anywhere above INR 28,500 per metric ton, plus the tailwinds too, that we keep on getting on an every time basis. So our guidance has been improved over the last one year, but as it's visible as of now, we feel that a long term, three to five years, it could be anywhere from INR 28,500 plus tailwind.
Got it. And, just from academic understanding perspective, as you mentioned, the share of AL-59 in the conductor mix has been increasing. Can you help us quantify, from, you know, being negligible a few years back, where does it stand today? And as an industry leader, in your view, by, in say two years, by fiscal 2026, how large could be the share of AL-59 within a conductor mix for the domestic market?
Is that the Central Electricity Authority has now made this AL-59 as-
An option.
As an option.
Mm-hmm.
To, you know, to bid against, you know, for EPC players. Now, given the, given the weight versus current carrying capacity, it's, it's really beneficial to use AL-59 versus ACSR. So, as a consequence, it is becoming the standard. If the option is given, it's like a literally a no-brainer to go with AL-59 versus, versus ACSR on a cost of ownership basis. So our sense is that all these, interstate lines, and even longer intrastate lines, will all move towards, AL-59 as a base, as far as India is concerned.
Got it.
Because it's a lighter conductor that can... With much lower amount of aluminum in it, so, you know, lighter in the sense that it doesn't have steel. It's full, it's a full alloy aluminum. For the same weight of aluminum, you can carry a higher current. So now, so either you carry more current on the same line, or if you want to carry the same amount of current on the line, you use lesser aluminum. On top of that, because the conductor is lighter, the tower structure itself is considerably lighter. You can also increase the span between two towers, so it means that the total number of towers can also be reduced.
So there are a lot of parameters that a good EPC designer has in their hand to optimize the use of this AL-59, versus in the case of ACSR, you don't have much flexibility in terms of how you can design, you know, the line. So that's why given the option, this should become pretty much the standard in India. I hope that answers your question. Hello?
I'm so sorry for that, sir.
Yeah.
I believe the current questioner has left the queue.
Okay.
The next question is from the line of Mr. Mehul Mehta. Please go ahead.
Good evening, team. My question is, related to-
Sorry to interrupt, sir. Your line is not at all audible. May we request you to use the handset mode, please, if you are using the speaker mode?
Just a second. Am I audible?
Yes, better.
Okay. Good evening, team. My question is with relation to transformer oil business. For nine months, transformer oil business has grown at 16%, and for nine months it has been 12%, so it's quite apparent, accelerated growth. So how would it have been, in terms of order inflow, can you share for nine months, how we have seen, like, in terms of transformer oil?
So you see the our call ups for transformer oil basically happened largely from transformer OEMs, when they are ready to deliver their transformers and when utilities are ready to accept the transformers at their site. So I've So you know, it's sometimes a little misleading, just looking at three months. But having said that, if you go around, all good transformer manufacturing companies, not only in India, but in most parts of the world, have a very solid order book in place. And given all these lines which we are talking about, you know, these transmission lines, and in the case of transformer oil for APAR, it goes into the generating point, goes into transmission, substations, and it goes into distribution.
So when you aggregate all of those three, we see that, you know, there will continuously be addition happening. And this growth we are seeing both in India as well as outside India.
All right. And, sir, I just-
In short, if you take a 1-year, 2-year, 3-year perspective, it is going to grow linearly with the addition of transformers and the transformation capacity.
Right. So in terms of, say like, you know, 16% when we are seeing like, you know, volume growth for transformer oil, can you share, like, in say last two years, what would it have been and how it has been accelerating?
Well, I mean, it is, it is up 16% quarter-on-quarter and 12%, you know, year-on-year. So, and we've been guiding that, you know, even though the oil vertical itself may see about a 5% volume growth, we were- we've been guiding that transformer oil should see a double-digit growth, and that's what is actually panning itself out. So if some of these plans which they're talking about, you see they're far behind on the transmission capacity, as I mentioned in my opening remarks. If, if that is accelerated, then again, you know, requirement of transformer oil will continue to grow. So basically, over a period, you know, we are very optimistic that this will be the lead product in terms of growth in the oil vertical.
If you see, it's the strongest product that APAR has, both from a domestic standpoint as well as what we export.
All right. And sir, if I understand correctly, like, you know, our focus is mainly on power transformer oils rather than distribution. Is that correct understanding?
So we, we have a higher market share in terms of power transformers, because our oil is really the best that's out there, and, it is the preferred oil, you know, with OEMs, especially as they go higher and higher in terms of capacity. Like, for example, if you take 800 kV HVDC, which is the highest voltage, type of transformers there, we have more than 90% market share. But, you know, as you go down, you know, into the distribution transformers, the differentiating criteria is less. And, the transformer OEMs are also very widespread. There are many small distribution transformer manufacturers who quote on, you know, tenders of the state electricity boards, etc. So they are significantly more price sensitive.
So even though we have a good presence, even in the distribution side, we have a more dominating presence on the power transformer side. But our products are available across the entire range.
