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Earnings Call Analysis
Q2-2024 Analysis
Apar Industries Ltd
The company has delivered a commendable performance in the second quarter of FY'24, with consolidated revenue up by a significant 21% year-on-year, reaching INR 3,926 crores. This growth has been fueled by volume increases across all three divisions, a robust export growth of 26.3% year-on-year, amounting to 49% of the total revenue, up from 47% in the previous year. This impressive top-line growth is complemented by substantial margin improvement, with EBITDA surging 58% year-on-year to INR 374 crores, and EBITDA margin at 9.5%. Profit after tax also leaped by 69%, reaching INR 174 crores, and the margin for profit after tax improved to 4.4% from 3.2% compared to the same quarter of the previous year.
The company stays committed to its environmental, social, and governance (ESG) endeavors, having published a detailed third ESG report. This report underscores significant progress over the previous years and reflects the company's ongoing dedication to ESG principles, which remains a central element of its long-term strategic journey.
The previously observed correction in freight rates has largely settled, and rates have maintained stability throughout the quarter. This stability assists the company in its pricing strategy, mitigating the impact of potential freight cost fluctuations on its financial performance.
The company has witnessed improvement in EBITDA percentage within its Conductor division, primarily due to the ongoing premiumization of its products over the past 1.5 to 2 years, combined with increased exports. Additionally, successful project execution, particularly in high-performance conductors like OPGW, has contributed to the division's success.
In the Cables sector, the company continues to experience strong market acceptance and growth, with a doubling of distributor presence and a 70% increase in retailer presence over the last year. The expansion of the company's footprint and successful market demonstrations have doubled its market activities compared to the previous financial year, suggesting a highly proactive approach to growth in this segment.
The company has invested approximately INR 150 crores in capital expenditure up to September, focusing on the Cables and Conductor divisions. With an identified year-end CapEx goal of INR 350 crores to INR 400 crores, the company is on track to meet this target. This investment is expected to enhance production capabilities for new tenders and customer requirements, likely reaching full capacity utilization in the following financial year.
Export markets have shown a slight deceleration in the short-term order inflow as a result of distributor destocking, particularly in the U.S. and European markets. The company's export growth percentage has dipped as these markets adjust their inventory levels following the restoration of supply chains disrupted by the pandemic. This readjustment has started in Q2, with the expectation of normalizing once the excess stocks are cleared.
Reconductoring remains a growing opportunity domestically and internationally due to increasing electricity consumption and limitations on constructing new transmission lines. The company is positioned well to supply high-capacity conductors required for these reconductoring projects, leveraging its presence in supply and EPC domestically, and focusing on supply in international markets.
The Elastomeric Cables division has seen a remarkable growth of 40% in the first half of the financial year, underscoring the company's ability to cater to niche markets and drive revenue through specialized product offerings.
The company's management has successfully navigated commodity price volatility and currency hedging intricacies. Quarter-on-quarter, although the realization per unit on conductors dropped, the EBITDA per unit increased. This can be attributed to hedging activities and strategic purchasing that are not directly tied to quarterly metal prices. Instead, hedging aligns with client requirements, demonstrating astute financial disciplines critical for maintaining stable margins despite market fluctuations.
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Ladies and gentlemen, good day, and welcome to APAR Industries Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over 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 '24 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.
Yes. Thank you, Ambesh. Good afternoon, everyone, and welcome to the APAR Industries Q2 and First Half FY '24 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 3 major segments performance.
During the second quarter of FY'24, the [ last quarter ], the consolidated revenue came in at INR 3,926 crores, which is up 21% year-on-year. We witnessed volume growth across all 3 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 crores at an EBITDA margin of 9.5%. Profit after tax came in at INR 174 crores, which is 69% higher than the previous years. 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 Cable 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 product and a better product mix besides the growth that has taken place.
Looking at each individual business, the Conductor business revenue in Q2 FY '24 has grown by 35% year-on-year to reach INR 1,943 crores, 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 revenues. The EBITDA per metric ton post ForEx adjustment is at INR 39,007 per metric ton.
