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Ladies and gentlemen, good day, and welcome to the Apar Industries Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nihar Mehta from Essential Technologies. Thank you, and over to you, sir.
Hi, very good afternoon to everyone. This is Nihar Mehta from Essential Technologies. On behalf of the management of Apar Industries, I would like to thank all of you for participating in the earnings conference call for the first quarter of FY '23 for Apar Industries. To discuss the business performance and outlook, we have, from the management side, Mr. Kushal Desai, who is the Chairman and my Managing Director; Mr. Chaitanya Desai, who's the Managing Director; and the CFO, Mr. Ramesh Iyer. I would now like to hand over the mic to Mr. Chaitanya Desai.
Thank you. Good afternoon, everyone, and a very warm welcome to the Q1 FY '23 earnings call of Apar Industries. I will start with an overview of our performance, followed by a quick industry update and then get into details on the segmental performance, post which we can open the floor to questions.
For Q1 FY '23, the consolidated revenue came in at INR 3,093 crores, up 71% year-on-year driven by both volume growth and price increases from commodity values across segments. Export revenues is up 76% year-on-year, contributing to 42% versus 41% in the previous year. EBITDA is up 73% year-on-year to INR 239 crores at a margin of 7.6%. PAT came in at INR 122 crores, up 97% year-on-year with 4% margin versus 3.4% in Q2 of FY '22. All 3 divisions contributed to the performance, which is the highest reported quarterly profit 'til date. I will now cover a few industry highlights.
Total outstanding views owed by electricity distribution companies, the discounts, to power producers rose by 4% year-on-year to INR 1,32,432 crores in June 2022.On a sequential basis, total dues in June increased from INR 1,30,139 crores in May of 2022. India is poised to add 27,000 circuit kilometers of interstate power transmission networks by 2024, as it has already added 6,500 circuit kilometers or almost 1/4 of the target.
The power transmission network expansion has been planned, keeping in mind the ultimate goal of having 500 gigawatts of nonfossil fuel-based electricity generation capacity in the country. The Power Ministry officials also said that in addition to 27,000 circuit kilometers by 2024, India would need to build transmission lines to evacuate 180 gigawatt generation capacity, which will ultimately help the country to realize its goal of having 500 gigawatts of renewable energy by 2030.
According to the latest report released by the Central Electric Authority, the overall target for substation transformation capacity addition for FY '23 has been set at 95,659 MVA. This is 17.3% higher than the comparable target of 81,545 MVA for FY '22. In terms of voltage plants, the bulk of the target, 44.5%, will come from 400 kV substations. The 765 kV class will account for 28.2% of the target, while the 220 kV category will make up the remaining 27.3%. The current geopolitical environment has forced India to further expand its defense capabilities and it has cleared the purchase of indigenous military hardware worth INR 76,390 crores to sharpen combat capabilities with next-generation warships, wheeled armored fighting vehicles with anti-tank guided missiles, radars to locate weapons and tanks to lay bridges. All these infrastructure investments will lead to increased demand for our products and services. I would like to now cover segmental highlights.
Conductors revenue in Q1 FY '23 grew 128% year-on-year to reach INR 1,548 crores with 64% year-on-year growth in volumes, mix improvement and increase in commodity prices. Exports grew 120% year-on-year, contributing 42% to revenues. The premium product contribution increased to 47% from 44% in Q1 of FY '22. The EBITDA per tonne post adjustment was at INR 21,933. This is a historical high, and it contributed due to an improved mix of premium products.
New order inflow came in at INR 2,017 crores, up 30% year-on-year. In Q1 of FY 2022, our oil revenue was INR 1,068 crores, up 28% year-on-year. Exports contributed 43% to revenue. The EBITDA per kL post adjustment came in at INR 9,712. Margins were elevated in this quarter as the weighted average cost of inventory was comparatively low. There have been supply chain issues with the higher priced base oil deliveries getting delayed by several weeks resulting in lower cost basis in Q1, but will be followed by a very sharp increase in Q2. This will affect margins in Q2 for sure.
Lubricants revenue was INR 217 crores, up 36% year-on-year, driven by volume growth in industrial oil business. In Q1 of FY '23, our cable revenue reached INR 638 crores, up 60% year-on-year with strong growth across all subsegments except optical fiber cable sales, which were impacted by muted telco business.
Power cable revenue was up 60% year-on-year and elastomeric cables revenue was up 84% year-on-year. Exports contribution at 43% versus 19% in Q1 of FY '22 was the main contributor to the increase in power cable sales. Sales into the renewable energy installations, railways for both locomotives and coaches and increased purchase by the different factories all resulted in the higher sales of elastomeric cables.
We are running all 3 E-beam machines at full capacity. The fourth E-beam machine, a new plant to produce wind mill cables, are at an advanced stage of installation with commercial production in both units likely to start in Q3 of FY '23. These expansions are well-timed and will increase overall sales in H2 of FY '23.
The EBITDA post ForEx adjustment came in at INR 49 crores with 7.6% margin, up 95% versus Q1 of FY '22 with improved order and product mix. Overall, we remain optimistic on our conductor and cable business as the level of infrastructure is expected to be high, both in India and overseas. However, our oil volumes may be affected from high product prices in Q2.
For the company, our growth drivers remain strong. With this, I come to the end of my comments. I would like to thank everyone for joining our conference call and open the floor for questions.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Pujan Shah from Congruence Advisers.
Am I audible?
Yes.
Yes. First off, sir, congratulations for a great set state of numbers. So my first question evolves around this our conductor business, right? So our conductor business has made a high EBITDA margin of, you can say, roughly close up to 22,000 metric tonnes. So -- and if we say we have improved, you can say, product mix, which is a better margin product from, like, say, 44% to 47%, so it is a 3% incremental change in the revenue side. So my question is what can be the alpha between the normal product EBITDA and the high EBITDA generating EBITDA? It's a decline between 1,000 or like something like that? Can I assume that?
So the -- it's difficult to have a straight answer to this, because it's not one conductor that we have in normal and one conductor that we have for the premium product, because it's mostly a made-to-order business, and there are sort of variables that come into the play in order to determine the margins.
Also, the price is also influenced with the commodity prices that keeps on changing. And therefore, there's no kind of a thumb-rule that we can establish between a normal and the series conductor. The other reason is that in addition to the commodity prices, we see a huge impact having this interest cost also. So one of the reasons why we have high EBITDA is, of course, due to high proportion of premium products. But in addition, as the interest cost increases, this gets factored into our customer prices. So your EBITDA, which is your earnings before interest, captures that sales price, but the cost appears below EBITDA, which is on the interest line.
Okay, sir. Got it. Sir, I was going through your annual report. And actually, I just incurred something like we are expanding into batteries of 3-wheeler, 2-wheeler and specifically car products and such like that. So can you just give me a broad outlook, so why we made such a decision to diversify in such businesses? And what is -- what encourage you to get into such -- like, what about -- what is the perception in, let's say, 3, 4 kind of years of horizon?
So the whole target is to actually get a higher wallet share of the mechanic. So all of these products are very influencer driven. And by selling through the same channel, which is distributed retailer and mechanic, we are in a position to actually leverage the total business that is being done in terms of sales to the influencer, which is the mechanic.
So the primary product will remain lubricants, but they also buy these products. And we have -- on one of the previous earnings calls last year, we mentioned that we've also launched a mechanic loyalty program, which earns quite successfully. So these products have been added to the mechanic loyalty program. So as the mechanic buys more products from us, the loyalty points increase and this whole system is completely seamless. It's a paperless process.
So automatically, the credit of these points go into the distributors' wallet, and the distributor can then encash those points. So in short, the answer is that we are looking at basically improving the whole supply chain and getting a larger portion of the mechanics' wallet. Also, over a period, if you see some of the lubricant demands could fall as electric vehicles increase. And having access to a range of batteries and wheels, we are agnostic to whether it's an IC engine or electric engine. So that's how we've looked at adding these. The sales team remains pretty much the same. So it's really a leverage in terms of the whole...
So there will not be a much often extra spending cost on developing and spreading this product? But it would be an add-on advantage to Apar, right? That is my understanding.
Yes. So there's not a huge amount of product development cost. There is a certain amount of operating costs because we have a warranty program. Again, it's the first digital warranty program that was developed in India 2 years ago to run along with NLP for batteries.
