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Ladies and gentlemen, good afternoon, and welcome to Apar Industries Limited Q4 and FY '22 Earnings Conference Call, hosted by Four-S Services. [Operator Instructions] Please note that this conference is being recorded.
At this time I would now like to hand the conference over to Mr. Nitesh Kumar of Four-S Services. Thank you, and over to you, sir.
Thank you. Good day, everyone, and welcome to the Apar Industries' Q4 and FY '20 Earnings Conference Call. Today on the conference, we have with us Mr. Kushal Desai, Chairman and Managing Director; Mr. Chaitanya Desai, Managing Director; and Mr. Ramesh Iyer, Chief Financial Officer of Apar Industries.
I would now like to hand over the call to Mr. Chaitanya Desai for his opening remarks. Over to you, sir.
Thank you. Good afternoon, everyone, and a very warm welcome to the Q4 and FY '22 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.
I'm happy to announce a good set of numbers for Q4 FY '22 in what has been a very challenging environment on the commodity inflation, freight and logistics front and in this geopolitical environment. All 3 business segments contributed to this performance. For Q4 FY '22, consolidated revenue came in at INR 3,018 crores, up 58% year-on-year driven by commodity price increases and expansion in newer geographies. Exports revenue was up 67% year-on-year. Contribution was at 40% versus 38% in Q4 of FY '21. EBITDA was up 70% year-on-year to INR 181 crores, with an EBITDA margin of 6%. PAT came in at INR 83 crores, up 73% year-on-year with a 2.7% margin versus 2.5% in Q4 of FY '21.
Consolidated revenue for FY '22 came in at a record INR 9,346 crores, up 46% year-on-year, driven by expansion in newer international markets, and of course, supported by higher commodity prices. Export revenues were up 35% year-on-year, with contribution at 38% of overall sales versus 41% in FY '21.
The oil business recorded all-time high volumes at 4,61,489 kL in FY '22, up 16% year-on-year. FY '22 EBITDA grew 36% year-on-year to INR 574 crores, with steady margin at 6.1%. PAT was up 60% year-on-year to reach INR 257 crores, with 2.7% margin versus 2.5% in FY '21. It is noteworthy to mention that in spite of the sharp increase in commodity prices and also the cost of funds, the profitability improved, which is fundamentally attributable to a better product mix across all 3 business segments.
I will now cover a few industry highlights. Outstanding dues of DISCOM rose 11.8% year-on-year to INR 1,17,390 crores as of March 2022. 14,835 circuit kilometers of transmission lines were added in FY '22, down 11% year-on-year, while substation transformation capacity addition grew 37% year-on-year to 78,982 MVA. With the focus upon [indiscernible], the highest ever CapEx has been planned by the Indian Railways for FY '23 at INR 2.45 trillion, up 14% year-on-year. Under the Atmanirbhar initiative, railways will bring 2,000 kilometers of rail network under coverage, indigenously developed world-class technology for safety and capacity augmentation. 400 new-gen runway RF trains will be developed in the next 3 years, along with 100 [indiscernible] cargo terminals for multimodal logistics facilities.
The current geopolitical environment has forced India to further expand its defense capabilities. Budget FY '22 has allocated INR 5.3 trillion, up 10% year-on-year, with a 68% year Mark for procurement from the indigenous company. For the automotive industry, higher inventory levels, lower replacement demand and negative retail segments due to higher retail prices are expected to hamper the demand of automotive in the first half of FY '23.
I would now like to cover segmental highlights. Conductors revenue in Q4 of FY '22 grew 80% year-on-year to reach INR 1,502 crore, with 9% year-on-year growth in volumes. Exports grew 72% year-on-year, contributing 44% to revenues versus 49% in Q4 of FY '21. The higher value-added products contribution increased to 51% from 36% in Q4 of FY '21. The EBITDA per metric ton post adjustment was at INR 17,599. New order inflow came in at INR 1,095 crore, up 328% year-on-year. FY '22, conductor revenues was INR 4,200 crores, up 44% year-on-year with increased commodity prices.
Exports contribution to revenues was at 38% versus 52% in FY '21. Higher value-added products contribution increased to 49% from 33% in FY '21, with high-efficiency conductor contribution at 23% and copper conductors for railways at 20%. EBITDA per metric ton post ForEx adjustment came in at INR 17,095. New order inflow was at 123% year-on-year at INR 5,409 crores. The order book remains healthy at INR 3,079 crores, with 53% share from higher value-added products. Exports constitute 56% of the order book.
In Q4 FY '22, oil revenues were INR 928 crores, up 29% year-on-year, with a 13% increase in volumes. Exports contribution increased to 39% versus 35% in Q4 FY '21. Lubricants revenue was INR 211 crores, up 7% year-on-year, driven by strong volume growth in industrial oil business. The EBITDA per kL post adjustment came in at INR 5,979. Oil revenues in FY '22 was INR 3,560 crores, up 51% year-on-year, with 16% volume growth as the business recorded all-time high volumes at 4,61,589 kL. Exports contribution increased to 44% versus 41% in FY '21.
