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Finolex Cables Ltd
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Ladies and gentlemen, good day, and welcome to the Finolex Cables Limited Q2 FY '23 Analyst Conference Call. [Operator Instructions] I'll now hand the conference over to Mamta Samat. Please go ahead.
Thank you again. Good evening, everyone, and thank you for joining us on Finolex Cables Limited Q2 FY '23 Earnings Conference Call. Today, we have with us the senior management represented by Mr. Deepak K. Chhabria, Executive Chairman; and Mr. Mahesh Viswanathan, Chief Financial Officer.
Before we begin, I would like to say that some of the statements that will be made in today's discussion may be forward-looking in nature. [Operator Instructions]
I will now request the management for opening remarks. Thank you and over to you, sir.
Thanks, Mamta. Good afternoon, ladies and gentlemen. I'm Mahesh Viswanathan, Chief Financial Officer at Finolex Cables Limited. On behalf of the company, I extend a very warm welcome to all the participants this afternoon.
You must have by now had a look at the presentation that is uploaded in our website as well as the results that we posted 2 days ago. As far as the top line goes, we've had a good quarter. The top line went up by about 17% on a comparable basis. The electric cables business grew about 12% and communication cables business grew approximately 54% during the quarter.
In volume terms, we witnessed a 10% growth in electrical cables. And within the communication cables segment, we have multiple product lines. So those product lines that are metal-based, there the volume growth was about 24% while the fiber-based products almost doubled.
The FMEG products that we have, there the growth was kind of flat overall, partially because in the fan segment, there was quite a bit of destocking because of the upcoming changes to the BEE norms as well as some amount of -- some effect of the continued inflation on the retail markets.
Profit after taxes was about INR 136 crores, lower than last comparable quarter by about 8%. This is primarily on account of the higher cost inventory that we had at the beginning of the quarter, which was liquidated during the quarter.
Also, we took a price reduction in July following the decrease in copper prices. And over this quarter, we have also started spending a little more on marketing -- market-related activities. During the COVID period, our spend on ads and related market activities was somewhat less. So we are now bringing it -- ramping it up as the volumes start to climb.
Overall, on a revenue basis, we saw a decent growth, although inflation continues to be something that is on our radar and we will have a close watch on that. We do expect the demand momentum to start picking up now and hope that the rest of the year progresses, at least in revenue terms on the same basis.
On margin terms, we should -- we expect to catch up because at the moment as we speak now, commodity prices seem to have stabilized at a certain level. So as long as there are no more undue blips, one should see the margins climb back.
That's about it for the opening remarks from my side. So I'll open it up to questions now and we're happy to take questions as they come by.
[Operator Instructions] Our first question is from Sonali Salgaonkar of Jefferies.
I'm sorry. I joined in a bit late so I seem to have missed your opening remarks. Sir, firstly, my question is you did mention that there was a change in the product mix in cables and wires, especially electrical cables during the quarter, which impacted margins. So could you update us a little bit more on that?
And secondly, there seems to be a good revival in Communication Cables, especially the volumes in optic fiber cables. So what is leading to such a good volume?
Okay. Yes, in our press note, we had talked about a slightly different product mix, which had also impacted the margins. The -- while all the product baskets grew, there was a fairly high growth on the automobile sector. And cables, which go into the automobile sector, that growth was fairly significant. And as you know, this is -- these are products which are geared towards the auto companies. And while you get volumes, the margins there are fairly thin.
And likewise, we had also seen growth in the industrial products. And there, again, the margins are not as healthy as you would see on the retail products. So these 2 product lines, the volumes were significantly higher. And that pulled down the margins by, I think, about 80 to 100 basis points.
Got it. Sir, and about communication?
On the Communication side, we are seeing growth -- like I mentioned, we are seeing growth across all the product lines, except, I think, one. The metal-based products have a volume growth of about 24%, 25%. Optic fiber has, like I said, doubled in this quarter. In this year, we are one of the primary suppliers to Bharti. And again, both Bharti and Reliance have started investing in fiber over the last few months.