So we've used all that sort of technology, and it's slowly, slowly continuing to grow. There's no real separate -- major thrust is there. But as we deal with the mechanics and as we engage more on our platform, all of these products are starting to increase.
Okay, sir. And my third question would be, if I could squeeze in. Third question would be we are developing a brand on lighting -- light-wire cable, which is Anushakti brand. So any views on that? Like how much we need to spend or any -- sort of any glance over this Anushakti brand to developing a state scale of 10, just give a ballpark number of revenue contribution in, let's say, 3 to 4 years, any such ballpark if you can give us, sir?
So in the LDC, which consists actually of the building wires as well as light-duty cables. Because there's a range of them, with the building wire being the largest single SKU in that particular group. So our target is to get to INR 500 crores 3 years from today in that product category. So we were INR 20 crores. And the next year, we did INR 60 crores. Last year, we crossed INR 100 crores. This year, the operating plan is to look at INR 200 crores.
The product that we have is an extremely unique product. Nobody else offers the product. And it has 2 fundamental advantages, which is what helps us differentiate against everybody, including Havells, Polycab and all the other major established players. One is that it has a much higher current carrying capacity. It can carry 50% more current. And secondly, the insulation is such that it's very highly short circuit resistant. So the short circuiting will not happen quickly.
So when you combine these 2 aspects, it really has a technical performance, which is not superior. So most of the investments which we are doing today is in frontline salespeople who are going and demoing the product to various influencers as well as to small builders, projects, et cetera. The spending that will be there on advertising and promotions, et cetera, we'll pretty much capture that within the margin of the incremental sale that is coming on.
Okay. And sir, as I read your consol in that you told us that in defense, there is a difficult to get the entry. Once we get the entry, we get a scale up in the business. So I think we have got something like INR 70 crores, INR 80-odd crores we've received of revenue from defense, I think, last year also. So are we seeing any traction in defense side getting, you can say, doubling the revenue in defense? Or we are still pretty much the similar line on the defense?
So our expectations this year on the defense side is that -- so fundamentally, today, still a very large portion of the defense equipment is still made by the government facilities, especially with our main area within defense is really warships or ships, submarines and reconnaissance vessels. So it's mostly with the Navy.
And there is a steady growth that we will see. It's just that it takes a fairly long gestation period to completely build and wire one of these carriers. So for example, if you had read in the papers in the last few months and it's there on our social media and LinkedIn, that are 2 of the warships, the frigates, which got commissioned in the last few months, both of them had a significant portion of wiring from Apar. So we expect that this year, we will probably get closer to INR 100 crores, but it all depends on the manufacturing schedule that comes out finally from Mazagon Docks and GRSE and all these players.
But the trend, as Chaitanya has mentioned, the trend is absolutely positive because more and more is happening locally. There are also shipyards which have come in, in the private sector. L&T has one significant shipyard out of the South, near Chennai. So they are also starting to get more business.
With all of the wiring goes in towards the second half of the ship's preparation, so we'll see continuously this defense side increase. There are more competitors coming in, but then there are more and more requirements coming in. So we are ahead of the curve. And therefore, we expect that the total volume coming in from these type of cables will continue to rise.
Next question is from the line of Riya from Aequitas Investment.
So my first question was with regards to conductors. So we're seeing some definite realizations here on Q-o-Q basis. Despite which, we've got EBITDA further increasing. So just wanted to understand if there's some amount of inventory gains in this segment as well.
Inventory gains are not there in conductor as a lot of these back-to-back order base. But as I said, one of the reasons is definitely, we see these premium products and also there are multiple products within the premium products that the mix of it changes and the mix of it can increase the EBITDA.
So one of those things has happened in this particular quarter. And the second thing is that, as I was explaining earlier, there is an increase in the interest cost. And therefore, if you look at Q1 itself, the incremental interest cost had also been great interest in the -- but when you look at the earnings post interest, it will be slightly less than the 21,900 fee number there.
Understood. So like...
If you look at Q4 to Q1, the amount of interest cost in the conductor business has risen by about INR 2,000 per metric tonne.
Okay. INR 2,000 per metric tonne, the same, just for Q3?
Incremental interest cost from Q4 to Q1.
Okay. Okay. And generally, with commodity prices increasing, do we expect our realizations to decrease in coming quarters, especially for cables and conductors?
The realization will actually depend on the commodity prices. As the commodity prices come down, the relation will come down at the same time and conversely, if it goes, the commodity price goes up but sales will go, but do not impact the bottom line in terms of a per unit level. And therefore, we kind of measure our business also in terms of per unit, because if you look at percentage and there'd be too much wavering depending on how the commodity prices goes here.
So just -- I can just add to what Ramesh has mentioned here that we have both aluminum and copper are down between 25% and 30% from their all-time high. So there will be obviously an impact in terms of per kilometer cost or per tonne cost of the product.
However, we will also see steady revenue coming in on these products. And as Ramesh has mentioned, that we calculate an EBITDA per tonne for operating costs, and then we adjust that for interest. So the interest cost also will -- marginally could come down because the billing value will come down.
So over the years, I don't think you will see -- yes, you will see some movement on the top line. But I think the bottom line will continue in this -- with this sort of level.
Okay. So the last time our commentary mentioned that we probably expect the share of conventional conductors to go up. But with 54% of our order book right now being high-margin business, do we expect these EBITDA per tonne level, per unit level to sustain?
So we expect our EBITDA level to be in the range of about around INR 17,500. That's the kind of number we expect, around INR 17,000 to INR 17,500. And of course, the quarterly numbers will actually depend on the level of execution that happens because these are all made-to-order business, where sometimes, it takes longer gestation period to manufacture and then there's a lot of inspection involved.
So we look at it from a long-term perspective, 3 months perspective, maybe very short to kind of conclude that the particular level of EBITDA will continue. But then we do expect that -- recall high premium products have more than close to 50% shares. The EBITDA are likely to be on the range of about INR 17,000 to INR 17,500 per metric tonne.
Also I can add to what Ramesh is saying that the gestation cycle for the execution of the orders is getting a bit faster. So even the HTLS, which is re-conductor-ing jobs, compared to what the cycle was pre-COVID and then, of course, during COVID, it got really messed up because of various project-related issues. But going forward, the gestation cycles are also getting better. So that should also help improve some of the ratability that we have.
Okay. So what would be the execution period for our current order book of INR 3,600 crores?
It should be about 1 year, close to about 1 year.
Okay, okay. And on Cable division, the new E-beam machine that we are commissioning, expected to commission in Q2 -- Q3. So if this was to run at optimal capacity, what would be the revenue potential from this one as the current scenario?
So I don't have a straight answer for that, but the product really goes into -- it depends on the product mix that we have, because it will be used both for the railways, locomotives and railways, as well as for some of the bigger cables that are required in the ships.
But our expectation is that you'll probably get somewhere in the range of around INR 5 crores to INR 6 crores on this front and then certain other cables will be manufactured on this at a faster speed, opening up our services revenue. So probably somewhere in the range of around INR 7 crores to INR 8 crores per month.
Per month. Okay.
And it also depends very heavily on the mix of cable. Because for some of these specialized cables, the insulation is very, very different. So even though the copper and aluminum, most of them are copper, that copper is standard in terms of its performance requirements. The insulations vary very dramatically.
So essentially, what will happen is that most of the cable that we make are made. 2.5 machines are used for cable and half our machine is used for services. So when you add the third, it'll will become equivalent to 3.5. And our sense is that within 1 year, we will be completely loading this machine.
Also we make solar cables on this. So at the moment, we have not been taking a lot of solar orders because the 3 machines are running flat out. And solar cables, compared to railway and defense, are low-margin. So when this machine comes up, then we'll be able to do that. We've also started exporting solar cables into Europe. And that's a big opportunity that's opened up, given the very high cost of power there. More and more European manufacturers are looking at supplies coming from India.
Okay. And how do they look at O-S-D market? Like, are we seeing any improvement in the near future? Do we foresee the demand to pick up, especially because prices seem to be rising?
So just recently, the government has made some announcements, where we will recapitalize BSNL and P&L. And so as they roll out more networks, there could be a possibility of this growing. The OFC order book will probably grow in the next 2, 3 years from today. But our major thrust is actually on export of power cables and on the elastomer cables, and we are actually moving faster away from the rest of the pack.
