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Finolex Cables Ltd
Earnings Call Analysis
Q2-2024 Analysis
Finolex Cables Ltd
The company operates in a substantial cable market valued between INR 22,000 to INR 23,000 crores annually, with their contribution around INR 200 crores. Despite the large size of the wire market where they perform distinctly well, the company falls short in the cable market which can mislead when comparing performance metrics. Industry growth in the housing wire segment is projected at 23% to 25%, largely due to reduced participation by smaller, unorganized players. The company plans to at least match if not exceed this anticipated industry growth with the help of a successful distribution expansion plan.
Copper prices, a significant cost factor for the company, recently saw an 8% year-over-year increase. The company's cost of goods sold (COGS) as a percentage of revenue has improved from the past two quarters, dropping from 78.7% and 78.9% to 77.7% in the recent quarter. This suggests improvements in gross profit margins, achieved through a combination of efficiency enhancements, inventory gains, purchasing gains, and margin improvements on product offerings. The executive indicates this improvement despite commodity price volatility, which continues to be a critical factor to watch for. With increased activity in construction, more demand is expected, bolstering the performance in the latter half of the year, which is historically stronger than the first half.
The company is watching the government tenders, particularly a significant INR 1.4 lakh crores project that has been delayed. They are optimistic that once the tenders are announced, they will be able to compete effectively. However, there seems to be some concern due to delays in the execution of some ventures, notably the e-beam plant project, which includes e-beam processed cables necessary for certain applications. The extent of any cost overruns here is not clearly addressed.
The executive maintains that a 14% margin on electrical cables is sustainable, with recent quarters showing a positive trend from under 10% a year ago to 14.25% currently. They are cautiously optimistic about future margin performance, contingent upon market stability. Fiber prices, currently low due to dumping from other countries, are expected to see an increase in the next 3 to 6 months due to government-imposed anti-dumping duties. The FMEG business requires a revenue figure higher than INR 200 crores to turn profitable, a target the company believes is attainable.
The company's extra-high voltage (EHV) business is conducted through a joint venture (JV), which presents a set of unique accounting and operational challenges. Although the JV is not line-by-line consolidated with the company's main financials, they hope the JV's current order book of about INR 200 crores will help mitigate existing losses. Bids for EHV projects could amass to INR 1,500 to INR 1,600 crores, with state utilities and metro rails being prominent consumers. The company emphasizes that it tackles turnkey projects in the JV, entailing not just the supply but also the deployment and commissioning of the cables.
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Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Finolex Cables Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Mamta Samat from Perfect Relations Private Limited. Thank you, and over to you.
Thank you, Yashaswi. Good evening, everyone, and thank you for joining us on Finolex Cables Limited's Q2 FY '24 Earnings Conference Call. Today, we have with us the senior management represented by 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. We will begin the call with the opening remarks from the management, after which we will have the forum open for an interactive Q&A session. I will now request the management for the opening remarks. Thank you, and over to you, sir.
Thanks, Mamta. Good evening, everyone. Thanks for joining us on this call today. As usual, I will make a brief introductory statement. I'm sorry that this time the call has been a little delayed. I was away on some personal work, so I could only take it up today.
So as far as the quarter is concerned, we had a reasonably okay quarter. Revenues were up about 9% in total, while it was slightly below last quarter, the immediately preceding quarter. And on a 6-month basis, the revenue was up about 14%. Where I think we did well was in improving the gross margins. We now have, in the quarter, a 23% gross margin as against 21% earlier in the previous quarter and 19% in the comparable quarter. On a half yearly basis, margins were about 22%, slightly above the previous 6-month period of 20%.
Coming to the segments. In volume terms, Electrical Wires volume was up by about 10%, while Power Cable was up by almost 37%, although we had a low base in the previous corresponding quarter. Communication Cable segment, the metal-based products were stable, whereas the fiber-based products actually saw a dip, primarily because the tenders that we were awaiting have not yet been announced.
You might recall that the government had announced a plan of approximately INR 140,000 crores to be spent on upgrading the BharatNet network over the next 2 to 3 years. We were expecting some of those tenders to open up. That has not yet happened. We now understand that those tenders would probably come to the bidding stage somewhere around December or January. So there's been a delay in that. And consequently, there has been also a shortfall in revenue.