One of the highlights that we achieved during this period has been that we have improved our reconducting 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. Reconducting is a very critical part of the whole premiumization efforts of the Conductor business. And these important developments should hold stead 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. Our volumes are up 51% year-on-year. EBITDA per metric ton for the first half period came in at INR 38,885 per metric ton, which is 31% higher than the same period in the previous year. Our total order book for Conductor stands today at INR 5,977 crores.
Coming to the Oil division, Q2 FY '24 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 revenues. The EBITDA post ForEx adjustments came in at INR 4,562 per kL.
One of the issues that we faced in the Oil division is that our major base oil supplier supplying the refinery suffered some issues in terms of the 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 us. ] 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 refinery.
During the half year ended, the Oil revenue has grown by 7% year-on-year to INR 2,400 crores. The volume has grown by 16% compared to the previous period. EBITDA post open period ForEx, is at INR 5,275 per kL. The additivated lubricant revenue came in at INR 423 crores, with a volume of 34,918 kiloliters.
Coming to our Cables business, the Cables business revenue has grown 16% year-on-year in the second quarter of FY '24 to reach INR 882 crores. Our export mix is 51% in Q2. The EBITDA post ForEx came in at INR 98 crores, which is about 11.1% of revenues, 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. And there has been destocking of excess inventory that we 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 '24, Cables 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 year.
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 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.
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, protections, forecast pertaining to its business and financial performance or any questions related to proposed funding requirements.
[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.
Congratulations on an 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 throw some light here.
The inquiry flow, Mohit, is quite strong both in the transmission side as well as from the Cable side. There are 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 electrification, the cable requirements also have been quite strong.
Is it possible to share the order book breakup for the Conductors between domestic and export?
Yes. So of the order book that we have for the Conductor business, about INR 5,900 crores, about 51% would be exports and the rest would be domestic.
Understood, sir. My second question is, anything on reconductoring volumes in your total mix for the H1, if possible? And do you expect that mix to change the domestic market in terms of opportunity, going forward?
Yes. So our -- we talk about premium products category, and the premium products in the Conductor division is in the range of 40 to 45 percentage. Quarter 2 also has been in that range. And a similar percentage is also there in the order book that is pending as of 30th September.
The next question is from the line of [ Anika Mittal ] from [ Invest ] Analytics Advisory LLP.
Congrats on 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 got should have entered at a lower rate, right? So should that mean we are going to witness fall in EBITDA per term, going forward? Like last year, the same trend -- outer tailwind for us. So in a similar way, will it be a headwind? Or how we should look at it?
So on freight rates, the freight rate correction has already happened. We spoke about it quite extensively in the last Board call that the correction of freight rate has started from the beginning of our financial year, from about April or -- March, April onwards. So fundamentally, after that, freight rate has been in a certain range. So we don't see -- freight is just factored in today as we price the product.
In fact, in many cases, customers have shifted to an FOB purchase because they were seeing that freight rates were kind of correcting and [ falling ]. So there are customers who have actually shifted from DDP to an FOB business, so they have more control on the freight. So what we are looking at today is basically just quoting freight on a spot basis.
No, actually, I was looking towards the [ BDIY ] index. So that could index could [ conversely ] increase in September month. So that's why I was asking the question.
Sorry, I didn't get your question. Can you repeat that again, please?
I think I was looking at a [ BDIY ] index, 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, if freight prices are rising, so how we will do?
Okay. I get your question. Just want to clarify that basically freight industries, they don't really play such a huge role, and there's no correlation of that. We don't take it into account in any price variation or any such formula. All I can say is that the freight rates right now are quite stable. They remain 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 specialty chemicals and things like that. So the bulk of our business, it is containerized cargo movement. Especially on the export side, the freight rate is quite flat.
Understood, understood. And sir, like realization EBITDA per tonne, talking about EBITDA per tonne on conductor side, so this quarter witnessed a rise Q-on-Q basis. So what is it is due to?
