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Finolex Cables Ltd
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Good evening, ladies and gentlemen. Welcome to the Finolex Cables Limited Earnings Conference Call arranged by Veritas Reputation. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [ Aryan ] Rana from Veritas Reputation. Thank you. And over to you, Mr. Rana.
Thanks, Nirav. Good afternoon to all of you, and thanks for joining this conference of Finolex Cables Limited to present and discuss the financial results for the quarter and full year ended March 31, 2022. Established in 1958, Finolex Cables is India's leading manufacturer of electrical and telecommunication cables. It has recently diversified into the fast-moving electrical goods segment to become a complete electrical products company.
Company's over a 5 decade-long journey is anchored on the pillars of manufacturing excellence, innovation focus and technology edge. We have sent you the results. I hope you have received the same. The results and investor PPT is also available on the company's website and the stock exchanges.
Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements. that may note unknown or -- unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievements from what is expressed or implied by such forward-looking statements.
To discuss the results and address the queries of investors, we have with us the management represented by Mr. Deepak Chhabria, Executive Chairman; and Mr. Mahesh Viswanathan, Chief Financial Officer of the company. We will start the call with a brief overview of the quarter and the year gone past. And then we'll open the floor over to the Q&A session. With that said, I will now hand over the call to Mr. Viswanathan. Over to you, sir. Thank you.
Thank you, Mr. Rana. Good evening, everyone, and welcome to this call from Finolex Cables Limited. As Mr. Rana mentioned, the financials are already available on the website of the company as well as on BSE. Also, you must have seen the presentation that we posted on the website this morning. But before we go to the questions, just a brief outline on how the year panned out for us.
The year started in the background of the second wave hitting the country. The first quarter was difficult as both manufacturing activity was hit to some extent, so was the marketing activities. Things started picking up from around July as the second wave started waning. And with the vaccination improving across the country, we started seeing buildup of volumes of various products.
As we neared quarter 3, we felt that we were on the way back to pre-COVID levels. But then there was a fear of the Omicron variant sweeping through the country, and that had a slight impact on the volumes in the month of January and February. Further, the invasion of Ukraine by Russia also created issues in terms of galloping commodity prices. And while we did take pricing actions, the margins were under pressure in the last few months.
Having said this, for the full year, our revenue went up on comparable terms by 36%. So we clocked a revenue of INR 3,768 crores against INR 2,768 crores in the previous year. In the quarter, revenue -- we hit a revenue of INR 1,186 crores. It's the highest that we have ever done in the quarter so far against INR 921 crore of the comparable quarter and INR 972 crore of the previous immediately preceding quarter, both recording a jump of 29% and 22%, respectively.
So while revenues were up, volumes were also up in the fourth quarter. While volumes were up by about 22% on a comparable basis. So quarter 4 of '20-'21 versus quarter 4 of '21-'22. But margins, like I mentioned earlier, were under severe pressure.
Overall, we registered a gross margin of about 21%, 21.5% this year as against 25% last year. The profit for the quarter was at INR 126 crores, slightly lower than the quarter -- slightly lower than the profit for March '21. Like I mentioned, that was primarily due to the price pressure that we were facing -- rather, the cost pressure that we are facing.
For the full year however, profits were at INR 526 crores, up 34% as against INR 392 crores in the earlier year. Post-tax profits for the year were INR 404 crores against INR 282 crores in the previous year, up 43%. The -- we had during the year spent considerable time and effort on controlling the working capital. We reduced our inventories.
We reduced our -- we maintained our debtor's position in spite of the increase in revenue. And overall, we were able to contract working capital by almost INR 150 crores. So that cash flow in that sense definitely did improve.
Segmentally, Electrical Cables, we closed the year with INR 3,193 crores against INR 2,310 crores of the previous year, about 38% higher. Communication Cables was about INR 380 versus INR 31, about 18% higher. And the others, which comprise of the Appliances as well as the Conduit Pipes, came in with INR 176 crores against 133 crore -- INR 113 crores, about 55% higher than the previous year.
I think like we've been saying over the past few quarters, the efforts that we've put on distribution seem to be taking us in the right direction. We are still hopeful for a higher rate of growth there, but I think we are moving along in the right direction.
EBIT levels on Electrical Cables were about 12% as compared to -- sorry, 13% for the full year as compared to 15%. And here, the result is primarily because of the cost pressures that I was talking about. In Communication Cables, you will see a negative number there. That is primarily due to provisioning that we have taken towards a government debt that has been outstanding for a very long time.