As far as the new product offerings are concerned, the volumes were very good in both Lighting as well as Conduit products. Switches were also positive, while the other appliance product lines were muted. I think the appliance line, there is still a fallout of the inflationary trends that were there. While overall inflation has gone down, it has still not gone down to the extent that possibly people expected. And there has been a little bit of sluggishness. We hope that during the festive season, this gets reversed.
Profits for the year for the quarter was about INR 165 crores compared to INR 136 crores in the corresponding quarter. That's an improvement of 21%. The other piece of information that we have is that the JV with Corning, the liquidation proceeds have been received and we recognized a profit of about INR 12.5 crores in the quarter.
With this brief statement, I open it up for questions. I'm happy to take questions from you.
[Operator Instructions] We have our first question from the line of Shivam Mittal from Purnartha Investment Advisors.
Sir, first, a couple of clarifications before coming to questions. First being on the CapEx side. Like last quarter you guided us, INR 250 crores CapEx will be done in FY '24 and INR 100 crores will be done in FY '25. And when I see annual report, and in AGM also, Deepak sir told that INR 500 crores will be executed in the next 18 to 20 months. But when I see cash flow statement, cash CapEx, it is just INR 60-odd crores. So these numbers are actually not just adding up. So if you could just clarify on the CapEx, sir.
Some of these expenditures will be -- they will not be front-ended. The payments will happen as the projects get to completion. So what we said in the previous call was also that the major projects that are ongoing right now are the projects on e-beam, the project on optic fiber preform, and added to it the expanded capacity on optic fiber cabling as well as the fiber draw towers.
The e-beam project, some of the money was already spent in the previous year. So probably when Mr. Chhabria spoke, he also included the money that was spent on the project, but not yet capitalized. So all included. The e-beam project is currently expected to go live by first quarter next year, that is first calendar quarter next year. The equipment is expected to arrive here sometime towards the end of December, and then installation, commissioning and testing will take the next 2 to 3 months. So we expect that we should close that project by end of March next year.
Associated with that, that particular project will require special insulation material. So we are also putting up a compounding plant to supply the insulation material there. That will also be ready by March end, or latest by the middle of April that should also be ready. So this will complete 1 project.
The preform project, the building construction has started and associated licenses, clearances from various regulatory authorities have all been secured. And so we are expecting the building to be completed by June or so, and then for the equipment to be installed, tested and commissioned. So all that process, we expect to complete by somewhere around the second quarter, between September to November of next year.
The cash flow from that project will largely happen when the machine comes here, which is somewhere around June, I believe. So you will see that spend happening at that point in time. And then the 2 other projects that I mentioned, the additional draw towers and OFC expansion. For the expansion project, the building is already ready. Again, that money was spent last year. It's only the equipment that needs to come in. And so as and when the equipment comes in is when the cash flow will happen. So you may not see a linear pattern of spending, you will see spikes in value from before.
All right. Sir, on distributor count, like in February '23 con call, so you mentioned distributor count towards about 688 or 689, and in May '23 con call, you mentioned close to 700 distributor count.
Right. Right.
And when I see the annual report, so it is showing 600 distributors. So 100 distributor count has been reduced, or something?
So there might have been some weeding between February and March. If there is someone who is nonperforming, then obviously, you have to weed them out. So that exercise would have happened. Currently, at the end of September, we have about close to 700 distributors who are performing. So it's only a matter of housekeeping because you keep adding customers, but not all of them perform according to your expectations. And therefore, you do end up weeding off someone.
Okay. Now it is 700 distributors, right?
Yes. 690-something, so roughly 700.
All right. All right. Sir, some of our peers have actually shown better performance in terms of volume growth. We hold a significant share in organized wire market, like 22%. So I mean where do we lack in terms of execution?
I think we have explained this in the past conferences also. We are a very small participant of the Power Cable business. We are less than -- we are probably around 1%, 1.5% of that market, whereas most of my peers are fairly large players and very, very large players on the Power Cable side also. So if you -- unless you have the breakdown of their revenue numbers, then the comparison becomes a little bit awkward.