So as we have been already mentioning earlier, the EBITDA percentage in Conductor, the reason for that is largely because of the premiumization of the products that has been happening over the last 1.5 to 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 [ HPLs ] as well as OPGW. So -- and with some of the items that I mentioned, that we've been working on productivity of faster execution of projects, last quarter saw a good pickup in terms of productivity, especially in more challenging requirements. We don't want to have a simple plain terrain. So our execution in Q2 was better than what had originally been envisaged.
Okay. And sir, is our guidance intact across 3 segments, like what you mentioned 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 point.
The next question is from the line of Charanjit Singh from DSP Mutual Funds.
Congratulations on a great set of numbers. Sir, my first question is regarding exports. So in the previous call, your commentary on exports was really cautious. But despite that, we have delivered a very strong growth in the exports in both Conductors as well as Cables segment. If you can touch upon on the ground how the export markets are shaping up and the various projects which you would see in the international markets, particularly U.S. markets, on the renewable side. So what are the key markets which we are seeing, and how the traction is going on in the ground? That's on the export side.
So on the export front, in the last earnings call, we were -- we mentioned that since the supply chains has eased, deinventorization is taking place, so that effect has very much been in place. What you see are the shipments which had been scheduled and already went through.
Fresh order intake, which is coming in through the quarter, has been a bit slower, especially from distributors, people who stock and hold stock in the warehouse and then 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 -- has now been fully restored. So there is -- as we've mentioned earlier also, that there is a period where there will be a slowdown in terms of execution for the U.S. and Europe market.
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 therefore, a longer-dated delivery. So fundamentally, once the deinventorization process is over, then it should get into a normal cycle. So that's what we mentioned earlier, and the feet on the ground pretty much, as we speak today, seems to be in that same direction.
So sir, if we have to look at the kind of grid ramp-up which is happening in U.S. and the European markets and take maybe a little longer-term view rather than a quarterly view on the export markets, then how you would see that market from demand/supply perspective and overall growth perspective?
So as I mentioned earlier also in the previous quarter's call, we -- the fundamental market scenario has not changed. So the long-term execution and the shift 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 additions, all those parameters remain pretty much intact.
So our sense is that whatever the deinventorization 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 -- I know the factors which I mentioned earlier, it's still whole good, even today, where 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 is placed, is being executed within a relatively short cycle, and that cycle is quite a predictable cycle. So that's why this whole deinventorization is taking place. But I think these two things are uncoupled: the deinventorization in the short term which is happening and the demand which is fundamentally there, are to decouple -- we should decouple those two things. They're 2 two effects. So I hope that answers your question.
Yes, that's very helpful. So just on the Cables segment. So Cables segment, we saw revenue growth of 16% during the quarter, on a Y-o-Y basis. So if you can touch upon, could this growth have been higher? Were there any factors which would have impacted our growth in the Cables and wires segment? And 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? Yes, that's my last question, sir.
So the same effect, Charanjit, as we spoke about, because of deinvetorizing that is being followed by the Western countries, we have seen that impact in Q2. Otherwise, we could see the quarter 1 growth rate was much higher than that in quarter 2. So we are surely seeing that impact, what we just spoke about.
On the [ live wire ] business, that is progressing as planned, and we are increasing the number of [indiscernible] needs, and the number of retail touch points is also there. And we already had -- in terms of 17 states, we are present across India as of now. So that is going up per our plan that we [ envisioned ].
So as Ramesh has mentioned, the rollout continues to be reasonably strong. So as we keep expanding our footprint, 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 performance levels of wire 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 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 1-year period. Our retailer presence also has increased by almost 70%. The states that we are active in today, as Ramesh says, from 13 states, we are now active in 18. 17, say 18 [indiscernible] in the month of September.
We also focus quite heavily on demonstrations. So there are 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 needs, the same thing with [indiscernible] shop. 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 the demand-generation activities have been growing on quite strongly. And as a consequence, even the sales is also showing a similar sort of growth.
The next question is from the line of Riya from Aequitas Investments.