And I think that is kicking in, yes. I mean the 5G rollout is imminent and I think they're planning for that. So we do expect volumes to continue to be at these levels going forward. And as the 5G rollout accelerates with other players coming in, one should see a healthy trend there.
Also today, I think you must have read in the newspapers that BSNL has signed a contract with TCS for their 4G rollout across the country. So they are -- and that over a period of time, I'm sure, would include fiber as well. And they are also planning their 5G rollout sometime next year. So I think as we go into the future, there will be a continued demand for fiber and that's good for us.
Got it. Sir, on the demand side, the retail wires or the construction wires, which are about 60%, 65% of our electrical cables mix. Sir, are you witnessing any softening in construction offtake in Q2?
No. The volumes went up there also. The volumes went -- specifically in those construction wire products, the volumes went up by about 10% or so.
Got it. But overall, you think demand in the housing industry is normal right now, both in the rural as well as the urban?
I think it is normalizing. We're probably a little shy away from where we were pre-COVID levels but we're catching up soon, I think.
Got it. Sir, on the margins, I mean we used to be very strong in the electrical cables. Of course, this quarter was -- had the impact of softening copper. But where do you foresee the margins normalizing also? We do remember that a few quarters back, you had mentioned that during COVID, you had increased the discounting, which led to impact on the gross margins. Have we stopped that discounting? And where do you think the gross margin should stabilize in the coming quarters?
No, we have not stopped it although we have moderated that slightly. I think the -- a steady state level should be around 13%, 14%. Like I mentioned earlier, this quarter, there has been an impact on account of the softening copper prices. Now as long as stability is maintained, I think we should get back to those numbers.
Got it. Sir, just one last question from my side about the optic fiber prices globally. How are they trending right now? And lastly are CapEx expectations.
CapEx, like we've been mentioning over the last few quarters, those projects are ongoing. And I think we should be completing them by the end of this financial year except probably they might slip into next year. But the rest of the projects that we talked about should be done by the end of this financial year.
As far as -- what was your other question, sorry?
Sir, optic fiber prices. And sorry, one last question on your appliances side, when do you expect to break even?
Sorry, I lost your question again. I'm sorry.
Right. So optic fiber prices globally, how are they trending right now? And lastly, when do you expect to break even in the appliances segment?
Okay. I think we should -- as far as our Appliances segment is concerned, we had spoken about this earlier also. When our turnover on the segment hits about INR 180 crores to INR 200 crores, we should be breaking even at that point in time. And last year, we just missed it by, I think, about INR 10-odd crores or INR 15-odd crores. So as we grow and hit those numbers, we should be breaking even.
It also depends on how much we finally decide to spend on ads on those product lines. So if our ad spends are somewhat similar to what we current -- what our current run rate is, then I think that INR 200 crores number is still valid. If we want to take it up for whatever reason, then that could impact a little bit but it is in that ballpark.
As far as the optic fiber prices are concerned, I think there is a trend towards firming up. We see locally prices firming at around INR 360 to INR 380 per kilometer and it is holding at that level. So I think the demand is climbing up again as major countries overseas start their 5G rollouts. The fear of the pandemic is kind of not there anymore. So you do see announcements around rollouts happening across multiple geographies. So I think the demand is starting to come back.
Sir, what were the prices of optic fiber at the start of this year, which you said is about INR 360, INR 380 per kilometer or so?
Around INR 340, INR 330, somewhere around that.
Our next question is from [ Anand Jaza ] of [ Lit Capital ].
Most of my questions are actually answered. Just one thing, sir, and that is actually directed to Deepak, sir. There's one concern on a lot of investors' mind, which is keeping people at bay. And I'm going to just ask so that let there be some clarity on that. So is the family dispute behind us for good? Any clarity would be really helpful.
I'm actually sorry, I am not able to respond to you on that because the matters are sub judice. So until that clears, I am unable to talk on that particular subject.
Our next question is from Chintan Sheth of Sameeksha Capital.
Congrats for a good set of numbers. I hope I'm audible.
Yes, you are.