So for example, in the North American market, we have 18 U.S. approvals, which is the highest amongst all manufacturers in India. And with our UL approval, you can't -- it has to be marked on the cable, you cannot supply it. So we've focused on those markets where we think there will be a steady demand coming up year-on-year.
The optical fiber, it's a completely separate unit. It has a separate team. They'll continue to push for as much business as they can get. But the fortune of the company will not depend on what happens to OS.
Okay, okay. Understood. Last question, what was the capacity utilization in Hamriyah this time, this quarter?
So we've just gone through with an increase of almost 30% in terms of debottlenecking storage and some of the blending, the bulk blending there. But as I said, particularly the capacity utilization for transformer oil and white oil, et cetera, one can speed it up. We don't run the plant on 3 ships. It's runs currently only on your 2 ships. So there's a lot of room there. It's really a function of getting the right customer and order flow.
Okay. And currently, it is the transformer oil where we are confident of demand sustaining there?
Yes. The transformer oil side, I think everywhere, there is a resurgence that's happening even in countries that are GCC, where they are a very large producer of crude and petroleum products, they are also putting in extremely large installations being part of this whole ESG pledges, which have been made. And most of these countries have a lot of sunshine.
So the solar installations are coming up, which will be very, very large in size. So our sense is that the requirement for transformer oils and cables mostly are produced locally, will continue to increase in that region. In the case of white oil, as we mentioned in some of the comments of our investor update, is that oil commodities have come down between 20% and 40% pretty much. But your petroleum products have not come down that much.
Diesel has just corrected in terms of premium over crude by about $100-odd. And so base oil prices haven't come down. So today, substitute products to base oils have gotten cheaper. So you can, in certain formulations, reduce the amount of white oil and increase the amount of hydrogenated base oil.
So base oil have become cheaper than white oil. So there will be a little bit of adjustment that happens there, but we are quite bullish on the transformer oil side going forward. Both domestically, now we are seeing increases happening as you heard in the opening remarks also. A lot of transformation capacity is coming in and is right down our back alley, which is 400 kV, 765 kV.
Right. Understood, okay. And lastly, do we expect our interest costs to remain elevated given that we have basically high volume prospects in it?
Yes. Our expectation of interest remaining high. Yes, because if you compare it to 1 year ago, there has been multiple hikes from the fed. The whole oil business and even to some extent, the conductor and cable business does have a component of U.S. dollar funding, because customers open 90 days or 180 days letters of credit or in some cases, the transaction is on a GDP basis. We have to deliver the product to the customer.
So there are lines of credit by which you can discount your documents and get the one. Even then, the discounting rates also have gone up. So I think interest costs are now here to go. The period that we had in the last few years was at an artificially low level. They're now getting to a level which is actually what we had seen prior to COVID kind of coming in. So they're going to be here to stay. And that's why Ramesh here mentioned that it's an integral part of the EBITDA. So we have been adjusting our prices considering the number of days outstanding as well as the rate of interest that we associated with that type of business.
Okay. So essentially, this will more or less become a pass-through cost for us on our...
Well, we -- well, it's sort of pass through, but it'll be negotiated in. And fortunately, most of the competition that we have also around the world, everybody is being subjected to that. So it's not a unique cost that we are picking up.
Okay. And how about freight cost? We had a serious concern about it. How do we look at it in next few quarters?
So freight costs have started coming off for containerized freight, and I think most of the hit on freight has been pretty much absorbed by us, other than 1 or 2 contracts. In some cases, there will be a small freight gain because when those orders were taken, now the current rate is a little lower than the previous rate. So overall, we don't see freight today on the containerized cargo actually being a big hit or a drag on earnings.
On the other hand, bulk freight rates have gone up very, very substantially. And the reason for that is that we buy directly from refineries and refineries get into long-term contracts with the shipping companies. So most of this increase happened in 2021, and they already have signed contracts. So that's limited the amount of increases that the bulk shipping companies could make.
So now in the contract that was renegotiated, they are at a much higher level. So that has also added actually to the landed cost of the base oils, not only in India but everywhere around the world. But the -- to your point that whether it's going to actually affect the conductor cable side, which is where we were more concerned in the previous calls, we have specifically highlighted that. I think we are kind of over the hump on that one.
The next question is from the line of Maulik Patel from Equirus Securities.
Sir, questions have already been asked. Sir, isn't it that on conductor side, you are mentioning that EBITDA per tonne will be in the range of around INR 17,000 to INR 17,500. But if you see the last 2 quarters, we have been consistently doing better. And is that definitely clear, it's coming back to -- why you were guiding the INR 17,000 to INR 17,500 is likely due this inventory loss we may have in the coming quarters because of the correction in copper and aluminum trade? Or is it that you want to be more, like, conservative, which has always been as an operator management and you want to continue to follow the effective?
Here, there is no element of inventory loss because we are completely back-to-back within the contract. And every order is backed by a proper risk-managed framework of hedging strategy. So we don't expect price falling down in any way to kind of hurt our EBITDA there. The only thing is that as the execution and inspection period takes time, it really depends on the mix of the products that is finally getting sold and accounted as revenue in the financial statement. That is what we'll determine the EBITDA for on a material basis.
And when -- as we expect to execute large amount of HEC and copper conductor in overall volume going forward compared to what you've been doing since last 2 quarters?
This proportion possibly can change. So if the proportion changes, our EBITDA will change. And secondly, as I mentioned, that this also has a factor of interest cost. So depending on the interest cost, this EBITDA can go. For instance, see, the aluminum price and copper price comes down in this quarter, your interest component may come down.
And therefore, your selling price may be lower and that means our EBITDA level, it may be coming down. So it depends on multiple factors in terms of interest cost, in terms of our proportion now for premium product getting sold, depending on the level of execution and inspection that happens and the consolidated view of that will determine your EBITDA. And therefore, if you look at a larger time period, that would be a proper indication of the EBITDA that is there in the business.
On the TSO segment, you have an additional huge jump in EBITDA per kL largely because -- probably because of a supply chain distribution disturbance to that. But you also mentioned that the upcoming cargoes, which will come at a much higher price and this will normalize your EBITDA per kL in this segment. Is this a similar situation, what you had 1 year, 1.5 years back, when the vessel was in shortage, and that led to the 2, 3 quarters of very high EBITDA per kL, and this is only -- it came down to the range of around INR 5,000, INR 5,500 per kL. So is it -- are we in a similar situation?
To some extent, Maulik, that is the case. So typically, what you would do is that you take a weighted average price based on the commitments that you have of delivery coming in for the quarter. And because there have been supply chain issues, bad weather around Korea and the lockdowns in China, the vessels which have called on China have automatically got delayed and then they do the rotation and come back. So there is a little bit of that element.
What we are seeing, fundamentally the trend will happen. The INR 9,700 per kL come down to equalize in the first quarter somewhere in the INR 6,000 -- between INR 5,000 and INR 6,000 per kL. And then hopefully, it should start getting steady going forward.
And on the cable side, using this is -- about this retail business, I mean, Anushakti, am I right?
Yes.
Sir, the investment we have made in terms of the building of the brand, building, I don't know, scale, which executes the project, and in particular, this one, kind of our product launching here, some highlights on that will be brilliant.
So at the moment, most of our expense has been in terms of getting people on the ground. Because as I mentioned earlier, it's a very unique wire and the best way to sell the wire is through demonstrations. So if any customer brings a wire and puts it on a machine, when you increase the current, the Anushakti wire will remain standing much, much longer and after the insulation on any other wire has melted. So most of our work right now has been focused on that.
We signed up Sonu Sood as a brand ambassador. So in the -- towards the second half of the year, you'll see some limited advertising going on. So we really expect to making sure that certain prerequisites are met. Your distribution is in place, et cetera, then you can step up advertising. So the margins which are coming out of that product lines are pretty much feeding into years recycling that entirely back into distribution and brand building.
But cable business, otherwise, given the way we expect business to increase the elastomeric side, as we've already seen on -- for wind mills, for solar, for defense, et cetera, that will take care so -- of ensuring that the cable numbers, both top line and bottom line will remain good. So you won't see, really. We have a runway for a couple of years. At least these other products' growth will not really impact the amount that you spend on the LDC side and the wire side. So it should help us. And as I said, our target is that last year, we did a little over INR 120 crores. This year, we are targeting over INR 200 crores. And next year between INR 400 crores and INR 500 crores.
