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Finolex Cables Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Analyst 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. Thank you, and over to you, ma'am.
Thank you, [ Lizan ]. Good evening, everyone, and thank you for joining us on Finolex Cables Limited Q4 FY '23 Analyst 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. We will begin the call with the opening remarks from the management, after which we will have the forum open for the interactive Q&A session.I will now request the management for the opening remarks. Thank you, and over to you, sir.
Good evening, and thank you all for joining us on this call today. I will start with some brief remarks to explain what we have achieved during the quarter, as well as the full year '22, '23, and then we'll open it up for questions.So revenue for the quarter was INR1,224 crores, in comparison, corresponding quarter of the previous year was INR1,168 crores, so about 3% up. On a sequential basis, we were up by about 6%. This is on the value side. But on volume terms, electrical wires volume increased by about 7% compared to quarter 4 of the last year, and the communication cables growth was much larger. On an average, all product lines reported a growth of about 25% in volume terms.For the full year, our turnover was INR4,481 crores, as against INR3,768 crores in the previous year, an improvement of about 19%. And here, the volume growth in electrical wires was 16%, and in the communication cables segment, all product lines reported, like I said earlier, a growth of more than 25% in volumes, while the optic fiber cable product line reported a growth of more than 50%. So we grew double there.The third segment, which is the Others, which is a combination of all the appliances there the growth was muted during the year. We had expected much more, but while inflation -- headline inflation has come down, I think discretionary spends are still very sluggish. Sentiments are still not at the levels that we would expect them to be. And added to that was also the channel clearing stocks of fans when the changeover happened from the previous energy efficiency norms to the current ones. So that -- these 2, I think, kind of impacted the revenues there. We were expecting to cross the total -- combined total of about INR200 crores there. We close -- came very close to it about INR195 crores. We still maintain our target that in the next 2 years to 3 years, we should hit a INR500 crore turnover there. We are almost halfway there. So it should not be too difficult to reach that target.On profitability, margins stabilized. While in the first 3 quarters, there was a certain amount of volatility on commodity prices, which led us to take pricing actions at different points of time during the year. The margins in the fourth quarter were more or less stable. So on a comparable basis, margins were higher by about 2 percentage points. And for the full year, gross margins were at about 21%, again, comparable to the previous year.But as we speak now, the volatility on commodity prices is showing up once more, commodity prices have softened. And in the last 2 months, we have taken 2 pricing actions to reduce the prices, keeping it -- keeping them in line with current LME trends. So going forward, as long as the volatility remains, you might see from quarter-to-quarter some changes in the margin profile. But as we have always been stating, our aim is to ensure that raw material costs are seen as a pass-through with probably a small lag in catching up on the margin side.That said, the profit for the year -- for the quarter before taxes was INR173 crores compared to INR126 crores in the previous year. The improvement is primarily volume-led growth for the -- in all the major segments, as well as the pricing actions that we have taken. And for the full year, profit was INR646 crores before taxes, as against INR526 crores in the previous year. All these are standalone results that I'm talking about.Okay. So with this brief background, I will now open it up for questions. I'm sure you must have seen our numbers posted on the BSE website, you must have also seen the presentation we have posted again on the BSE website. So we are open to questions now.
[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.
A few questions from my side. Firstly, need some help of yours on how to look at communication cable segment going into fiscal '24, both on top line and margins, what should we expect, what kind of growth and what kind of margins here?
So we do see growth potential there. Business seems to be coming back online. And with more applications going towards 5G, I think the field opens up. We are fairly confident of the sector, which is why we have announced our CapEx program recently on the communication sector side, where we are going to put up a preform making facility. We will be spending approximately INR300 crores over the next 18 months to 20 months in setting up the plant here in Pune. Do you want to add anything there?
No. We are also adding capacity on the cable side along with the preform, as well as on the tower side. So we'll have preform, the fiber drawing tower and the cabling side all getting expanded to take us to a capacity of about 8 million fiber kilometer per year.
So margin, I think -- around margins, I think if you've seen the numbers, they have reversed positively. And I think over the next few quarters, we should get back to the usual 9% to 10% that we used to see in the past.
Sir, on the top line growth, just to clarify, obviously, this capacity you spoke about will come after 18 months, so what should we expect in fiscal '24? The order book like supports what the growth we saw in fiscal '23 because that was a very high number, right?
No, we are coming off a low base. So to that extent, I think it is -- we've had a benefit. But I think double-digit growth is not ruled out.
Okay. I get it. And on the company level margins, obviously, gross margins have come up almost like 4%, 5% versus pre-COVID averages for the company and some previous quarters, you've explained why, there is some new channel discounts, which have come in. But any sustainable range would you like to guide us for over the next 2 years to 3 years? I'm not asking about short term, but where should the company settle down? Or is it a new reset at this number?
I think the EBITDA number -- see, there were -- because of changes in the reporting norms or before -- because our adoption of Ind AS standards, some of the lines got moved from an expense line to reduction from the sales line. So that impacted the percentages that were showing up. I think 13%, 14% at a company level should be something that is sustainable.
Got it, sir. And CapEx, just to clarify, obviously, you mentioned there's a cabling addition, there is a drawer -- drawing tower addition and there's a preform addition. This will need INR300 crores over the next 2 years. Over and above that, you have the EBM thing, which is -- which I think is going on for quite a long time now, and you have some other CapEx. So if you could just give me like a bit of clarification here, fiscal '24, how much do you spend and where and '25, how much do you spend and where?
Okay. Fiscal '24, I think we would be spending around INR250 crores, and fiscal '25 would be maybe another INR75 crores to INR100 crores. This would be on top of the normal standard replacement CapEx of [ about ] INR25 crores.
The next question is from the line of Sonali Salgaonkar from Jefferies.