My first question is 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 spend til September is about INR 150 crores, and [ our cost ] is there into the Cable division and the Conductor division there. And we identified the CapEx of about INR 350 crores, INR 400 crores by the end of the year, and we'll be very close to that number as we go into the second half.
Okay. And any plans for the next year's -- CapEx plan for next year?
While this still gives us capacity for the next year and as we get into the later years, we will inform more about the guidance that -- on CapEx fund and other areas.
Okay. And this CapEx that we had announced last year, we had plans of commissioning and ramping up this year. So I just wanted to know how that is progressing, especially on the Cable front.
It's pretty much on schedule.
Okay. So have you commissioned any part of it? .
Yes. So there are lines which have come in, and the lines have been put together and have been commissioned.
Okay. Sir, typically, what duration can we expect for full ramp-up of the capacities that will be coming this year?
So as the capacity -- so you see, in FY '25, you will see the full, to a large extent, loading of these [ plants ]. So they are all getting commissioned through this financial year. And our expectation is that by the end of the fourth quarter, as we've mentioned earlier also, that this round of CapEx will get over, which will then allow for running in the next year -- almost 1.5 years. The ratio is about 10x, 10 to 12x, so INR 400 crores CapEx can get you INR 4,000 crores to INR 5,000 crores of revenue on [ each ] level.
Okay. And we expect, say, next year to be full ramp-up of this INR 400-odd crores?
Yes. I mean, our expectation is that all this has been put together, based on what we've seen in terms of new tenders and customer requirements, 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 second question is more on the opportunity side. So two aspects, if you could elaborate upon the opportunity size that we have and whether we'll benefit from that in a meaningful way. One is the BharatNet part in India. And the other is I think what I understand is there a $3.5 billion investment announced by U.S. for reconductoring their grid and adding -- 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 I'm allowed to answer, okay, with these restrictions that are there. So the -- we've spoken about the BharatNet opportunity in the last call that we had. The BharatNet opportunity is -- it's not yet finalized and in its final form announced for tendering, but it's at a very advanced stage.
And APAR would be in a position to participate in the BharatNet because we qualify with all the EPC capability that we have. We have the ability to participate in that tender, which is there. And 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 -- we have to run the network for an X period of time.
So it's a supply and running the network. And there will also be restrictions on the number of bids than any single company can make. So this would really open up opportunities to people who have the capability and the qualification to be [ on it ].
So we would be in position to taking up orders for end-to-end solution and in running up the network as well?
Yes. We have every intention of bidding against at least one package. So all the final form of BharatNet is not out. There are -- I think it's at -- just at a prefinalization and tendering stage. But as we mentioned earlier in some of our earnings calls and on the Investor Day meeting that we have every intention of participating.
Okay. Understood. And on the...
Unless it's confirmed, the -- we have approvals and we have been in dialogue with a number of utilities in the United States. We also have an active salesforce 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, even in last year's numbers, after India, our second-largest market, actually is the United States, contributed to 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 has to be a reconductoring opportunity there, would it be a premium product like OPGW and HEC? Or would it be a conventional product?
So there is -- 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 -- 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 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 location, 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 higher HTLS component for you to really make it meaningful.
Okay. And on the Oil segment, So we've seen this last couple of months being very volatile in terms of crude oil prices, which I understand impacts our margins and also that there were supply chain issues that was mentioned in the presentation. Sir, I just wanted to understand how have things been so far in Q3?
So as I said there's some constraints in terms of being able to talk about future, but all I -- as I mentioned in our commentary, we had some issues from our largest refinery and supply source, with whom we've been working with for over 20-plus 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 to make up for -- 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, we've 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 my understanding..
And as a consequence, 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. And just last question on a couple of data points. What would be percentage for export orders in the Conductor, new orders of about INR 2,500 crores this quarter? And what would be the execution period for the order book for both Cables and Conductor?
Just hold on. Order inflow, the export part of the new order inflow for Q2 will be about 43 percentage. And typically, the execution time is about 6 to 7 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 Cable?
Cable, our order book stands about INR 1,000 crores. And Cables are a much shorter execution period. As of now, we have about -- just about less than 10 percentage of the Cable order book that for which deliveries will happen in the next year. So all will be in the short term.