While we do hope, and we have enough evidence to ensure -- and to be sure of collecting the money the standards require us to make provisions basis based on the time that is elapsed. A, for the -- I mean for the interest loss that has occurred, and B, also for the time relay.
So therefore, we've taken a provision as a precautionary measure. However, we are hopeful of recovering this money over a period of time. But that has resulted in a negative EBIT for Communication Cables. The only other point that I would like to talk about here is in terms of the -- we talked about the Electrical Cables volume being higher.
Communication Cables, optic fiber for the full year has definitely been higher at about 30% higher than previous year, but in the quarter, was lower than the fourth quarter of March '21, primarily owing to lack of investment from either the telecoms or the government during this particular period. We are hopeful that, that business should pick up from now on.
With these brief statements, I open the floor for questions.
[Operator Instructions] The first question is from the line of Avinash from Profitmart Securities.
And a very good performance in the light of significant headwinds, which all of us faced during the year. I have 2 questions. First is, if you could give us some color on what is the outlook on your main raw material that is copper, because copper constitutes a major cost component for you? So if you could give us some color as to what is the outlook as of now on the commodity copper? How long do you think prices could stay elevated? And how is the company facing this challenge in the very near term?
And secondly, I wanted to understand that typically now since working capital has significantly reduced, will this be sustained in the current year? Or can we expect some further improvement on that front in the coming financial year?
Okay. On copper, on commodities, generally, I think the ability of most people to forecast which way that will swing is -- it's going to be hit and miss. Because the prices there -- I mean the costs there are impacted by things happening all around the world. So nobody can forecast with any predictable accuracy as to what might happen 3 months from now or 6 months from now. What we do therefore is we don't take a long call on the metal pricing at all. We buy the metal on the month average.
So for cash flow purposes, to make a settlement with the supplier, we agree on a pro forma price. And that is what he bills it to us at, and we settle those invoices immediately. But when we have -- since we have booked the metal on average, at the end of the month, when the average is really known, there is a settlement between the supplier and us depending on which way the metal prices have moved.
What it -- how it helps us is, we are therefore moving our costs in line with what is happening on the market. And secondly, as we buy and convert the metal, we still have an opportunity to change our selling prices if required. Now if there are continuous price pressures, like it happened in the last year, while we may take pricing actions to change our selling prices, sometimes, the change cannot always be elastic. I mean the market absorbs a certain amount. But beyond that, that might come and hit your volumes negatively.
So at some point in time, we might have to take a call as to whether we sacrifice the margin for a temporary period or do we continue to increase our selling prices. So that's a call that has to be taken at very -- at any given moment in time, and that is what we do. So that's broadly on the metal. And I think this holds good also for other commodities that largely affect our costs, like polymer or steel, wherever it is required.
The second question that you had, I'm sorry, can you repeat the second question again?
No. I was wanting to know that on the working capital management side, you all have done a very commendable job by cutting down your collection period, getting down the net working capital period almost by half. So can we assume that this will be sustained going forward, because this definitely is going to help you generate more cash flow generation? So I was wanting to know, can it -- will it be sustained at these levels so that cash flows are generated at a healthy level even in the coming 2 years?
Yes. See, the normal -- sorry, the business that goes through the channel, these numbers are definitely sustainable. When it comes, however, to businesses which have a longer gestation period like, let's say, an optic fiber business with the likes of Bharti or Reliance, then there are set credit periods.
And those credit periods may be 60 or 90 days depending on which company it is. And again, if there is exposure to government, then that number can climb more, although the tender says -- whatever it says, the government is not the best paymaster in terms of times.
Can I add -- let me add something more for a thought. Copper pre-COVID used to be around $5,000 roughly. And then it rolled all the way up to $10,500 of LME. It's slightly pulled back in the last one month where it's at about $9,500 now. So if going forward, copper keeps dropping back to original levels, then you will see that impact on the inventories and cash flow. And that's most likely scenario as things stabilize, the commodities may come down to what they should be at. I hope that helps.
So I think that's really nice of you, sir. Just one more question. Now post COVID, what is the kind of demand scenarios? If you could give us some color on how is business shaping up in the first few months of FY '22, '23? Some broadly on the demand trends, considering that now, COVID cases have significantly reduced. Business normalcy has come in. So do you assume that the growth in the current year would be definitely be significantly better than last year?
And what kind of growth could we expect in all the businesses? Like apart from the wire and cable, telecom business, even in the fast-moving electrical goods segment where Finolex is a very large player in the market.
So sure. I think that the worst is over and things are coming back to normal. In the last 2 years, we've seen pricing going up, but volumes are not going up. And we would see -- people would assume that you are doing well because you have a higher sale number. But in reality, the volume wasn't actually up, it would have been in a negative position also.