Hamriyah's plant capacity utilization was up 104% from 79% in FY '21. White oil sales volume was up 16% year-on-year. Transformer oil volumes was up 10% year-on-year, with the remaining impacted due to lower demand and financial health of utilities and lower government spending. Lubricants revenue was INR 780 crores, up 28% year-on-year. Industrial oil volumes were also up at 20% year-on-year to all-time high, but automotive oil volumes were down 7% year-on-year due to reduced tractor volumes and overall sluggishness in retail segment.
EBITDA per kL post ForEx adjustment came in at INR 6,347, above the target threshold level of INR 5,000. The recent impact of Russian-Ukraine conflict has resulted in a disproportionate increase in refined product prices, including base oil, and this may impact the volumes in FY '23 as customers struggle to accept significantly higher prices. The focus would remain on unit profitability versus volume sales. The ticket size of transactions will also limit the credit that can be offered to clients.
In Q4 FY '22, Cable revenues reached INR 682 crores, up 54% year-on-year, with strong growth across all subsegments except optical fiber cable sales, which were impacted by muted telco's business. XLPE cables revenue was up 52% year-on-year and elastomeric cable revenue was up 74% year-on-year. Sales in railways, defense and wind sector, which were all affected in the COVID period, have all opened up. Exports contribution was at 31% versus 23% in Q4 of FY '21. The EBITDA post ForEx adjustment came in at INR 48 crores with 7% margin.
Cable revenues in FY '22 came in at INR 1,993 crores, up 57% year-on-year, driven by 129% year-on-year jump in exports as the company continued to focus on international opportunities amidst challenging domestic environment. Industrial cables revenue was up 64% year-on-year with improved demand from solar, wind, railways and defense segments. EBITDA post ForEx adjustment was up 77% year-on-year at INR 106 crore, and margin improved to 5.3%, New CCV lines and a new 2.5 MeV Ebeam are under installation to expand the rubber cable capacity, especially for the wind power segment. These should be commissioned in Q3 FY '23.
Major focus on LDC business is planned with our new brand ambassador and a significant trust in network expansion. Business value in FY '23 is targeted above INR 250 crores in this segment. With our unique and differentiated product, we remain confident on our aspiration to remain to reach to a revenue of INR 500 crores by FY '26. Overall, the outlook for the Cables business in FY '23 is strong, with key strategic initiatives and multiple growth opportunities being addressed both domestically and in overseas markets. Overall, for the company, we are happy with the performance in FY '22 and are more optimistic to deliver a stronger performance in FY '23.
On the Conductor front, we enter with a strong order book with higher proportion in premium products and exports. On the cable front, there are multiple growth drivers in exports to U.S.A., Australia and Africa, increased demand from the railways, defense and nonconventional energy. Our distribution of [ NTT ] products will also see sharp increase in growth and increased branding activity to increase overall visibility of our product range. The oils business will likely get impacted from the sharp increases in prices. But with the vast customer base and applications that we service, we still expect to navigate through this period.
As a conclusion, we are very optimistic to deliver a good performance in FY '23. 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.
[Operator Instructions] Our first question comes from the line of Pratiksha Daftari with Aequitas Investments.
Congratulations on very good set of numbers. My first question was on Conductors. If you could elaborate a bit on the opportunity and the pipeline that we have there.
Secondly, on the freight front, how are things looking at -- on freight front now? And how do we expect the margins to be impacted by freight?
So on the Conductors side, we have several product lines now. So in the past few years, which were affected with the COVID, the conventional conductor business was somewhat dampened. And now things have opened up, so the volume will increase on account of the conventional conductors.
Secondly, call on the high-efficiency conductors also, we see good potential in this coming year. There was another product line of OPGW which was also affected the last couple of years, but we been getting a fair amount of business. So we see good growth prospects in that as well. And then again, on the other side, the copper railways, we see a normal year. And on the CTC, PICC products used in the transformer industry, our base is lower, so we see growth in that as well. So these will be the major growth drivers.
There is a fair amount of reconducting work for HEC and for OPGW. So there's a service component as well in this segment. And with regard to the freight international freight costs have been stable for a few quarters now. So they have kind of remain at the higher levels, they have not really dropped. But as long as the increase is not very sharp, then what we see is that we'll be able to not lose money going forward as we had in the last few years, when we used to book business. And then by the time we had to execute, by that time, the rates had gone up substantially, so that phenomena hopefully should not happen the way we see it currently.
And are we seeing any levers for margin expansion in our businesses?
The product mix, as we are concentrating on more higher value-added products, that will help improve the margins.
I think orders have -- when the mix has improved with higher value-added products, our EBITDA percentage definitely increased, but we are not able to see a margin expansion in a percentage terms or EBITDA margins have remained range bound for conductor division EBITDA percentage at about 4%. So just wanted to understand if there are any levers that we see where we'll be able to expand this.
So normally, we measure our EBITDA on a per ton basis. And the reason being is that the higher the commodity prices, that drives the revenue upward. So on a higher base, with the same kind of quantum unit EBITDA, the percentage looks low. That's the reason we normally measure our business in terms of EBITDA per ton. And that's where you see the ton basis, it's higher. But it doesn't get reflected on the percentage EBITDA, mainly because of the higher base value that it carries.
Okay. And our CapEx for Cable division, when do we expect to commission that?