Okay. And so I think that's a pretty large target. I'm sure that we will achieve it. This is the second launch of Anushakti, right? We did one launch probably 4, 5 years back.
So no, we have not really launched the product. It was really being sold only into the projects segment. We hadn't really focused on doing retail offering. We then took on a target market, which was Kerala, 2 years ago, and to see whether on the retail side, we could end up getting good traction on it. And we found that moment to do the demo, especially to any independent house owner or someone who is redoing their own apartments, it is absolutely a no-brainer to use this. Because the amount of electrical intensity in any house is just increasing.
You don't know today, after 5 years, how much power you're going to consume. And the worst thing for you to do is to rewire the house because it will be a complete mess. All the paint and everything will get peeled off and all these things. So basically, literally, like a wire that you take and forget for -- and the life on the Anushakti wire is already tested to be 50 years because it uses the same fundamental technology as goes into locomotives and ships. So it's basically a wire and forget kind of application. So I think I would not think that growth of the Anushakti will need a huge dent in terms of the cable profitability. On the contrary, the brand will continue to get built.
So I was not worried about the profitability part. I'm more interested in knowing how much, how fast you can scale up. And that's what I wanted to know that the people you have hired on the product side, on the branding side, the distribution side. So that's what the...
So we had -- we've taken the help of a top management consulting firm to sit and work out the entry strategy and stuff. So all that's already done, and it is being rolled out. That's how the numbers, we expect them to show some good growth.
And in terms of people hiring. Whom you have hired for -- to drive this?
We've hired people who have primarily been in the trade, not necessarily just from wires, but in the electric straight. So you've got a whole slew of products, which include switches, it includes lighting products, suite gears, et cetera. So we have obviously worked on selecting good people and -- because without investing in that, nothing can actually grow.
There are 7 states in the South, which we have already started. The people on ground and the business is starting, which are the 4 Southern states. And then to that is added Maharashtra and Gujarat. And in the North, we've basically started in UP, and then we'll be adding Haryana and NCR, the NCR region.
Sure. Just to the my last question and it's a revenue question. What kind of CapEx we are looking for this financial year? And in which areas we will spend?
So our total CapEx in this year, we expect about INR 150-odd crores. We say about 2/3 we expect to be in the cable division.
A lot of this is actually a carry forward of projects which were announced earlier. So for example, if you take the 4 E-beam machine we have and the CCV lines, which is a state-of-the-art line for making these cables for wind mills, they have -- those will get commissioned this year. So all kinds of part issues were there, all machinery delivery is also running 6 months behind schedule because of electronic parts and things like that. So it's really a carryforward of allocations, which were done in previous periods, which will get completed this year.
We have a bit -- 4 E-beam machines, right?
Yes.
And that will come in which quarter?
In the third quarter.
Next question comes from the line of Roman Nahar, an individual investor.
Gentlemen, congratulations. [Foreign Language] It seems we are pretty much on track for the 20% ROE number, so congratulation.
Thank you.
Second was, I just wanted to understand how much would that -- the inventory gain being in this quarter for the oil business?
So it's -- the -- I would call it a margin gain. So that -- the margin gain actually, typically, you would have had between 5,000 and 6,000. So it's been a little bit -- so the difference between the 2, which is about 3,000-odd kL is part of the lower cost structure being in place.
So in the following period, you'll see a big step function increase. So in some cases, you've already increased prices to or partly increased prices to customers. So the unit margin is showing higher in the month of June. In the month of July, August, that unit margin will fall until we are able to make another price increase to rationalize the whole thing.
So we are looking at a levelized number in the range of typically INR 5,000 a kL. And as Ramesh mentioned, we've been quite cognizant of adjusting that, taking interest as a variable cost. The rest of it is, like, pretty much a pass-through, right, in terms of blending and other areas which you refix from time to time. But as the interest rates move up, we've been factoring that into the cost which we have.
In fact, that would be a lovely way to look at it because I was myself wondering if we could look at both the oil business, the conductor business, EBITDA after the interest cost, like you simplify it for us as outsider.
So we have that working, which is there. And Ramesh was contemplating introducing that an additional measure. It's just that most analysts and most of the people who are on this call, they are used to certain metrics, but we can obviously provide both.
It will be really very, very nice. Because I -- right now, in the screen, I have data for the last 13 years in terms of spreads for each of both the businesses and margins for cable. So -- okay, before I get there. I mean, I wanted to ask you now what would be the volume growth outlook for the oil business for the full year? Last year, it was 460,000 kL earlier, I think we spoke about 6.5% volume growth. So would you, like, say that all part 490,000, 500,000 kL would be the number, volumes?
So our expectation is and the business plan that we've made is looking at almost constant volume over the previous year and this year, simply because there has been so much of increase. And diesel is the -- if you see in terms of the mix of product that's coming out from a petroleum, from a crude barrel -- is it just diesel and aviation fuel, which is above the watermark. Even gasoline is right at the price of crude in some markets, even slightly below that, naphtha is $25 below.
So it's been a standout and not come down, where all other products has come down. So wherever you have substitution, like in white oil, that volume will get affected. And we've mentioned in our comments also that the white oil business has grown very substantially over the last couple of years.
And in that case, Kushal-raj, I mean, given that I would imagine white oil would be less in terms of the spread versus the other businesses, the big businesses. Then we should be looking at a higher EBITDA per kL number for this year.
Well, not necessarily because the last couple of years, we made very good margins on white oils, both technical grade and pharmaceutical grade, which we're seeing kind of tapering off right now. We've been seeing even demand falling off. Like Africa is a very large market where they use these products, and there is an affordability issue.
And the beauty of the third world is that people are very elastic in terms of how they adjust demand. So we bonded a conservative plan on this front. The oil business has done a lot of heavy lifting in the last few years. And I think our conductor and cable business will actually come into their own now over the next few years.
And I guess that is the beauty of having this mix of businesses. It's not that the oil business will not be profitable as well, but the profit increase delta coming from conductors and cables will be much more sizable as we go forward.
Sure. So right now, let's say we've done INR 9,700 per kL in the first quarter. And for the full year, do you still want to say INR 5,500, which means that it will be much lower than INR 5,500 in the balance 3 quarters? That wouldn't be the case?
Our target is to still do between INR 5,000 and INR 6,000 a kL for the year, weighted average for the whole year.
Weighted average for the whole year. Okay. So in that case, I'll just take INR 6,000 maybe. And the second...
Take INR 5,500, which is the average.
Which will be lower than last year's?
Yes. There is every effort to sell more premium products, sell it into more premium markets. So there is a little bit of leeway that you have. It's not like you can't do anything. But 2 factors in that before it happens is, I think, a little nonconservative. You can...
Sure. Then the second thing was, Chaitanya Desai, I mean, congratulations on the conductors business. Now 2 questions here. One would be the full year volume number. Like, I think we had INR 130,000 is what we have spoken about for the full year. If you could just revisit that and the spread for the full year.
Yes. So basically, we are looking at a similar kind of volume, because our concentration has been more how to push for more value-added products, premium products. So our concentration has been more rather than tonnage, it has been more in terms of adjusting the product mix so that we can optimize our bottom line.
So should we stay with the INR 130,000 number for the full year?
It'll be a little more than that because things are looking up right now.
So what number you like to...
Between INR 130,000 and INR 140,000 is our sort of expectation for this financial year.
And if I were to ask you, like you said that about INR 2,000 is the highest the interest cost per tonne. So before the -- and when you talk about INR 17,500, for the parts, INR 17,000 to INR 17,500, this is, again, only marginally higher than last year's INR 17,000. And given that interest is now INR 2,000, which is below this INR 17,500. So do you -- would you like to...
The INR 2,000 what we had mentioned is an incremental interest cost from Q4 of FY '22 to Q1 of FY '23.
Sure, I understand. So what I was saying was INR 17,000 was the EBITDA per tonne last year full year. And we are talking about INR 17,500, given that interest itself has gone up by INR 2,000 per tonne, right? So wouldn't we be like -- and given that overall, even after the interest numbers are so buoyant, wouldn't the EBITDA per tonne be higher actually than INR 17,500 given the high interest cost?