But now things are quite more stable. We see volumes which are climbing. Major issues, normally, we foresee. And we are reacting on a daily basis are because of supply chain, sometimes certain raw materials are not available on time. But the market is quite good at the moment. It's not bad. I just hope it keeps improving in this way, and it should be a good year.
Yes. And then we don't have a fourth wave, so.
Yes. Those are things which we are not able to predict right now. In fact, just about 5 minutes ago, I got a message saying that Maharashtra has reimposed the mask rule across the state. So things keep changing like this. But if, let's say, if that threat is no longer there, then we should see generally improved economy. And obviously, that would mean more construction, more opportunities for improving volumes for us.
And since you are asking a question based on different product lines so broadly, housing is doing well at the moment, automobile is doing well. We are seeing numbers which are climbing. Telecom is not up to the mark. We are unhappy with the volumes at telecom. We have a lot more capacity, but the consumption is not happening as it should happen in our country.
But I think in the long term, with 5G, there would be a lot of demand for fiber optic cables. But in the short term, it doesn't look that beautiful obviously. The new products are doing well. The base may be small, but you can see that the percentage numbers are growing. We are working strongly on the brand image and network expansion. We've even come out with some new ad films. And we're trying to spend money to project the company using the Bollywood star power, let's say, to attract people towards the products. So overall, it looks..
Positive.
Positively. Yes.
The next question is from the line of Rahul Agarwal from InCred Capital.
Sir, 3 questions. First, on the outlook on the overall gross margin in the wire division. Basically, we thought copper is easier to pass through, right? I mean it's a short-cycle business. You are not taking any call on the metal. Your peers have reported some kind of meaningful recovery in margins on the cable wire side.
I'm not able to figure out why at a company level, our gross margins are 19% for the quarter. They are like lowest in so many years. And I thought your brand is very, very strong in South and West. Could you help understand what is the path to normalization here? I mean there are some explanations in the past about extra dealer incentives, that 6% to 8% kind of thing. It still continue there? And where are we headed for fiscal '23? That's the first question.
Okay. Should I answer that before you go to the next one?
Yes, yes. Please.
Okay. So the overall 19% is on account of partially what you mentioned, the dealer incentives being fully passed on. And that process continues even as we speak today. The second was that we had also taken some provisions for material that has been with us for a long time, certain SKUs which have not moved. So we have booked a provision there. And so that has also depressed the margin by about 1.5 points there. So had that provision not been there, that would have been much better.
And the outlook for next year, I mean, how do we see that?
I think -- yes, since we have taken those provisions, the outlook for the year coming forward, if there is not too much of volatility in the metal pricing, then I think we should slowly head back towards the 22%, 23% numbers.
Got it. Secondly, on the FMEG side. We saw some new ads on the -- during the IPL season. 2 billion kind of run rate now and almost INR 200 crores in sales. In terms of revenue mix, how is it right now? And your strategy in terms of your mind, what are you thinking in terms of product launches for this year?
Distribution, you already mentioned that you're working hard and moving in the right direction. So you already mentioned earlier in the 2, 3 years, you should -- you're targeting about INR 500 crores in sales. But could you help us understand the current revenue mix and the product launch strategy? And which will be the large categories to focus on this year, fiscal '23 within Appliances?
Okay. Okay. So within the appliances, the larger 2 product lines would be fans and lighting. And then also the Conduit Pipes is also now picking up fairly well. I think these 3 put together now have a run rate of more than INR 12 crores. So I think that those would start picking up, and those would be the 3 areas that we will be focusing on. There would be variants in all these product lines coming in during the year.
There is work being done by the marketing team in improving the existing variants plus adding newer variants as well. Besides that, we are also looking at increasing the overall basket of appliances. So today, we are in fans, water heaters, switches, switchgear and so on. So there will be addition to this family since -- in the next 3 to 6 months in the additional appliance.
Yes. Yes.
Within the next 3 to 6 months, you should see additions there. I'm not naming those appliances at this point in time because we've not yet gone public about them. But we should have newer products coming in quickly.
Sir, INR 12 crores a month is basically fans, lighting and pipes put together, right? So that's about INR 150 crore run rate. Is that correct?
Yes, yes.
Okay. And thirdly, lastly, on the Communication Cable side. So you mentioned the margins are impacted because of provisioning. Could you help, what is the total receivable on that account from the government? That is one. And the second part to that question was, in terms of revenue growth, it's largely moving into that INR 400 crore run rate annually. Would you foresee this year growing at 20% with a positive margin number here?
