Ladies and gentlemen, good day, and welcome to 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 questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. 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 H1 and Q2 FY 2024 earnings call for APAR Industries. To discuss the business performance, 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 will 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 welcome to the APAR Industries Q2 and first half FY 2024 earnings call. I would like to begin by giving a quick overview of our business, and then get into more details on each of the three major segments' performance. During the second quarter of FY 2024, in the last quarter that is, the consolidated revenue came in at INR 3,926 crore, which is up 21% year-on-year. We witnessed volume growth across all three divisions. Our exports grew 26.3% year-on-year, contributing to 49% of the overall company's revenues, compared to 47% a year ago. The EBITDA is up 58% year-on-year to INR 374 crore, at an EBITDA margin of 9.5%.
Profit after tax came in at INR 174 crores, which is 69% higher than the previous year. The profit after tax margin is at 4.4%, compared to 3.2% in the same quarter previous year. Now, looking at the figures for the first half and comparing them to the previous period, so H1 consolidated revenue came in at INR 7,699 crores, which is up 22% year-on-year. Export revenue has grown by 39%, and this was led largely by the cables business growing, the conductor division growing, and the transformer oil segment growing. The EBITDA for the half year is up 56% year-on-year to INR 743 crores. We could attribute this to premiumization of the products and a better product mix, besides the growth that has taken place.
Looking at each individual business, the conductor business revenue in Q2 FY 2024 has grown by 35% year-on-year to reach INR 1,943 crore, and the volume growth is 79% in the quarter. The export revenue grew by 158% year-on-year, contributing to 51% of the conductor division's overall revenue. The EBITDA per metric ton, post-Forex adjustments, is at INR 39,700 per metric ton. One of the highlights that we achieved during this period has been that we have improved our reconductoring execution capabilities, and this has resulted in higher productivity, resulting in a better position to implement products faster as well as in more challenging situations.
Reconductoring is a very critical part of the whole premiumization effort, of the conductor business, and, you know, these important developments should hold steady, you know, in terms of making it more efficient. During the first half, revenues came in at INR 3,717 crores, which is up 24% year-on-year. Volumes are up 51%, year-on-year. EBITDA per metric ton for the first half period came in at an INR of 38,885 rupees per metric ton, which is 31% higher than the same period in the previous year. Our total order book for conductors stands today at INR 5,977 crores. Coming to the oil division, Q2 FY 2024 revenues came in at INR 1,200 crores.
The volume grew by 18% in the quarter compared to the same period previous year, making it an all-time high for a second quarter of a year. Exports contributed towards 47% of revenue. The EBITDA post-Forex adjustments came in at INR 4,562 per TL. One of the issues that we faced in the oil division is that our major base oil supplier, supplying refinery, suffered some issues in terms of their supply chain and the refinery turnaround that they have post the end of life of a catalyst. And due to this, there were some yield complications, resulting in lesser supplies to APAR. This affected profitability of the quarter, as we had to go into the spot market and buy quantities of base oil to bridge the gap.
Having said that, the contracted base oil supplies have started improving from September onwards, and some of the lost volume due to this is being bridged by the refineries. During the half year ended, the oil revenue has grown by 7% year-on-year to INR 2,400 crore. The volume has grown by 16% compared to the previous period. EBITDA post open period Forex is at INR 5,275 per share. The aggregated lubricant revenue came in at INR 423 crore, with a volume of 34,918 kiloliters. Coming to our cable business, the cable business revenue has grown 16% year-on-year in the second quarter of FY 2024 to reach INR 882 crore. Our export mix is 51% in Q2.
The EBITDA post- Forex came in at INR 98 crores, which is about 11.1% of revenue. So that is up 40% compared to the previous period. As mentioned in the earlier earnings call, we are witnessing a slowdown in some of the distribution channels, especially those distributors who stock and sell in the U.S. and to some extent in Europe. There has been destocking of excess inventory that they have been carrying, which has led to relatively lower growth rate in the second quarter. As mentioned earlier, this phenomenon is expected to run for a few months, before which, post which, the regular purchase cycle should pick up. Overall, in the first half of FY 2024, cable revenues are up 32% year-on-year at INR 1,849 crores.
The overall export business contributed to 52% of sales. The EBITDA post- Forex has come in at 11.3% versus 8.5% in the previous period. So with this, I'd like to come to the end of my comments. I would like to mention that we have a very detailed investor presentation deck, which has been uploaded on our website, post the Investor Day that APAR had. We have also uploaded our third ESG report, which is also available on our website, and it captures all the ESG activities which APAR has done in the last year, which is quite significant compared to what was done in the previous two periods. So this journey is a journey that we are well entrenched on, continuing going forward. I'd like to thank everyone for joining this call, and I'd like to transfer the call back to our moderator.
Thank you. Ladies and gentlemen, kindly note that the company has issued a postal ballot notice dated September 28, 2023, to its shareholders, seeking their approval under applicable law for issuance of securities. The postal ballot is available on the websites of the stock exchanges. In light of this, to comply with the applicable restrictions around publicity, the company will not be taking any questions on guidance, projections, forecast, pertaining to its business and financial performance, or any questions related to proposed funding requirements.