Sir, my first question is, could you quantify, what is the -- what are the 2 pricing actions that you have taken over the past 2 months that you mentioned for keeping in tandem with the softening commodity prices?
Both the actions were taken in May. I think, we have dropped prices by overall.
2% each time.
Yes, about 2% each time. So 4% is what we have dropped prices. Yes.
Understand. Sir, my second question is you mentioned electrical wires 16% volume growth for the entire year. Could you help us give the segmental breakup of both electrical cables and wires of yours, as well as communication cables in terms of end user segment?
For the fourth quarter?
Sir, for the fourth quarter, the full year.
Okay. So for the fourth quarter, broad numbers were electrical cables, our revenues were INR1,032 crores, which is about 9% higher than the immediately preceding quarter and more or less flat when you compare it with corresponding quarter of last year, but this is value that you're talking about. Here, you need to remember that March quarter of 2022, copper was running at about $10,500 a tonne. March quarter of '23, copper has been running at on an average about $8,300, $8,400 per tonne. So that's a big difference, which is why the volume growth is not visible in this number. Like I mentioned, volume growth in electrical wires in quarter 4 was 7%.
Understand. Sir end user segmental split, if you could give for both electrical and communication?
I think we did very well in auto cables. We did fairly well in wires. We also did very well in flexible cables, all 3 sectors.
Sir and construction is about 60% of electrical cables, is that correct?
Construction wire would be at close to 60% of electrical wires. Yes.
Understand. Sir, thirdly, on the industry scenario right now, you did mentioned that consumer discretionary is looking a bit weaker, which as you know could be -- could lead to softer traction in your appliances. Sir, what about electrical and communication cables, as in how are you seeing the industry demand the channel inventory and also the order book?
Well, at the moment, channel inventory will be impacted by any softening in commodity prices. So if they see prices softening that the indication is that it is going to soften further. There may be a slight pullback in demand. That is possible now, which is why I said, volatility will impact the numbers [ short term ]. But I think if you look at activity around real estate, activity around construction, there is visible proof that there is quite a bit of improvement in the activity levels. And as you know, our product comes towards the tail end of a project getting finished. So barring any unforeseen circumstances, I would still think that demand for wire in the medium and long term would be fairly good, leading to definitely double-digit growth numbers.
Sir, and also CapEx of INR300 crore CapEx for the optic fiber that you just mentioned, what could be the revenue potential and from which year can we start the revenue to accrue?
I think the second half of '25, '26 is when we are expecting the project to generate revenues. Now this plant -- the preform plant, when it is set up, the initial customer will be ourselves. So instead of importing preforms from abroad, then we will get to use our own material, so which means margin accretion, and also the ability to compete deeper in certain projects if need be. It is -- it will also open up potential for us to sell fiber in the market, which currently is -- it is -- we do sell some, but it is not large quantities, but that will also open up. So these 2 opportunities will definitely present themselves at that point of time.
Understood. And just -- sorry, just a last clarification. You mentioned in Q4, your communication cables overall has grown by 25% volumes, right?
That's correct. So that, that includes LAN, that includes the other products there, as well as [ other companies ].
The next question is from the line of Rishabh Sisodia from Sameeksha Capital.
Am I audible?
Yes. Very clear.
Sir, first question is on the working capital. So if I look at, there is obviously been a significant improvement over the last 2 years and also significantly comparatively low given the past 5 years. So how do you see that going ahead? What are the steps that we have taken to keep our conversion at this low level right now?
Okay. We've been focusing on maintaining a strict vigil over inventory, also trying to see the cycles to the extent possible the cycles are kept close together. We are working on solutions around channel finance. But then our basic philosophy there has always been channel finance without any risk to the company. So it is any program that we work on is without any recourse to the company.And we are also working on a project, wherein we are aiming to improve the supply chain from end to end, which will bring about reductions in inventory at all levels, where -- from raw material stage all the way to finished goods, while at the same time, improving delivery and service to the customer. So we are working with a very well-known consultant. We are trying to automate most of those processes and bring in some amount of AI and tech there, which will hopefully help us achieve those objectives. The project has just started, but we expect that to give results over a 12 month to 18 month period.
That is helpful. So what will be our institutional and retail mix from a overall revenue perspective?
Sorry, I didn't get you. Your voice is...
Yes. On the overall revenue perspective, what would be our institutional mix.
Institution mix...
Institutional mix, you mean, government versus channel? Or how do you want it?
Yes sir. Yes, the government versus channel?
Okay. Bulk of our sale -- revenue comes from products, which are distributed through our channel. So about 70%, 75% of the revenue comes from channel and the rest is a mix of both B2G, as well as B2B. So if you look at communication, especially OFC, it is largely B2B [indscernible] largely B2B and B2G. If you look at auto cables, it is 90% B2G -- B2B. But all the other product lines would be substantially B2C.
Sir, one last question from my end. So sir, given that our CapEx, if I'm not wrong, I heard, it could be commercializing by the second half of FY '25. Is that correct?
Yes. That's right.
Yes. So till then, do we have sufficient capacity to [ fulfill ] our, let's say, double-digit growth target for FY '24?
Yes. We do. We do.
The next question is from the line of [ Shivam Mittal from Purnartha Investment Advisers Private Limited ].
Hello. Am I audible?
Yes, you are. Go ahead, please.
Sir, what is the current capacity utilization?
What is the current capacity utilization?
Yes.
I think slightly under [ 2/3 ] at this point in time.
And how do we see like new CapEx will ramp up [indiscernible] by FY '24, '25?
I'm sorry, I didn't get your question. How...
Sorry to interrupt, Mr. Mittal, can you use the handset mode, while speaking and not the speaker phone.
Yes. Sure.
Thank you, sir.
So I want to know how is the capacity ramp-up you know, like, once the CapEx started production.
How is the capacity ramp-up once...