Yes. See, this provision that we had to take was -- we had taken a provision of about INR 26 crores. There is one receivable from government which was -- which has been pending for a long time. And like I explained in my initial part, the reasons for taking that provision. So had the provision not been there, the EBIT would have been positive there.
So since we have fully provided for that, we don't have to take further provisions going forward. There are some -- there are 3, 4 companies from the government sector which are involved in this business. One of it is what we have provided for. The others are paying, albeit a little delayed, but they are paying their monies. So we are not too worried about that part.
Going forward, we expect the overall segment numbers to climb. What also happened this year was, while the metal prices went up, the fiber prices went down. So what was ruling as a fiber price, let's say, one year ago, approximately $6, $6.5 per kilometer, went down to between $3.5 to $4 per kilometer. So while the actual consumption in quantity went up, the revenue did not go up by an equivalent number. So that was kind of an issue in the last quarter.
But I think we do expect and we've been told by our partners as well that there is likely to be supply difficulty in the coming years. And therefore, the price levels are expected to go back maybe not to $6.5 levels, but at least to $5, $5.5 levels. That would mean improving the revenue. So INR 400 crores are above that is definitely a possibility, and for sure, with positive margins.
The next question is from the line of Shubham Agrawal from InCred Capital.
First question is actually just to ask on the distribution. So how is the distribution to wires changed over the last 1 or 2 years? And in your opinion, have we lost any market share in buyers over the past 2 years in our core markets? That's the question.
I don't believe we have lost any market on wires. In fact, we would have increased our reach over the last 2 years with distributors selling our products as well as the channel partners selling the products.
Okay, sir. So I understand the reach has improved for buyers as well?
Definitely.
Okay. Just a follow-up on this. Now with respect to the margins on buyers, we were earlier trending around 15.5%, 16%. And now we're at about 12%. Do we -- I believe the 2% hit because of the R&R being converted to discounting still continues. So should we trend back to 14% kind of margin over the next one year? Let's say that the volatility in copper is not that high.
Yes, I think so. Even at 13%, if you look at us and compare with our peers, we still -- I looked at it a few days ago in comparison to our peers. We're still top of the heap there.
So with respect to the Communication Cable margins, I just wanted to check, what should we expect going forward? I mean, in the very short term over FY '23, how do you -- what is your thought -- judgment of the margins for Communications Cable? I believe we have got out of manufacturing, and we're getting into trading is what I understand. So the margins have become broadly stable, right, because the raw material increase or decrease will stop affecting us.
No. We are still in manufacturing. Where did you get the impression that we are into -- we will stop manufacturing and going into trading?
Sorry. Would be my -- it's my bad then. So with respect to the margins, where do you see this going forward?
I think in the short term, it would be in the mid to -- yes, between 7% and 10%. But long term, should climb back to around 11%, 11.5% as volumes improve.
Over the next one year, 7% to l0%.
Yes.
Okay, sir. Great. So -- and just the last one. On the CapEx, is there any guidance and on the working capital with respect to...
For CapEx, there is no change. There is no change on the CapEx guidance as compared to what we said earlier. In the last few calls, we've been saying that by end of '23, we would have spent about INR 200-odd crores in various expansion projects. Those are ongoing. We've not added anything new to the list since then, but those are ongoing.
The next question is from the line of Ashwani Sharma from ICICI Securities.
Yes. I have 2 questions. First is on the -- I'm sorry, if it is a repetition I wanted to check on the volume growth and the price hike that you would have taken during FY '22 across the products.
Okay. So on -- for the full year, on wires, yes, on full year, on wires, the volume increase is about 7%. On communication product lines, different product lines have different growth rates. But the most significant one is optic fiber, where the growth is about 20 -- sorry, 32%.
And on the price hike, sir?
Price hikes, there were, I think, 5 or 6 price changes that we made during the year. And each time, it was between. Sometimes, it is 3%. Sometimes, it was 3.5%. So yes, yes. So overall, maybe about 14% to 15% would have been the change.
Second question I had was on the profits from the associates. So if you look at the Q4 number, it has seen a very sharp jump of around INR 157 crore. So the question is that what led to this growth? And then what is the sustainable number going ahead, FY 2023?
You're looking at the consolidated number from...
Yes. Yes, sir.
So that's INR 327 crores. Is that what you're talking about?
Yes. For full year, it is INR 327 crore. For Q4, it was INR 157 crore.
Okay. basically, this profit comes from our participation in Finolex Industries. We hold 30.7% of Finolex Industries.
32.