So we've had -- the capital expansion is continuing to run right now. There are 2 very large projects which are there, which will both get commissioned by the end of Q2, beginning of Q3, which are lines for -- 2 CCV lines which are going in for making cables for wind power generation. And our fourth Ebeam machine is on its way from -- into India. So that also will get commissioned over the next 4 to 5 months. So most of the CapEx, you will see, the big ticket CapEx will be in place by the third quarter of this year.
Okay. And can we expect -- how much time do we take to ramp up these new capacities?
So on the Ebeam side, our expectation is that in the fourth quarter, we'll pretty much fill it because there's a very large expansion as was explained earlier, in the opening comments by Chaitanya that there are a number of these new trains which are coming up. And so the trains come along with the passenger vehicles and stuff. And there is a pent-up demand because last 2 years, as you will see from various commentary that we've had, production of both locomotives and coaches was low.
So we see a pretty quick ramp-up happening on the Ebeam side at the end of the year. As far as the windmills is concerned, our expectation is to be at 70%, 80% capacity utilization in FY '24. Because a lot of it will be actually -- a significant portion of it will be export. So we currently service all the global major projects in India, but the main thrust for this is to then move globally and become a global supplier.
So this will be directly to the end customers?
Yes, because it goes inside the windmill.
Understood. And this is predominantly North America opportunity that we are tapping, right?
No, so the manufacturers are spread out in different locations, so depending on where their plants are located. So the plants are located in North America and in Europe as well as certain plants are located in Asia. You will see a spread off -- for the windmills, it will be going to the OEMs depending on where the plant locations are. But otherwise, we are finding that on the cable side, our export growth has been in North America and in Australia. And we've just won a few World Bank projects in East Africa. So these are the 3 sort of geographic locations where we see maximum export in FY '23.
[Operator Instructions] Our next question comes from the line of Samarth Singh with PPF Capital.
My questions are regarding our Cables business. So to the U.S., are we only exporting windmill cables? Or are we exporting also on the telecom and power distribution side?
So at the moment, we are not exporting windmill, the export which we are talking about is all power cables. So these are going into the building industry and for general purpose cabling. So there's a big backlog of infrastructure spending that's there in the U.S. right now. So it's going across the power industry segment. And most of the cables are actually light-duty cables.
Okay. So the -- but the CapEx that we are doing right now, that would be for windmill cables?
Yes. So the CapEx, which is going in is for the windmill side and the electron beams are largely going in. So some of the photovoltage cables that go to the U.S. market are electron beam cable. So there's basically 2 sets of cables going in at the moment, one is for light-duty general purpose power cables going into the housing industry, building out basic infrastructure like warehouses, et cetera, et cetera. And the other section is going into nonconventional energy installations, and that includes photovoltaic cable what they call PV cables, which are used for connecting the solar panels.
It's a fairly wide range, and we are the largest amount of -- you require what is called a UL approval, Underwriters Limited, to be able to sell in the U.S. So at the moment, the Cable division of Apar has the largest number of UL approvals of any Indian cable company. I hope that answers your question.
Our next question comes from the line of Sachin Shah with Emkay Investment Managers Limited.
Congratulations for a great set of numbers. I think after 2, 3 years, all your hard work seems to be paying off. So Chaitan, even 2, 3 years back when we were discussing this INR 550 crores, INR 600 crores kind of EBITDA number was what we were thinking about. And I think even to get a -- I mean, to get a 20% kind of ROE, probably INR 750 crores, INR 800 crores kind of EBITDA number is what probably is now visible over the next 2, 3 years. But if you can give us some sense what's beyond that, because now we are at a striking distance of that number on those numbers. So in terms that -- because we are going to hit certain capacity utilization in terms of conductors or even on the cables side, so if you can give us some sense beyond that beyond the next 2 years or so.
So I think at the moment, Sachin, what we've got clearly, on the drawing board is what will take us through FY '23, FY '24 and into FY '25. So we continue to see this case. The cable business actually will see the largest amount of growth over the next 3 to 4 years. And in that, there are 3 major segments where we see the growth coming from. The infrastructure spend in the United States is just about to begin. So in fact, the actual formal allocation from the Biden government is still to come yet. So this growth is being driven by the building industry and other infrastructure improvements, which have started without the large amount of allocation coming in.
So clearly, that is a program that is run over the next several years. And that's why we took a step of going ahead and getting the maximum amount of UL approvals for our cables. And also, the Conductors side has started seeing the initial orders coming in from the infrastructure spend, though we expect that as we get through FY '23, that will pick up. So getting to a 25%, 30% growth at today's commodity prices over the next 3, 4 years on the cable side looks very much on the cards.
In addition to that, the railways is going to spend a lot of money. And we have got not only products for the locomotives and for the coaches, but we also started doing harness, which is a forward integration step in that direction. We've also started making harnesses for solar installations and wind installations. So now for many of our clients, rather than just supplying them wire on wheels, we are buying the connectors and setting up the framework and supplying it to them. So on the Cables' side, these are the 2 major areas where we'll continue to see growth.
On the conductor front, as Chaitanya mentioned, there is more and more reconducting work going on. And also, OPGW is coming in, in place of just the normal earth wire. So this year is the first year that you will see a big jump. And part of that order book has OPGW ground environment. This also phenomenon should run for the next few years. The domestic side has limited potential compared to what we see happening in the United States and some of these overseas countries, where there's much more aggressive nonconventional energy addition taking place. So a lot of new networks are coming up.