See, the capacity utilization is different for different product lines. So Mahesh told you about an average for the entire company's number, but let's say, for house wiring, the capacity utilization is different, the fiber optic is different, in LAN cable, it's at 100%, in auto cable, it's at 100% at the moment. So it's different for each product line. And our internal growth or machinery ordering expansions are happening separately for each of these product lines.But generally, the company likes to have a capacity utilization above 70%. And at that moment of time, we ordered the expansion equipment because it normally takes a year for the machines to come, so that you are normally at 80%, 85% before the new machines get installed. It's very rare you are at 100%. It's 80%, 85% average capacity utilization is very good for the company.
Sir, I just want to know like we have a target of INR11,000 crores...
Sorry to interrupt, Mr. Mittal, we are not able to hear you clearly.
Hello?
Yes, sir. Your audio is not clear.
So am I audible?
Sir, can you use the handset mode and not the speaker phone?
Yes. It's better now.
Sir, yes, please proceed.
So we have a target of like INR11,000 crore revenue by [ FY '28 ]. So how do we see like that is achievable like double-digit growth of 20%, [ '24 to '28 ].
[indiscernible]. Yes. That is in each year, '28, I think. So it's 5 years from now.
Yes. So I think where we are today is about -- is almost close to INR5,000 crores, INR4,800 is what we've done. So getting to INR11,000 crores in 5 years at 12%, 15% growth on an annum is, I don't think, a major issue at this point in time. And where we sit today, we don't see that to be a major issue.
Yes. It's around [ INR4,800 crore ] like INR11,000 crores, so 18% kind of top line growth. It is achievable. That's correct.
It is achievable. And we are adding new product lines. So what we're talking about is only the existing product line. So as we add more product lines, as we spend money on increasing capacity, as we spend money on any acquisitions that we are talking about, so this INR11,000 crores is not a very difficult figure to achieve.
And how do we expect FMEG like other segment [indiscernible] because we are doing CapEx of -- so we have target of like INR200 crore revenue to INR2,500 crore from [ FY '23 ] to FY '28?
We couldn't hear your question clearly. Your voice is not very clear. We are not able to hear the full sentences clearly.
So sir, is that audible?
Your voice is audible, but it is not clear. Can you please repeat your question.
Is it better now?
This is better, I think.
Okay, sir. So the question was regarding the 2 subsegments over here, one is the FMEG segment, which currently is around INR200 crores of revenue, and if you see the mix, we are targeting a mix to reach it to 25% by in the next 5 years to around INR2,500 crores. Now traditionally, this segment is a low-margin segment compared to the -- our core electrical wire segment. So how do we see a 18% to 19% top line CAGR translating to a similar in the bottom line or up to the EBITDA level?
So see, we had, I think mentioned once before on this topic that we have several product lines in this INR200 crores, which is lighting, which is fan, which is water heaters, which is...
Switches.
Switches.
Switch gear.
Switch gear, and then lately, we've even added irons.
And these are largely outsourced, right?
These are all get -- not all are getting outsourced. Some switches are made in-house, the MCBs are made in-house. The other products are outsourced. Now as we go along and build each product line, and once each product line crosses INR100 crores of revenue, then it becomes viable to set up a plant and then try to grow the business.When you have your own plant, you are able to service the market better. Here, you're depending at the moment on many suppliers and the deliveries are not timely. But when you manufacture own product, you are going to be able to service the market better, and plus, you'll develop newer products on your own, and you will get value addition in the company and hence, even higher profitability what you asked about. So in the 5 years, we do expect this would happen and multiple plants would come up for these product lines. And that's why we have been trying to seed the market and get the brand acceptable in these new product lines because earlier we were known only as a wire and cable company, we are trying to change that. And we do hope that we will be able to achieve that in the 5-year period.
Okay, sir. And one last question regarding the gross block. So currently, we are at -- if I look at 1-year [ product ] revenues to gross block, which has a broad operating metric, currently, we are at a peak level. And the capacity addition, which is coming is largely into backward integration. So this 18% to 19% CAGR, is it -- how is it achievable for next say, '24, '25 on the top line revenue level? Because from a peak of gross GB -- revenue to GB, is there a certain potential to improve the capacity from say, currently 66%, 67% to 80%? Or will be requiring some [indiscernible] additional also?
No. There -- we constantly evaluate for each product line, where we need capacity and incremental capacity keeps on getting ordered. So for example, in automobile, we have reached 100% and a new order of equipment has gone out. It will come and get installed and it keeps coming in smaller parts. If you look at LAN cable, for last 2 years, 3 years, we've been adding capacity about 20% to 25% every year, and so this year is getting added. And we are close to 100% each time of capacity utilization, and we go on ordering equipment. So house wiring same thing, capacity is available, in fact, in that -- in this particular case. So we don't foresee capacity to be in the way of achieving the next year's target of double digit. There is capacity available in many product lines for growth.
Still it's double digit, not 18% to 19% top line growth because I was trying to [ compare it ] through the longer-term guide -- target to the short-term number.
Double digit can be from [ 10 all the way to 99 ]. So yes, we are not giving exact numbers out here. But the trend is definitely that number is something that is not very difficult to achieve is what we're trying to say.
The next question is from the line of Nirav Vasa from Anand Rathi.
Sir, I have a question, which is pertaining to your copper rods business, sir, where the revenue was actually, I can say, nearly doubled in FY '23 and even if I look at historically, that business has not contributed much in terms of margins. So as I understand that we are -- we intend to reinvent our business and target really high aspirations. Do you think this business would be a part of your portfolio? And how can I look at it from near and medium term?