Got it, sir. Thank you so much. I'm done.
Thank you. The next follow-up question is from the line of Ms. Renu Baid from IIFL Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity again, sir. I had two follow-up questions, one on conductors and cables. So coming back on conductors, while now in the last two quarters, we have seen a substantial jump in the order backlog to almost INR 6,000 crore, how should we look at the volume growth for fiscal 2025, given that the backlog is already there with us today? And, the execution timeline of this order book should be in the next 12-18 months.
We are looking at a 15% volume growth on the conductor division for the year, year ahead. In terms of the order book, out of INR 6,000 crore, about 25%, the order books that will get executed post FY 2025. We have got the order now, but the execution of that will start post FY 2025.
Sure.
The remaining months, the execution timeline, depending on the product, ranges anywhere between 6-7 months.
Sure. Do we have any L1 number to share on the order book for conductors, projects where we are already L1?
No, we don't share these numbers.
Got it. Sure. Secondly, on the cables portfolio, while you've mentioned of the U.S. inventory destocking incrementally, as the supply chain issues are now propping up again, have we seen customers coming back with orders with slightly elongated delivery timelines? So how is the outlook looking again for U.S. markets in specific? And do you think most of the inventory destocking concerns which were there are behind us as we step into CY 2024?
So, first, you know, the inquiry level has started picking up. And, so that is the first good sign, that, you know, if your inventory for all products has been high, then, you know, there were, there was a silence literally in terms of inquiries. The dialogue was more that, "Yeah, our requirements will be good for next year. We'll come back to you." So instead of that, now, you know, you're quoting on an increasing basis against inquiry. Your question in terms of the longer lead time, yes, there is a 15-day longer lead time if you go around the Cape versus through the, you know, through the Suez, about 15, 18 days is the longer timeframe. Customers today have been giving us DDP requirements.
So, you know, door delivery, the day, the time that they want the product to be delivered at the project site or at the warehouse. So fundamentally, that will result in us manufacturing the product three weeks ahead and, shipping it out. So that's why we see, you know, offtake, increasing basically as we move towards March, and then, there's a lot of more deliveries expected to happen in the April-June, timeframe.
Got it. And so lastly on the cable-
I think, Renu, with the product mix also,
Mm-hmm.
We are finding that medium voltage cables and certain types of cables, the inventory levels being held are lower than in the building wires, you know, the house wires and the more simple type of cables.
Correct.
So, we are starting to see more orders coming off, you know, some of the higher value products first, where the inventory levels were a bit lower.
Correct. My second question in the cables was related to the mix itself. Can you just give or share a broad indicative mix for the nine-month period? How has it been between the high voltage and low voltage? And specifically for high voltage and special application cables, how do we stack in terms of mix for telecom, solar, renewable products?
Out of our total sales, about 25%-30% is this elastomeric cables, which is rubber flexible cables that gets used in different industries. And then, OFCs would be about 10-odd percentage, and the remaining would be the power cables.
Got it. Got it. And, in terms of geographic mix, how large would be U.S. for you, for the nine-month period?
So this year, U.S. has been low because of the reason that we talked about earlier-
Correct.
In the third quarter. Yeah. So-
Mm-hmm.
As for the mix also of cable exports in cable, it is less this year. So, so this year may not be the right number to, to really see that.
Last year, in FY 2023, it was about 16% of the total revenues of APAR.
Got it. Got it. And lastly, if I can ask one more question, given that, cables structurally is a high growth segment for you, and there is significant capacity addition also, which we have committed here. So if you look at from a longer term perspective, from a 2-3-year perspective, fiscal 2025, 2026, how do you look at the volume growth in this segment to ramp up? And along with volume, with increasing mix of specialty cables here, how do we see the margin expansion story in this segment planning for us?
Yeah. So, we've been guiding through the, you know, through the last quarter, as well as, you know, through leading up to the QIP that we had. We expect the cable business to grow at about 25% a year, CAGR, for the next few years.
Mm-hmm.
There is a strong, y ou know, basically, a lot of electrical usage is increasing, and as a consequence, you know, all types of cables, you know, there is a growth. The areas where we are focused in, which is primarily around wind, solar, the railway, defense, mining, etc, which is the elastomeric cables, where we stand to gain relative to our competition.
Mm-hmm.
They are more complex products to make, where we also carry a higher margin. So we see the demand for this product being quite strong. And there's a big revival happening in the wind sector. And also, the government has recently come up with a new scheme where you can upgrade your old wind farms. So if you see some of the locations which have the best plant load factor for wind, they have been occupied several years ago with windmills of smaller capacity, because in those days, that is what was the product available. So you have 250 kW, 500 kW, which can today be replaced by 3.5 MW.
Mm-hmm.