Well, as of now, we have visibility for Q1 because now really, this number of interest will depend on whether the interest, how the interest percentage will pan out during the rest of the year as well as the price of the commodity prices.
If you see aluminum in the last 1 month has come down by about 20 percentage, 20 to 30 percentage. So it depends, the interest will actually depend on the value of the products. So this is an indicative range that we have, and 175 has been our average in the last 4 quarters. As I said, a larger period of time, 1 month, it lasts, then we'll be much more confident in terms of the EBITDA that can be given as the guidance going forward.
The sense is clearly that the profitability for the year in FY '23 will be higher than FY '22. So adjusting for all the interest, interest always -- you'll still be at that INR 17,000 kind of kind of range. So the bottom line for this year will be equal to or better than the previous year.
Sure. So basically, the INR 17,500 is after the interest cost?
Yes. But [ Pawan ], what happens is that where we get into a little bit of trouble is that the premium range of products includes HDLS, it includes OPGW, it includes different types of products that go into railway electrification. It goes into seed copper, post conductors, a whole range of stuff. So when that mix changes, not in this -- automatically kind of gets a little bit affected. So I think it would suffice by saying that this year, the bottom line for the conductor business will be higher than what it was for the last year.
Yes. Now this is much more clear to me. Basically, you are saying INR 17,500 is after factoring in the interest cost.
No, no. We want to clarify that. So INR 17,500 will not be after factoring the full interest costs that we have. But of course, some part of the interest cost, we would be affecting that. But it may not be right to say that we will get INR 17,500 post 100% of the interest cost. We can share with you some -- the working which you have suggested, that is BA. That is coming to us to maybe INR 14,000.
That slide actually can be added to the investor deck in the next week and put up there. So then the working becomes relatively clear in terms of what happens on give me an additional slide to get the idea in terms of what happens post.
Sure. And on the cable business, we should get -- continue to assume INR 2,400 crores of revenues for the full year and about 8.5% margin?
So our expectation on the cable side is to grow by 30%. So last year was about INR 2,000 crores net sales. So this year, we are looking at 2,600 plus.
And 8.5% margin is an okay number to focus?
Yes, it should be in that range.
Okay. And sorry, but if you can guide a little bit on the interest cost. It's INR 60 crores this quarter. It was INR 108 or INR 50, INR 46 prior to that. What should we assume as a full year finance cost? Should we, like, assume 20% drop next quarter and then maybe, like, INR 200 crores, INR 210 crores of interest cost for the full year?
So I'll tell you what happens in this interest cost. There are basically 2 components. One, 1 more price is toward interest rate, which is so far based on our LC that gets factored into overall interest costs. The second component is that since we have an import creditors, a lot of mark-to-market on our overseas creditors also get factored into the interest cost because that's the way the accounting regulation needs to show you that.
And therefore, if you see our EBITDA numbers, we have 2 kinds of EBITDA. One is the EBITDA and one is the EBITDA post [ Egypt ] and that we call post ForEx. So there are multiple variables here. And I think once we put up this slide on EBDTA, which will be clear in terms after adjusting for all sorts of interest cost, what is the next margin that we have made in Q1 of FY '23, as well as what we had, really, 4 quarters of FY '24.
Because of multiple variables, it will be difficult to project that interest because it's not only the interest rate, it also depends on the price of oils, aluminum as well as the exchange rate that's happening. So it's difficult to give a particular number how -- as to how this interest lines in there.
No, so, I got it. Chaitanya-raj. Basically, this is something -- thanks for clarifying. So basically, if I were to look at finance costs after removing the adjustments, which gets knocked off from the EBITDA per tonne or unit calculation, how much would that be? So INR 60 would drop to how much, if I remove those adjustments? Because that is captured in the EBITDA line. We've reduced EBITDA per unit.
So out of INR 60, about INR 20 would be your ForEx adjustment, which we kind of report EBITDA post ForEx. Out of the INR 40 would be our pure interest cost on LCs, which is supplier credit.
What -- when we put up this near, we'll give a breakup the INR 60 crores across the 3 categories. It should clearly show you how much is the EBITDA and then the interest cost and also the total finance cost so that you can measure on the EBDTA number, because all our interest costs are actually factored into the pricing. So that will move up or down, depending on the interest rate.
Got it. And for today, as we stand, INR 40 crores is the number for Q1 and commodities that we deal with are down about 20%. So we can assume maybe like, let's say, around INR 30 crores, if we were to just simplify it for a moment going ahead?
Yes. Yes, I think we'll have to do the math of it. But once this slide is put up, then possibly then we can be in touch to see how that number goes.
All the best and congratulations once again. Looking forward to that 20%-plus ROE number.
Yes. Thank you.
[Operator Instructions] Next question is from the line of [indiscernible] From [ Enmas Research ].
Am I audible?
Yes.
Okay. So basically, my first question is what are your views on the sustainability of this transformer oil segment in long term? And what would be the impact of basically the renewable energy on this particular segment going forward?
So in the case of transformer oil, as the renewable energy increases, the number of transformers and the transformation capacity will increase. It's a linear function. So it will continue to grow. And in fact, earlier in the call, I mentioned that over the next few years, transformer oil seems like 1 of the product lines that we would expect to grow, not only in India, but also overseas.
So what kind of cadence do you expect going forward for this particular segment in the revenue and profitability terms?
It just depends on the rollout. So all governments around the world have made very aggressive -- have shown up very aggressive numbers. And when you have such an aggressive number, it's anybody's guess what the final delivery will be like. But there will be a steady growth on the transformer oil side. That's all I can say, and it will continue for a few years as the infrastructure gets built out. There's no real substitute for mineral-based transformers, especially in the transmission networks.
Okay. Understood, sir. Understood. And from our conductor side, basically, I was going through your previous con call transcripts on these. And there was mentioned that you were having a -- you will be having a volume of around 130,000 by financial year '23 and the EBITDA per tonne were getting somewhere between INR 14,000 to INR 15,000. Now is there any revision in this kind of guidance for financial year '23 for the conductor business?
As was discussed earlier just now by another question, we said that we are hopeful to improve the quantities. So it should be between INR 130,000 to INR 140,000 this year. And with regard to the EBITDA, as was also clarified, since these interest rates are going up, we are adjusting the EBITDA per tonne, so that at least the profit after interest is remaining intact. I hope that clarifies.
Okay. Okay. Understood. And basically, I can assume going forward also and despite of the fact that the commodity prices increases or decreases, we are on the growth trend for all the 3 segments, right?
Yes. In fact, we have been talking for several years about the U.S. infrastructure market opening up. And finally, it has opened up. So if you look at the mix of exports that are there and the growth in the exports, which has come for the cable business and for the conductor business, the U.S. is the single largest end market now. If you take the aggregate of these 2, it is by far the largest market where products are starting to go.
Okay. One more question from me on your product which you are talking about. Actually, in the last con call, I think you were mentioning that in this particular quarter from conductor business side, there shall be growth more from the conventional conductors, right? Am I right? And...
To clarify. Actually, last few years, due to COVID, there was a big dip in the volume. So what we had mentioned is that we are expecting the business on the conventional conductor to come back on pre-COVID.
So because of that ratio of the business, which had happened last 2 years, may get slightly modified. So there will be a growth in all these new products. But at the same time, whatever tip that had happened on the conventional side will get sort of changed and come back on track. I hope that explains.
Next question is from the line of Robin Agarwal, an Individual Investor.
Congratulations on an excellent set of numbers. Most of my questions have already been answered. I have just a couple of questions. One, you mentioned that for your payables division, we kind of -- we're looking at 30% growth this year.
So if you were to go over the next 2, 3 years, are we still on track to -- I mean, will you maintain these growth levels? And in some of the previous calls, our aspiration was to get to double-digit EBITDA number, which we used to do earlier from '17/'18, 2017, '18. And will we get to double-digit EBITDA number on that?
Okay. So let me answer both of them. One is that in terms of growth going forward, in this year, you will see at least a 30% growth, because also, the base was affected from some of the COVID-related issues, freight issues, et cetera, et cetera. But our plan is to continue to grow at -- and I think we have multiple growth drivers in the cable business, which is the export when you have -- if you keep a track of all the railway expansions, which will happen in terms of locomotives and coaches, there's an upgradation that's happening in terms of speeds that will take place. So there's a whole lot of things which are going on.