See, copper casting will be part of our business for sure because it allows us to control quality of material that goes into our wires. So it will definitely be a part of our business. Having said that, we -- our plant at Goa has been underutilized for the past few years. So whenever an opportunity presents itself and there is opening for better utilization, we do that.So now with GST having come in and [ set ] and the entire process having settled in, we do think that there is scope for improving the utilization there. And at the same time, while the utilization improves, your fixed cost per tonne obviously will drop, and that gives us some scope to sell certain volumes in the market as well, and then we become competitive as compared to earlier. So that's what we are trying out. So it may not be something that will help us reach that INR11,000 crores. But whenever we do see an opportunity to increase the volumes there, we will do so.
Sir, revenue in this business -- this vertical had shown -- have shown sharp increase in FY '23. Any color that you can give for '24?
One second. So it's -- that is basically -- if you look at the revenue number and also look at the intersegment revenue consumption, so it is mostly for home consumption.
Get your point, sir. Sir, my other question is -- get your point. Sir, now I wanted to understand what is the EBIT margin differential that we are earning by selling our cables and wires to institutional customers, whether it's government or non-government that versus channel partners. And how can the margin trajectory expansion can happen, as we intend to expand the base of channel partners going forward?
Okay. Our wires are largely sold through the channel. There is very minimal sales to institutional customers there. Yes, we do sell to large contractors or to large construction companies, builders, which would be at a discount when compared to what is there in the market. That is for sure. But the difference may not be more a very substantial difference there. So government exposure are very bare prices kind of sale may not be very much there.Where do we have exposure to institutional sales is primarily on communication cables because the customers are institutional, so you have the likes of Bharti, you've got the likes of Jio, you've got the likes of Tata's and so on. So those would be tender driven. Those would be reverse auction driven, where the pricing is going to be fine, but that will guarantee steady and consistent volumes and large volumes. So it is -- that's the way that business model works.Automobile cables is again largely institutional, very fine pricing, but you get access to volumes, and you also get access to technology. So that is something that we will continue to do so. So that [Technical Difficulty] questions.
Partially. Sir, as we are targeting around INR11,000 crores of -- let me reframe it, as we are targeting INR11,000 crores of revenue in the next 5 years, what contribution are you seeing of the revenue to come from channel driven business for this [ industrial ]? Maybe in next 4 years, 5 years, as we are working with a consultant, do we have plan to gradually start increasing our revenue from channel-based make systematic efforts towards that? And how can the margin expansion along with net working capital reduction can happen, as we -- if we do that?
Today, our channel-driven business is approximately 80% of total revenue. So if I talk wire, then that 65% of the business, then some parts of communication also is channel-driven, and so is the new products. So those are all channel-driven. So unless, we say, we completely exit the non-channel driven business, I think the channel-driven business would be around the 75%, 80% mark going forward as well. I don't see it going to 100%. That would mean that we exit certain businesses, which is not in the plan.Having said that, as we expand capacity, as we utilize more of our existing capacity, our ability and as we go backward into integrating some of the raw material that goes into our products, our margin expansion, some of it would come from there because we would have access to -- we would not have to depend on other sources. We would be making it ourselves, and we would bring those value addition into the company.
Sir, my final question is pertaining to other income. Sir, in FY '23, that number was close to INR118 crore versus INR71.4 crore in FY '22. Did it include any one-offs or it was purely treasure income?
Sorry, just one second there. FY '23 was INR198 crores versus INR151 crores of the previous year, correct?
Sir, I'm referring to other income of around INR117 crores?
In which schedule do you get it from?
Sir, one minute, I think [ it's the ] other income -- other income, which is given in the after revenue from operations?
Yes. So that is what I'm saying, that's INR198 crores, right?
Yes, sorry, [indiscernible], it's INR198 crores. Yes.
Okay. So INR198 crores and INR151 crores. So out of this INR198 crores, approximately INR80-odd crores was dividend from our associate company, Finolex Industries, which in the previous year was slightly lower. What will come in '24, '25 and future years will depend on how they issue dividends out. The rest of the INR198 crores, so -- about INR100 crores was from treasury income. It was interest on deposits. It was -- we do hold, if you see we've got approximately INR2,300 crores of money sitting in liquid funds, so which we use for day-to-day cash operations, as and when money is required. So there have been -- as we buy or sell, there have been profits that have been booked on that as well. So that's the income that you see there.
The next question is from the line of Abhishek Ghosh from DSP.
Sir, few questions. In the presentation, you have mentioned that the auto cables and the industrial application cable has seen good improvement. If you can just help us the contribution of volume from these 2 segments?
I think auto cables, we were close to INR400 crores this year, and the flexibles was about INR300-odd crores.
Sir, flexibles typically would go into which user industry just...
It will go into panels, it will go into internal wiring of equipment, it will go into connecting wires.
Got it. And sir, just in terms of the communication cable, you've done about close to INR570 crores, INR580 crores of top line this year and the future capacity of about INR300 crores of CapEx that you're incurring will come in about the next 2 years. So with all of this, how should one look at the peak revenues that you can do in the communication cables given the capacity addition that you're doing?
Like I mentioned, one part of the CapEx that we are doing will be towards backward integration and that will result in largely value addition getting created within the company. So that while a certain capacity from that addition would also be available for sale in the external market. At the moment, I think, I'm still not ready to share those numbers in a public forum. I think it is a little too early to share those numbers out.
But sir, is it fair to assume that the current capacity that you have in communication, and I think, you mentioned it largely, but just reconfirming that you can grow at 15% to 20% for the next 2 years even with the current gross block of communication cable, is that the right assumption?
That is true because actions on the cabling side have already been taken and some expanded capacity will become available very soon.
Sir, you also have added certain capacities at -- in last 2 years to 3 years in Urse and other places and also discussion about the [ movement ] of solar cables and cables delivered to EV getting added as a part of portfolio. Any update, any progress around that will be helpful for me?
On the Ebeam?
Sorry?
Yes. You are asking, Ebeam.
Okay.