We will now begin the question and answer session. Who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for 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 the excellent quarter. My first question is: How has been the inquiry from transmission sector and renewables within the domestic market for conductors and cables separately, if you can, you know, throw some light there?
The inquiries are, the inquiry flow, Mohit, is quite strong, both in the transmission side as well as from the cable side. So a number of corridors which have been announced, transmission corridors. And in addition to that, given the general level of activity that's happening in, you know, electrification, the cable requirements also have been quite strong.
Is it possible to share the order, order book breakup for the conductors between domestic and export?
Yeah. So out of the order book that we have for the conductor business, about INR 5,900 crore, about 51% would be exports and the rest would be domestic.
Understood, sir. My second question is, is there anything on reconductoring volumes in your total mix for the H1, if possible? And do you expect that mix to change in the domestic market in terms of opportunity, going forward?
Yes. So our we talk about premium products, typically, and the premium products in the Conductor division is in the range of 40%-45%. Quarter two also has been in that range, and a similar percentage is also there in the order book that is pending as of 30th September.
Understood, sir. Thank you, and best of luck , sir. Thank you.
Thank you. The next question is from the line of Anika Mittal from Nvest Analytics Advisory LLP. Please go ahead.
Hi, I'm I audible ?
Yes. Yes, yes.
Congrats for a good set of numbers. Just two questions. One is on the freight rates. Freight rates are rising again, so, but the contract, which we had got, should have entered at a lower rate, right? So should that mean, we are going to witness fall in EBITDA % going forward, like last year, the same thing turned out a tailwind for us. So in a similar way, will it be a headwind or how we should look at it?
So, you know, on freight rates, you know, the freight rates correction, the freight rate correction has already happened, and, you know, we spoke about it quite extensively in the last board call. That the correction of freight rates has started from the beginning of our financial year, from about April or, you know, March, April onwards. So, fundamentally, after that, you know, freight rates have been in a certain range. So we don't see, you know, freight is just factored in today as we, you know, price the product. In fact, in many cases, customers have shifted to an FOB purchase, because, you know, they were seeing that freight rates were kind of correcting and falling.
There are customers who have actually shifted, you know, from a DDP to an FOB business, so they have more control, you know, on the freight. What we are looking at today is basically just quoting, you know, freight on a spot basis.
Actually, I was looking towards the BDI , so that index could significantly increase in September month. So that's why I was asking this question.
Sorry, I didn't get your question. Can you repeat that again, please?
I think I was looking at the BDI , that is a freight index. So that was rising in the month of September. So I thought, freight prices are rising. So if that is the case, the freight prices are rising, so how will we deal with it?
So, okay, I get your question. Just want to clarify that basically these freight indices, you know, they don't really play such a huge role. And, you know, there's no correlation of that. We don't take it into account, you know, in any price variation or any such formula. All I can say is that the freight rates right now are quite stable. They've remained stable through the quarter. And, the increase in freight rates are not being seen, today on container freight, but there is increased freight rates which you are seeing on bulk transportation, as in for base oils and, you know, specialty chemicals and things like that. So the bulk of our business, which is containerized cargo movement, especially on the export side, you know, the freight rate is quite flat.
Understood, understood. And sir, like realizations, EBITDA percent, talking about the EBITDA percent on the conductor side, so this quarter witnessed a rise on a Q-on-Q basis. So, what is it due to?
So as we have been already mentioning earlier also, EBITDA percentage in conductors, the reason for that is largely because of the premiumization of the products that has been happening over the last 1.5-2 years now, and also because of the increase in the exports percentage. So in the last quarter, we had good execution and completion of projects that happened of HTLS as well as OPGW.
So, and, you know, with some of the items that I mentioned that, you know, we've been working on productivity of faster execution of projects. Last quarter saw, you know, good pickup in terms of productivity, especially in more challenging requirements. You know, we don't have a simple plain terrain. Our execution in Q2 was better than what you know had originally been envisaged.
Okay. And sir, is our guidance intact? It was 3%, like what we mentioned in earlier quarter, or do you want to revise it?
So, in the beginning of the call, I think there was a statement that we cannot take any questions on guidance, so we'd like to stick to that, that one.
Okay, sir. Thank you very much, and all the best.
Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Funds. Please go ahead. Mr. Singh, your line is unmuted. Please go ahead.
Hello, sir. Thanks for the opportunity, and congratulations on great set of numbers. So my first question is regarding exports. So, you know, in the previous call, your commentary on exports was really cautious.
… but despite that, we have delivered a, you know, very strong growth in the exports in both conductors as well as cables, segment. If you can touch upon, you know, on the ground, how the export markets are shaping up, you know, and the various projects which you would see in the, you know, international markets, especially U.S. markets on the renewable side. So what are the key markets which you are seeing and how the traction is, you know, going on the ground? That's on the export side.
So, you know, on the export front, in the last earnings call, you know, we were, we mentioned that, you know, since the supply chains have eased, you know, de-inventorization is taking place. So, you know, that effect has very much been in place. What you see are the shipments which, you know, had been scheduled and already went through. Fresh order intake, which is coming in, you know, through the quarter, has been a bit slower, especially from distributors. People who stock and hold stock in the warehouse and then, you know, sell the product. Because they're all looking at reducing their inventory levels, which in the current situation is too high, given that the supply chain is fully, you know, it has now been fully restored.