So I think the growth will be there. And as these plans are announced, we will continue to keep on ensuring that the products and all those things are available. There's also a step function that has happened this year in terms of business that's in the U.S. market. So the U.S. market is to pass through. The larger portion of it is the infrastructure side. The smaller portion of it for us is the homebuilding side. So the homebuilding side will probably taper off a little bit. The infrastructure side will grow.
So without hazarding a number of whether we'll grow 30% a year, et cetera, we see that for the cable business, we will have a steady growth taking place over the next few years. And as the electric vehicle rollouts happen across the world, there will be more and more of this cable required. Because if you take any building in Mumbai, for example, and if every alternate car park requires an electric charging system, then the entire locality will have to be rewired. It's not just the building. So it's a little difficult to say what speed it will happen in, but the direction is very clear.
On the second front, where you are talking about the EBITDA percentages. So yes, our aspiration is to get into double digit. And the more we get into some of these elastomelectric-like win and defense and all these things, those carry fundamentally higher margins. So this year, we are targeting this 8%, 8.5%, but the aspiration is to get into double digit.
That's great. So would it be fair to say that of the 3 segments, the cables is the one which is more faster or likely to grow the fastest?
Absolutely. Because the addressable market is multiple times the size of the conductor market and the -- even if you take the entire specialty oil segment. It's a [ SEB ]. Domestic market is over INR 60,000 crores. With the largest company, Polycab, being below INR 10,000 crores if you look at just pure wires and cables on a net sales basis.
That's good to hear. So -- and in terms of our capacity, current capacity, what would be the roughly capacity utilization at a very broad level for this segment? What I'm trying to look at is what is the incremental CapEx would require to grow, let's say, 25%, 30% per annum for the next 3, 4 years?
So most of the growth, which we are expecting in FY '23 and FY '24, we have 70% -- 65%, 70% of it has already been committed. Equipment orders that are coming in, et cetera, et cetera, it's wrapped around a number. It's wrapped within the number that Mr. Ramesh has given, about INR 100 crores coming on the cable side. And there's -- the formats which go into the U.S. market also are a little bit different.
So some equipments have been ordered for that, because that business also, we continue to see growing as the infrastructure needs get added up. And if the freight rates come down, then it makes India that much more competitive also. And which they will come down, because you've already seen that consumer products are slowing down in the U.S. They carry a huge amount of -- I mean, house a huge amount of the container inventory which is there.
And one thing is engine inventory, but it's also the ability to take the containers from the port and deliver it because it's a large country. So when that comes down, then automatically, it opens up for other products, and hopefully, the pricing also should improve.
That is great to hear. So one other correlated question to this is in one of the earlier calls when you were mentioning on the conductor side, I remember, when you're dealing with Australia, there was a double taxation issue, which Chinese companies used to enjoy, and we had a 5% disadvantage compared to them. How does that compare in this for the U.S. market? Are we at par with our other companies counterparts from a double taxation perspective? Or we are still at some...
Europe does not have any special tax advantage to the Chinese cable suppliers.
So we are at par with...
So they laid a level playing field on that front. In Australia, it's still -- the Chinese products are still at a lower tax level than Indian products. But there's a conscious move to reduce the product -- the amount of product which is being purchased from China to increase the spread of the supplier base. And in the U.S., at the moment, it's completely inverted because the Chinese duties are more than 20%. The Indian duty is 5%.
[Operator Instructions] Next question is from the line of [ Guneet Singh ] from [ CCIPL ].
Am I audible?
Yes.
First of all, I would like to thank the management for answering all the questions, all the participants very -- with all details. And I would like to add my questions, and most of them would be forward-looking.
So if we look at the margins, margins have been quite stable at around 6% to 7% since the last 10 years or so, I would say. But I see that we achieved margins of around 9% in, I think, FY 2017. So is it appropriate to say that we have passed any efficiency improvements or any improvements in terms of improving the margins? So is this the peak margin that we can achieve? Or the company is consciously taking steps to improve the margins over anything of that sort? And what kind of margins can we expect, like, going forward for this year or maybe down the line 2, 3 years?
So in terms of -- I wouldn't say that these are peak margins. But given the large product profile and a little complexity of different product lines that we have, our endeavor has been to improve premiumization, and that is now evident across all the 3 businesses.
And this premiumization is both in terms of products and in terms of geographies. So I think what we've achieved here is 7-point -- the EBITDA margin is 7.6% for the quarter. And the endeavor will be to grow that. It all depends finally which products, which markets, et cetera.
I think the number that we are really focused on is the return on equity, which we think we have a better handle on in terms of being able to deliver. And that number, we are still focused on delivering 20% ROE. We are, right now, in the 17-odd percent range.
All right. So for this financial year, can we expect, like, to maintain the margins of around 6 -- 7.6% or around 8%?
So I think we'll be able to maintain these margins. There will be a reduction in whatever is seen on the specialty oil and lubricant side. But there will be some improvement that comes from the cable side because of the increase in terms of the volume that'll come. I think overall, we will still see something in this range on a higher volume number.
Perfect. So in terms of the growth drivers for the company, like you mentioned that you're working 2 shifts right now. So would there be any capacity expansion? Or do we require that? And assuming across all our segments, if we run on full capacity, that is say 3 shifts, what kind of revenue can we reach in that sense? And also, if you have any plans for capacity expansion or any capacity expansion, can you please point those out as well and how they will impact our revenues?
So we had -- I had spoken about the 2 shifts running at the Hamriyah facility in the UAE, and that theoretically, can be scaled up. So as a consequence, just volume is not constrained. If we actually have the product and the business coming in from customers. The oil division is not going to have any very significant CapEx, because we do have capacity in place. So it's just debottlenecking the investment going on in this industry, 4.0 in terms of improving digitalization and all those sort of things.
But they are not very heavy-ticket CapEx items. It's really the cable business that as we start, as we continue to grow, most of these projects, which are going -- will take care of what we want to achieve in FY '23 and to some extent, FY '24. If the market continues to remain strong in that business, we will continue to invest in it.
The next question is from the line of Akshay Kothari from Envision Capital.
Sir, I wanted to note that you did mention that in -- we got solar cables order from Europe, and there was a good traction from that side. Despite that, our margins in cable business have been on the lower side whereas other players are doing somewhat close to double-digit margins. So what would be the reason for this?
So players that have a higher margin profile are largely selling product in the branded wire segment. In fact, if you look like-to-like for the kind of margins that they carry on, the B2B products that they have, I think we are ahead of it with the mix of products that we have. So I think that comparison is not a fair comparison. It's not an apples-to-apples. I would look at our -- the business mix that we have and then measuring ourselves year-on-year in terms of top line, bottom line on that.
Okay. And sir, I wanted to know regarding the capital allocation. You did mention, still, the start about the battery business, which we are doing and the dealer network of which we will be having in terms of mechanics. And going forward, how do we plan to scale our distribution network in terms of cables and also peak? Could you give a sense of that?
So most of it is actually an OpEx and OpEx cost by increasing the feet on the ground to recruit more mechanics. And then parallelly, as we reach critical mass, we will launch an electric -- electrician loyalty program on similar lines. It's not very capital intensive. It's more OpEx related.
And the beauty of this is that you do need to invest ahead of the curve, but you can phase out your investments, keeping in mind the amount of business which is coming through. So we've been maintaining that sort of pace. So as momentary -- moment of productivity of the sales force goes up, then we're bringing in and moving to the next step.
Okay. And sir, lastly, on the hedging strategy. Could you elaborate more on the -- how are we hedging? Is it through some embedded derivatives? Or how is that?
It's a plain vanilla hedging for the products that qualifies for rating, basically aluminum and copper. We do their hedging base for once we get an order from the customer. So immediately, we do a back-to-back hedging at the LME, and that's how it happens.
Just to add to what Ramesh has said. The conductor business, because it's a made-to-order and each order is of a certain size, you pretty much hedge everything back to back. Other than in the case of steel, where there is no hedging mechanism. Fortunately, steel has also started coming off.
In the cable business, the larger orders which are there, there also we actually hedge back to back. So for example, Siemens Gamesa places an order on us or Nordics or any of these windmill guys, we will only go back to back on them. Where you have a little bit of open is when you're servicing their dealer, distributor market where it's not possible to predict how much quantity will be involved. So to a very large extent, the requirement is hedged. It is a small portion, which remains open because of the lack of being able to assign a customer to the metal.