On the Ebeam project, you are aware we have mentioned earlier that we had ordered some machines from China and with the problem with the Doklam crisis and all that, there was no visas being given to the Chinese nationals to come into India. And hence, that project was kind of stalled without which you couldn't complete the bunker and the building, where these equipment have to be housed. So we waited a lot of time for this resolution between the 2 countries, which hasn't happened. So we've canceled those orders, and we've ordered now equipment on Korean companies, and we expect they will come in 2 phases, which is about 6 months to 7 months from now, the first machine and another 4 months to 5 months, the second machine. So now the work on the building is getting completed, and this project is -- it will go live in this time frame, as the machines come.
So in '25, sometime in end of '25, we should expect this project to get commissioned, sir.
No, end of '24, it tells you we should expect.
One machine should be live and operational end of this fiscal and the second mention should be in operational next year.
Okay. And what can be the sir, peak, and what is the CapEx that will go into this and the potential revenue from these CapEx?
The CapEx on this is about INR60 crores, I think, which was included as part of the INR200 crores that we talked about earlier. So that's the CapEx there. And the potential here is across multiple applications. It is on power cable side, it could be on auto cables. It could be on...
The majority will be on solar cables. But the way the machines are designed, they have 2 different sizes, the bigger machine can handle some low-voltage power cables as well. Then we intend to develop cables for railways, instrumentation cable, which require these kind of products. That will take some time to get approval process and all that, but that's the target also. So you will see the turnover ramping up over a 2-year period once the machine gets installed.
Got it. And sir, just one more thing. You had reversed some of the discounts and other things for your dealers or through the crisis in order to give support to them, now I think everything has kind of normalized. So any attempt or efforts have been made to reverse that and to improve your overall gross margin profile? Any update on that, sir?
Those schemes are back from this financial year. So earlier on, we were giving -- until March quarter, we were giving most of the monies, as part of the invoice itself. From April, we have restarted some of the schemes. So depending on the performance and the achievement levels, then the payouts will happen. Now how this will impact, whether it will really add to the margin will depend on what the achievement levels will be.
Okay. But at least action on the ground have been taken by you.
Yes, yes.
Okay. And just one last question for my side. Sir, we have seen a lot of traction that is going on in the industrial application side, and if you look at your -- broadly [ I just ] that calculate about 20% is your auto and industrial cables today, given the overall traction, do you think that this mix can shift from about 80% of wire and 20% of auto and industrial to more like 70%, 30% next 2 years to 3 years. Are you seeing that kind of demand in flexi cables and other things, just [indiscernible].
No. What you are trying to ask is that how many -- the percentage mix between auto and house wiring more or less is what you're trying to ask.
Correct. Sir, what I'm trying to understand is the growth there much faster because you're seeing lot of industries coming up, lot of cable and wire going to, so I'm just trying to understand from that perspective?
So I believe that the housing sector is going to grow quite rapidly. And we, from our side, as a company has been putting efforts in the market to expand our distribution network. We've gone into a 2-tier system of a distributor come retailer, which earlier used to be a single tier system of only a channel partner. So now we still maintain business relations with the channel partners. But in a 2-tier system, we are able to penetrate smaller cities, smaller retailers being taken care by distributors. And we put software into place, and we are doing a lot more other things on the back end to grow that network to have schemes directly with the retailer and make the product available in more and more counters.So I think the way the brand is positioned itself, we will continue to see high growth in the housing part, while the market grows and our distribution network grows. We've also used -- last year, we started using Bollywood stars for promotion, and that activity is giving us some results, and we will continue with that activity. So I think house wiring will grow. Automobile is growing. The industry is growing, and we are expanding on our project lines, but the margins are better in house wiring. We try to grow on both sides. We don't want to lose out on the opportunity on the automobile. But I think the ratio may remain the same, while both will grow. It's not that automobile will overtake or take some of the pie away from house wiring.
Got that. And sir, just lastly, anything on J-Power and any export opportunity?
Okay. J-Power, very happy to report order book is growing, as we speak. We are sitting on an order book of about INR270 crores, INR280 crores. And also fourth quarter was a profitable quarter. So I think the key there is speed of execution and adhering to those time lines on project completion. There is a certain part of it, which is beyond our control, meaning we win an order, we win a tender. But by the time the approvals come through from the customer with the design confirmations and so on, there is a certain amount of time that goes into it.If it is possible to crash that by a factor, then that would also help us. But that is something that is outside of our control. What is in our control is how quickly do we execute and complete and hand over the project to the customer. So that's something that we are working on that we are focusing on. Otherwise, profitability is what they have managed to secure in quarter 4, then that becomes a risk. So the focus is on ensuring that the execution -- speed of execution remains at the current levels.
And any export opportunities are you seeing across any segments?
Export, we have 2 focus assets on that area. As of now, the export contribution to total revenue is about 1%. And we really need to look at it from a different perspective to see any large number as well.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to 2 per participant only. The next question is from the line of Keshav Bharadia from PhillipCapital.
Sir, if you can help us with the update on the distribution network and how the active touch points have improved in Q4, if I remember, [ we were at 70,000 ] in Q3. So if you could give some sense on this?
Yes. It is closer to [ 95 ] now, I think, and the -- our number of distributors is just short of [ 700, 690 ] something. So yes, progress is continuing on that. But as you reached a higher level, then one needs to start looking at, do you need one distributor per district? Or is the potential from the district good enough to -- large enough to make one distributor or have somebody from a nearby district cover that place. So yes, we are almost at [ 700 ] at this point in time. And the number of active retailers in quarter 4 had crossed 95,000 [ my recollection ], which was about [ 75 ]in the previous quarter -- [ 78 ] in the previous quarter.
Right, sir. And sir, how is the revenue share of this new distribution now?
I think through the distributors, the sales have crossed INR1,500 crores.