So there is a, you know, as we mentioned earlier also, that there is a period where, there will be, a slowdown in terms of execution for the U.S. and Europe markets. And in Q2, we have seen that in the order inflow, which has come in for immediate execution. Whereas the orders which have come in, as I mentioned in the last quarter earnings also, call, is that they are for a longer dated, delivery. So fundamentally, you know, once the de-inventorization process is over, then it should get into a normal cycle, you know. So that's what we mentioned earlier, and, the feet on the ground, pretty much as we speak today, seem to be in that same direction.
So, sir, if you have to, you know, look at the kind of, you know, grid, ramp-up, which is happening in the U.S. and the European markets, and take a maybe little longer term view rather than a, you know, quarterly view on the export markets, then how you would see that market, from demand-supply perspective and overall, you know, growth perspective?
So, you know, as I mentioned earlier also in the previous quarter's call, we, you know, the fundamental market scenario has not changed. So, the long-term execution and the shift, you know, towards renewable energy, moving from electricity being about 20% of the energy mix to 40% of the energy mix by 2050. And, renewable energy forming almost 75%-80% of that growth in the electricity addition. You know, all those parameters remain, you know, pretty much intact. So our sense is that, you know, whatever this de-inventorization thing which we've been talking about from the last quarter onwards, is more something that's a tactical thing happening in this period to reduce the...
You know, the factors which I mentioned earlier, they still hold good even today, where, you know, you've got higher interest costs. So the cost of carrying inventory also is much higher. So when you... And the unpredictability factor that was there before, because of supply chain, raw material outages, et cetera, et cetera, all that has disappeared. So today, an order which, you know, is placed, is being executed within a relatively short cycle, and that cycle is quite a predictable cycle. So that's why this whole de-inventorization is taking place. But I think these two things are uncoupled.
The de-inventorization in the short term, which is happening, and the demand, which is fundamentally there, are two decoupled, you know, you should decouple those two things. They're two different effects. I hope I've been able to answer that question, Charanjit.
Yeah, yeah, that's, that's very helpful. So thanks for the detailed answer. So just on the cables segment. So cable segment, we saw revenue growth of 16% during the quarter on a YY basis. So if you can touch upon, you know, could this growth have been, you know, higher? Were there any factors which could have impacted our growth in the cables and wires, you know, segment? And, you know, domestic market, how did we see in this segment? And how the wires as a business is doing for us within this cables and wire segment? Yeah, that's my last question, sir.
Yeah. So the same effect, Charanjit, as we spoke about, you know, because of, you know, de-inventorying that is being followed by the Western countries, we have seen that impact in Q2. Otherwise, you know, we see the quarter one growth rate was much higher than in quarter two. So we are slowly seeing that impact, what we just spoke about. On the wires business, that is progressing as planned. And we are increasing the number of our electrician meets and the number of retail touchpoints also there. And we already in terms of 17 states, we are present across India as of now. So that is going as per our plan, that we went first.
So, as Ramesh has mentioned, the rollout, you know, continues to be reasonably strong. So as we keep expanding our footprint, and the acceptance of the wires and the distribution of our wires are continuing to grow. And we've seen that many of our competitors also are now seeing that this category and this type of wire actually is a clear standout. So some of our competitors are also now looking at trying to provide similar, you know, performance levels of wires like Anushakti.
But we see that as a very positive step, because, A, it recognizes the strategy which we are following, and B, if other powerful entrants also start promoting the same type of wire, the whole category will end up, growing, with us, you know, having the first mover sort of, advantage. So in short, that part of the business is growing. Our distributor presence has almost doubled over the, you know, over, over the, one-year period. Our retailer presence also has increased by almost 70%. The states that we are active in today, as Ramesh said, from 13 states, we are now active in 18. 17 states, and the 18th one just went active in, the month of September. We also focus quite, heavily on, demonstrations.
So the demonstrations, because once you see the performance of our wires through a demonstrated test, so the demonstrations which we did in 12 months, we have completed in one half in this year. The same thing with electrician meets, the same thing with these and shops. So basically, our activity in the market has doubled. What we did in the entire last financial year, we have done the same similar numbers in the first half. So all these demand generation activities have been going on quite strongly, and as a consequence, you know, even the sales is also showing similar sort of growth.
Got it, sir. Thanks a lot for taking my questions, and all the best for the future. Thank you.
Yeah. Okay, thank you.
Thank you. The next question is from the line of Riya from Aequitas Investments. Please go ahead.
Good evening, sir. This is Pratiksha from Aequitas. My first question is, you know, if you could just elaborate a little bit on the CapEx progress that was announced earlier, and the CapEx plan that we have for H2 of this year and next year, for both cables and conductors.
Yes. So our CapEx spent till September is about INR 150 crores.
Mm-hmm.
Bulk of it is there into the cable division and the conductor division, over there. We had envisaged a CapEx of about INR 350 crores-INR 400 crores by the end of the year, and we will be very close to that number as we go into the second half.
Okay. And any plans for the next year, CapEx plans for next year?
Well, this will give us capacity for the next year, and as we get into the later years, we will inform more about the guidance that on CapEx front and other areas there.
Okay. And this CapEx that we had announced last year, we had plans of commissioning and ramping up this year. Just wanted to know how that is progressing, especially on the cables front.