The next question is from the line of Pujan Shah from Congruence Advisers.
I just wanted to ask because partly, the pioneers...
Mr. Shah, sorry to interrupt, but your voice is breaking up. May we request you to move to a better reception area.
Am I Audible now?
Yes, sir.
Clear? Yes. So Apar has been pioneer and been leader in conductor and all this -- conductor in cable, actually, cable. I just wanted to ask one thing. Like, in the previous, like, I take 3 years back, the con call, you have said -- we've always been into this developing new programs and new products, which has been a fire line, the target, which is currently now we are seeing that OPGW is the product which has been currently into the street. So what are your current visions which are making -- which can be lined up in next 5 years where there is a little bit of -- ahead of the curve for the competition? That's my question.
So I'll take that question. So we've constantly been working on innovation. So a lot of the conductor lines that you are talking about, we started working on it 7, 8, 10 years ago.
Now OPGW is picking up because data is the new oil. The railways, we have developed a whole lot. We've also developed a range of copper magnesium. Now the entire basic electrification is of pure copper. But normally, start going to high speed, you need copper ignition. Apar is the only company that has a full product rendering.
So as customers, we are constantly in touch with customers and the planners that are there of these large customers to understand in which direction they're moving. But because there is regulation involved and all these things, it's difficult for you to determine where it will come. We were already with copper magnesium conductors 3 years ago. But now we see that as they start signing up higher speed lines, we will need that.
So we continue to keep on investing in terms of this. Generally, you will find that HTLS-type of conductors, OPGW, even the CTC, whatever products we have classified as premium those products today are at the relatively cutting edge of what can be used by a customer and will remain for the next few years. And then as and when they keep coming up with more requirements, we will keep adding to it. So it's like a moving target. It's not something where you have an end destination here. As time passes by as requirements keep improving and changing. So for example, with the Indian Navy, they themselves don't know the specification of what they want 3 years ahead.
At any point in time, if you go to the Apar Katala plant, you will find senior guys from the Navy there, who are talking to our chats to see how it can be redesigned and different prototypes are being made, et cetera, et cetera. So it's like -- it's a moving target. But the key here is that if you are the first part of call for customers when they have new requirements, then that is the right positioning for the company to be in.
The next question is from the line of Amit Anwani from Prabhudas Lilladher.
My first question is on the conductors business. As we have been saying, there is good contribution increase from the premium products, which is happening. Just wanted to understand what is contributing to this, I mean, largely between domestic and global market, what sort of contribution is there for the premium products?
So overall, proportion of exports in Q1 was about 42 percentage export in terms of [ competition, makes a total sense ].
As a percentage to premium products?
They do have -- they do have -- honestly, we don't want to get down to giving granular breakups of this.
No, no. I just want to understand what actually is driving the premium products. So if you could just highlight...
What is driving the premium products on the conductor side is as follows: the HTLS, which is a high efficiency and the conductors to the low sag, what is driving that demand is increased transmission corridors. Mainly, the transmission corridors need to increase. Power is accelerated on, hello?
Yes, hello.
Yes. So it puts the -- so it's being driven by the increased electricity requirement in urban areas or in concentrations. That's what is driving the HTS business. What is driving the OPGW is -- it has the railway lines and all the other lines, which are coming up today instead of just having a plain vanilla steel call, there is OPGW, which is an optical ground via cord, which is on Internet and can transmit data.
And today, the 2 companies that translate the largest amount of data in India are the Indian Railways and Power Grade Corporation of India. So all their lines, they are starting to specify now with more and more of the core coming in. Then you've got the CTC or the copper transports conductor. So that improves the quality and consistency of the core of our transformer.
So slowly, customers have started specifying that because they want a better quality, the core of the transformer determines finally the life of the transformer. If something goes wrong in the call, you have to take the transformer offline and then spend a huge amount of money to refurbish it. And in the meantime, you need to have a spare one so that the circuit continues to run.
So there are different drivers to these product lines. But what I can say is that each one of these is in an area where the utilization or the usage of these conductors is growing. And that's the reason why we've classified that into the premium product. The conventional conductors have been around from the time before I was born, which is in late '50s from the '50s. Does that address your question?
Sir, the current speaker has got disconnected. We'll move to the next question from the line of Sachin Kasera from Svan Investment.
Congrats for a very good set of numbers. I just had 2 questions, and they are a little bit more from a medium to long-term perspective. So you did mention that one of the key things that you are looking to achieve by doing all the premiumization is to try and target a 20% ROE. You're already at some 17%-plus right now. So if you could tell us at I think the way we are going, we should do that in the next few quarters, but something like from a more medium perspective, a 3- to 5-year perspective, do you think that we are investing into enough new products, new premiumizations, new brands, new type of businesses, where there could be life, where we could look at even maybe a 25, now or 5 years down the line? Or you think the type of business we are very small, we will meet over 20%?
I think aspirationally, obviously, we want to go beyond 20%. But realistically, hitting that 20% number also has been a moving target. Because I think, even in reinvesting in the business, we don't dividend out all the profit, some of the profits, 65% to 70% of the profits remain within the company.
So to keep achieving a 20% ROE also is a moving number. So I think we will probably want to comment on that once we hit this at anywhere between the 17 and 20, the company will have a very healthy cash flow. And that's something that we haven't been able to achieve after we bought the cable business and have been continuously investing to grow it. So just to put things in perspective, in 2008, '09, the cable business was INR 100 crore business. Last year, we did the net sales of around INR 2,000 crores. And this year, we plan to look at INR 2,600 crores plus. So there's a huge amount of investment which has gone in.
The opportunities continue to remain looking good. So what would you invest then? Your ROE actually does take a little bit of a knocking. But the market is -- according to us, single market on the cable side continues to look interesting. And we have fairly good internal systems for asset allocation. And then based on that, you just seem to turnover the company going up and the ROE going up. So I think for us, my zone is to get to 20%. And beyond that, we'll -- as we come closer to 20%, we'll start brainstorming on taking it further.
Sure. And the second question was on the cable segment. You mentioned that the market is very, very large, INR 60,000 crores. And right now you mentioned that, that will be on the cable. So what would be your aspirations in this overall INR 60,000 crores by -- in the next 5, 6 years?
So I'd just like to correct that, INR 60,000 crores is the domestic market. And then when you start looking at markets like North America and all their manyfold larger and a couple of times the size of the of the Indian market is simply because of the size of the country, which requires to be wired up. So we don't have a market share target as much as continuously wanting to grow.
I think in the cable business, you want to play what Simon Sinek says is the infinite game. So because this is a long runway, you keep on working on new products, new markets, keep investing in it and it'll continue to grow.
And you did mention that probably this is going to be the fastest driver in terms of the growth and probably put also, one of the biggest contribution to your both top line and bottom line.
Ultimately, I believe that in the next 3, 4, 5 years, the cable business will become the largest business. And it's true only because of the size of the addressable market, more domestic and overseas. So we will want to continuously keep on making investments where it makes sense. We -- as I mentioned, we have a good system internally of asset allocation. So the asset allocation doesn't deliver a certain level of return, then we would then hold back that sort of investment. But I think in the next few years, the opportunity seems to be there.
Sure. And just one last thing regarding, you mentioned that you always aspire to become better and we also focus a lot on premiumization and new products. We have always seen that for that, becoming need to invest a lot in terms of R&D. So now that -- once we achieve, say 20% ROE, even for the next leg of journey that we want, your users -- you're hungry for more. Do you think that as a company, we will need to substantially scale up in R&D, invest a lot in technology? And if yes, what are the type of steps you are doing to do something like that?
So we have DSIR-approved R&D facilities in each of the 3 businesses. And we have people who are constantly working on this. We don't capitalize just expense our own because in some of these cases, you don't know when the products will actually hit the market. So I'll just give you an example.
We wanted -- we've developed this medium voltage covered conductors. We've been desperately trying to sell those in the Himalayan region within India. And we -- now some business has started coming up. But we pitched this to the Nepal Electricity Authority and the Asian Development Bank. And they said that this is the #1 problem that's there because as the snow settles on conductors, it just -- the conductor snaps.