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 very short cycle. The export portion of it has some deliveries now, and a larger portion of these deliveries are in the -- are in Q4, given that the inventorization thing is happening right now.
Okay, okay. And this new order book for -- the new orders for Conductor you mentioned where the export is 42%, wasn't it the premium product percentage -- share of premium products? Is that available?
Yes. Just hold on. About -- premium products will be in the range of 40% to 42%.
The next question is from the line of Amit Anwani from Prabhudas Lilladher Private Limited.
My first question is on the deinventorization which you are mentioning for exports, which you did mention in the last quarter as well. Just wanted to understand, you're saying, if my understanding is right, distribution network will be seeing some inventory adjustment. How much would be that percentage, distribution and exports and domestic market, for you in Conductors?
You mean the Conductors going into the distribution versus transmission, is that...
Yes, sir.
So our -- we don't do much in terms of conductors that go into the distribution side. But there, 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. And -- so that is the play which we have on the distribution side for [ Cable ].
Yes. Actually -- my question actually was, sir, on the -- you said that our distribution channel has increased and there would be...
That is from the building wires. So yes, so that is from the building wire standpoint, where you have distributors as in people who go shop to shop and distribute through all the retail outlets and things. .
So that is why we are seeing inventory adjustment, right?
No, that we have not seen any inventory adjustment here. What we are talking about is -- okay, let me clarify it. What I meant is that we have -- there are several mega distributors in the United States who bring products in, stock it and then sell it. So those distributors who are carrying a very high level of inventory that ran to 8, 9, 10 months also of inventory, have now started deinventorizing and destocking the inventory levels that they are [ working ]. So this is affecting or has affected the short-term shipments that are happening to the United States.
So how much that percentage would be of the revenue right now? Any color on...
Our total sales -- export sales have been about 52% 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 EPC contractors for the large jobs. So when you have big reconducturing jobs, then you would have -- that's why we have added people on the ground in the United States.
So reconductoring work will largely happen with utilities and EPC people. And most of the transmission line work also happens to the big utilities through EPC and direct. The smaller utilities actually buy through the distribution channel. The [ more ] channel remain active, but it depends on where the dollars are being spent. 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.
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 depend on the export market and we'll also see a lot of reconductoring growth apart from the [ conventional ] conductor, which saw a robust growth in exports market? If you would like to just clarify on that.
Yes. So the reconductoring as a demand is happening both in India and outside India. APAR has been 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 turnkey...
The situation 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, electricity consumption everywhere is increasing. So whenever there is a write-off issue and we are 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's our 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. As well as overseas, we are doing only supply.
Right. Sir, within Cables, how was the contribution and growth of elastomeric cables and E-beam cables for H1?
For elastomeric cable, has gone up by about 40 percentage in H1.
Okay. Sure, sir. And sir, this CapEx which you suggested of INR 350 crores by the end of this year, this would lead to capacity increase by how much percentage over the base of last year, if you'd like to highlight it?
Our asset turnover is typically in the range of 10 to 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 it disclosed going significantly up on a sequential basis. And I can see Oil business on the breakup provided on the PPT, roughly INR 45 crores towards Oil business, which appears high. So any understanding you I 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 a 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?
Yes. So sequentially, the interest cost is high because 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 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 2. And the increase in exchange also has an impact on how the interest cost will go up.
And even so forth, interest rate itself has increased. So wherever you have had opened letters of credit of 180 days which were opened earlier, it was -- the interest rate is frozen at the time we open a letter of credit because it's fully financed.
So as the population or the percentage of the LCs being opened on more current interest rates, the rates are much higher than before, given the high [indiscernible]. So whatever Ramesh has said, plus this impact is what is resulting in the higher interest cost. It will taper off because I think -- I mean, depending on the rate hike whatever more happens, is to taper off at whatever level of so far is today on the import side and on the domestic side, also whatever RBI's guidances, et cetera, I think it seems like it's flattening out. So on that basis, you can extrapolate what the interest cost would look like.