It's pretty much on schedule.
Okay. So have you commissioned any part of it?
Yeah. So there are lines which have come in, and the lines have been put together and have been commissioned.
Okay. So typically, what duration can we expect for full ramp-up of the capacities that will be coming this year?
So, you know, as the capacity... So you will see in FY 2025, you will see the full, you know, to a large extent, the loading of, you know, these plans. So they are all getting commissioned through this financial year. And our expectation is that by the end of the fourth quarter, as we'd mentioned earlier also, that-
Mm-hmm
... this round of CapEx will get over, which will then allow, you know, for the, running in the next year, for almost a year and a half. The ratio is, about 10 times, 10-12 times. So INR 400 crore CapEx can get you, INR 4,000 crore-INR 5,000 crore of, of revenue, at the current level.
We expect full ramp-up? Okay. We expect, say, next year to be full ramp-up for this INR 400-odd crore?
Yeah. I mean, the expectation is that, you know, all this has been put together based on, you know, what we've seen, you know, in terms of new tenders and, you know, customer requirements, which are, which have been indicated. So based on that, the CapEx has been put in on what we think are relevant products. And it should, during the course of the next financial year, get fully loaded.
Okay. And, the second question is more on the opportunity side. So two aspects, if you could elaborate upon the opportunity side that we have, and whether we'll benefit from that in a meaningful way. One is the Bharat Net, part in India, and the other is, I think what I understand is there's a $3.5 billion investment announced by U.S. for reconductoring their grid and adding, you know, strengthening their power grid. So would we be able to, benefit out of this? And what is the kind of opportunity we can look out of these two initiatives?
...So let me answer the question to the extent that I'm allowed to answer, okay, with these restrictions that are there. So, I mean, you know, we've spoken about the BharatNet opportunity in the last call that we had.
Right.
The BharatNet opportunity is, it's not yet finalized, and, and, in its final form announced for tendering, but it's at a very advanced stage. APAR would be in a position to participate in the BharatNet because we qualify, you know, with all the EPC capability that we have. We have the ability to participate in that tender which is there. From the understanding that we have, that I explained last time, of is that in the case of BharatNet, it's expected that this time it will be like an end-to-end tender, where it's not only a supply, but then there is also, you have to run the network for an X period of time. So it's a supply and running the network.
And would we-
So, and there will also be restrictions on the number of bids that any single company can make. So this would clearly open up opportunities to people who have the capability and the qualifications to bid on it.
So we would be in position to taking up orders for end-to-end solution as in running up the network as well?
Yeah. We have every intention of bidding against, you know, at least one package. So all the final form of BharatNet is not out. There are, I think it's just at a pre-finalization and tendering stage. But as we mentioned earlier in some of our earnings calls and on the Investor Day meetings, that we have every intention of participating.
Okay. Understood. And, on the-
As we're concerned-
Yeah.
We have approvals, and we have been in dialogue with number of utilities in the United States. We also have an active sales force on the ground in the United States. So, any massive amount of work which happens on the reconductoring side and addition of new transmission lines, et cetera, the company would participate. You would have seen that, in even last year's numbers, that after India, our second largest market actually is the United States, contributed to-
Yeah.
-over 25% of our revenues. So we do have a significant presence there, and the company is continuing to invest in growing the presence.
Right. And if this, this has to be a reconductoring opportunity there, would it be a premium product like OPGW and HTLS, or would it be our conventional product?
So, you know, the funds that have been allocated, the United States market actually is run purely by private players. So unlike in India, where you have semi-government or you have, like, a state electricity, state transmission company involved, et cetera. So, this opportunity is something that has just been announced, so I don't think, you know, all the details of that are all yet spelled out. But our sense is that there will be a combination of both, because generally a reconductoring opportunity results in using an existing infrastructure and reconductoring a line meeting certain constraints. So usually a reconductoring job requires a HTLS or a premium conductor.
But the market in the U.S., our expectation is, as we mentioned earlier also, that a number of new lines are coming up there, which are executing or rather transmitting power from new renewable energy locations. So like a new wind farm or a new solar farm, you have the transmission line evacuating power from there into the grid. So that line can be designed to be either a conventional conductor line or an HTLS type of line. Most of the reconductoring jobs require a higher HTLS component for you to really make it meaningful.
Okay. And on the oil segment, so we've seen, you know, this last couple of months, being very volatile in terms of, crude oil prices, which I understand impacts our, margins, and also that, you know, there were supply chain issues that was mentioned in the presentation. So I just wanted to understand how have things been so far in Q3?
So, you know, as I said, there's some constraints in terms of being able to talk about future. But as I mentioned in our commentary, you know, we had some issues from our largest, you know, refinery and supply source, with whom we've been working with for over 20+ years. So, there was a hiccup in terms of their supply chain during the second quarter that resulted in us having to buy raw materials on a spot basis, et cetera, which was more expensive. Because you had to buy it from a source which was very short delivery, you know, to make up for, you know, these sort of things are not predictable. But in the month of September, shipments have been restored almost back to its normal levels for all grades.
And in certain grades, additional products have been also shipped to us or are being shipped to us, to compensate for part of the problem. So as a consequence, you know, we ended up paying a higher price in Q2. The material which should have been used in Q2 is actually some of it is spilling over into Q3.