Yes. So sir, on the growth front, so given the festival was slightly early this year, does -- this volume growth is what we are expecting? Or it's slightly lower than our expectation? And how do we see Q3 turning out in terms of growth given the festivals around us and there is some level of optimism in terms of consumption trend being on the upper end side?
On the appliances part, the issue is still around the fan segment because the change in norms is imminent over the next -- from 1st of January. And that leads to a situation where the trade doesn't want to start -- they don't want to increase their stocks. And at the same time, the newer versions would be slightly more expensive. So they aren't very sure about what volumes they would like to keep. So that's a bottleneck that we have to sort out. But I think the demand for lamps or the other product lines are continuing.
And any update on how the distribution strategies are progressing? Any further update around that? Any learning? And what more do you need to do to reach out to a whole number of geographies and improve our [indiscernible] if you can?
Are you talking about the distribution part?
Yes. Yes, distribution strategy.
That -- those activities continue. I think the last 1.5, 2 years, the results are bearing out our move into distribution. We are refining it as we go by because each day, we learn something new. And we are improving the digital platform that we have. So that gives us access to more data. Now one needs to mine the data and see trends and what we can learn from that.
So it's not an overnight learning. It takes a little bit of time. But I think we are doing the right -- or at least moving in the right direction as far as distribution is concerned. And like I mentioned in the beginning, we are also supporting that with additional market spend, not only on visibility but also on -- yes, on below the item -- below the line items. So that should improve our penetration in the retail counters.
Right. And in terms of resource to execute this strategy, are we fully within the level [indiscernible] resource planning? Are we done with that in terms of building the team and having those teams at the corporate level? How are we placed? And what is the status in those terms?
That will be a goalpost which will keep changing every month because as you learn, then you get into newer territories. It's not going to be a product that you say at one point in time, you are finished with it but it is improving.
But you see the network is growing. And when you say dealer, we are talking of 2 tiers, which is distribution, retailer network instead of dealers. We call the dealers in our company as channel partners who are quite stable. But the growth we are really taking is in the 2-tier part, where the retail counters are going on being added with distribution.
We put a software in place where we have a distributor, retailer on the software. And we can actually control the number of retailers attached to a particular distributor and the billing cycle that goes with it. And there cannot be any cross-distribution happening. All that is in place. We can have -- to improve retailer sales, we can have schemes running directly with retailers who are now on the system with us.
So many things are happening and -- to go on strengthening this kind of network. And we are tracking not just increase in retailers but to see how many retailers we can have in different banks for them to buy more and more clients have a larger bucket. So there are various activities being done by the marketing team in that area.
The team is also tracking what level of wallet share are we getting from a particular retailer and what's the standard amount of buy that he gets, what increases are happening there. So those information gives them ideas as to okay, where do we need to concentrate now, what do we need to do to secure a particular area as well. That effort is ongoing.
That's great to hear. And last question from my end and I'll jump back in queue. Any decision on distribution policy, the cash we hold and how should we look at -- this is an ongoing question we need to ask as an investor. But it is...
You're asking about the liquid money that we hold?
Correct. Correct. How should we look at them? That's an ongoing question and -- we are bordering with you. But if you have reached to any decision?
No. Okay. We're looking at -- one is the CapEx that we had announced, those we will complete. The last 2 years, we have been a little quiet on the expansion front because of the kind of market environment that one had COVID and so on. So I think -- where can that money go? It can go into expansion, it can go into inorganic growth or it can go back to the shareholders. Those are the only 2, 3 avenues that one has.
So we do realize that we are sitting on money, which at the moment may not look productive. But we are constantly looking for opportunities to deploy that. Only thing, as you know, we are a little bit conservative. So we would like to be reasonably sure before putting our feet into the water.
[Operator Instructions] Our next question is from [ Saket Kapoor ] of [ Kapoor Company ].
Firstly, sir, if you could give some color on our capacity utilization level, sir, for this quarter and for the first half for all the 3 categories?