So our sense clearly is that the cable business will actually have the fastest growth rate over the next few years. And the conductor and oil with then continue to follow.
Okay. And just to ask one more thing, that in the Cable business, if I recollect, a few years back, maybe about 3 years or so, our margin used to be double digits, a little higher in the double digits. Now we are at closer to, say, mid-single digits. So some sense on that in terms of directionally, where do we see in the next 2, 3 years? Do we aspire to get that double-digit kind of margin?
So our aspiration certainly is to get there. If you see last quarter, was around 7% for the quarter, it's a little over 5% for the full year. Next year, we would expect to be in the 8% kind of range, 8% range. Also, the other area where we are focusing on the cable side is to build out our network for the building wires. So initially, the EBITDA will be lower because you're putting our money in branding and network expansion, et cetera, but that fundamentally carries a reasonably good value addition, especially because of building wires that we sell our electron beam and they are more premium compared to wires that are being offered just using conventional method.
So the Cable business, you will see EBITDA increase also happening. And our target would be that in FY '24, we get closer to 10%. So the 8% to 10% range is what our expectation is. You've got to keep in mind that in the Cable side, the inflation has happened not only on account of metals, but the polymers have actually increased at the same pace as metals. We're looking at a very inflated raw material cost.
So whenever that happens, the percentages obviously come under a little bit of pressure. Our sense is that you will see 8% to 10%, that's what our target is on the cable side. If the value-added products in the railways and all that increases and if the defense spending continues, then that gives us a 1% or 2% additional top up.
And just one last one from my side that on the Conductor business, like as you mentioned in your opening remarks that the conventional conductors market is now starting to open up. So obviously, next year, the conventional conductors will also increase. Effectively, the current EBITDA per ton that you are earning there should logically come down, right, by just the number max. And how -- so will it be a significant down number from what we've done this year? Like earlier, we used to do about INR 10,000 to INR 12,000 per ton, which we are ow at over INR 18,000. So where do you think we will now kind of settle with the balanced overall portfolio of the conductor?
So there are a couple of things here. One is that as we get into this financial year, we have some of the products that we took up during pandemic time and those are both at a low margin also because of the freight increase. So some of those orders will get executed in this year. Also, this business has multiple product lines with a mixture of content and high-efficiency conductors due to the margin has been higher this particular year. The coming year, we actually will see this coming down to about INR 14,000 per metric ton. That's the kind of aspiration that we have for FY '23.
So then the volume will be higher. So you'll still -- the EBITDA per ton will -- I mean, as you rightly pointed out, will come down as you start executing some of the conventional Conductor orders. But the proportion that is there on the other orders also is not small, and the overall may come down from 17,000, 18,000, closer to around 14,000-odd, but overall EBITDA for the business will grow.
Okay. So that was my -- so you think the volume will make up for the entire thing, which means if the overall EBITDA, if you've done about closer to 180-odd crores, that number is to grow for FY '23 over FY '22?
You take a multiplication of 100,000-odd tons needed last year, multiplied by 17,500 at 14,000, and then the volume will be higher for this financial year. Because as the metal prices are steady, so many of the EPC guys who had placed orders but were not actually pricing the metal. We will price the metal and start taking delivery now. There's a little bit of reduction in the per ton basis, but that tonnage will go up and we have the capacity in place to actually execute all that.
Right. So about 100 -- so factually, you're saying that 20%, 30% kind of volume growth should be the 100,000, [ 150,000 ]?
Yes.
Okay. And our capacity is about 150,000. So does that mean that we can manufacture so much? I mean I'm not saying next year, but say FY '21, '25, whenever as we grow. But typically, what is the utilization level for this kind of business, an optimum utilization level?
So we have several product lines, and we have fungible capacity nowadays, and we have built in a lot of capabilities to move from one product to another so that, as for the demand, we can sort of optimize the utilization. So we are at about 180,000 tons of rated capacity. But depending on the product mix, it would range from about 160,000, 180,000 tons.
Our next question comes from the line of Ashit Godhi, an Investor.
Sir, congratulations on extremely good numbers. What I would want to understand is with the rising top line. When do we see our net margin improving reasonably well, whereby any commodity down cycle or adverse movement in commodities can be managed much better?
So we do have a risk management framework set up wherein we kind of catch our commodity cost, commodity raw materials. So to that extent, our risk for the variations in metals are being hedged properly, and appropriately these are being passed on to our customers there. Sachin has mentioned earlier, the value top line may not be a factor that we should see because it is driven by the changes in the price of commodities there. But what we more measure is on the per unit EBITDA, which could be a number that we kind of look forward.
So we don't really see -- we don't see the same concern that you brought out over here, if the risk framework is run properly where with the movement in the commodity prices. We are focusing on absolute margins being maintained or controlled. There is no way in which our business can run on a percentage basis.
Because if aluminum goes up from $2,000 to $3,000, like it went up, the value addition that a customer will pay us will not increase by 50%, because your cost of conversion manufacturing on that doesn't proportionately go up with the cost of the metal, with the purchase price of the metal. So the whole risk framework actually takes into account all absolute costs. Where you will have a percentage movement is to cover the financial side, the working capital, the rate of interest that is paid for the working capital cycle.