So, they have come up with some schemes for helping, you know, these wind developers upgrade their products. And the other feature to this is that in case you have existing PPA agreements, etc, it is going to be applicable only for whatever was the original installed capacity. Any new capacity that comes in, you're free to use whatever other avenues that are available. So these sort of things coming in, it is going to result in a substantial increase in the amount of wind capacity going into the country. And if that happens, then APAR stands to gain because we have, we are by far the big daddy in the cables that go into the wind towers.
Sure, and that should also help our margin profile to come to early teens, 12%-13% level.
It's hopefully, yes.
Got it. Thanks much, sir, and, best wishes. Thank you.
Yeah, thank you.
Thank you. The next question is from the line of Dhananjay Bagrodia from ASK. Please go ahead.
Hi, sir. Thank you for this opportunity. Congratulations on the great set of numbers, again, in this environment. Just a question on your conductor business, how are we seeing that in terms of capacity? Because our volume growth has been strong, but do we have capacities two or three years hence, to continue with the same kind of growth?
Yes. So, as we stand today, we have a capacity of about 205,000 metric ton. And, in terms of additions, we are, we have been increasing the capacity depending on the demand requirement. So as and when we are seeing the demand coming up, we put up the facilities for manufacturing almost about a year in advance. So, as we see growth of 15% volume coming on the year, you will see capacity also increasing in that proportion.
No, but this year, for example, FY 2024, your numbers could be higher than 205,000. Is there some inventory from last year which is also being sold? Because then, a year hence, from today, let's say FY 2025, FY 2026, to show 15%, let's say if there's 15% or 20% volume growth, your would that be easily, like, feasible to get the increased capacity?
So this year we are already, we already have a capacity in place. So if you take the plan for the year, it is around, y ou know, we had originally planned for about 175,000-180,000 tons. We would be closer to 200,000 tons in this year. And already, additions have already been planned to be able to cater to a 15% growth in FY 2025.
Okay, so then-
Then we've acquired new properties, which, you know, if you look at the previous call that we've acquired properties of some of the cable manufacturers in Silvassa who have actually shut down.
Hmm.
and so we have, we will install new equipment in those properties and scale the business up. 15% per annum is what we are looking at next year and even for the year after.
Okay, so it takes one year prior to get scale and production ready, right?
Yeah, yeah. So we've already started ordering equipment and stuff, depending on the lead times.
Okay, perfect.
Okay.
Thank you. And so, secondly, just maybe as your risk player , are you all seeing more growth coming ahead in power or distribution transformers going ahead?
Sorry, can you come again?
Yeah. So are you all seeing good growth ahead in power distribution transformers?
Absolutely. We're seeing growth in both the power transformers that go into the transmission side as well as on the distribution side. It's just that for us, the growth that happens in the case of the larger power transformers, because we have a higher market share and a good differentiating story there, we tend to gain more. But the transformer demand is strong across the entire spectrum.
Okay. So then, and particularly any in terms of are you all seeing it in any particular regions or between utilities, between private or public enterprises for power and distribution?
We are seeing it across, you know, it's right from your RDSS onwards. All these new transmission lines which are being added, all the sites where you have wind and solar going in, because basically you need three substations. You need one substation to raise the voltage level at the generating source. Then you need a transformer, which is either an aggregate transformer or a step-down transformer, and then you need a third substation, which is closer to the last mile user.
Okay.
So there are three substations required, you know, basically, if you look at the chain. So across the board, there will be demand, you know. In states where the electrical growth or the requirement for electricity is increasing, you'll obviously have more transformers going into service, you know, that region.
Exactly.
Generally, in India, all the industrialized states, we are seeing very good electrical growth or electrical consumption.
Sure. Okay, perfect. Thank you. That's all I wanted to ask.
Thank you. The next question is from the line of Mahesh Bendre from LIC Mutual Funds. Please go ahead.
Hi, sir. Thank you so much for the opportunity. Most of my questions have been answered. Sir, during the quarter, our international business has been quite soft, both on conductor side and cable side. So do you think recovery will happen from next quarter onwards?
Yeah. So it's really been soft, led essentially by the U.S. market. And as I mentioned earlier, that we've already started seeing an increased inquiry level coming from this. And on the cable side, you know, order inflow has started, even on the conductor side, there are increased inquiries and some order flow is looking likely to come through. So yes, as you look at FY 2025, you will see that the number will be better than FY 2024. Increasingly, it looks like that's going to happen.
And so along with this, Red Sea issue regarding the shipping of the products, so that is also have some implication in terms of supplying products to U.S. and other countries?
So the U.S. is a little bit less affected. What is more affected is West Africa and Europe, because basically, you get to the other end of the Red Sea, you go down south, you go to West Africa, and if you carry on forward, you hit Europe. So, so the effect is a bit more there because the diversion is very, very long. In the case of the U.S., the diversion is more in terms of, 15 - 16 days of additional sailing time. And the rates have gone up, but, the delta and the rates is less than what has happened in the case of Europe and West Africa, particularly. And Latin America, there is an increase in rates, but again, it's not such a huge disruption compared to, you know, compared to what it is in Europe.