Sorry, 32.5% of Finolex Industries. And so that is what gets reported out here. Now how sustainable it is will depend on how the oil market goes and how the polymer market goes. So last 2 years, they've been having a good run. So I hope it continues.
Okay. And sorry, sir, last one question. Sorry. What would be the breakup now as of today between government and the private clients?
In -- overall, you mean, overall business?
Yes. Overall business, sir.
Government would be maybe about 20%.
And balance, private?
Yes. That 20% keeps changing. Sometimes, it can go as low as 10%. Sometimes, it can climb to 30%. It depends on how many tenders are being floated at any point in time by the government and how much we are participating in.
The next question is from the line of Chintan Sheth from Sameeksha Capital.
Yes. Congratulations, sir, on a very good set of numbers. On -- I just have a couple of questions on distribution. If you can split your revenue, at least on the Electricals and Others, that is the FMEG segment. What -- how much revenue is coming directly from our distribution channel? And if you can elaborate, over the last 3 years, we have been trying to expand our base. What is our base right now in terms of the retail reach and distribution network? Where we were 3 years back and now?
I think the second part is -- okay...
So when you talk about the distribution reach 3 years and now, earlier we used to have a distribution in terms of having channel partners who are basically large dealers selling from their shops. So we used to have about close to 4,000 channel partners who -- some of them would in turn sell it to small retail counters as well.
In the last 3 years, we've changed our strategy. And we are working on a 2-tire network, wherein we have a distributor, and he's allocated a certain territory about 400 retail counters. And we monitor its sale to each of these retail counters and try to promote our products in the small shops as well.
So here, we are increasing the penetration. We are going into the smaller cities. We continue to service the channel partner as well, but the distributor services, all the smaller shops instead of the channel partner. And we've grown in the last 3 years to about -- from 0 to about 1 -- 1.5 lakh?
Yes.
Yes. 1.5 lakh retail counters. And we have about close to 600 distributors who are distributing these products to these retail outlets. We continue to expand in that space. We have good targets for this year's expansion. So we'll continuously work on expanding the network.
So how is the revenue split between the traditional channel partner who can -- how is the revenue split between the new format, wherein 2-tiers, our distribution strategy, if you can -- because that will drive the growth going forward, right? That is the strategy we have.
Yes. So roughly, it is 50-50 now between sales from channel partners vis-a-vis the distributors. But the distributor segment is growing, and we can run sales promotion for the retail counter, the end retail counters through a distributor and monitor it on a computer. So it is actually quite effective, and it's been growing. And we would want to grow it even further in that sense. So now you also asked, Chintan, I believe, on the electrical wires, how much is it sales to distribution and how much to other means?
Right, right.
So majority sale is through distribution. It is -- whether it's a channel partner or a distributor, we have a payment in terms of advance payment and sales through them. There are -- about 10% of the business would be through project sales, but that would also -- majority of that would be like funded through a channel partner. So there is no credit really going in this distribution business to the end customer.
See, of the electrical cable number of INR 3,193 crores, about INR 180 crore, INR 190 crore is power cables and another INR 200-odd crores is for automobile obligations. Barring that, everything else is through distribution. In fact, even out of the INR 180 crore, a part of it goes through the channel partners.
Cool Okay. Great. And about -- what about our strategy to increase this 2-tier distribution network? Obviously, retail will increase with our distributors is being placed. So right now, it's 600. What are our targets, say, 3 years down the line?
Okay. We haven't come out with the number first for the next 3 years. We -- our -- first, the initial target was 500, which we crossed last year. We will have to relook at the numbers. The idea is to ensure that our reach and penetration is across the country and that there are no gaps left.
I think currently out of the 700-odd districts, we are covered in close to 620 or so districts. There are some districts where we still do not have a presence, which we need to catch up on. And some of the districts might have a requirement of more than 1 or 2 distributors. So that's an exercise that we still have to complete.
Right, right. And typically, how much time it requires to -- new distributor to scale up? What is our expectation from the existing network, because that will drive our revenue aspirations, right?
So what we do is when we appoint somebody, we give them an opportunity size of at least 300 customers from whom we can generate business. So it also requires the distributor to make daily, weekly calls to them and find out what their requirements are and stock sufficient products so that availability is given immediately? And also extend credit at the last mile.
So these things take some time. So over the last 2 years of our experience, there are people who have scaled up quite quickly. And there are also people who have fallen behind and have dropped out. So there is -- in business, obviously, there will always be some churn.
But as long as the churn is something that is manageable, we are fine with it, because at the end of the day, you want to make sure that your product is positioned across the market. It is available, and to the retailers there is credit extent by the distributor.