So our business, we don't run it based on a percentage basis at all. We are always running it on an absolute margin basis. That's why our reporting also is on a per kL basis or a per ton basis. In the case of Cables, we are forced to give it as a percentage because of variety of product is so vast and the value per kilometer produced, if that's the unit that one can measure very, very dramatically, can vary by 5 to 10x depending on the nature of copper, polymers, construction, et cetera. So you can go from INR 1 lakh per kilometer to INR 10 lakh a kilometer.
So that's the only part of the business, which has been forced to give it in rupee terms to find a common denominator. But otherwise, the business is -- will be managed on an absolute margin per ton basis.
So how do we plan to control our interest charges, which has in fourth quarter specifically, it has got a substantial jump? So...
Also we will see an increase happening because you just have a hardening of rates taking place. And our working capital cycle has been -- we've been quite tight in terms of controlling the cycle. So the value addition or the EBITDA per ton, we'll have to take into account to compensate for that. So as you price, that's part of the pricing framework. So that portion is on a variable basis, the working capital component of the total conversion cost.
Do we plan to raise equity to bring down our overall -- to further reduce our dependence on outside capital requirement?
Not really because we really don't need to raise CapEx. Our whole focus is actually to raise our earnings per share, which we have been concentrating on. And we are able to access the required working capital. So equities are very expensive for -- and we want to finally get to 20% return on capital. So borrowing today is still sub-10%, even with the increased -- expected increase in the rates. So our capital structure, we don't want to raise any more equity. Focus is going to continue to be on increasing equity meaning earnings per share. And then hopefully, with the business -- growing in the profitability of the business growing, the price to earnings will also hopefully have a reflection of that.
Our next question comes from the line of Akshay Kothari with Envision Capital Services Private Limited.
Just wanted to know, recently, around 6 months back, there was an opportunity wherein DRDO had developed a thing called quantum communication, and it also used some photovoltaic beams to -- used cables of photovoltaic beams to establish quantum communications. So are we seeing any development on that side?
We are not part of that program, but we work -- we are one of the partners with DRDO in developing a whole lot of indigenization or urbanization of cables which are used in the defense sector. So every year, there is a whole set of new products, which we continuously do R&D on with support from DRDO and the Indian Navy.
So we are not part of that project, but we have a number of new cables that have been produced. In fact, there are 2 new warships which were commissioned just in the last 15 days, our wiring has find its way into the instrumentation of both those or ships.
Okay. And so currently, our revenue from defense sector would be around?
So it's -- the business has been varying. It has been relatively low in the last couple of years because there was a lot of delays in terms of production happening at different -- particularly the concentration in defense is largely around the Indian Navy, and instrumentation cables are going to naval vessels. So this year, we would expect to do about, I reckon, in the range of around 60-odd -- INR 60 crores to INR 70 crores of cable that would go into the defense.
That's great. Okay. That's great, sir. And going forward, how do we look at the working capital cycle? So...
So I think our working capital cycle will still remain within the same. We've concentrated on keeping it relatively as tight as possible. And if we end up giving extended credit, it's generally given on letters of credit. So it allows us the flexibility to then discount the document and bring it into the cash flow.
But we are going to look at trying to contain the number of days, our focus is on number of days of credit which has been given in terms of debtors and inventory. But even if we contain the same number of days, there is an increase that is happening because of the interest rate. So that's something that we're factoring into our cost as we calculate cost for quoting purposes on tender, a lot of customers.
Our next question comes from the line of Samarth Singh with PPF Capital.
Yes. On the windmill cables that we are -- the CapEx that we are doing, is there any sort of qualification or approval that is required when we are supplying to North America?
Absolutely. So those are already -- we've already worked our way into getting those approvals.
Okay. And how long was that for?
Anywhere -- it's taken over 2 years, because the product is tested in multiple test environments and in multiple laboratories.
Right. And are there other suppliers from India that also have similar qualification?
There are -- I mean, there are suppliers who were also qualified. But currently, our sense is that we have over 70% market share of the cables that go inside the windmills in the domestic market. And that's the reason why we've been shortlisted to be a global vendor. And for the last over 2 years, we've been working on the overseas approval.
So we have today, approvals in place from GE, Nordex, Vestas, Siemens Gamesa, who are the big international players. So we have global approvals in place. We are currently servicing their domestic requirements, with a small portion going overseas. We have to increase our capacity to be able to service that business larger. And with this capacity increase taking place, we should be in a position to do that. So in the contracts that run in the year '23 onwards, we would be in a position to participate with larger volumes.
Right. So these approvals are global approvals, they're not country-specific. Is that how it works?
Yes. So some companies only offer a global approval. So either we are approved in terms of quality to supply worldwide. They may buy our products locally, but the approval is on a global basis. So -- and some of them follow a differential between regional and global. But for all the top 5 international, meaning, European and U.S. companies, we have global approvals in place.
So the cable for the windmill that will be supplying to North America, who would be our competitors for that?
So competitors would be companies like Prysmian, which is the largest European cabling company. Nexans has just sold their nonconventional energy and some of these flexible cable business. LS Cable is there. And there are a few U.S. companies like Henry Cables. So there are many cable companies around the world that also supply on these projects. The advantage we have here is that we are completely integrated. We make our own polymer as in -- we do our own compounding, and we start right from basic copper rods and make the full finished product.