I think this time around, KEI has reported numbers by the product group. But the other peers do not report it. So it's kind of difficult to make a one-to-one comparison. But we do know that some of them are very large. The cable market is approximately INR 22,000 crores, INR 23,000 crores per year, out of which we are about INR 200 crores. So we do not participate in that. So when you compare the performance numbers, it seems a little out of SKU, whereas on the wire market, we are doing fairly well, and that is our largest base.
All right. Sir, just you mentioned KEI Industries. So they have guided like 23% to 25% kind of industry growth in housing wires. So largely on account of smaller participation of -- less participation of smaller unorganized players. So how do you see, sir, housing wire growth like if industry is going to grow by 23%, 25%?
Sorry, your voice is a little difficult to understand. Can you repeat the question again, please?
May I request you to use your handset mode, please, Mr. Mittal?
Yes, ma'am. So is it better now?
Slightly better. Go ahead.
Sir, KEI Industries has guided that house wire is expected to grow like 22%, 25% industry wise on account of lesser participation of smaller unorganized players. So...
Well, there are quite a few unorganized players in the general construction wire, because when you go to individual regions, there are regional players, there are smaller players. There is competition there. But in terms of growth potential, I do agree that there is a fairly large growth potential out there. We have often been saying this, housing and construction as an industry offers a fairly stable and steady demand for a long period of time to come. I mean, as a country, I think there is a large need for housing still to fulfill people's needs. And I think that sector will offer quite a large demand potential for some time to come. So to that extent, I do agree, yes.
All right. So how much volume growth do we see like if industry is going to grow 22% to 25%? So how much volume growth do you see in next 2, 3 years, like down the line?
I mean, we have to be definitely as good as the industry, if not better. Otherwise, we will lose share. So that is something that we are conscious about. And that is another reason why we are ensuring that our plan of distribution comes out successfully.
All right. Sir, in this quarter, copper price is up by 8% year-on-year. Like volume growth is 10%, and we almost like take 2.5% in terms of hike copper-wise. So can we see the remaining 5%, 5.5% of kind of price hike in Q3 on account of copper price hike?
It depends on where copper is. So if you look at October, prices fell, and I think the entire industry took a correction downwards. So it depends on where copper is at any point in time vis-a-vis what the demand scenario is. It's something that one has to be watchful for on a periodical basis. The action that you talk about, it doesn't work like okay, there was X percent change in one period of time and that automatically translates into the similar increase...
Yes. That is cumulative transfer...
Copper constitutes a certain percentage of the total product cost. So if copper prices increase by 10%, it doesn't mean that I have to change my selling price by 10%. It doesn't work that way.
All right. Sir, how much do we have lag in terms of passing like price or depending in terms of copper price to the end consumer? How much lag do we have?
Normally, our lag is not very long. I think the change will happen within matter of weeks. And like I mentioned, October, there was actually a price drop. So if you see the prices today, they are at about $8,200 per ton. A few weeks ago, they were at $7,800, $7,900 levels, and they have dropped from $8,700 to $7,900 levels. So October, we took a price drop. And I think the other players also dropped their prices.
So it depends on where copper is at any point in time. That is the largest factor that impacts prices both ways, up or down. But you have to look at it in combination with where PVC prices are, because these 2 are the 2 large components of the cost.
All right. Sir, in this quarter, like as already mentioned, copper is up by 8%. So if I see the cost of goods sold as a percentage of revenue, so it comes around 77.7%, and last 2 quarters were like 78.7% and 78.9%, so...
Sorry, I'm not able to get your question. Your voice is not very clear.
Sir, in Q2, copper is up by 8%, and if I see cost of goods sold as a percentage of sales, it comes around 77.7%. And in previous 2 quarters, it was like 78.7% and 78.9%. So I just want to know like copper price is up by 8%, but our cost of goods sold has reduced, so thus improving GP margin.
No, it is not 1 item. There are more than 2,000 SKUs. So there will be certain items where the margins are better. And therefore, the composition of which unit has sold more during this period would make a change. Also, it might mean that during this period, there is also change in the PVC prices. So probably, we've gained a little bit on that. So it's a combination. It's not just only copper, don't look at just only copper. Copper is a major factor, I agree, but it's not the only factor. And in that way if you compare, one year ago, the cost of goods sold was 81%.