I think the electrical cable plants are nearing 70% utilization at this point in time. And then bear in mind, this 70% is including the additions that we have made over the last 12 months. So on the expanded capacity now, we are at about 70%. Going forward, I think if the demand continues the way it is, then we should be reaching about 80%, 85% over the next 6 months to 9 months.
On optic fiber, the fiber production is now close to -- we have a capacity of 3 million. I think we are almost at 75% at this point in time.
The other communication products, except for 1 particular line, the rest are at 75%.
LAN.
Yes. LAN, in fact, is fully booked. Yes, so on an average, you will see 75%. That is 1 product line which is low at this point in time.
You mentioned LAN, sir. L-A-N?
Yes. LAN, yes.
And what kind of revenue do we force from the LAN segment?
LAN, close to INR 200 crores a year.
Right, sir. Sir, coming firstly to the electrical -- firstly to the OFC part, sir. When we look at the communication cables segment, I think that attributes mainly to the OFC, sir, in the product profile, optic fiber cables only. Or do we have other products also?
The largest would be OFC there.
Okay. So sir, why are we having very near margins -- [ depreciating ] margins in this segment? What are the key reasons for the same?
Well, it is not a trade -- retail product. And like I said, this year our major volumes are coming from Bharti, where the prices are determined by reverse auction. So the margins there are -- you get good volumes. And that keeps your -- that helps you to absorb your fixed cost completely. But the margins are rather thin.
It's a fixed price for the year.
And it's a fixed price for the year. So you -- we also need to then resort to hedging mechanism so that our -- we are safe from the ForEx volatilities because this is 1 product where the base raw material comes from overseas. And any change to the rupee-dollar parity, that could impact us.
So a small point, sir, then we are sorting the fiber for the OFC from totally imported...
No, no, no. No, that's not what I'm saying. The base, which is the glass for the fiber, we source it from overseas. There are -- there is just 1 company in India which makes the glass and he is a competitor.
So what it means is preforms. We import the preforms and then we draw it into fiber in our plant. So we have drawing towers but the preforms are imported.
Correct, sir. And sir, going ahead, do we have the product line for FTTH also, fiber-to-home and other applications?
Yes, we do. In fact, we are one of the approved suppliers to Reliance and to Bharti. The difference between -- in revenue from FTTH is while you will get a lot of kilometers, the fiber count there is not as high because you're talking about fiber reaching your home. What you need is only a single fiber coming into your home although most companies give you 2 fibers. The money is more in the long-haul connectivity, where the fiber count is 96 or 188 or higher than that.
But sir, still to get the margin profile correct, sir, when we look at other OFC players, are we small marginalized there that we are only posting 2%, 2.5% margin in this cable or OFC cable business, where the demand, I think because of the launch of 5G, the fiber are getting processed -- getting a big kickup now. Then also, sir, only 2% margin, where is the missing line when -- is this the industry norm, sir? Or we have some headwinds because of which, the margin is only 2%?
No. That 2% is a composite margin for all the communication products. So communication products would include telephone cables, speaker cables, CCTV applications, LAN cables, coaxial cables and OFC. So the margin profile for each of these products is slightly different. And the composite number is what you see in the -- in what has been published because the segment is at a total level.
Last question on OFC. Sir, what is our market share then in this segment currently?
I think the Indian market, about 18% or so. Slightly under 20% is what I remember.
18% is our market share for OFC?
The -- it all depends on what level of investment the government is making at any point in time. A lot of announcements are made but there is a time lag between when the announcement is made and when the product is actually procured.
So who are the regulars every year? So Bharti runs a tender every year. Reliance, earlier on, they were taking large quantities. But then they were on their rollout mode at that point in time. Currently, they are spending more money on the FTTH. Maybe going forward in the year -- in the rest of the year, they will start spending on their 5G rollouts and that might require more fibers.
BSNL has not spent anything over the last few years. Announcements about the BharatNet project has -- have been coming from time to time but procurement has been very slow. So while the opportunity size is extremely large, funding has been a constraint for the government. And that's why there is -- while the market is there, the offtake is very staggered and one is not really able to predict that.