Right. Okay. So -- and these competitors you named, they're largely European and North America, is that right?
And Korean. So LS Cable is in the top 5 cable companies in the world, part of the LS Group of Korea.
Okay. And so for these energy cable demands, I understand correct, that there's almost a full pass-through of course, at least at this point.
Generally, it is because you have pricing of copper in all these things which go into the equation. So the material portion is pretty straightforward. It's the polymer that requires a negotiated discussion from time to time because it's based on proprietary formulations that different companies have.
Right, right. Okay. So metals, the contract itself will have a pass-through...
Yes, exactly. And then you have periods where you can sit and then negotiate for changes in other costs.
I see. So a lot of these European competitors of yours in this space, I'm assuming with sanctions on Rusal will have some sort of cost -- increased costs in obtaining aluminum and copper. So would that benefit us in any way?
In fact, more than just the metal, where conversion costs have increased very substantially because producing a windmill cable is quite -- consumes a lot of power given that the compounding and so many different manufacturing steps before you make a finished product that is quite -- it is reasonable power-intensive. So utility costs in Europe have increased substantially. So I think sitting here in India, we are in a relatively sweet spot.
In fact, the dampener today is of freight. But as Chaitanya had mentioned earlier in the call, we've seen freight rates have stabilized. And if some of the consumer products, which has been going from China and other parts getting imported into these -- into Europe and the U.S., if that starts tapering off, then we could see maybe freights coming off a little bit. Not substantially, but may see it coming off. So once the pricing becomes steady, then an overseas supplier like us is also able to provide more stable pricing. So we see actually us being a relatively sweet spot as we get into the next 2, 3 years.
Right, right. No, I agree. I just -- just 2 more questions on the same topic. If a wind-powered turbine is replaced or repowered with a more efficient, higher capacity turbine, then is there any additional cable usage that comes into play?
So what is happening is that as you go with a larger-sized turbine, the height of the tower increases. And as a consequence, the length of the cable that you use within the tower also changes.
Secondly, the design of the cable changes because when you go from a 1.5 megawatt to a 5-megawatt, basically, there is a transformer that is connected to where the blades are. And so the amount of power that you need to then bring down through the shaft is also higher. So bigger the turbine, automatically more complex and larger the amount of cable.
Right. And we would be supplying to the bigger turbines as well, right?
We've got approvals that go up to now 5 megawatts.
Okay. Okay. And last question from my side. Do we -- I guess we are doing this CapEx for North America, but you said the approvals are global. So I mean, I think there's this -- the German Renewable Energy Act, which is supposed to have 10 gigawatts of annual onshore wind additions by 2025 in Germany. So would we have any exposure to that in any way?
Yes. So the approvals are not -- I mean the product is not just going to North America. What I mentioned earlier was that we are seeing currently a growth in the export order book to North America. But 2 of the largest companies that we are hoping to service are based in Europe, which is [ Westar ], sort of Denmark and Siemens Gamesa, which is out of Spain.
So the windmill cables will go to Europe and the U.S. And in fact, some of the manufacturing or assembly operations, which are in Asia also. There's a separate set of UL cables which are going into the United States today, and that business, we see growing substantially in this FY '23 compared to -- it all started in FY '22. So we'll see a full year impact of that in FY '23 and hopefully carry forward into the next year also.
Okay. And then hopefully, we start seeing these European orders coming in later in our order book?
Absolutely.
Our next question comes from the line of Himanshu Upadhyay with O3 Capital.
I had a very basic question. See, this CapEx which is happening on the renewables, and we expected significant CapEx on renewables across the globe, but would not it mean that it will also lead to higher CapEx on transmission and distribution because the generation has become far more fragmented and multiple sources of power will be there rather than the traditional power plants, which used to be large, single-source 500-megawatt, gigawatt type of power plants, but small, small various number of generator stations?
So -- and even in case of U.S., when we are saying that renewables will play a bigger role, so would you expect the other businesses of conductors and transformer oils also should be benefiting in a similar proportion? Or -- but just because we are -- we were not present in cables, and hence, cable can be a greater growth driver, but the -- for the industry growth, these 2 other segments will also be equally good?
Yes. So let me -- and Chaitanya actually can answer that in more detail. But absolutely, the other segments will also grow. In the case of conductors, you need conductors to evacuate power from any of these locations. So -- but Chaitanya, maybe you can answer that question more specifically.
So the places where the renewable energy is being set up are different from the traditional places where the thermal power is to get generated. So it is all over the place where there's a coastal area or in some cases where there's more desert, more solar availability. So accordingly, there is a lot more robustness of the transmission and distribution system required when we have the renewable energy because for part of the day, the power flow would be from one direction to the other. And it is possible that for the -- in the night hours or in the monsoon season, the power flow may be the other way.
So the type of transmission and distribution requirement is also a little different in terms of the robustness. And also in terms of the multiple areas where the network has to be connected to the main grid. So the nature of the network is a little different from the traditional what used to be there, when only thermal power used to be in place in most parts of the world.
Yes. So it will also benefit our -- the primary 2 businesses we are -- we have a large global presence?
Yes. So the Cable business, actually, it's -- the intensity of cable consumption is much higher generally than conductors and oil. So you will see that as infrastructure is growing, the absolute value of cables will grow at a pace which is faster than -- like, for example, you would take the Indian market, the Cable business, including building wires is a INR 60,000 crore market. So it's 10x the size of -- I won't say 10x, but about 6, 7x the size of the conductor market.