Got it, sir. And sir, if I could also ask one more question, sir, what is the share of silver wire in our electrical mix? And how has it improved versus last year?
I'm sorry, what is the share of...
Silver wire sir, in electrical mix.
Silver wire, okay. I think it is 50% now.
Got it, sir. And sir, just one more last question from my side. Sir, what is the revenue mix from the -- for the old channel and the new channel now if compared to last year?
So like I said, distributor-led sales has been around INR1,500-plus crores, and the total electrical wires and -- is about [ 3,700, plus 200 of the others, so about 4,000 ]. So the rest is either the existing -- the previous partner [Technical Difficulty].
The next question is from the line of Saket Kapoor from Kapoor & Company.
Sir, for the -- on the communication cable front, what is our current OFC and preform capacity and post the expansion, what are we anxious?
Today, we do not make preforms. We import the preforms. We draw fiber though. The fiber drawing capacity is...
Let me answer that. We have a capacity of close to 8 million fiber kilometers on the cabling side. Now 8 million depends upon a product mix. So if you have large fiber count, you could go to 8 million, if you have orders running in smaller fiber count because of the line, smaller cable running on the line, it could drop down even to 6 million. So it's a variable number depending on the product mix. We are expanding a little bit on the cabling side at the moment. The building is ready. The machines will come in 6 months, and we will increase close to 2 million in fiber kilometer capacity on the cable side.When you go backward on the fiber draw towers, at present, we are drawing about 3 million fiber kilometers. We have increased speeds by changing some line speeds under take up, putting some UV lamps, which can allow the speed to increase, and we expect that to stabilize at 4 million in a short time. So this is happening on the existing towers. In the expansion, we are going to have preform making capacity in 2 phases, which will be 4 and 4 million to take it to 8 million, and the tower will also be added for additional 4 million. So eventually, in 2 years' time, we'll have a balanced capacity of 8 million fiber kilometers in all the 3 areas.
We'll move on to the next question, that is from the line of Manoj Gori from Equirus Securities.
Sir, my question is if you look at the electrical cable business, so on a sequential business -- on a sequential basis, revenues have grown by roughly around [ 10%-odd ]. On the margin front, when we look at with copper prices being very stable, we have seen roughly around 110 basis points of margin contraction for standalone revenues of [ ECF ]. Can you highlight like what actually triggered this margin contraction on a sequential basis?
On a sequential basis? Primarily the price differential in -- on copper between quarter 3 and quarter 4.
Okay. Right. So -- sir, we were not able to take the requisite price hike? This is what you mean?
We did. We did. There is -- see, when you change the prices, you don't change it frequently and immediately after you see something on LME. There is -- while the price movement is downwards, the pressure from the market is to reduce it immediately, while the price movement is upwards, again, the pressure from the market is to wait and watch. So there is always a lag before you take those actions and so that was -- that was what contributed. So we took one price hike actually in February, but that was after a lag from January.
Okay. So that should normalize going forward?
As long as the prices remain stable, that would normalize going forward. But like I mentioned in the beginning of the call, as we speak now, copper prices have again softened. And current price as we speak today it is somewhere around $7,800. So we have taken 2 price reductions in the month of May itself. So like I said, when the movement is downwards, the pressure from the market is for -- they expect a price reduction immediately. And so you are left with some stocks, which are at an early -- which are at an earlier price, so the average cost is slightly higher. So you might see in certain quarters, slight variation. I think one should look at the margins on a longer period, so on an yearly basis rather than quarter-to-quarter.
Right. So when you say about 13%, 14% sustainable margins at [ EBITDA ], so do you believe like probably this should be achieved during FY '24 or by FY '25?
I think it is doable. If you look at quarter 3, we were almost at 14%. So it's not something that is not possible to achieve. We had achieved them in the past as well. If you look at our numbers in the past, you would always find that our margins were around the 14% number. And again, if you compare us with our peers, you will always find that we are top of the heap there. Our numbers would be much higher than the others.
Right, sir. Sir, one question on depreciation. So obviously, in this quarter, when we look at the depreciation or even on sequential and Y-o-Y basis, depreciation in absolute terms has gone up materially. Any specific reason for that or probably this is what we should model in coming quarters?
No, this is primarily relating to the accounting policy around lease and leasehold assets. So those corrections were made in this quarter that we should have done it on a quarterly basis. We took it on a yearly basis. That's the only change. So going forward, you will see -- you will not see this change in a specific -- at the end of the year, you would rather see it every quarter.
Okay. Sir, lastly, while providing this medium to long-term outlook, we are definitely indicating about healthy double-digit growth into across product categories. So what gives us confidence probably that we will be -- we are likely to grow faster than the industry, especially in a scenario, where many of the formal players are getting very aggressive in wires, as a category. So probably, what gives you this confidence that we'll still continue to outperform and probably this also indicates like we would be gaining market share. So yes, thoughts here would be highly appreciated, sir.
Ladies and gentlemen, the lines of the management has got disconnected. Please stay connected, while we reconnect the management. [Technical Difficulty] Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir.
Yes, sir. Sir, was my question like did you get my question?
No, I think we lost it, sorry.
Yes, sir. So sir, my point was like, if we look at from a medium to long-term outlook, we have been indicating somewhere around healthy double-digit growth across product categories. And when we look at from an electrical cable segment point of view, obviously, we -- somewhere we believe from a medium to long term, it indicates about faster than the industry growth, especially in an environment, where you're -- where some of the other formal players are getting very aggressive. So probably, despite many players getting aggressive, we are still somewhere indicating like we would be gaining market share. What gives you that confidence? And what are the measures that we would be taking structurally to deliver that consistent outperformance?