So we've been able to bring it down from 81% to 77%. So there have been efficiency improvements, there have been inventory gains, there have been purchasing gains, and there have also been some margin improvements on the product side.
[Operator Instructions] We have our next question from the line of Rahul Agarwal from Incred Capital.
Belated wishes for Diwali. First question on margins. Obviously, there's a catch-up still left about 1%, in my view. Just wanted your understanding because gross margins have recovered to 23%. My sense is we are sharing some bit of it for the new distribution change which we're doing. So is it possible to look at another 1% gain in gross margins and similar on the EBITDA margin side?
If the input prices are stable, then there is some possibility, but if there is volatility, then we'll have to make adjustments as we go.
Okay. Yes. A similar question was on working capital days. I think we used to be like 55, 60. Right now, it looks like last 2 quarters, 35, 40 days of sales. What could be a sustainable level? What should we assume?
Well, I think in the last call, we mentioned that we are working with an external consultant to see how we can realign our inventory holding capacities as well as ensure availability at a fairly high level. I think some of that work is starting to slowly pay off. But I would say that about 50 days should be something that is sustainable.
Get it. And you mentioned on the tender side, it's a bit delayed, I understand. And we expect in December-Jan, we're getting into elections...
This is what we hear now. Things keep changing from that side. The original announcement that came in August was cabinet has cleared INR 1.4 lakh crores, and very soon you will see the tenders coming out. So it's now 3 months since then and the tenders are still not out. In fact, there is a -- I think they're calling the industry for consultations to talk about the design and stuff around that. That is slated for sometime early next month. And then they will release the -- I mean, and then they will float the tenders. So you are right about the election part. So I do not know how much of it will actually get done before May.
Right. So -- and I think this is pretty usual of how government works. And even last time, I think BharatNet -- tenders generally are -- we don't really know when they actually come through. So there's a lot of volatility, right? So what I'm trying to ask was essentially OFC, my sense was, last calls, we've discussed the growth is sustainable or not. When I look at last 6 quarters, it's about INR 130 crores, INR 140 crores run rate every quarter of revenue. That essentially means about INR 550 crores of annual sales. Should we assume growth going forward or it is still contingent on, if we get these orders, great, if we don't, we're stuck. How should we think about it?
Well, eventually, there has to be spending on that. I mean, spending at this point in time, both from the government as well as from the private players has been muted in this quarter. And I think you would have seen this in the result of the other peers in this sector as well.
But if we are talking about 5G and other technologies, connectivity and so on and so forth, this spend has to happen. Whether it happens in the current quarter or next year, it definitely has to happen. And you cannot start preparing after the tenders are announced. You need to be prepared a little ahead. So we are continuing, therefore, with our investment in this segment. And we believe that we will be able to compete more effectively when the tenders do get announced.
Got it. And lastly, on the e-beam side, I mean, my sense is that plant is delayed quite a bit. Haven't we seen any cost overruns there?
No, we haven't seen any cost overruns. In fact, we have -- while there has been a delay, we were able to negotiate with the new supplier better rates and also more optimum efficiency machines. So I think we've been able to handle that part. So the machine is ready, available to be -- I mean, can be dispatched any point in time. The bunker in which it has to go in is being cast tonight. So we have asked the machine supplier to dispatch it sometime in December. So that by the time it comes here, the bunker is also ready.
Got it. One last thing on outlook. Essentially, on the wire side, what do you think about the market second half? How should one look at wire market? Because we understand inflationary pressures have created some kind of divide between cables doing better than wires. Obviously, we're not comparing power cables, but even low tension cables have done better. Your sense of next 12-month outlook in terms of wire demand B2C, maybe housing, commercial, what segments are doing better. Any views please.
I think one does see a lot more activity on construction side. So that should lead to more demand as those construction projects come towards the latter part of their cycle. So I think that should come back again. And typically, the second half of every year has always been a better half than the first half. So I'm hoping that this year is no exception.