Because again, you can use effectively the going around Africa.
Sir, has the situation normalized or still it's quite concerned?
No, it's not, it's nowhere near normalized. There's still the Houthis are still there with their drones firing away, and the militaries are all trying to chase them down. So, that hasn't, I mean, I think that channel is still not back to anywhere close to what it was. All the good carriers are actually diverting their vessels through the tip of Africa.
Sure. Thank you so much, sir.
Yeah.
Thank you. The next question is from the line of Levin Shah from Motilal Oswal Asset Management Company. Please go ahead.
Yeah. Thanks for the opportunity, sir. Most of the questions have been answered. To the question on conductors margin, you just alluded that, long-term, outlook or the long-term, number, continues to remain at around INR 28,500 plus state bids.
But what we have observed is that, after two quarters of muted number versus previous few quarters, this quarter again, we have seen some improvement. Is it because of U.S. market going down versus the previous quarters and domestic conductors, like you said, AL-59 is the dominant one that has helped our margins, or you see the tailwinds continuing for a longer period of time versus what was expected?
So there are these reasons, as I mentioned, it's a combination of now overall premiumization of the product portfolio in the conductor division, that is point number one. And then, sale to the developed countries, developed economies, on exports, happening. AL-59 replacing ACSR is happening. So while, the tailwinds are there, we don't expect the tailwinds to, you know, have go down immediate effect or so. So we don't expect suddenly the margins to drop, in the few quarters. But all that we are saying that if you want to build a plan for two years, three years or three to five years, then taking a sustainable margin of 28.5% is what, we are guiding for.
Having said that, we don't expect in the immediate future the margins, you know, dipping considerably.
Sure. Sure. Sir, and this INR 28,500 number, earlier, I think if I recollected correctly, we were guiding for INR 25,000 plus tailwind. So is there that now we are seeing, with all the key tailwinds that you alluded to, that the margins outlook has improved versus what we were seeing previously?
Yeah. So if you see last couple of years, we have been gradually increasing our guidances from what it used to be INR 8,000, INR 10,000, couple of years before. And we are seeing opportunities getting established as, you know, we are seeing confidence in the products and the market, we are gradually increasing the guidance there. And also because of AL-59 shift that we are seeing, we are now more confident to sustain this level of EBITDA going forward.
Sure. That was helpful, sir. Thank you, sir, and all the best. Thank you.
Yeah. Yeah. Thank you.
Thank you. The next question is from the line of Charanjit Singh from DSP. Please go ahead.
Hello, sir.
Yeah, hi, hello.
Yeah, hi. Sir, especially on the acceptances and the interest cost, if you can touch upon what is the acceptances number right now? And how should we see the interest cost overall going forward?
Yeah, so the acceptances is about INR 4,100 crore, the acceptances which are there on the books. Interest cost actually is a function of, you know, so far rates that is happening, plus the rates of metals, aluminum, copper, and oil, as well as the level of procurement that we do. It will also depend on the exchange rate prevailing. But, you know, depending on the volume of the business that we are seeing in the current quarter, interest rate is fair approximate that we can see in the future quarters as well. If you see the last quarter and this quarter has been about flattish, or marginally increased, depending on the level of production. So maybe that's the level we can see.
When we see interest rate coming down, so far it's coming down, that's where you will actually see interest costs actually coming down.
Okay. Got it, sir. So the other thing is, like, you have also touched upon non-U.S. markets in the export segment. You know, especially, how is the outlook, you know, contributing there? Because this time, actually, non-U.S. markets had contributed to, you know, decent growth in the conductor segment. So you can touch upon, you know, how these markets are evolving and, you know, can they offset if there's a weakness in the U.S. market at all? And the other aspect is that, with a lot of these, you know, freight issues, do you see again, inventory levels building up in the channel, you know, where de-inventorization was happening in a big way, earlier?
So, Charanjit, this de-inventorization thing, as I mentioned, what is happening is that customers are increasingly giving DDP dates, so the adjustment is happening at our end. If the lead time is going up by 15 days or 20 days, then we are shipping—we are exporting the product, you know, that much earlier. In terms of demand ex the U.S., it has been best in India and in some other pockets in the world also, it has been okay. But it may not replace the U.S. market in terms of the, you know, the quality demand and the, you know, pricing that was available in the U.S.
Domestic is strong, right? So the volume can easily be substituted with the domestic business. But having said that, we don't see the long-term U.S. market not being there. This is more a shorter term, you know, sort of effect. We were holding up to almost, you know, 9-10 months of inventory, whereas the norm has normally been holding, you know, 2-3 months. So that 6-9 months cycle, everybody has to, I mean, you know, you have to kind of face it. So I think that worse is going to be over, and after that, demand will continue to pick up from this. So but overall demand is good. So whether it comes from geography or geography B, you will see, you know, strong demand.