Sir, if you allow, I have 2 more questions for electrical cables segment. Or shall I join the queue?
No, no. Go ahead, please.
Yes, sir. Sir, for the electrical cables segment, our product profile includes all categories. That means we are present in HV, MV and LV? Or if you could give the specification? Or it is only the wires and cables that we go through in electrical cables segment?
We are present, we have the capability to do LV, low duty, medium voltage and high voltage within the company. Bulk of our product offerings would be in the low-duty category. Power and high voltage cables, because of their exposure to distribution utilities, we have consciously not taken a very large exposure on those sectors.
So, what should be the mix for the electrical cables segment, this INR 880-odd crores revenue? If you could give between the wires and the wires and cable segment -- the cable segment and the wires and cable segment?
Okay. Broadly, there will be general construction. That's about 60%. Automobile would be another 10% to 12%. Industrials would be 10% to 12%. Seasonally, agriculture could take another 10%. That depends on the sowing season. And the remaining would be power cables.
Sir, I was -- the industry -- I was looking for the cables segment and the wires and cables breakup. That is 60% is wires and cable. That is what...
No, no. The power cable is about -- of our total revenue is about 10%.
Okay. Sir, power cables means, sir, the high voltage and the mid...
Medium voltage and high voltage.
Power cables are also in low voltage in 1 point -- when you say 1.1 kV, it's called low voltage. When you will go into 11 kV, 22 kV, 33 kV, it's called medium voltage. And then anything above that, they call it high voltage. So that is the terms used abroad.
In our country, the 11 to 32 is called high voltage. And then going higher, 66 and 132 and going to 220, 400 kV, extra high voltage. We are in the entire range. In the extra high voltage, we have a joint venture with the Japanese where we are manufacturing up to 400 -- actually, capacity is 500 kV. But we will get cables up to 400 kV, which is required in the country.
But in Finolex Cables, the predominant position is majority in low voltage and some amounts in medium voltage up to 33 kV. It is how we sell in the cables side. But when you are looking at
[Audio Gap]
is in wire, 10%, let's say, in this cable and 5% in the other products, the broad product mix of the company.
Right, sir. And for the EHV segment, what is the -- how is the industry shaped up? And do we participate in EPC contracts also? Or we are only selling directly to the government?
Yes. In the EHV, you get both type of orders, just supply of cable. But of course, you have to give it with jointing kits and install it. Or you have the whole turnkey where you got to lay it with all the civil work as well as jointing kits and terminate it from one point to the other point.
We do tie up with other people for doing the EPC jobs. Majority is with EPC. These are large voltage cables. You require a certain amount of years of experience, a certain amount of years of cable, which has been operational before they qualify you for quoting for tenders. So there are many roadblock for newcomers to enter in the business for you to quote for the tenders for approval.
We have crossed all those hurdles now and -- while in the past because of that, we have not had a good run and made some losses. But now we are having a good order booking, which is like 10 months of order booking.
Actually more than that.
More than that.
More than that. Close to -- this year, they booked almost INR 300 crores in the order book.
We have a 1-year order book position now in EHV.
That is to the tune of INR 300 crores?
Yes, to the tune of INR 300 crores.
Okay, sir. And then that means the business sentiment for the EHV per part. There's a lot of strength in this segment, I think. So the underground cabling also from the government side, does -- those things are getting traction? Or is it for the metro rails also that we are participating?
No, we are participating with metro rails as well as underground with utilities or even private projects in large plants, where they require the large cable underground. We at least participate everywhere.
Okay. And what is the market share...
Majority of other materials go into utilities.
Okay, sir. And what is our market share?
Market share, now I think -- see, again, the market share calculation, if you're looking at basis, orders were -- will be around 15% to 20%. But if you're calculating basis execution, at the moment it will be slightly lower than that. It will be probably less than 10%.
Because the order book position has built up now with all the qualifications.
Okay, sir. And we are seeing -- come again, sir.
We have still to execute this INR 300 crores. Earlier, we have not been producing and selling INR 300 crores, right? We've just built up in this year a good order book position. So going forward, it looks good.