And 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 see maintained even in this half of the year.
The next question is from the line of Dhanan Bagrodia from ASK.
Congratulations on a great set of great numbers again. I know you said you won't speak to -- hello?
Yes, yes. We can hear you. .
I know you said you won't speak much about guidance, but just a little bit on realization and [indiscernible] per tonne, is that the how H1 is -- would it be similar base? Or would there be most scope for a little more reduction in those?
So it is -- now, as we said, we can't talk about guidance, so we can't afford realization also for this time.
Okay. And CapEx, what we see is now -- what this CapEx will be for the next 2 years? Would we still [ look ] this happen?
Yes. So we already spent about INR 150 crores in this year.
So 400 for this year, and would it be next year?
For the next year, we'll share the information as we get into the close of the year.
The next question is from the line of Himanshu Upadhyay from o3 PMS.
Congrats on good set of numbers. I had a question on this Oil itself or the base oil, what you 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?
So Himanshu, here, fundamentally the order inflow was strong, primarily led by the growth that we saw on transformer oils. And to answer the second part of your question, which is the difference between spot and -- 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 corrects upward, whereas the contract is based on formula pricing, et cetera.
So 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 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 have seen is the crude price has moved up in the last 3, 4 months. Our pricing is formula-based with a lag, means 1 month lag. Now -- so what you will be getting now will be the lower price point or it would be from what the current price is? Whatever volumes you missed...
All formulas are backward-looking. So as a consequence, when prices are rising -- formula pricing is always beneficial because it's backward looking. When prices are falling, then the reverse trend takes place.
So my question is, the volume what we missed from July onwards and, let's say, for those 2 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 when...
Pricing goes based on every month.
Okay. And one more thing.
Not benefiting to the effect that 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 we tried to cover some of that, yes.
Okay. And I had a question on transformer side. See, what we are understanding globally that there is a shortage of transformers. And many Chinese companies are gaining market share, like [ Cheng Seng ], Sieyuan 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 we seeing opportunities come up for even MNC players -- MNC customers on the transformer side to export outside India? And will it to 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 during our Investor Day presentation, we had a chart -- in fact, you'll see it in our investor presentation, it gives an idea in terms of how Cables, Conductors and transformers/ transformer oil are used along the entire supply chain. So what's happening is that renewable energy has a more higher intensity of substations. 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 completely -- 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 antidumping duties in place. So I wouldn'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 the local refineries and their ability to service project sites. So our focus on export in transformers oil is fundamentally being ex the United States.
Coming to your question on are we seeing export orders coming on the Indian transformer manufacturers who are part of the MNC system, we have been seeing export, but the domestic market in turn is very strong. So there is a lot of normal demand in India itself, and 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 manufacturer. So I think most of them are quite focused on [ delivering ] into the Indian market at this stage.
Taking the presentation, what we see on the Conductor side, the Q2, the volume growth is much ahead of the revenue. 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 -- because you could have a metal that booked 1 year ago when the metal price...
That is the whole reason that I wanted to understand that...
Because it's such a dynamic picture where it will keep on changing, depending on -- that's the reason why we go by EBITDA per metric ton as the metric because then, aluminum was at a relatively lower price a year ago or 2 years lower. People have taken advantage of even COVID times and booked 2 years in advance, 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 the sort of realization and margins that the company can have. So otherwise, the correlation is not -- it's very difficult to track and explain.
Okay. And one last thing. See, you want to risk capital of nearly INR 1,000 crores and we paid a dividend of [ INR 116 ] 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 [ fundraising ]. So we will not be -- we'll defer that question at this stage.
But I think the document, what has been sent on the postal is very vague. I think some more clarity would have been beneficial for us to understand that.
You may want to take it out to the regulators, to the statutory...
The next question is from the line of Abhijit from Yes Securities.
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 crores, and you mentioned that 25% of that was from U.S., so around INR 1,500 crores-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 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 more exporters like us from different countries? So can you comment on [ country landscape ] and our strategy going forward in terms of increasing our market share in the economy?