Got it, sir. Since, especially in cables also, you've highlighted that, U.S. and Europe inquiry levels have gone up. And in terms of cables also, the kind of, you know, approvals which are required are similar to, you know, what are there in conductors. How is this market shaping up for us in the U.S. and European context?
So in the U.S. context, we've been some of the customers that we've started working with, they've come back to us, giving us new products to even get UL approvals for, so that those categories get opened up. So I think our relationships are deepening with EPC players and with customers that we are servicing. So that's the reason why, you know, we have a confidence that as time passes by, the U.S. market will continue to actually grow and be a very strategic market for us. As far as Europe is concerned, there we've been approaching and, you know, more and more customers. Again, we have a similar sort of feedback, saying that from March, April onwards, we should be seeing increased supplies taking place.
Many utilities have also started discussions, etc, you know, for their requirements that are going to come up in this financial year.
Got it, sir. So that was all from my side. Thanks a lot for taking the questions.
Thank you.
Thank you. The next question is from the line of Maulik Patel from Equirus. Please go ahead.
Thanks for the opportunity. A few questions. Can you just highlight on the CapEx side, I mean, what we planned this year, and how much we spent, and where we have spent, and what about for the next year, if you have finalized the budget?
So we have planned about over INR 300 crores to be spent in this financial year. As of December end, we already spent about INR 225 crores of CapEx. Going forward, also, we feel that to maintain the level of turnover that we need, we'll be spending about on an average, about INR 300 crores per on an annual basis.
Does that mean that increasing your conductor capacity? Because you mentioned that your conductor capacity is around 2.1 lakh. You will -- You're running at around almost full capacity utilization. Do you think that you will need to add significant or new, new facility for the conductor, or is it just more about the brownfield expansion in the existing facility?
So both actually, for conductor as well as cable, that is where the large portion of CapEx will be spent. It will be a combination of brownfield expansion, also debottlenecking of the existing machineries, as well as, in some cases, greenfield setup of new plant as well. So it will be a combination of all these three that will come in the picture.
So the capacity, which is around 2.1 lakh tons, then, where it will go in next two years? Any rough ideas?
So capacity will actually grow in line with the demand. As we see, you know, demand coming up, we will be setting up the keeping the infrastructure ready immediately in advance. 15% growth, you know, is what we are planning. So year-on-year, you know, you'll see capacity getting added based on that 15% growth.
Mm-hmm.
So if this year we are at around 200, in the following year, you're looking at equivalent of around 225,000-230,000. So that capacity has already been planned. Some of the orders of long, long lead equipments have already been placed. But on a CapEx, fundamentally, you are looking at around INR 300 crores a year of of active CapEx for the company as a whole.
Got it. Got it. And the last one, on this QIP money, which you have raised, almost INR 1,000 crore. So that has come down. That must have been down your acceptance level from the H2 number, right? From H1. At the September end, what was the acceptance? And now you mentioned that it's around INR 4,700 crore.
Yeah. So we have utilized about INR 300 crore of the QIP money by December end, and therefore, you see that partial impact in December in financials. And the bulk of the money will get actually spent in quarter four of this year.
Okay, great. Thank you.
Thank you.
Thank you. The next question is from the line of Abhijeet from YES Securities. Please go ahead.
Thank you for the opportunity, sir, and a very good evening. My question is on the export side. Last few quarters, we have seen some weakness happening, particularly in the U.S. geography. So can you comment on the underlying demand in U.S.? So like you mentioned, that India is seeing a lot of policy-driven push on the renewable side, like rooftop solar announcement of INR 1 trillion, etc. And U.S. has also been, I mean, the U.S. policy has also been driving investments in renewables. But as far as I understand, there were some pushbacks because of the higher interest rates, so some projects were getting delayed there.
So in terms of the underlying demand, I mean, I understand that there is inventory rationalization happening from the channel, but underlying demand, can you comment on it a bit in U.S. demand?
Yeah. So the underlying demand is still there. We are finding de-inventorization happening in products like cables and many other categories, where the supply was relatively free. There was a free flow of the supply, and it has got overstocked. There is, there is today a problem that's there with some of the components. For example, in a solar plant, you know, if you look at junction boxes and, some of the connectors and stuff, China is the largest producer of that, you know, even solar panels. So with the U.S. wanting to source less product from China, there are bottlenecks even in the supply chain. So a utility or a customer is wanting to put in capacity at a higher pace, there are some limitations coming from critical components in it.
So as a consequence, you know, it's not that the demand has actually evaporated or got destroyed. It's really, demand is still there. Whatever is in inventory is being used to service, and whatever is not, is being ordered. But items that China dominates, you know, is actually creating some bottleneck on the ground. Now, having said that, the indications which we have from most of our customers is that as we work through 2024 and get into 2025, their demand revival should take place.
Understood.
We are clearly seeing that with, you know, the kind of inquiry levels that are coming in, and order flow has already begun. So I mean, you add all these things up, and I think it leads to definitely 2024 being better than what the situation is as we ended 2023.