Okay. Okay, sir. And on the raw material front, sir, if you could show some more light how is that basket shaping up? And how do we hedge that depending upon the volatility in the commodity prices? If you could give some more color.
Yes. You see, we have so many variety of products in copper that -- there are many sizes and colors. You have to stock and sell the trade items in through your depots. We have 26 depots all over the country. And you will have to have at least about 1 month inventory in stock to be able to satisfy the product mix and the demand of the consumer asking for immediate delivery.
So raw materials, when you get copper, we buy copper on the average of the month. If you try to hedge it, there's a cost involved. It will take a natural hedge like what we've done, which is taking average of the month. And we price and sell it at the average of the month except that we have a particular stock with us, which is a 1-month stock.
So when the copper prices are going -- like in the last quarter, it went down. If you -- we have to value the stock the way it is in the balance sheet. So basically, we are taking a hit as it's coming down. And we are taking a gain when it's going up. Over a long period, it evens out. And that's why we don't go and pay a cost for hedging, which would be otherwise recurring cost on a continuous basis. We have this natural hedge mechanism running while selling our products.
Copper has come down from $10,400 to about -- it came down to $7,500 to $7,400. Last few days, it's gone to $8,000. So it's come down quite a bit in 3 months and so as PVC come down quite a bit.
PVC prices also come down...
PVC prices are constantly dropping.
If you are following the 5 companies, you would have seen all their commentaries, Yesterday, in fact, there was a commentary from -- I think it was...
Yes, sir.
They had also had an issue on the PVC price.
Yes. PVC, it drives substantially. [indiscernible] it keeps dropping.
Correct, sir. Right, sir. Lastly, sir, on the raw material basket, what percentage would be, sir, this copper part out of this total 744 raw material consumption? The major component percentage mix, can you provide?
Okay. In year out of my material cost, about 65% to 70% is copper.
65% to 70% is copper. And lastly, sir, on the OFC part also. Do we have this -- do we do this interconnect also? Or we are only in the OFC segment? I think interconnect is also gaining a lot of traction with this communication business.
Sorry, I didn't follow. What do you mean by interconnect?
Interconnect is, sir, joining of the OFC cable.
No, we are not doing -- at the moment, we are not on the EPC side or on the connectorization side. It is something that we are exploring. We'll have to see how to take that forward. But at the moment, we are only supplying cables to consumers. So the consumers could be government, BSNL, BBNL or any of the other agencies or the large telcos.
Right, sir. And the copper rods are also for the communication cables only. They are accessories to that cable.
Copper rods are primarily for electrical cables. It is for that.
[Operator Instructions] Our next question is from [ Aksh Poora ] from [ Rohesh Financial ].
Just -- most of my questions are answered. Just on the optic fiber business or the communication segment. It's a little bit capital-intensive business and we are not making enough money on that. So is there any plan in distant future that we might demerge it or we might sell the business out and focus on the much more -- much less capital-intensive business with higher margins? At company level, the margins have -- margins, ratios, everything has been coming down because of this segment. So any plans on that, sir?
Actually, fiber optic business has been dropping, like you say, in the past few years. And in our country, the number of customers, the telecom operators also shrunk over the years. And so it's a B2B product, a tendering business and a fixed price for a year. These kind of stipulations squeeze margins.
But things are changing. The way it is happening now is because of 5G, you will have a lot of demand on fiber optic cables. And for example, there are a number of towers for your wireless phones. And maybe 30% to 35% of these towers are connected by fiber optic cables. In 5G, you will need to cross 85% connectivity of towers for -- with fiber optic for 5G to work successfully. So imagine that number of towers which need to be connected. So for the next few years, there will be a lot of demand of fiber optic cable.
5G also requires a cell site to be smaller. So there is going to be a 3x growth on the number of towers itself and those to be connectorized with fiber. And this 5G rollout is happening all over the world, which means the demand for fiber optic cables is worldwide. It's not just in India. So actually, it's a good place to be going forward in the fiber optic. I think we will see a good business going forward for the next few years.