Okay. And may I ask-
As a consequence, as a consequence, you know, the, basically, the higher price paid in the previous quarter will get offset, to some extent in this quarter, just in terms of the timing of the delivery.
Okay, understood. Just last question on a couple of data points. What would be the percentage of export orders in the conductor new orders of about INR 2,500 crore this quarter? And what will be the execution period for the order book for both cables and conductors?
Yeah, just, just hold on. So order inflow, the export part, of the new order inflow for Q2 will be about 43%. And, typically, the execution time is about six to seven months. But as we mentioned earlier also, there are—we do get some orders in this period for which the execution will happen next year also.
Okay. And the cables?
Cable order book stands about INR 1,000 crore. Cables are a much shorter execution period. As of now, we have about, just about less than 10% of the cable order book that for which the deliveries will happen in the next year. Rest of all will be in the short term.
Okay. And-
There is a bit of a skew in terms of delivery into the INR 1,000 crore order book that is there. It has, the domestic portion of it is, you know, very short cycle. The export portion of it has some deliveries now, and a larger portion of its deliveries are in Q4, given that, you know, this de-inventorization thing is happening right now.
Okay. Okay. And this new order book for conductors, the new order for conductors, you mentioned where, you know, the export is 42%. What would be the premium product percentage, share of premium products, if that is available?
Yeah, just hold on. About the premium products would be in the range of 40%-42%.
Okay. Okay. All right. Thank you so much.
Thank you. The next question is from the line of Amit Anwani from Prabhudas Lilladher Private Limited. Please go ahead.
Okay, thanks for taking my question. My first question is on the de-inventorization, which you're mentioning for exports, which you did mention in the last quarter as well. So just wanted to understand, you think, if my understanding is right, distribution network will be seeing some inventory adjustment. How much would be that percentage distribution in exports and domestic market for you in conductors?
You mean, the conductors going into the distribution versus transmission, is that?
Yes, sir.
So, we don't do much in terms of conductors that go into the distribution side. The bare conductors are largely on. So 95% would be transmission and 5% would be on the distribution side. We have a hybrid product, which is in between a conductor and a cable, which is called a Medium Voltage Covered Conductor. So that Medium Voltage Covered Conductor is a distribution conductor, but having an insulation, a very specialized insulation layer on top. So we are the leader in terms of MVCC in India. So that is the play which we have, you know, on the distribution side for-
Actually, yes, my question actually was, sir. You said that our distribution channel has increased and there would be invent-
That is from the building wire.
Okay. Yeah.
So yeah, so that is from the building wire standpoint, where you have distributors, as in, you know, people who go shop to shop and distribute, you know, through all the retail outlets and things.
That is where we are seeing inventory adjustment, right?
No. So that we are not seeing any inventory adjustment here. What we are talking about is... Okay, let me clarify. What I meant is, that we have—there are several mega distributors in the United States who bring product in, stock it, and then sell it. So those distributors who are carrying a very high level of inventory that ran into eight, nine , 10 months or so of inventory, have now started de-inventorizing and de-stocking the inventory levels that they are holding. So this is affecting or has affected the short-term shipments that are happening to the United States.
Right. So how much that percentage would be of the revenue right now? Any color of-
Our total, our total sales, export sales have been about 52% for the, for the cable business. So wire distribution, actually, that number is, I don't have the exact number, but, what is happening in terms of, is that we are moving, more and more, towards dealing directly with you know, EPC contractors for the large, jobs. So, you know, when you have big reconductoring jobs, then you would have. That's why we have added, you know, people on the ground in the United States. So, the, reconductoring work will largely happen with utility and EPC people. And, most of the transmission line work also happens to the big utilities, through, EPC and, and direct. The smaller utilities actually buy through the distribution channel.
Right.
So both channels will remain active, but it depends on where the dollars are being spent. You know, participation in those channels will be then dictated by that. So if the smaller utilities are doing upgradation CapEx sort of work, then it goes through a distribution channel. If the larger utilities are doing work, then they typically buy directly or through an EPC contractor.
Right. Sir, on reconductoring, which you did highlighted that, we are increasing the pace of execution and. So are we talking this about the domestic market, or, is my understanding correct, that now reconductoring opportunity will also be depending on an export market, and the mix there will also see a lot of reconductoring growth apart from the, from conductor, which saw a robust growth in export market? So if you would like to just clarify on that.
Yeah. So the reconductoring, as a demand, is happening both in India and outside India. APAR has been doing reconductoring turnkey projects only in India, where we are doing the execution work and where we mentioned about our productivity having improved. The reconductoring demand from outside India, we are participating in that through supply of product only. We are not actually taking it on end to end. The question was that, are both the markets growing? And so the thing is that reconductoring is generally growing, because as we've been saying in the past, you know, electricity consumption everywhere is increasing.
So wherever there is a right-of-way issue, and you're not able to put up a parallel transmission line, then the only option or the most viable option is to reconductor with a line of higher capacity. So that sort of phenomena you will start finding everywhere, happening around the world. And our participation right now in domestic is to do both supply as well as EPC. Whereas overseas, we are doing only supply.
Right. So within cables, how, how was the contribution and growth of elastomeric cables and e-beam cables for XLPO?