So we have to keep working on it. Like I said earlier, our intention is to make sure that every geography is covered. And if you go back and look at our peer history, there was a time when Havells had probably around 80,000, 90,000 retailers in their books. Today, they have maybe 2x, 2.5x or 3x larger than that. But so everybody is scaling up, and we also need to do so.
But we do exclusive distribution through our distributors? Or they also sell co-branded products?
Where exclusive is...
No, not ...
It's not exclusive, but they -- if they handle our product, they should not be handling our competitor's product. So you may find a distributor with products which are not wire and cable probably or doing some other electrical products and going to similar shops. But they would not be handling the same products which they are handling of ours for distribution based on policy requirements.
Next question is from the line of Ana from [ Es Landstar ].
My question is again related to distribution only. So correct me. Like if my -- I may have mistakenly heard that we have this advanced payment policy for this -- for distribution. So my question is, now that the cash flows are improving, so are we thinking about any schemes or any incentives to the distributors so that they can penetrate our products more than the competitors?
Because going -- expansion of the retail outlet is one thing. But then again, penetrating our product into those retail counters is the second thing. And are we planning any tenant financing in that terms? Is this advanced payment scheme is hurting our volumes? So I want some -- your view on that.
So our company has been on advanced payment terms, right, since I joined this company, and it's been like 40 years. That's been the company policy, and our growth has taken place even with that. So it's not a detrimental policy. It's a good policy. Because there are times when -- good through difficult times, when credit is given out and you're not able to recover the money from the channel partners. So we continue with the same policy.
But we do have, as you say, channel finance. We have different schemes in channel finance to help them. So that -- because borrowing money is a bank's -- lending money is a bank's job, not the company's job. And so once we get them a good deal with the bank, and that too, without any recourse to our company, that works well for both of us. And we have those schemes in place. What was the other part of your question?
Talked about the incentives.
Yes. We have incentives and schemes which we run for our distributors and channel partners, there are different type of schemes that they run for the quarter and for the year. And so we do incentivize them to penetrate further in the market. There are certain targets for them also. If they achieve certain sales targets, they get incentivized.
And we not only work on an expansion on the network by adding more distributors or retail counters. We are also working on creating a market pull so that when they expand, they are able to get the business and be happy with the business. And so this year, we are working on our massive advertisement program.
And we've -- as you heard someone mention, on the IPL, there was a new film out with Kartik and Kiara. There are 2 more films which have been made which will be launched soon on the TV network. So from our side, we are also working on creating a market pull for the products, for the retailers eventually are able to sell and create the demand for the distributor.
Okay. And what will be the channel inventory with the distribution as of now, like FY '22?
March end would have been slightly higher because quarter end sales is there. But typically, it is -- in the last few years, we have seen that the channel inventories are not as high as they used to be before because of commodity price volatilities. So probably, they keep at the -- not at the retailer. But at the distributor level, probably maybe 3 to 4 weeks of stock.
But it varies, like you say, on the commodity pricing. For example, in the last one month, copper has fallen. And from what I talk to people, they say they are keeping 3 to 4 days of stock. So -- because of the falling market, nobody wants to keep stuff. And if the copper is going up, they would take it up to a 1-month stock.
Stock level as well.
So it varies through the year.
Next question is from the line of Sameer from Fair Deal Investments.
I would like to know which company has the largest market share in India in electrical cables. I think our market share, you mentioned, is 22%. And who is the other company which has a higher market share than us? And what is our position there?
So in electrical wires, we would probably have the highest market share. Now if you look at the market, about 60% today would be the organized market and 40% is unorganized market. This -- our estimate is. And it's an estimate. We don't have hard numbers from some institution. It used to be 50-50, the organized and unorganized. And organized has moved to 60% due to various reasons over the last 2 years, which is good for us. In the wire part, we have probably the highest market share. But in -- if you look at cables, we are not very large in cable, let's say, in power cables. We are actually...
1%, 2%.
1% or 2% of the entire market. So there are larger cable companies. But in wire, we would be the leaders.
Okay. And do we export electric wires also?
Not house wiring. You see the house wiring product is a multistrand product, which is not the standard in the other countries. But there are some other wire products which we do export. But not -- if you meant house wire, no.
And no, because many of our competitors are exporting to many countries and their turnovers, , et cetera are substantially higher than us because we are a very old player and very leading player in this segment. The other competitors have surpassed us because of the export markets. So do we have any strategy on that? Not pressuring -- increasing our exports.