[Operator Instructions] We have our next question from the line of Sonali Salgaonkar from Jefferies India.
Sir, my first question is regarding the margin expansion. We did a very good job of margin expansion this quarter, generally, which we have been trying to do for the past few quarters. So anything you'd like to update as in, has the product mix changed? Or these are just economies of scale when it comes to good volumes that we saw in electrical wires? And what is the sustainable level of margins that we should be looking at going forward?
I have always maintained, as far as electrical cables is concerned, that somewhere around 14% is a sustainable number. And I think we'll come back to that level. If you look at the last few quarters, I think the worst that we had was 1 year ago, we were just under 10% at that time.
And from then onwards, we've been gradually improving. Last quarter was 13%, this quarter is now 14.25%. I think this is a sustainable level. You are right in that economies of scale do give us the benefit of better margins. But I think 14% is something that is sustainable. Barring any commodity shock, it should be possible.
Understand. Sir, on the communication cables front, you did mention that the tender has got delayed, which we understand for reasons beyond our control. But then going forward, if, say, there is a further delay, should we see weakness in the sales of communication cables even going further quarters? Or do you think that should catch up? And also your thoughts on the pricing of optic fibers globally.
Well, right now, fiber prices are low. While the government acted a couple of months ago by imposing AD, the impact of that is yet to be felt because I think whoever wanted to import had already imported the product in the second quarter. We have not yet seen the fiber prices climb back up. I think we should be able to see it in the next 3 to 6 months.
Having said that, offtake from both the government and nongovernment customers has been very muted over the last 6 months. From the government side, I think there will be delay in the tender finalization. But even the private players, their spends on cables in the last 2 quarters have been slightly low. I don't expect this to continue forever. I do expect this to catch up at some point in time. Now whether that happens in 1 or 2 or 3 quarters is something that's anybody's guess, but it should catch up and improve some.
Understand. Sir, and YTD, what has been the correction in fiber prices, YTD?
I think we are still at $3.15, I think, in terms of dollar prices.
Understand. Understand. Sir, you mentioned that we have taken price cuts in cables and wires in October because of the softening copper prices. Any quantum you would like to...
It came down by about 3% to 4%, depending on which SKU it what, between 3% and 4%.
Understand. And just the last question on our FMEG business or the other business. We saw, I mean, reasonably healthy volume growth -- reasonably healthy sales growth, though the margins are yet to catch up. So any ideas on when can we breakeven and what are the amount of sales that we require for breakeven?
That has not changed. I think we need to hit higher than INR 200 crores to make profit. I think right now, the numbers are positive still, but that is only because some of the ad costs come towards the tail end of the year, so it is not showing up yet. As and when those ad costs are actually incurred, you might see a slightly different position there. But I think INR 200 crores plus is something that is possible -- that will result in a positive number.
[Operator Instructions] We have our question from the line of Saket Kapoor from Kapoor & Company.
Sir, you were mentioning about the lower OF and OFC prices. So if you could come again what has been the decline, say, for June to September? And even going forward, what are the price trends for OF and OFCs currently?
No, that's what I said. The government acted on representation made by the industry. There was a lot of dumping coming in from China, Indonesia and Vietnam. So they have imposed AD. That was imposed sometime towards the end of August. So the impact was not immediately felt in the quarter. I'm hoping that as we go, then the imports will be more expensive and prices will stabilize.
For the prices to pick up, then the demand also has to pick up. And so that is dependent on how quickly the tenders get floated because the quantity of fiber that is required for the BharatNet Phase 3, the original number was somewhere around 20 million fiber kilometers. I understand they have scaled it down a little bit. So now the latest figure that we saw was about 14 million fiber kilometers. But even that is a substantial quantity to be made available in 2 years. Our total consumption on a yearly basis is only about 18 million. So we are asking almost 70% of that to come in 2 years. That's a big ask. So prices would then look up, I think.
Now the question is what period do you give that? That would all depend on when the tenders are floated, when is the cable expected to be delivered, and when is it going to be made. So it could be as quick as 6 to 8 months or it could be longer than 1, 1.5 years. So it depends on those factors. And I don't think I'm in a position to get that right now.