In fact, a few years back, I think -- maybe if you look back at our history, let us say, 2017, '18, the margins used to be around 8% to 10%. But then you had funding issues in the sector, which have kind of dampened the actual demand in the country. The requirement is very high. But what actually has been laid in the ground -- on the ground has been less because of funding constraints. And that means that those of us who have set up capacities have had to absorb fixed costs and drop the margins over a period. So I think like Mr. Chhabria said [indiscernible] we will have to go through that because there is a massive demand ahead of us.
Comparable numbers, I think we have shared this earlier also. China, for instance, even today consumes close to 400 million kilometers of fiber, whereas we are at 20 million, 22 million fiber kilometers a year. So there is -- while we will not reach the 400 million number ever because China is geographically much larger than us, for a size of our -- for a country of our size, the kind of population that we have, the kind of penetration that you expect people to have in terms of communication abilities, the actual fiber underground is far, far too low. That needs to grow.
We have a question from [indiscernible].
I wanted to know -- in the last con call in Q4, you had said that the cumulative price hikes had been about 14% to 15% in FY '22, post which, we had to take a price cut of 4% to 5%. I would like to know where our product [indiscernible] stand as of now since there has been more decline in the commodity prices, especially copper and aluminum?
No, no. We had to take about 6% to 7% in Q1 and, again, 3% in Q2. Okay. So Q1, we did not have a call because the results were announced and was very close after the Q4 results were announced. There was not much of a time gap. So we didn't really have a large message to convey. So we did not have a call at that point in time.
Okay. So the average price cut has been about 10% in the first half.
Yes.
Okay, sir. And sir, also I would like to know our sales and advertisement expenses as a percentage of revenue, how much it is now. And is it likely to go up further?
Yes. So what -- we were at about -- pre-COVID, we were at around 1 -- just around 1% of revenue. COVID times, we had obviously dropped that number. We had -- in fact, in the year 2020, before COVID hit us, our plan was to take it up to 1.5% of revenue. And we are slowly getting there now.
Okay, sir. And also, the channel inventory earlier, you said that the channel partners are now keeping very low inventory of just about 3 to 5 days. So has it normalized in Q2?
Okay. In Q4, I meant that because prices had gone up at that point in time and people could see the trend reversing so they were a little careful. I think as -- they have not loosened the first 2 yet. But as demand -- as they have seen demand, they are trying to lift it. So they are trying to be careful with their deployment.
Okay. So -- but it still hasn't reached the general level of about 30 days.
Yes. I don't think anybody is sitting on 30 days of inventory. Those days have gone. Those days have gone. They want to place an order in the morning and they want the material by the afternoon.
No. We as a company normally have 30 days or 40 days of inventory. And that's because we have to have some stock at the plants. We have some in the trucks which are moving towards the depots. And then we have 26 depots with different sizes and color combination stocking, where to service the consumer, you will have to hold 15 days' inventory in those depots at least. So for us, there is a stocking of 30 days or slightly more. But retailers normally don't keep that much inventory. They are getting serviced from those depots on a daily or alternate day basis.
In fact, after we have started -- gone on the distribution thing, the distributor replenishes the requirement on a weekly or 2 weekly cycle, depending on which market it is.
Our last question is from [indiscernible].
I have a couple of questions. Firstly, a little bit around...
Can you speak up, please? Your voice is very low.
Is it audible now?
Still a little low. Okay. You go ahead. Let's see. If I have difficulty, I'll ask you again.
Unfortunately, we have lost connection for that line. Our next question is from [indiscernible] wealth Management.
So this quarter and last quarter, we've seen a decline in the tax rate. So just wanted to know the reason for the same. And going forward, what will you guide on the tax rate for this year and next year?
The tax rate, see -- what you see on the financials is net of provisions for deferred taxes. So the applicable rate is 25%. And so that should continue.
We have reached the end of the question-and-answer session. For any further questions, please write to Perfect Relations with your questions. On behalf of Finolex Cables Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.