No. We would love to increase our exports, and we are trying hard -- I'm trying to work towards it. The only issue that comes is that you don't get -- you can export, then get a turnover. But you don't get profitability. So I'll give you an example, in wire and cable manufacturing, the main raw materials are copper and PVC.
Now copper is an imported item. India does not have that much copper deposits. So even if you buy a local copper rod, the ore is still important. Even though you might have 2 large companies in India converting into cathodes and rods. So if you compare and try to compete with other countries, there is no advantage of raw material with our country in terms of copper.
And same is in terms of PVC. PVC is still an important item, though it's manufactured in the country, but oil is not from India. So the raw materials which constitute more than 80% to 85% of the cost of the cable, are coming basically from outside. And ours is an industry where the labor cost is about 3%. So even if you have a cheaper salary, there is not much saving on labor to compensate for the freight cost and the duty going in -- which you have to pay while exporting to another country. Net-net, you don't end up making too much money in exports.
Leverage, if you get significantly higher, so it will not help us? Our capacity utilization is how much now?
About 70% plus. Now we are reaching pre-COVID levels now.
So around 70%. And now the Communication Cables where we have a large capacity, but it is unutilized because of the many problems. But -- so is that Communication Cable facility also useful for -- is it flexible? We can also produce electrical cables from that?
No. Those machines cannot make electrical cables. They are different type of machines.
So in Communication segment, there are various products, even in the communication. For example, I'll give you, we make coaxial cables which are for cable TV application. Or we make LAN cable which is for high-speed Internet, for computer connectivity and all that. Or we have fiber optic cables. And even in each of these categories, there are a huge variety based on different, different applications.
So these machines all are of different types and dedicated towards those kind of product lines. We've done well domestically in terms of profitability. We are trying to export as per as your question, it's not that we are not trying to export. Even in fiber optics, we are trying to find ways to export. It takes a little time to get approvals in place for selling in telecom networks around the world and all, right. So we are working on that.
And now regarding this our Fasting Moving Electrical Goods where we have started about for just a few years back. Now we have a turnover of around INR 175 crores this year. But -- so that is a very big competitive segment. And so unless our [ terminal ] growth is substantially higher, it will be very difficult to make any profits there. So how are we planning to grow there significantly?
No, no. Those new products, even at present, are profitable. We are not dealing in unprofitable products. And our aim is to first do the marketing, grow those products to a substantial volume, such that we can have a proper large-sized plant invested with automation, which can generate large volumes and also high-quality products. So we are on track there in terms of growth. We expect to reach at INR 500 crore level number soon. And based on that, invest in backward integration for the plants. And I think we are moving in the right direction.
The next question is from the line of [ Swami Nathan ] a regular investor.
Have you taken any pricing action in this financial year so far?
Yes, we have. We have -- in May, we had to drop prices because commodity prices dropped, so we also had to take price -- we dropped the price rise.
Okay. So how much was that total?
The price dropped -- both the price together is about 5%.
Okay. Okay. And the other question is on the FMEG, of course, you just a while back, you talked about the plans. So when do you see this becoming meaningfully profitable? Right now, the EBIT margins are -- I mean, it's barely at breakeven level. So when do you see that then going to some meaningful numbers?
We wanted the -- I mean, we are working on the top line to reach INR 500 crores over the next 2 to 3 years. I had in my previous interactions also maintained that about INR 170 crores to INR 200 crores, we should be breaking even. And that is where we are today. So any number above that should bring in positive results, also, accounting for any ad or other spends that we might have accrue in this segment. The quicker we move towards the INR 500 crore number, I think the improvement in profitability would be that much faster.
The second is also, how many are -- what better variants we are able to bring into the market and how quickly we are able to bring that into the market. We are working on quite a few of these variants. So the earlier we bring it into the market, I think the profitability would improve, because many of these variants are going to look at the mid and higher end of the market and not just at the entry levels.
[Operator Instructions] The next question is from the line of Rahul Agarwal from InCred Capital.
Just 2 small questions. One is on the investment, just update on the Corning joint venture. So our investment in the joint venture, about INR 14 crores, is that correct? If you could verify that. And secondly, once you exit, are we getting any -- this money back? What is the financial impact on the P&L balance sheet here?
Okay. The investment is INR 1.75 crores. The accumulated profit there is about INR 24-point-something crores. So our share of that would be half of that, so INR 12.5 crore. So together, we should get INR 14 crore, INR 14.5 when we exit.
And as we've mentioned in the press brief, the -- we have appointed a liquidator. The -- and right now, that process is ongoing. From what we hear from the liquidator, NCLT approvals are likely to be by end of this calendar year. That is the outer time line that he has given us. So by that time, then that money should come back in.