Okay. Let me answer it in a slightly different way. Are you convinced that our economy will continue to grow at about 6.5%, 7% per year. And if you are, what would be the major drivers that would go into this. I think real estate, there's still some -- still an area, which is underserved, which will see substantial growth in the coming years. That's number one. Number two, manufacturing as an activity will have to grow at a much faster pace than it is today, else, an economy, we are going to have a serious problem, [ with ] so many people coming -- be coming off employable age. So when you look at these 2 together and then say the economy's growth is likely to be around 7%, 7.5% per year in the next few years, then I think for an organization like ours to expect to grow at 2x the GDP growth is not something that is out of the ordinary.
Okay. Okay. So normally, in the past, like given the track record, probably one can assume 2x the growth of GDP, at least in volume terms, right?
Right, right. In volumes terms. I mean, value-wise, one can never predict because we are commodity led. So today, copper is at [ 7,600 ] tomorrow, it becomes [ 11,000 ] or day after, it becomes [ 4,000 ]. Those numbers would keep changing. But volume-wise, yes.
Right, right, right, right. So there is a fair bit of visibility...
Sorry to interrupt. Mr. Gori, may we request if you return to the question queue. There are participants waiting for their turn. The next question is from the line of Saket Kapoor from Kapoor Company.
Yes, sir. My line was dropped. My question was regarding -- post the CapEx into the preform and the OF, we will be having 8 million capacity for each of the verticals, this is what you conveyed, sir?
Yes, yes.
Okay. And the ratio for -- from preform to OF is [ 1:1 ], the conversion, sir.
When -- and the preforms are formally talked in number of tonnes, but I gave you a number [indiscernible] equivalent to that in terms of fiber because it's a balance capacity, which we are trying to build and keep.
Right, sir. And sir, you mentioned about preforms to be sold to some buyer sir, you named the buyers, could you repeat it? I know, you said...
See we said preform will be consumed internally. We could sell the fiber. There could be customers for fiber, like the cablers or if we are getting full cabling order, we would use it for our own consumption and self finish cable by adding value.
Consolidated results, sir, we find that share of...
Sorry to interrupt, Mr. Kapoor, may we request that you return to the question queue. There are participants...
Ma'am, I will do that.
The next question is from the line of Rahul Agarwal from InCred Capital.
Thanks for the follow-up. Just one question on this capacity expansion done earlier. As you said, and Deepak also explained in terms of how it happens on a piecemeal basis, once the subsegment reaches full capacity. But when I look at the cash flow statement for the last 3 years, if I add all the CapEx there, it's about INR150 crores. My understanding is INR25 crores is maintenance every year. So 3 years is INR75 crores. So only the capacity...
[Technical Difficulty]. It is maintenance and replacement. So that also...
So that include replacement. Okay. So the balance INR75 crore is basically pure invested into new capacity expansion across product lines over the last 3 years. Is this correct?
Yes. Mostly, the expansion has been around the cabling side, so whether it is automobile or whether it is electrical wires, the initial processes are all the same.
Okay, okay. Because the intensity of CapEx then ahead, if we just exclude the preform thing, which is a new thing for us, should be similar across other product lines, right? I mean that should continue with like INR35 crores, INR40 crores across all other products apart from what you're doing right now on preforms and cabling capacity, which is INR300 crores. Is that correct?
Correct.
The next question is from the line of Achal Lohade from JM Financial.
Good evening, sir. Thank you for the opportunity. So pardon me if I'm asking the same question again. If you could help us with the mix within the electric cables in terms of the wires and flexible cables for FY '22 and FY '23?
Okay. Our typical mix has been approximately 65% construction wire and the balance is spread more or less equally between agricultural applications, industrial applications and automobile applications.
Understood. And how would that be in terms of the growth, if you can help us for FY '23? How was the growth in each of these 4 verticals?
There was better growth on automobile and industrial applications, while there was -- while the agricultural part was flat.
Okay. Would you be able to quantify how much on the wire growth? Just a clarification on that, ma'am. Agri sorry, the wire growth, sir?
Automobile cables, I think, went up by about half.
Wire, sir, the construction wire, sorry.
Construction wire, construction wires one second -- overall, for the full year, the entire segment grew about 16%. So the -- once again, I don't have the figure right in front of me. I can get back to you separately, Achal.
The next question is from the line of Sriram, an Individual Investor.
Yes. I have 2 questions, sir. You mentioned 65% is construction wires, so the balance of the -- how much would be LT power cable?
I'm only talking about wires. So this particular part does not include cables at all. Our overall -- in the revenue contribution, cables is about INR150 crores, INR180 crores. So it's a very small portion of the total revenue.
Okay. And sir, your revenue for J-Power and whether you're planning to increase stake for entity. Can you give some outlook for that entity?
So like I said, this year, J-Power ended with a turnover of around INR125 crores. Quarter 4, they made a small profit. So this has been the first quarter when they have turned in a profit. They have an order book of about INR280 crores. The orders are coming in -- in multiple voltage grades. So they have orders in 132, 220 and also 400 kV voltage grades. There is also a small quantity of 66 kV that they have. Typically, the larger [ voltage ] grade, the better the profitability is. The issues that I was explaining earlier was speed of execution is something that is key in this business because the longer you take to execute something, the more time you spend on an order, the erosion happens -- starts happening from your profitability. So that is something that we would need to focus on.Where are the opportunities? There is still quite a large opportunity possible in the country. More and more utilities are -- especially the transmission utilities are converting into 220 kV voltage grades. And of late, we are also seeing tenders being floated for 400 kV voltage grades. There are -- there is competition, but there is, I think, space for quality producers there.
Are you planning to increase stake in this entity?
No. We are -- it's almost [ 50-50 ] entity, 49% with us and 51% with Sumitomo. At this point in time, there is no conversation around either of us changing our proportions. They provide technology. They are the -- one of the acknowledged global leaders in this particular space. So at this moment, like I said, there is no conversation around changing any of our [ percentages].