Sir, what is the current -- I think so many of the big -- large players domestically have ramped up their capacity with greenfield projects also. So what should be the current OF and OFC capacity for the country? And sir, for the price trends, what are the current prices? If you could just...
I said no, fiber is I think -- the last I heard was $3.15, I think, $3.15. And capacity, nobody today officially publishes that capacity number, so it is a little difficult to guess. Countrywide, I think we have -- preform, there is only 1 person that makes preform in the country today. When our facility goes live, we will be the second. But fiber draw, there is Finolex, there is Sterlite, there is HFCL, there is Birla Furukawa, and I think Aksh. So fiber draw capacity is there. There is, I think, about 30 million-plus.
30 million-plus. And for OFC, sir?
OFC capacity is difficult to define because the construction of the cable, you're talking about some cables with 256 fibers, some with 96, some with 48, some with 24. So when somebody tells you in kilometers, they are telling you cable kilometers, and that doesn't really make sense because you might have a cable with just 1 fiber in it and you might have another cable with 96 fibers in it. So they're not really comparable. But I think there is enough capacity to consume the 30 million kilometers of fiber.
And sir, the AD which was implemented, does it have a clause like that if a manufacturer is -- is it a plain vanilla type or does they have any specification for the implementation?
Sorry, I didn't get your question.
Sir, this antidumping duty is a plain vanilla duty or if somebody goes for some customization and...
It's for a particular grade of fiber, which is the most commonly used grade.
Okay. Right, sir. And last point was, sir, on the EHV part, sir, what percentage of our sales come from the extra high-voltage cables, sir, and what's the order booking and the outlook on the same?
The EHV business is conducted through a joint venture. So that is not reflected in the revenue numbers that we reported. It's a 50-50 joint venture. It's consolidated on -- it's not a line-by-line consolidation. It's only a participation consolidation that happens. Joint venture consolidations are slightly different as opposed to subsidiary consolidations.
But the JV has an order book, I think current order book is about slightly under INR 200 crores. Their revenue for the first half was about INR 70 crores, I think. There still is a loss there. We hope that with this order book, they should be able to clean up that loss.
And sir, what should be the bid pipeline for the segment?
The bid pipeline could be around INR 1,500 crores to INR 1,600 crores.
Okay. And sir, this is mainly to the state utilities and the metro rail category, we should assume that as a final consumer or...
Yes, so the large consumers would be the transmission companies. Some grades go to the metros. Sometimes there are also generating companies which require this to evacuate the power that they generate. So the largest portion of consumers would be state utilities and networks, but then you also require these in very large industrial places.
Let's say, there is a steel plant coming up, that would require. Many of your infrastructure facilities would require -- airports, ports, these guys would require fairly large amounts of this cable. I think there is a need also in the oil fields. So there is application available everywhere, but then construction requirement or design requirements would be different for different applications.
I missed your last point. You mentioned IV, I could not hear you properly.
So I said, besides the utilities, you have metros, you also have infrastructure projects. So large infrastructure projects like airports or seaports, those would also require it, plus huge industrial plants. Let's say there is a steel plant coming up or a fertilizer plant coming up. Those people would also require large gauge cables.
Right, sir. And lastly, you mentioned INR 80 crores was the revenue from the JV.
INR 70 crores.
INR 70 crores for the first half or for the quarter, sir?
For the first half.
For the first half?
Yes.
And we have an order book of INR 200 crores?
Yes. See, the business is slightly different as opposed to the business that is run in the Finolex Cables entity. While the major part of the business comes from supply of cables, the contracts that the utilities give out are usually turnkey contracts. So your requirement or responsibility is to supply the cable, lay the cable, join it where it is required, and also terminate it on 2 sides and charge the cable. So it's a turnkey job. And you can recognize revenue as you complete portions of the job. So I might have made the cables, but if the right of way has not been given to me by the customer, I am unable to recognize full revenue at that point in time, unless I lay it and complete that portion. So it's a slightly longer gestation period for each of these projects.
But we are into the EPC play also. Not only we are supplying, manufacturing and...
Yes, we are into EPC. You have to be. Because the customer, the utility wants to talk to only 1 person.