Right. Right. So I mean, sir, what I was hearing is about that, you know, the project costs have gone up a bit. So one of the variables, that you mentioned that, you know, sourcing from China has reduced. So alternative sourcing has, is being done by the project, developer there. Also, the interest cost is one variable, which is impacting the-
Yeah.
Increased project cost.
Are definitely playing a role, because not only is it the cost of interest, but then you also have your debt service ratios, which are there. So if your interest cost goes up, then the amount of leverage you can take also gets reduced. So that effect is definitely in place. But, you know, the way we look at it is that the U.S. imports, you know, $19 billion worth of cable, and there is a huge ocean out there for us to to pursue. And, you know, our own market share, if you see the FY 2023, which would be the best year that we sold to the U.S., we were at little over INR 1,000 crore, you know, in the U.S. market as such.
So there is a lot of room to grow, and some of that is independent of, you know, what happens at the... I mean, if you, if you have a dominant market share, then you will be affected by this. There are still quite a lot of projects that are going on over there, and so we are quite optimistic, and we are pursuing it.
Sir, from our current product profile, what is the kind of market that we can serve in the U.S.? You mentioned $19 billion of imports. So what is the market that can be addressed with our current product profile?
We can do the entire building wire segment. That means all the cables that go into real estate. We also have UL approvals for all the low voltage range. We have an approval which we recently got for the medium voltage. That's going up to approximately 40,000 volts.
Right.
We have other special purpose, like, you know, for agriculture and stuff like. We have totally over 20 UL approvals in place, and we are continuously adding also, based on the demand that's coming from the customers. So it's, you know, the, these products find themselves to a reasonably large addressable market. It's really working through with customers and through distributors, that will be the bottleneck, not the demand as such, because if you add all this up, it's still a drop in the ocean in terms of the total demand that they have.
Right. Right. That's it, sir. That's it from my end. Thanks a lot for answering.
Okay, thank you.
Thank you. The next question is from the line of Bharat Shah, from ASK Investment Managers Limited. Please go ahead.
Yeah. Hi, Kushal.
Yes. How are you, Bharat bhai?
Yeah, yeah, all well. Thank you. Kushal, on the U.S. cable front, I'm a bit surprised because whatever I am talking to the other cable manufacturers, U.S. situation for cable demand has been very buoyant. I mean, KEI, for example, is running short of capacity, otherwise they would have, they would have more than doubled their exports to America. So am I missing something? Why America-
Bharat bhai, as far as, y ou know, I mean, I can just comment from export statistics that we have access to. That if you take FY 2023, Apar was the largest exporter to the U.S. Polycab was a close second. And KEI's exports were almost non-existent to the U.S..
Yes.
Their major export markets were in Australia and other geographies.
Right.
So they are actually just starting to make their way into the U.S., and I haven't seen whatever data we have so far in the year. I haven't seen them really selling anything of very large quantity in the U.S. So we are in touch with at least 50+ customers and a whole lot of distributors who regularly buy from India, stock, and then resell the product. And all of them have a common theme saying that they are de-inventorying because they were carrying relatively very high levels of stock to insulate themselves from, you know, the supply chain issues that existed before. So today, what product we are delivering is really the makeup product.
You know, if you require four or five different types to go to a site, then, whatever is missing, to deliver that order, that is what they're placing and asking for immediate delivery. New project size deliveries are, you know, getting deferred by a little bit. So, that's what, the feedback that we have. We have two full-time sales people on the ground, and they are constantly meeting, you know, customers over there, and this is the feedback that we have. And we've seen overall exports going to the U.S., based on export statistics that we have, have, have substantially gone down compared to the same period previous year.
That's interesting. This is a bit contrary to what I assumed or I thought, I had an idea about. The KEI for the current year, if I'm not mistaken, INR 150 crore U.S. exports are on the cards, or it is, that's what I remember, unless I've got the data wrong. And they were saying that they would have easily doubled it, or more, if they didn't have capacity constraint, but they have actually, on the-
Okay.
There is.
So we were running at a run rate, which was almost INR 300+ crore a quarter.
Mm.
You know, if you take the average execution of last year, and the second half of the year was even higher than that. Our expectation is that, I mean, we will cross INR 150 crores a quarter, you know, in the next couple of quarters again. But it is definitely something which has been subdued for the last few months and now picking up.
I see. And, Europe also a similar commentary, you would say?
So in Europe, you know, we have been focused more around the renewable energy side. In the U.S., we have, you know, more sectors that we are covering. So on the renewable energy side, also the distributors there, like Lapp, Helukabel , all these guys, they produce some of their own product, and they supplement with import. So they were all holding larger inventories, but their inventory positions have substantially improved. So again, same expectation that, you know, as the summer comes in, you know, you'll start having deliveries taking place. We also have a contract with Enel, which is a large Italian utility. So Enel also had a lot of stock at their end, and part of the problem was because certain components which they required, like the junction boxes and things like that, were delayed.