For elastomeric cable has gone up by about 40% in H1.
Okay. Sure, sir. And so this CapEx, which you suggested, for INR 350 crores, by the end of this year, this would lead to capacity increase by how much % over the base of last year, if you would like to highlight that?
Around our asset turnover is typically in the range of 10-14, depending on the category of the products that will get used.
Sure. My last question is on the interest cost. This quarter, we saw interest cost going significantly up on a sequential basis. And I can see oil business on the breakup provided on the PPT, roughly INR 45 crore towards oil business, which appears high. So any understanding you would like to give, how should we read the interest cost numbers going forward? And also on the working capital, as we understand that typically we have interest bearing acceptances and we used to see interest cost as percentage of sales, which is around 2%-2.5%, which has gone up to 3% this quarter. So any understanding on working capital interest cost going forward, what are we targeting and how should we read on this?
Yeah. So sequentially, the interest cost is high because, you know, in the first quarter, the interest on discounting was less, and second quarter, the interest on discounting is high. And therefore, that is one of the reasons for the increase on a sequential basis. The other thing is that, of course, the volumes in the second quarter is much higher than in the first quarter, not only in terms of sales, but also in terms of procurement, et cetera. We also see exchange rate going up slightly towards the end of quarter two, and the increase in exchange rate also has an impact on how the interest costs will go up. And even so far as in the, you know, interest rate itself has increased.
So wherever you have had opened letter of credit of 180 days, which was opened earlier, you know, the interest rate is frozen at the time you open the letter of credit, because it's fully financed. So, as the population of the, or the percentage of the LCs being opened, you know, on more current interest rates, the rates are much higher than before, given the high rate. So whatever Ramesh has said, plus this impact, you know, is what is resulting in the higher interest cost. It will taper off because, you know, I think, I mean, depending on the rate hikes, whatever more happens, it will taper off at whatever level. Yes, today on the, yeah, on the import side.
On the domestic side, also whatever RBI's guide, guidances, et cetera, I think it seems like it's flattening out. So on that basis, you know, you can extrapolate what the interest cost would look like. On your question on working capital, typically we are in the range of 35 days net working capital, so that is, historically, it has always been in that range, and that is what we maintain even in this half of the year.
Sir, last question, if I can please, and I understand that you-
Maybe if you don't mind, Amit, you know, we'll go to the next, because-
No, worry.
You've already had a bunch of questions. You can please, please rejoin the question queue.
All right.
Thank you.
Thank you. The next question is from the line of Dhananjay Bagrodia from ASK. Please go ahead.
So congratulations on a good set of numbers again. I know you said you won't speak to... Hello? Hello?
Yes, yes, we can hear you.
Yeah. Yeah, I know you said you won't speak much about guidance, but just a little bit on realization and EBITDA, would that be how H1 is, would it be similar base or would it be more scope for a little more reduction in both?
It is, no, as we said, we can't talk about guidance, so we can't talk about realization also.
Oh, okay.
For this time.
Okay, okay. And CapEx, what would be the return now? Let's say, when we discuss CapEx, what would be for the next two months? Will we still require more CapEx?
Yes. So we already spent about INR 150 crore in this year.
Yes, INR 400 for this year, and what would be next year, any guidance in line?
Well, for the next year, we'll share the information as we get into the close of the year.
Okay, so nothing at the moment. Okay, perfect, sir. Thank you, sir. Congratulations.
All right.
Thank you. The next question is from the line of Himanshu Upadhyay from O3 PMS. Please go ahead.
Yeah, hi. Congrats on good set of numbers. I had a question on this oil itself, or the base oil, what we stated. But despite that, we had a phenomenal volume growth rate of 18%. So the impact was completely in margins. And how much are the spot prices higher versus long-term prices? Generally, are they significantly higher, and-
So, Himanshu, here, fundamentally, you know, the order inflow was strong, primarily led by the growth that we saw in transformer oil, you know. And, to answer the second part of your question, which is the difference between spot and... In the spot market varies all the time. So depending upon what is happening with crude, what is happening with gas oil or diesel, and then the supply/demand that's out there. So if anybody goes in to pick up large quantities, automatically the spot market, you know, corrects upward. Whereas the contract is based on, you know, formula pricing, et cetera.
As I mentioned earlier, we have definitely seen an erosion in our profitability in the second quarter, because we had to buy more from the spot market, given that, you know, there were supply chain challenges from one of the largest, our largest supply refinery that we work with. But having said that, as I mentioned in September, the shipments have started normalizing, and they have also tried to make up for some of the lost volume.
My question is, what we've seen is the crude prices have moved up in last three to four months, okay?
Yeah.
Our pricing is formula-based with a lag, means one month back.
Yeah.
Now, so what you will be getting now will be the lower price point, or it would be from what the current price is, so whatever volumes you missed-
All formulas are backward-looking, so as a consequence, when prices are rising, you know, formula pricing is always beneficial because it's backward-looking. When prices are falling, then the reverse trend takes this.
No, so my question is, the volume what we missed from July, August, okay? And, let's say for those two months, so the product what we'll be getting will be based on those July, August price points, or would be, it would be forward only, so the volume which went, went?
The pricing goal is based on every month, you know.
Okay.
which is there.