Correct. Correct. And here, sir, also 1 concept for VCV line comes, sir, that, that is the only way through which the cables are manufactured and current with a V -- I'm missing the terminology.
Well, as you go into higher voltage grades and higher sizes of conductors, the vertical insulation technology that we use is definitely better. Because you get a conductor which is right in the middle of the insulation, which is completely and very clearly centered. If you use horizontal insulation processes, then the force of gravity acts on the insulation and you get a cable which is slightly oval in shape, which means there is more insulation on one side than on the other. And that leads to performance problems as well as issues over the life of the cable.
These are very expensive cables. So if you're going to spend INR 25 crores over a length of 5 or 10 kilometers, then you expect the life of the cable to be at least 25 to 30 years, right? So you want to ensure that the customer gets the right product and also the right life for it. So therefore, there, the vertical process is preferred, and we have the vertical process. At lower sizes, so 11 kV, 22 kV, 33 kV, then it doesn't make sense because it is much more expensive. And you can control the force of gravity to some extent and still get the product that is designed.
Okay. So we have our VCV lines? Or sir, I think so only 1 manufacturer in the country...
We have a VCV line. We have provisioned for 3. So as business improves, we can, with minimal investment, add 2 more lines.
And sir, here, who are our nearest competitors in this segment?
Today, in the EHV segment, there is Universal, who is, by and large, the largest in the country. Then there is a Korean company called LS, who has set up a factory in India. There is KEI, and there is -- Polycab and Havells are not in the 220 and above grade, but they are in the 66 and 110 grade.
All the best. So we are envisaging on a CapEx for the OFC segment from both the telcos as well as the government. Sir, for the telco, I think so they have done this provisioning of expenditures. So they are not spending the money currently on the same?
I think they are spending it, but they are not spending as much as I would expect them to.
Because, sir, without the proper fiberization, 5G would not be in the same play. That needs the fiberization.
That is true. That is true. Because if you want the kind of connectivity that 5G requires, then you need much more fiberization.
So they can delay it for the time being, but they have to do -- eventually have to proceed with it?
Correct.
We have our next question from the line of Sonali Salgaonkar from Jefferies India.
Sir, two questions. Firstly, in the Electrical segment, around 60%, 65% is construction, and then we have agri to industrial and power cables. So could you help us understand broadly and approximately what would be the EBITDA margins of each of these subsegments?
Well, let me not get into the numbers right now, but I can give you in terms of which is the lowest and where it is better.
Sure. Sure.
Auto would be the lowest, there are industrial consumers, very thin margins, followed by industrials, agri, and then construction will be top of the heap. Power cable is -- there are 2 segments to it. Again, there is some that is going through the market through the distribution and some which are made-to-order. Made-to-order ones are all primarily B2B where the margins may not be very high. Once that goes through distribution, the margins would be okay.
Understand. Sir, and secondly, on the company's overall distribution, what is the current count, dealers, retailers? And how much of that is exclusively for FMEG, and how much overlaps with our cables and wires?
We have about close to 700 now, distributors. 66,000 retailers were billed in the quarter. The secondary sales through retailers in the quarter was about INR 300 crores. And what was the other question?
Sir, how much -- if we have a quantification of how much is overlapping the distribution?
We have -- the only condition that we have put is if there is a retailer who is selling a competing brand in a particular segment, then we don't service that particular product. So let me give you an example. If there is a retailer who's selling Philips lights, then obviously, our lights do not go on his shelf, but our switches and cables can. So that's the only condition that we are focusing. As long as they do not deal in a competing product, we are fine.
Understand. So the 700 distributors, they are not exclusive, right? They are multi-brand? Is my understanding correct?
Multi-brand. Because at a retailer's point of view, if you say -- I mean, even as a distributor, if you say that you have to be exclusive, he doesn't make the ROI then. Those days of exclusive distributors, I think, there will not be many of them. There might be a few, but there will not be many. So what we have done, therefore, is to come out with these experience shops. We now have -- I'm sorry, I don't have a count of how many of these experience shops that we have. We started in Chennai, then we have gone in Baroda, in Mumbai, and in many of the other cities, we have an experience shop, where under 1 store, you'll get to see and feel all our product lines.