So as a consequence, their cable inventory has substantially gone up. So now as that backlog is getting cleared, in, deliveries will start for us on the new Enel contracts from April and May onwards. So we see as we get into 2024, now, down the line, down the year, sorry, the demand is going to pick up. Australia, on the other hand, has been, you know, quite steady right through this period. And KEI has a major position in Australia, for example.
Sure. Sure. And one last thing, I mean, if I look at the current quarter, while apparently the overall bottom line level performance is robust, but essentially most of the businesses have been flattish both on top line and on the margins, except of course the oil business, which is, margins have shot up sharply. So if I look at the year ahead, conductors, I think you already mentioned, we are looking at probably 15% + kind of growth. How would we, how do we see the picture for the other parts of the businesses for the year ahead?
So the cable, the cable business, we are targeting a growth which is in that 25%, 20%-25% range. And in the case of our oil business, you know, overall volume growth are about 5%. So if you see the, the volume growth which have happened for the conductor business also has been, 13% in this quarter.
Yes, sure.
The aluminum prices like to like are down by 11%.
Sure, sure, sure. I know that's, that's great.
Yeah. So, you know, so that has eaten into what would be a rupee growth.
Right.
But the volume is there, and so we see growth in all these businesses. In our oil business, fundamentally, the transformer oil should grow double digit.
Okay. So, outlook for the year ahead would be conductors 15%+, cables 20%-25%, and in oils, transformer oils, double-digit, and overall oil portfolio, hopefully, profitability should reflect much better picture than the volume growth.
Yeah, absolutely. And we've been guiding this for, I think, last couple of quarters and through the QIP process that we went through also.
Sure. Sure, sure. Yeah. Thank you, Kushal.
Okay, thank you.
Thank you. The next question is from the line of Kunal Sheth from B&K Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. I just wanted to check on, you know, are we seeing any revival from the Chinese competition, especially in the international market and domestic market? What we have been hearing is that they've come back in the U.S. market by routing it through other countries.
So, we have been seeing generally increased competition from the Chinese. There are certain geographies where Chinese products, the acceptance of those products was never in question, you know, right through this whole period. Like, so if you look at parts of Europe, you look at parts of Latin America, Africa, etc, the acceptance was always there, and in some cases they gained compared to India because they had a more favorable tariff structure, you know, compared to what India had.
Right.
The U.S., we've heard that, you know, they're trying to route products through Vietnam and, you know, some of these other geographies. There are investigations going on, and it could culminate in, you know, anti-dumping duties or, you know, some sort of punitive damages there. But do keep in mind that moment the Chinese try to route it through another geography, it adds significantly to the supply chain costs.
Mm.
So they no longer can be as competitive as they are from China. And, you know, as far as conductors is concerned, we've been competing with them, you know, for years around the world. You know, as far as the U.S. market, Australian market is concerned, I don't think we are overly concerned. We also are working with a set of customers who do not prefer Chinese products.
Mm-hmm.
And therefore, they have been working with us, you know, to be a long-term supplier to them, especially some of the utilities that are there in Europe and in Latin America, etc. Some product categories where the Chinese are very competitive, like OPGW wires, etc. In some type of simple construction cables, certain simple construction conductors. But I think this is something that, you know, the U.S. market is still not flooded with Chinese products. And I don't think it'll be that easy for them to sell in large quantities there.
Sure. Got it, sir. Thank you. Thank you so much for this.
Okay, bye.
Thank you. The next question is from the line of Raj Rishi from DCPL. Please go ahead. Mr. Raj Rishi, your line is unmuted. You can please proceed with your question. As no response from the line of the current participant, we'll take the last question from the line of Amarnath from Ministry of Finance of Oman. Please go ahead.
Yeah, hi. Am I audible?
Yes, we can hear you.
Yeah. So just wanted to know, this year or this quarter, looking at the growth in the margins of this, your oil side of the business, and you said a note into the presentation that this is due to some shipment gone here and there, and it has a impact on the profitability, which will be reversed in the next quarter. Can you please elaborate what is exactly you want to, want to say?
So, you know, we have long-term contracts in terms of supply from refineries. And, because of certain supply chain related issues for bulk shipments coming out of Korea, our largest supplier, which is S-OIL, they were trailing behind in terms of the shipments, which they've caught up in December month. So the prices which existed in that August, September, October time frame were lower than what were in November and December. So as a consequence, you know, when you use the accounting, then we use SAP, the accounting is done on a weighted average basis. So automatically you end up, we price the product based on what should have been the supply pattern to us.
What actually ended up happening is that because of the delay, the effective weighted average cost of the raw material was lower through most of that quarter, and it increased only in the month of December. So now that higher priced product is going to be carried forward into January and some part of February. So you'll see a little bit of adjustment happening because of that. That's what we were guiding.
February, the profitability and the margin will come down compared to what we have?