So -- but what you're saying is absolutely will happen. The conductor business also will grow. The oil business is directly proportional to the addition of transformers. So as the transformation capacity is put up, it just grows linearly with that. Because still for this sort of networks, you can't use anything other than oil field transformers.
It's a direct proportion increase, either we will get the business or some of our competitors. We are not -- we don't really sell transformer oil in the North American market because North America is one of the largest producers of transformer oil and is sold very domestically. But we will see the growth happening in other geographies.
Okay. And one more thing in case of cables, you have told us renewable cables, the requirements would be slightly more sophisticated or, let's say, windmill would require a higher [ torque ] with standing cables and all that stuff. But will the requirements on our cables and transformers also change something because of -- when you are saying that the power movement can be on both the side, okay, not just 2, but the system may have to have a power transfer...
Transformers are getting redesigned. Obviously, there will be a larger capacity transformer that goes up in the windmill. But there's no change in the design of the oil, because these are actually very small transformers compared to the really big ones which we are supplying. So we go right up to transformers which are able to carry up to 1,000 -- over 1,100 kilowatts transformers which are there.
So there's no change in the design of the oil. It's just that the applications will keep on increasing, and the oil will go into those. In the case of the cable, there is a fundamental change in the cable design required. Because if you're going from a 1.5 1 megawatt or 1.5 megawatt turbine to a 5-megawatt turbine [ as the oils are ] more handling wide ranges of megawatts.
Okay. And the competitive intensity is also much lesser in cables versus transformer oils in North America?
In North America, there's a lot of infrastructure coming in. Right now, what's going in is going in also to a large extent in the building industry, so expansion in house -- for housing complexes, warehouse complexes, all these things. [indiscernible] is still to come.
Okay. In case of conductors, also the situation would be similar in North America like transformer oils or it will be different?
No, no. So that, maybe Chaitanya, you can...
Yes, I actually wanted to add something to the previous question, that in the case of the renewable energy, what we are seeing is that a fair amount of new lines are also coming up with the high-efficiency conductors. In the past, it used to be mostly used to debottleneck certain transmission lines, which are feeding the power to state capitals or important cities. But now we are seeing that actually, even in new lines, which are getting connected from the solar parks or windmills, parks to the grid, that all is coming with the high-efficiency conductors. So this is the robustness that we were talking about.
And in terms of the North American market, we are seeing a fair amount of new lines coming up, again, driven by the renewable energy. One focus is that. Second, there is a lot of revamping of old infrastructure because every 40, 50 years, the old lines need to be kind of revamped. So there is a lot of requirement of conductors also required on this account. These are the major things which are going on there.
Then of course, as discussed earlier, where the American market used to buy a lot of conductors from China, and that is now somewhat muted. So they're giving Indian parties good chance to sell into the North American market. So these things are helping us to drive our demand in the North American market.
Okay. And then one last thing on Hamriyah, the oil segment. We are working -- we are getting that 104% capacity utilization, would be required to do another round of CapEx? And are the local markets doing well or the end customer for that is across the globe...
Yes. So we've already gone through -- we are in the process of completing an expansion debottlenecking, I'd say, in the plant, which will increase the capacity by around 25%. And we're in the process of just getting all the final approvals to have all those tanks, et cetera, commissioned. That will happen in the next couple of months.
The -- more importantly, your question in terms of local demand. So the local demand actually is -- will get stronger because it's still dependent quite a lot on the oil and gas industry. So as the oil and gas industry -- the prices of oil and gas increase, the spending that happens in the GCC and North Africa and all those areas, they tend to grow.
And the end market for...
There will be more sales happening in those areas.
And the end market that generally the local markets or we export from there across the globe?
So between the 2 plants, depending on where the logistics are the more suitable, we are selling to 125 countries between the manufacturing plant in Mumbai and the plant in Hamriyah. Obviously, the Hamriyah plant caters to entire GCC and North Africa. But from there, we are also exporting to Australia, for example, because the freights are lower from there to Australia than to India. So we use both the plants depending upon where the freight and logistics is best, provided the products are made in both locations. So transformer oil and the basic range of white oils we make at both the plants. It's the industrial, automotive and specialty products, which are made only in the plant in Mumbai.
And one last thing, we were buying molten aluminum market for our Orissa plant. And we believe some amount of efficiencies we can get because we don't need to recast into the cable -- in our Conductor business. Has those efficiencies played out the way we were expecting those things to happen?
Yes, it has. On the contrary, we've actually seen better economics because the oil prices have gone up. So to that extent, our cost reduction compared to our competitors, we are in a better situation.
Our next question comes from the line of Chethan Dhruva with RIA.
Okay. Congratulations on a good set of numbers. I just had 2 questions. So you talked about the Conductor EBITDA per unit volume reducing. I had the same question for your Transformers and Specialty Oils. You mentioned that higher prices actually moderate the demand, but do you see the per unit EBITDA continuing to be at these levels? Or -- because I remember your earlier commentary stating that you expect the EBITDA in this case to be around 5,000. I'm sure these parts have steadied, but some approximate indication of where you think this is headed.