The next question is from the line of Sushil Choksey from Indus Equity Advisors.
You've answered most of my questions. The only thing is your aspirational turnover is INR11,000 crores in the next 5 years. What kind of total CapEx you would like to do to get to that target?
Okay. Our plans are still being firmed up, but I think somewhere in the region of INR2,000-odd crores.
INR2,000-odd crores. And the current turnover product mix will remain same or you're likely to add many more consumer products, which our rival competitors have got aggressive in the marketplace over the last few years?
There will be additions to the portfolio, especially on the appliance side, but we are working on a few of them. I'm not able to talk about it much at this point in time because we have not made any public announcements. So as and when those projects are ready, we will come out with those announcements. But yes, there will be more appliances on the list. We're also looking actively to see what -- and what players, if at all, we can acquire, who are already in this space, so that would give us a head start in the move towards INR11,000 crores.
And what kind of current product would be the contribution at INR10,000 crore, INR11,000 crores? And what is the impact of 5G on our current business?
5G will have continuing impact on us for a few years going forward because it all depends on what applications go live on 5G, and therefore, what kind of connectivity it needs and what kind of fiber connectivity that requires. Today, we have -- and many of the players have said that technically, they have gone live on 5G, but that is limited to specific areas or specific cell sites. If you want to go regionally or city wise even or nationally, then the fiber deployment across the ground has to be substantially much higher, and so that will lead to substantially increased demand. But then, it's not all going to happen in 1 day or 2 days. It is -- it's over a period of a few years.What was your other question?
In terms of your futuristic outlook for the top line of INR10,000 crores, INR11,000 crores, the current business -- operative business, that is what we are operating, as manufacturing capacities, would that contribute 70%, 80% or majority of the turnover?
I think that would still be a large proportion of our turnover, may not be 80%, 85%, as it is today, but closer to maybe 70%.
So and the growth aspiration, current businesses can double in next 5 years?
I think so.
The next question is from the line of [ Surat Devra ] from Paladin Capital.
I just wanted to clarify, you mentioned on the margin for communication cables, they will go up to 9% to 10%. Is that correct?
That's right.
Okay. And what margins [ we want ] to expect from the FMEG business in the [ 2 years' ] time?
Okay. Right now, the margins are pretty low because we are spending a lot on the advertisement and brand promotion areas. So as the volumes grow, then the profitability numbers would improve. So today, if you see segment-wise, the profitability is just about [Technical Difficulty].
Hello? Hello?
Yes.
Members of the management team, we are unable to hear you. Ladies and gentlemen, we seem to have lost the audio from the management's line. Please stay connected, while we try to regain the audio. [Technical Difficulty]. Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir. Mr. Devra, may you repeat your question for the benefit of the management team.
Yes. Yes. So we're just talking about the margins in FMEG and [ optic cables, please ].
Surat, your voice is very low. Can you be a little bit louder.
Yes. Yes. I was just asking what the margin trajectory could look like on the FMEG side of the business. You're giving your answer for that.
Okay. So like I said, currently, there is about 1%, but that is because most of the [ production ] costs have been charged to [indiscernible] at this point in time, and that's being charged on a lower revenue base. So as it improves, then I think we -- over a period of time, the margins should be in the early teens is [ what I said ].
Early teens.
Yes.
Okay. And sorry, on the cabling business, you said 9% to 10% margin, will that come once the backward integration is complete in 2 years' time?
You're talking about the optic fiber cables.
Yes.
Yes. That's it.
We will move on to the next question, that is from the line of [ Shivam Mittal ] from Purnartha Investment Advisers Private Limited. [Technical Difficulty] Mr. Mittal, [ your line ] is no more. There seems to be no response from the current participant. We'll move on to the next question, that is from the line of Saket Kapoor from Kapoor Company.
Sir, if you look at your consolidated results, we find share of profit from JV and associates at some INR170 crore for last year, and this time, the contribution is on the lower side, if you could explain the reason for the same, sir?
Okay. Basically, I think the...
In fact, last year, it was [ INR327 crores ], sir, and this year, it is [indiscernible]. Yes.
Last year, Finolex Industries, which is an associate of ours had a profit of close to INR1,200 crores [ from that round ]. And so we have approximately a 32% share in that company, so that got consolidated with us. Whereas this year, the profits have dropped. And if I recall correctly, the profits for the current year is about INR280 crores or INR270 crores. So 32% of that we've got -- got consolidated with us. So that's the case in any way.
Is the non-cash items... sir, when we look at your -- yes. Yes, sir, I got your point. Sir, when we look at your expanded capacity in the communication cable, we will be only catering to the OFC market and what should be our likely market share at that time. And sir, currently, we are only selling to the telcos? Or are we participating in EPC -- we are selling also to the EPC contractors...
We are also selling to the EPC contractors. We are also doing EPC on our own, but the bulk of the revenue on the OFC side comes from telcos. Okay. So we also have our product branded and marketed in the -- through the distribution channel also, but those are smaller volumes. The large part of the volume comes from telcos.
Sir, for the pricing, sir, can you guide us what was the OF and the OFC cycles? And how have they moved for the last financial year?
You're asking about prices of fiber.
Yes, sir, fiber and fiber cables. What have been our realization?
Fiber cable, the price would depend upon the design of the cable, whether the cable contains a smaller lot of fibers or large count of fibers. But the fiber price itself has -- I think right now, it's about $6 if I'm not wrong, somewhere around that. It has also wobbled a little bit, but currently, it's about $6.
Ladies and gentlemen, that's the last question. I now hand the conference over to the management for their closing comments.
Ladies and gentlemen, thank you. Thanks for bearing with us. We've had a couple of interruptions, but thank you so much for bearing with us. And I hope we've been able to respond to your queries. Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Finolex Cables Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.