Okay. And, one more thing-
We are benefiting to the effect that, you know, some of the shipments got a little bit delayed, but the refinery has tried to cover up some of the shortfall, which has happened. Obviously, when they had significantly reduced production, they are not in a position to cover the entire gap, but they've tried to cover some of that gap.
Okay. And I had a question on transformer side, okay? See, what we are understanding globally that there is a shortage of transformers, okay? And many Chinese companies are gaining market share, like Chint and Taiyuan, and all those in the U.S. and Europe market. What impact does it have on our business? Because what I understand, we don't supply to those Chinese players. And, are you seeing opportunities come up for even our MNC players, MNC customers on the transformer side to export outside India, and will it benefit us or some of your thoughts on how the scenario will pan out?
So, transformer demand has been quite strong. And fundamentally, it is coming from the increase in the number of substations that are coming up. And, you know, during our Investor Day presentation, we had a chart. In fact, you'll see it in our investor presentation. And then, you know, it gives an idea in terms of, you know, how cables, conductors and transformers, transformer oil is used along the entire supply chain. So what's happening is that renewable energy has a more higher intensity of substation, and each substation needs a transformer either to step up the power or step down the power. So there is a shortage of transformers in certain areas because the demand has suddenly gone up from it being very stable.
So like for example, in the U.S. market, the transformer manufacturers are fully booked. I'm not so sure about Chinese companies being able to penetrate the U.S. market because there are very high duties which are there on pretty much all Chinese products, including anti-dumping duties in place. So I won't be able to comment on that. We don't sell transformer oil into the U.S. market simply because of very high logistics costs for transformer oil relative to you know, the local refineries and their ability to service project sites. So our focus on export and transformer oil has fundamentally been ex the United States.
Okay.
In terms of your question on are we seeing export orders coming on Indian transformer manufacturers who are part of the MNC system? We have been seeing export, but the domestic market itself is very strong.
Okay. Okay.
So there is a lot of transformer demand within India itself, as all these transmission lines and renewable energy sites are coming up. So we have a strong supply that's going into the domestic market, servicing all these transformer manufacturers. So I think most of them are quite focused on just supplying into the Indian market at this stage.
One more thing, in the presentation, what we see on the conductor side, the Q2, the volume growth is much ahead of the revenue, okay? Even in our order book, which is high, the volume would be much higher than the value terms or what was there last year. Should we assume that?
No, I think there's no correlation in that. So it all depends upon the time you have booked the metal and, you know, because you could have a metal that is booked, one year ago, you know, when the metal price-
That is the whole reason that I wanted to understand that, the volumes-
Because it's such a dynamic picture, and it will keep on changing, depending on... That's the reason why we go by EBITDA per metric ton as the metric. Because when aluminum was at a relatively lower price a year ago or two years ago, people are taking advantage of even COVID times and booked two years in advance, you know, hedged metal. So you can have a different price points on the metal. So the metric that we look at is EBITDA per metric ton and the amount of conventional products versus premium products, because that is actually the measure by which one can get an idea in terms of, you know, the sort of realization and margins that the company can have. So otherwise, the correlation is not in, is very difficult to track and explain.
Okay. And, one last thing. See, we want to raise capital, okay, of nearly INR 1,000 crores, and we paid a dividend of INR 160 crores.
I really, I'm not in a position to answer anything on that, as the regulation doesn't allow us to comment at all on funding.
Okay.
So we will not be... You know, we defer that question at this stage.
Okay. Okay.
Yeah. Thank you.
But I think, the document, what has been sent on the portal, it is very vague, okay? I think, some more clarity would have been beneficial for us to understand the-
You may want to take it up with the regulators.
... Because the statutory requirement-
Yeah.
We have been following.
Yeah.
No, okay. Thank you.
All right. Thanks.
Thank you. The next question is from the line of Abhijeet from YES Securities. Please go ahead.
Hello.
Yes, please.
Good evening, sir. Congratulations on a very good set of results. My question is on the U.S. export market. So, as I understand, last year our conductor revenue was around INR 7,000 crore, and you mentioned that 25% of that was from U.S. So around INR 1,500 crore odd revenue from U.S. And given the size of electricity consumption and the size of electricity market in U.S., I assume this is as a percentage of the overall market and their target to increase the contribution from renewable sources. So the market is quite huge in terms of compared with the revenue that we have right now. So the scope to increase the revenue forward is huge for such a big market.
So, what is our strategy going forward to penetrate and to get more revenue from the market? And, what is the kind of competitive landscape that we are seeing there? Are there local players or there are players who are new exporters like us from different countries? So can you comment on country plans and our strategy going forward in terms of increasing our market share in the economy?
Okay. So I have limitations, which is in terms of what I can, what I can specifically answer. I'll just stick to what, you know, I had mentioned, earlier, as well as in all our previous communications, that, all of these countries have signed up to this, you know, decarbonization through, you know, COP26, COP27, et cetera. They've all set up significant targets. If you go to our investor presentation deck, you will see various, charts and things, you know, which are supporting, what sort of growth is expected, over the next 15, 20, 25 years, you know, in these markets as far as renewable energy is concerned. So all I can say is that we have had a focus on the U.S. market. We have been, engaging with various utilities there.