Okay. So I have limitations in terms of what I can specifically answer. I'll just stick to what I had mentioned earlier as well as in all our previous communications, that all of these countries have signed up to this decarbonization through 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, which are supporting what sort of growth is expected over the next 15, 20, 25 years 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 strategic market for us and 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 answer anything specifically on forecast in the future, et cetera, as such. But as the execution plans happen in the U.S., based on whatever announcement these governments have made and the targets that we have taken, it's a natural [ corollary ] that the demand will sort of follow.
Right, sir. Sir, in terms of demand, I understand that the demand scenario is pretty strong, going forward, in the long run, in the next 10 to 20 years. But in terms of supply, in terms of competition out there in the U.S, so I mean how favorably are we placed to capture the demand? That is second question that I had vis-a-vis the competition that we have.
Sorry, Abhijit, 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? Can you comment on the...
I understand. But unfortunately, Abhijit, I can't answer that, given the fact that it gets into the area of future and forecast, et cetera. So 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% of APAR's total revenue in FY '23, 1-6 percent of our total revenue. So it's a very significant market from that standpoint.
The next question is from the line of Sakshi Chhabra from Swan Investments.
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, see, this is pertaining specifically to a large importer distributors in the United States and in Europe. So because the supply chains were broken during COVID and it was taking very long to get containers, ship them, clear them and deliver them to client sites, all large importer 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 phenomena.
So then what would be the reason that on a Q-o-Q basis, there has been a dip in the domestic side of our Cables business?
It depends on the orders and execution. So we typically don't...
Together on a quarterly basis. Yes, but there is a net increase that has happened. If you look at H1 -- if you look at Q2 on the domestic side, the Q2 on domestic side is higher than the same period previously. So there was growth in the domestic side of the business. And in fact, the domestic demand for Cables has continued to remain -- it was always strong, and it continue to remain strong.
APAR has chosen to focus 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 '23, domestic demand in India grew by 20-plus percent compared to the previous period in wires and cables category.
Yes. Okay.But there's no specific reason for the sequential dip that would have been -- that you're seeing?
It has grown only. Quarter 2 has grown as compared to quarter 1. The growth rates may have slightly come down. But overall, there is growth in quarter 2 as compared to quarter 1. Number is not -- there is actually a year-on-year growth as well as a sequential growth in the Cable, domestic side.
So the purely because of the exports?
Yes. The export shipments in Q2 were lower -- the growth percentage was lower than previous periods as the destocking, as that phenomena has started. Fundamentally, when you order to reduce inventory from holding 8 to 10 months down to the normal 2 to 3 months, you'll have about 6 months of excess stock which has to reduce. So that's the phenomenon, which is being basically seen.
And can you also explain the disconnect that is there in the Conductor side between the realization per unit and the EBITDA per unit? So like we see that on a quarter-on-quarter basis, the realization has come down, but the EBITDA per unit has gone up.
So the realization is very different thing, it depends on the price of your aluminum or copper. So that is why typically, it's good to [ cite to see ] only the EBITDA per metric ton. Because the prices of the metals fluctuate by now...
So you see, the purchase is not done for the quarter, is not -- has no correlation with the prices that exist in that quarter. It depends upon hedging and 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 keeping a track on a per unit tonne or per tonne realization is not easy to track, which earlier I explained that the company -- if the customer asks us to hedge it for 6 months in advance, then we would hedge it. Now in the 6 months, this aluminum goes up, then that's precise reason the client wanted to hedge the product and keep the pricing on it.
So it's difficult to see the realization per tonne. And that's the reason why we focus on the EBITDA per tonne as well as what is the percentage of premium products as well. That will give you an idea of the mix, which will drive the profitability.
As there are no further questions, I would now like to hand over the conference to Mr. Kushal Desai for closing comments.
Yes. Thank you, everyone, for joining our call for this quarter. And I'd also like to wish everybody season's greetings and a very happy and prosperous Diwali day and New Year, which is in pending in the next few weeks. So thank you very much for joining.
Thank you. On behalf of APAR Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.