It will get a little bit affected because you are sitting with a higher cost basis as you enter this quarter, which otherwise you should have got consumed in the previous quarter, and we priced our selling prices on that basis.
Okay.
But these are the situations may happen. I would rather look at a longer term, you know, a nine-month or a trailing 12-month period, which is indicating that the trailing 12-month margins actually have been better than the same period previous year.
Yeah, that is exactly. I'm coming to the next one. Now, if we see the last 12 months, 15 months of this particular part of the business, the margin has been subdued due to several factors. Now, from this quarter onwards, are we seeing that things are reversing to the mean, and we are slowly going back to the original margin, which it was prevailing around 1.5 year, 2 years back? And then, what or how you are looking 12 months down the line?
So we've been guiding throughout at approximately INR 5,000-INR 5,500 as the EBITDA per kiloliter or per thousand liters. So if you see the nine months, we've been actually above that. We are at INR 6,125 per KL. So we are already ahead of that guidance which we provided. And, you know, as we go forward, these days, there are plenty of geopolitical type of upheavals and risks that come up. But our sense is that, you know, transformer oil requirements are going to be very strong, and that is the lead product that we have. So we are quite optimistic as we go into the future.
What about the lubricant side?
The lubricant side is a mixed bag. You have some of the higher performance products doing quite well in terms of margins for us, but the higher performance requires or has much longer drain intervals. So the volumes are always coming under pressure because the drain intervals of all oil products or all lubricant products are increasing. So you will see some improvement that happens in margin per liter or per kiloliter. So the volume will come under, you know, the growth is in the 2%-3% kind of range, the market growth. We've been growing faster than that. Yeah, so we see that the lubricant margin profile for us will improve, but we don't see any dramatic improvement happening there.
The volume will continue to be subdued, right? Meaning between this 3%-5% arena in the next, if I say, 12 months, 15 months down the line, as per your current estimate.
Yeah, we are guiding 5%-7%, of which 10% growth we expect from the transformer oil product line.
Yeah, and just last one clarification before I end. How do you navigate when this crude, the base crude oil price fluctuates, which is happening, say, for example, last few months, because of so much of geopolitical tensions and things are happening, and it fluctuates quite severely compared to what it used to be before. So, in terms of getting this crude price as an input and then processing, you do your output, as well as the pricing scenarios of your end product, how do you manage that risk of this big-
Most of the B2B products are priced by the month. There are some longer term pricing to customers, and those we restrict to only utilities, or to big MNC clients who, you know, honor, long-term contracts, like the Hitachi, ABB, Siemens, etc. So those are based on, a formula, which is linked to the formula on which we buy from the refineries ourselves. So there is a reasonably good correlation. Otherwise, we just price it, on a monthly basis. When prices go up gradually, then usually there's not much of a problem. Similarly, when prices come down, but if prices shoot up, if costs shoot up or if selling prices fall suddenly, then you don't have a choice but to lose a month or two, you know, in the adjustment period.
That's the reality of the way in which, you know, things have been operating.
So finally, even if there is a 1- or 2-month lag period, either on the upside or low side, can we assume that finally the price is getting passed on to the customers, maybe with a lag?
Yeah.
But either upside or downside?
Yeah.
Over a period of time, our margin from that particular business, more or less, remains stable.
Yeah, that is where we have been guiding this INR 5,000-INR 6,000 per KL in terms of EBITDA, because in some quarters you may see margins going to about INR 8,000, INR 9,000 per KL, whereas in some quarters, you will actually see INR 1,000-INR 3,000 per KL also. Therefore, we need to see this on a long-term 12-month horizon, and that's where the guidance of average of INR 5,000-INR 6,000 per KL comes.
Yeah. So yeah, I'm putting little more emphasis compared to other callers, because if I see the weightage of the profitability of this business to your current quarter and expected in the next quarter, as you can hear from the other similar oil producers, whether it is Savita or Gulf Oil or even Castrol. So they are all looking very bright compared to what the situation prevailing last 12 months, 15 months down the line. Are you feeling the same sense that we are reverting back to the means?
Yeah, we've already gone beyond the mean, as you can see in the last, from the last nine months, performance. And, we are very optimistic on our growth, especially of transformer oil, where we sell more than all of the people whose names you mentioned. So as transformer oil grows, you know, this division, that is a lead product for us as far as our oil vertical is concerned.
And there, we've been guiding double-digit growth.
Okay, sir. Thank you very much.
Okay, right. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. As no further questions, I would now like to hand the conference over to Kushal Desai for closing comments.
Yeah. Thank you very much. I appreciate you all joining for our Q3 earnings update. And, just as a closing comment, you know, we believe that all the growth drivers that we have and we've been talking about for the last few quarters, they remain intact. There are a few short-term issues that could be there, like, you know, the Red Sea issues, etc. But the longer-term drivers are still very much intact, and we remain quite optimistic in terms of performance over the quarters to come. So thank you very much.
Thank you. On behalf of APAR Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.