And lastly, well, I'm guessing, out of the balance sheet, the total cash and liquid investment should be now about INR 2,000 crore.
Close to, yes.
Right. So any decision on buybacks now? I mean my understanding is if you just adjust for cash and Finolex industrial investment, the core business is getting a very small value. Any thoughts if there's no real -- very large reinvestment plan in the business, you can actually try and think about buyback, right? Any thoughts, sir?
No thoughts as yet, but we'll look at the suggestion.
There's been some time, right? I mean, you're carrying so much cash.
Yes. See, our intent has been to look for inorganic growth. We haven't found anything that we liked. And so the money is still lying with us. But we look at your suggestion as well.
The next question is from the line of Chintan Sheth from Sameeksha Capital.
From -- under similar lines. So you mentioned that when we reached INR 500 crore of FMEG threshold in terms of revenue, we'll start working on putting up in-house plans for fans or lighting or other products. So what will be the capital outlay for INR 100 crore revenue for each line? The trends, if we reach INR 100 crore line, we have to put up an in-house plan to service that revenue. What kind of investments we are looking at? Because one is on the investments, you are looking for inorganic growth. But at a later stage, we also have plans to put up our capacities -- manufacturing capacities for fans and lighting.
So for fans, thumb rule, rough investment would be INR 100 crores, for a plant that can generate volumes and turnover, about up to INR 250 crores or INR 300 crores level. And we hope that at INR 100 crore, you start investing in the plant. It takes about 9 months to a year to get the plant operational and stabilized. By that time, we'll grow more.
And then with the plant at the back, the sales will also hopefully climb. We'll be able to have better service and better quality and variety to improve our sales. So that's a rough ballpark number what we made study and kept. It will change at the time of investment, obviously.
Yes. And the INR 200 crores of this, how much we have -- planned CapEx of which, how much we have invested so far?
Out of the INR 200 crore, I think about INR 90 crore or so has been invested.
So INR 110 crore will be for the next year remaining?
Yes, yes.
Okay. Okay. And lastly, in terms of efficiency in overall operations. Gross margin, it's not in our hand. We are trying to push our -- create a market by a lot of below the belt and the above the line advertisement and discounts to dealers or advertisement. How do you see -- where we can further squeeze in terms of improving our fixed cost base? You mentioned for FMEG, it's around INR 175 crore, INR 200 crore as the breakeven point. For cables and wires, this is the old plant where -- which is anyways very profitable. What more we can do so that even if we do more incentives, more ad spend to create marketable products, we don't foresee -- or it doesn't impact our margins overall.
WelI, it depends on volume improvement, and therefore, capacity utilization. That could bring better efficiencies. Yes. And when you take smaller runs, your scrap to total volume is not always optimum.
Correct. So this 70%, if we reach to 85%, 90%, that will -- the operating leverage will be much more visible in our numbers.
Yes.
[Operator Instructions] The next question is from the line of Shubham Agrawal from InCred Capital.
This is a follow-up just on the -- some clarification on the Corning JV. You said that you're exiting. So after we exit the Corning JV, do we still end up manufacturing communication cable? Or we -- or that's not the case. Can you clarify?
No, no. That JV was for marketing fiber in the country. It had nothing to do with cabling. We partnered with Corning to market fiber in the country. And now we are shutting down the JV because over a period of 10 years, our relationship has matured into such a manner that we don't need a JV structure to do that.
No. So let me clarify further. We are in the business of drawing preforms to make fiber and then consume the fiber into a cable and sell cables for various applications. So our joint venture with Corning was where Corning invested in the manufacturing facility. The JV was going to market that fiber, which is being drawn in their road towers. And we would sell it all over India to our competitors as well as have some understanding where we can get preforms from Corning, who is the world leader, and their quality is the best in the world.
So we can use it on our towers and get fiber for our own home consumption from those reforms. Now our relationship is such like Mahesh mentioned, we will still continue to get preforms from Corning. We don't need a JV for that. And for the marketing purpose, it was just a marketing JV. That's why the investment, was only INR 1.75 crores. The Marketing will be carried on by themselves, Corning on their own, where competitors normally don't like to buy from each other raw material.
So it is better to separate out. And they will continue on their own, but we will still have a relationship of a supplier with them. And that's how it's closing down.
I now hand the conference over to Mr. Mahesh Viswanathan for closing comments.
Well, thank you all for attending the meeting. I hope the information has been useful to you. Thank you.
Thank you very much. On behalf of Finolex Cables Limited and Veritas Reputation, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.