Yes. So 5,000 is the minimum sort of targeted EBITDA per kL that we are targeting, that we would like to have. So as was mentioned in the commentary, we are going to focus in this year on unit economics. Because unless you get your unit economics right, there is a big jump in the price of raw materials, and it's still continuing to increase. I don't think -- unlike in the case of the metals where it has started settling down at these levels and may actually come down a little bit from its all-time highs, the hydrocarbon side, I don't think one can comment on that basis.
So obviously, our target is to get to INR 5,000 of kL and higher because the interest component also will be a larger working capital piece given the per liter cost of any of the oils. But we are a little bit more muted in terms of -- it's unpredictable in terms of how the demand will get affected. Because in some of the products, especially industrial automotive, customers can increase the useful life of the product and do a replacement later on.
It's not going to happen in the case of transformers because transformer oil forms only 5% of the cost of the transformer. So that will be dependent really on the expansion of the transformation capacity and number of transformers getting laid out.
Where that has been a little bit slower in India at the moment is because the state governments have really not been able to keep pace with what they need. So the center is coming up with a whole set of new plants, with strings attached. So if that happens, then again, you'll see a spurt taking place. But otherwise, for other products, we don't know how demand could get affected given the -- where these prices will finally land up.
You may even see a reduction in consumption of gasoline and diesel. India is still not seeing the sort of increases that some of the other countries have seen. But the commentary which we're hearing, and you probably have access to also, which is the Bloombergs of the world, it seems like even oil companies are expecting that there could be an impact.
So do you actually foresee a potential decline in the segment at least in terms of volume and also in terms of this year? Or do you expect to maintain...
We mentioned in our commentary saying that it could happen. The good thing is that we have a set of 3 businesses here. And the oil business, the numbers are still -- may not -- we don't know whether they'll be as good as what it was in the last 2 years, which were 2 excellent years that we had. But our Cable and Conductor businesses will actually kick in. And if there is any slack that comes from the oil business because of the current hydrocarbon situation, I think it will get more than compensated by the other 2 business segments. So I think, overall, we'll still come out much ahead.
Okay. Just one more question there from my side. On the CapEx for FY '23. Any specific guidance on that?
So the CapEx for FY '23 actually carries a significant carryforward from what was planned in the last year. So we see about INR 130 crores to INR 150 crores worth of CapEx taking place. But half of it is actually carry forward from projects which we initiated the previous year, because the production lines and things have taken a little longer for delivery to take place.
Okay. Okay. But totally, you're looking at around INR 130 crores to INR 140 crores in the year?
Yes. Of which, half of it, about INR 70-odd crores, is actually capital work in progress or equipment, which are on its way here, which are gaining commissions.
Our next questions is from the line of Nemish Shah with Emkay Investment Managers Limited.
Congratulations on good set of numbers. So I had one question on our lubricants business. So if you could just share your outlook and the strategy on that segment for us? And just wanted to understand, are we like winning market share or winning new customers in that segment on the automotive side?
So on the Lubricants side, we continue to actually bid for more and more business from OEMs. And on the tractor side, we've added more volume from the amalgamations group, so that you will see more volume from amalgamations group coming up this year. On the -- so there are 2 parts to it. One is our first fill and the other one is the aftermarket. So we've been dropping some first-fill business and focusing more on the aftermarket business within the OEMs.
So we continue to see some amount of growth happening there. But our sense is that lubricant demand itself will come down. Because as the ticket size of one liter of engine oil or gear oil increases, the customers tend to then run the change period longer before they will actually make the change.
So on the retail automotive side, we don't expect any major growth to happen. Whatever growth is -- will happen will come from network expansion, which we are doing. On the other hand, on the industrial oil side, we have been seeing growth and that is a proxy to the industrial activity in the country. So we had a 20% increase in volumes last year, and we are targeting 10% plus increase this year on the industrial lubricant side.
Understood. So in terms of the volume mix, so currently lubricants will be about 40-odd percent of the overall oil business. So we expect that to improve going forward?
Yes, it's more than -- if you take the automotive and industrial put together, it's a higher percentage than that. So the Lubricant revenue came in at almost INR 800 crores, out of INR 3,600 crores total revenue.
Right. Okay. Got it. And a few bookkeeping questions. If you could just share the LCs for the period and the debt figures in ForEx and obviously per ton.
Yes. The long-term debt stood at INR 253 crores. We had a cash and cash equivalent of about INR 297 crores. There were no short-term debt. The interest-bearing LCs in ForEx is about INR 1,600 crores and domestic is about INR 1,200 crores.
Thank you. As there are no further questions, now I would hand over the conference to Mr. -- to the management. Please go ahead.
Yes. Thank you, everyone, for taking out the time for our earnings call of FY '22. Just in terms of just closing remarks, we are quite optimistic, as you've heard through the narrative of the call, as we get into FY '23 and into the future. The Conductor business has a strong order book. We expect business also from the overseas markets, and that is also reflected in the INR 3,000 crores order book that we have. On the Cable side, we've got nonconventional energy and the growth happening in our wires and LDC business where we are growing distribution.
So all of those are kicking in. So we are quite optimistic as we go into the next year. And thank you for your time on this call. And hopefully, we'll have interesting financial numbers for the quarters to come. Thank you very much.
Thank you. On behalf of Four-S Services and Apar Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.