So Nepal is now converting 5% of its conductors every year into MVCC. So we've got 3 years in a row, we are supplying that. Of course, it's a competitive global bid. The Chinese, everybody bids on it. The bottom line is what -- that as you keep developing products, you keep showing it to customers. You don't know where finally and which customer will actually end up observing it.
Now today, if you see who does and [ who's in ] the worst shape in terms of power deliveries in the mountains. And the solution is to use the same MVCC. So now I believe that they are in touch with us trying to figure out how much money is required, what allocation. So it's like a moving target to do all these specialized products. The -- we expense the development cost and then we also expense the cost of, actually, the sales. So people traveling, making presentations, pushing all that. So it's all written off in the year in which it has been incurred. It also then -- our competition doesn't know how much money we put into these products basically.
Sure. But will we be able to quantify how much we spend in R&D every year in terms of OpEx? Any number that you can share with us?
We don't want to share that number. It's still increasing year-on-year. And as you can see from the finished product, because by saying that we spent XYZ number, it doesn't mean anything. Our company motto is tomorrow solutions today. Unless the customer buys a solution, all this is an expense. So whatever it takes for us to find the right solution for the customer, we incur it and we expense it.
Sure. But is it increasing...
That is our philosophy.
Fine. Is it increasing much higher than overall company business? You say you're spending x amount of revenue in R&D...
Absolutely. Because as I mentioned, the R&D actually has 2 portions. There is 1 portion, which is actually sometimes the lower portion is to develop the product. The bigger portion is what takes significantly more time is to spec the product into -- because all these electrical companies are regulated.
So finally, no matter who does it, if Mr. [ Adani ] wants to puts something in, he will have to get approval from the Central Electricity Authority to use that format. So it's difficult to put timelines to it, et cetera. So that's why we end up just expensing it, and it's an infinite game. We just keep on working on it.
I'll give you another example so that it puts it in perspective. So the Navy has something called pressure tied cables, which they use. So they started off with a PT10. And today, in 6 years, we are now graduating them to PT72. So that they can withstand 72x the pressure of water, so as some marines get larger and as requirements go up. So this is something which is work in the moment. And then he says I want to now graduate from 10 to 15, 15 to 20. We just get to work and start working with them to figure out how that can be delivered.
The next question is from the line of [ Guneet Singh ] from CCIPL.
I would just like to know what is the -- standing today? What is the peak capacity revenue that you can expect, like, if we are operating at a peak capacity with our current capacity?
So in our oil business, we can increase the lubricant side by -- we are running basically the entire lubricant complex on 2 shifts. We can run a third shift to the same equipment in place.
As far as white oils and all the bulk oils are concerned, we can easily match that sort of a number or more by making debottlenecking investments. On the conductor side, as Chaitanya mentioned here, we could probably -- and of course, it depends very largely on the mix of product.
But we have headroom to go from 130 to 145, maybe 150 depending on the product mix that is available. And again, over here, our whole focus has been more not just on -- we would rather drop some conventional conductor business and concentrate on the premium product.
So in that sense, you can still increase your top line and your contribution margins, et cetera without really increasing capacity too much. So if you say, basically, you've got a room of around 10%, 15%, 20% in physical volume, but in terms of mix of product, et cetera, it could have a larger impact on the top line.
And in our cable business, basically, the power cable and the elastomeric cable is running at -- the high tension cables are running at around 40%, 50% capacity. The LV cables, which are going into a lot of U.S. infrastructure, solar, et cetera, et cetera, that's running right now at 100%. And we have some expansions that are going in place.
The elastomeric mix of cables, when you put the e-beam in there, basically, that will increase by 33% compared to now because that's the capacity increase that 1 more machine will bring it for the cable side. The optical fiber, we have at least 50% capacity available with us, and that is just driven by market demand.
Right. Sir, can you give at least any conservative guidance for the year FY '23?
There are a lot of moving parts there. But in short, we are looking at a 25% kind of increase over what we had in the previous year. That's a sort of level of -- that's something that we think is possibly achievable.
All right. My last question is can you just throw some light on the INR 3,000 crores plus other [indiscernible].
Sorry, which one?
We have around INR 3,000 crores plus your other liability items in the balance sheet. So can you throw some light on that?
So that is part of trade tables, which line item you are talking of? Which particular line item?
I don't have it open in front of me right now, but it's supposed to be Page 22.
Trade tables, it's part trade table. So it's a specific number that is actually part of the trade table. Maybe you can let me know separately when we have -- from which source you are taking, and then we can connect on that.
Sir, do we move on to the next question?
Yes.
We have the next question from the line of [ Ritika Gupta ], an individual investor.
I just had 1 question. Is there any update on the MOU that we signed with the Saudi Aramco base oil company?
So there is a certain lay-down process, which exists in Saudi Arabia. So unless you first -- so it's at a very early stage. But the reason why Saudi Aramco and its loop subsidiary are talking to us is that we have the largest market share of transformer oil in Saudi Arabia, and it's part of their localization program. So it's a fairly long run out, very formal process. So you sign an MOU, then only can -- will they entertain you to sit and meet and show you land parcels and stuff like that. So it's a process that'll take at least over 1 year before it can be closed.
But do we have any, like, revenue targets that we expect in case this [ structified ]?
So today, we do business in Saudi. During this last 4, 5 years, Saudi Arabian business actually was very badly affected. So from its peak, it was down almost 60% because of infrastructure not going in. With the current price of crude and with the current and the same ruler there, who is pushing these programs, they have some very ambitious programs in terms of setting up manufacturing in Saudi Arabia, which is hydrocarbon or electricity-based.
And so depending on how that goes, you will see. The beauty of our transformer oil and facility is that it's not very capital intensive. So our strategy would be to secure and if -- once the MOU is done, then they'll go to the next step of allocating land and providing you on-tap utilities, et cetera. It will be right in the vicinity of the refinery.
A very advantageous situation to have if the business actually starts going up. Also, Saudi Arabia has come up with a marking system that the local content ends up giving you a weightage in terms of the competitiveness of your price. So if you're 100% import, then you will have a penalty of almost 15%. So it's like a very structured system to enable companies to come and start manufacturing in Saudi Arabia.
So it's -- I think it's a strategically interesting step. It will take some time, and it's not going to skew the transformer oil numbers in a very big way. But then when you get aligned to the largest oil company in the world, then I think there are benefits that come out of it.
We will take the last question from the line of [indiscernible] from [ HT Investments LP ].
First of all, congratulations to the management for a good set of numbers. Sir, this is regarding exports. We see, if you can -- in the past, from an aspiration standpoint, are we focusing our exports more than to the center to the management in 1?
So I think to sort of answer that question, we -- our focus is actually not just in terms of what percentage of our revenue should come from exports. We wanted to be something in the range of between 40% and 50%.
Given the fact that many, many markets have opened up with this China Plus One, et cetera. So if you wind back in time 5 years ago, there was cable is really worth talking about going to the U.S. market or going to the Australian market. And the European market was completely shut to Indian players. Now they are coming in here and a whole lot of approvals and discussions are happening, inspections after -- in the last 3, 4 months, you had people visiting who have not been able to visit in the last few years, flying in from overseas, having meetings in the factory, et cetera.
So I think if you look at that, the quality of the companies that we -- or the countries we want to focus on, those are now open for doing business. And in fact, I mentioned earlier, I think in the last or the last earnings call saying all these countries are now open to doing business with India, which was not actually something that was that easily available.
So -- and if you see the destinations that our product is going, it's largely going to the United States, Europe and Australia, which are fairly advanced and sophisticated markets.
We don't have a percentage, but I think we will strike the right balance between domestic and export. On power cables, we get better realization from the U.S. market than from the domestic market, especially on the light, on the LV cables; light voltage cables. So we are really looking at where you get the best netback, where customers are laying an emphasis on quality. And accordingly, we are targeting the different markets.
I'll tell you one thing that you will see over the next few years, that the export percentage of the overall pie will remain strong and it'll be in this range or maybe slightly higher. Does that answer the question?
It does.
I would now like to hand it over back to the management for closing comments.
Thank you very much for taking time out from your busy schedules and joining us in the quarterly update call today. We wish everyone the very best of health and look forward to continued participation and interaction in future quarterly update sessions. Thank you very much.
Thank you. Goodbye.
On behalf of Apar Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.