We have been engaging with various EPC players there. So, it has, for the last few years, been a very strategic market for us, and it will continue to be a strategic market. 26% of APAR's revenues comes from the U.S. market, so it's clearly a market of focus for us. And unfortunately, I'm not in a position to, you know, answer anything specifically on, you know, forecasts in the future, et cetera, as such. But as the execution plans happen in the U.S., based on, you know, whatever announcement these governments have made and the targets that they've taken, it's a natural corollary that the demand will, you know, sort of follow.
Right, sir. In fact, in terms of demand, I understand that the demand scenario is pretty strong going forward in the long run, again, next 10, 20 years. But in terms of supply, in terms of competition out there in the U.S., so, how favorably are we placed to capture the incremental demand? That is second question that I had. In vis-à-vis the competition that we have, sir.
Sorry, Abhijeet, can you come again, please?
Am I audible now? Is it better?
Yes. Yes.
So I'm saying, I understand strong demand scenario in the next 10, 20 years, but what about the competitive scenario out there in terms of supply, and how favorably are we placed to capture the incremental demand coming out of these markets?
Okay.
If you can comment on the-
I understand, but unfortunately, Abhijeet, I can't answer that, given the fact that it gets into the area of, you know, future and forecast, et cetera. I can't specifically answer that question right now. I just want to clarify that, the export that we have to the U.S. is-
16.
is 16% of APAR's total revenues in FY 2023. 16% of our total revenue. So it's a very significant market, you know, from that standpoint. Yeah?
Right. Right.
All right.
Yeah.
Thank you.
That's it. That's it. Thank you so much.
Thank you. The next question is from the line of Sakshi Chhabra from Swan Investments. Please go ahead.
Yeah. Hi, sir. So I wanted to understand that the dealer destocking that you mentioned about, was that only pertaining to exports, or is that even on the domestic side?
No, so this is pertaining specifically to a large importer, distributors in the United States and in Europe.
Okay.
So, because the supply chains were broken during COVID and, you know, it was taking very long to get containers, ship them, clear them, and deliver them to, you know, client sites, all large importers, distributors in the United States and in Europe were having elevated levels of inventory. So on the domestic side, that problem never really existed. So this is purely a U.S., Europe sort of phenomenon.
What would be the reason that on a QoQ basis, there has been a dip in the domestic side of our cables business?
Well, it depends on the orders and execution. So now we typically don't,
On a quarterly basis.
Yeah, but there is a net increase that has happened. In terms... If you look at H1, you look at Q2 on the domestic side, the Q2 on the domestic side is higher than higher than the same period previously.
Yeah.
So, uh-
Very high.
Overall growth in the, you know, domestic side of the business. In fact, the domestic demand for cables has continued to remain... It was always strong and it continued to remain strong. APAR had chosen to focus more on the export markets, where we were getting better realizations and higher profitability, good cash flow. But the domestic demand for wires and cables has remained reasonably strong through the year. In fact, in FY 2023, domestic demand in India grew by 20%+ compared to the previous period in wires and cables category.
Yeah, but okay. So but there's no specific reason for the sequential dip that would have been there? That you're saying-
It's grown only. Is Quarter two has grown as compared to Quarter one. The growth rates may have slightly come down, but overall there is growth in Quarter two as compared to Quarter one.
Okay.
...The number is not, there is actually a year-on-year growth as well as a sequential growth in the cable domestic side.
Okay, so the difference is only because of the export?
Yes. The export shipments in Q2 were lower. The growth percentage was lower than in previous, previous periods. As you know, the destocking has, that phenomena has started. Fundamentally, you know, when you want to reduce inventory from you know, holding 10, eight to 10 months down to the normal two to three months, you'll have about six months of of excess stock, which has to reduce. So that's the phenomena which is being basically seen.
Mm-hmm. Then can you also explain the disconnect that is there on the conductor side between the realization per unit and the EBITDA per unit? Like we see that on a quarterly, on a quarter-on-quarter basis, the realization has come down, but the EBITDA per unit has gone up.
So the realization is a very different thing. It depends on the price of your aluminum or copper. So now that is why typically it is good to try to see only the EBITDA per metric ton, because the prices of this metal fluctuates by the hour. So you see, the purchase is not done for the quarter, has no correlation with the prices that exist in that quarter. It depends upon the hedging and, you know, when the order was placed and when what the client required from us in terms of hedging, et cetera. So that's the reason why, you know, keeping a track on a per unit ton or per ton realization is not easy to track.
Which, you know, earlier I explained that if the company, if the customer asks us to hedge it for six months in advance, then we would hedge it. Now, in the six months, if aluminum goes up, then that's precisely the reason why the client wanted to, hedge the product and fix the pricing on it. So it's difficult to see the, you know, the realization per ton, and that's the reason why we focus on the EBITDA per ton, as well as what is the percentage of premium products that are sold.
Okay. All right.
That will give you an idea of the mix, you know, which will drive the profitability.
Got it. Thank you.
Yeah. Thank you.
Thank you. As there are no further questions, I would now like to hand over the conference to Mr. Kushal Desai for closing comments.
Yeah. Thank you, everyone for joining us, our call, for this quarter. I'd also like to wish everybody season's greetings and a very happy and prosperous Diwali and a New Year, which is impending in the next few weeks. So thank you very much for joining us.
Thank you. On behalf of APAR Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.