Understand. Very helpful. Sir, just a last question from my side. In the volume growth terms, power cables, we have seen 37% growth. That's very encouraging. And in the electrical wires, it's 10%. Of course, 10% is also healthy. But do you foresee some kind of deceleration compared to the earlier quarters in electrical wires?
The second quarter was slightly lower than the first quarter. First quarter was much better as far as the wires is concerned, but I think that's partly a seasonal issue also. I do believe that as more of these projects come towards their conclusion, the wire sales should pick up.
Understand. Sir, and festive sales in the FMEG, any thoughts on that, any color? How has been the festive season?
I am still getting the numbers. So I think I don't want to preempt anything there.
We have our next question from the line of Shivam Mittal from Purnartha Investment Advisors.
Sir, other expenses as a percentage of sale was 5.4% in quarter 1, and Q2, it is 6.4%. So 1% increase. So any reason for that?
Other expenses, is it?
Yes.
Okay. We have taken a small provision for the JV in that. So JV has been making losses. So we have made a provision for the loss.
All right. Second is, sir, is the litigation costs already included in the quarter or yet to be accounted?
I'm sorry, what litigation cost?
Whatever we have currently going on court cases.
That has got nothing to do with the company. That is between 2 shareholders.
We have our next question from the line of Anurag Jain, an individual investor.
Am I audible?
Yes, you are.
Sir, my question is like what is the current capacity utilization of the company? And do you think that in the next 3 years, you will need capital expenditure in different business segments? And if yes, like what would be the planned capital expenditure in the next 3 years?
So we have detailed our capital expenditure. We shared it in the last couple of calls. So most of the major expenditure is happening on the optic fiber and related areas. So we are setting up a preform plan. Preform is the basic raw material for draw fiber. We're setting up the plant, that the building construction has started. Other approvals from the environmental agencies all have been secured. The machine is ready to be shipped sometime in March of next year. And we hope that the building construction will be over by around April or May when the machine will also arrive here. And we are expecting that commissioning to happen sometime around November next year. That's 1 project.
We have spent money on an additional factory for the optic fiber cable. We have not populated that with the machines as yet. So as soon as there is clear visibility on the tenders from the government on the BharatNet program, we will place orders for those equipment. So they have a lead time of about 7 to 8 months, and then installation and commissioning.
We also expect that from the time the tenders are announced, by the time the government completes the order issue formalities will be anywhere between 8 to 10 months. So that should coincide. In addition to this, we are increasing our fiber capacity. Our fiber draw capacity today is about just under 4 million kilometers a year. We are taking that up to 8 million. Those construction activities will commence maybe from January. So that's on 1 side.
On the electrical cable side, we are setting up an [ EV ] plant. If you were part of the conversation a little ahead, you would have noticed that this particular project has been delayed. We initially selected a Chinese machine, but then because of the relationship between the 2 countries after Galwan, we were not able to get anybody from there to complete the installation. While the equipment is ready in China, it couldn't be shipped. So we had to change supplier. We've now got in a Korean supplier who is supplying equipment and that equipment is expected to arrive sometime in -- it will leave Korea in December and will be here in January. The building for that is almost ready. So we should have the machine up and running by March of next year. So that would enable us to supply cables to the solar application, also improve our offerings on the auto cables and wherever thermal stability is required, wherever performance on -- where the requirement will be to handle different changes in atmospheric conditions, those will be required.
So there, I think we will be able to make our offerings. So all these programs effectively will cost the company approximately somewhere around INR 400 crores, some of which has already been spent and the balance will be spent over the next 12 to 18 months. So these are programs already in place.
You asked me about where the capacity utilization is? At an overall level, it is slightly above 60%. Individual plants could be different. Auto cables, for example, is much higher, and we are expanding in that area. We are adding capacity at our Roorkee factory. That should be ready by next year. So these are areas where we are spending money.
The way we work is when we see that the capacity utilization is coming up to somewhere around 75% to 80%, we plan for the next expansion. So as and when that happens, we will plan for the next. Does that answer your question?
Yes, sir.
Ladies and gentlemen, that was the last question for today. On behalf of Finolex Cables Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.