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KEI Industries Ltd
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Ladies and gentlemen, good day, and welcome to KEI Industries Limited Q1 FY '24 Earnings Conference Call hosted by Monarch Networth Capital. As a reminder, all participant lines will be in listen-only mode, and there will be the opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I'll now hand the conference over to Mr. Rahul Dani from Monarch Networth Capital. Thank you, and over to you, sir.
Thank you, Tim. Good afternoon, everyone. We are pleased to host the senior management of KEI Industries today, and we have with us Mr. Anil Gupta, Chairman and Managing Director of the company; and Mr. Rajeev Gupta, CFO of the company. Let's start the call with the opening remarks from the management, and then we'll move to Q&A. Thank you, and over to you, sir.
Yes. Good morning, colleagues. I'm Anil Gupta from KEI Industries. So I'll give you a brief about the results of Q1. We achieved net sales of INR 1,782.5 crores, with a growth in net sales to 13.87%. EBITDA in this quarter is INR 186.6 crores, and we have grown the EBITDA by 13.27%. EBITDA of net sales margin is 10.47% against 10.42% in the same period last year. Profit after tax in this quarter is INR 121.39 crores. So the growth in the profit is 17%. That opening net sales margin is 6.81%. Domestic institutional cable sales growth in CAGR is INR 538 crores in the first quarter. So it has grown by 14%. Export sales achieved in this quarter is INR 307 crores against INR 247 crores last year, and it has grown by around 25%. Domestic institutional Cable sales of extra high-voltage cable is INR 350 crores in the first quarter against the INR 300 crore PVS. So the total cable institutional sales contribution is 46% against 49% in the previous year entered. Sales through distribution network, that is B2C, is INR 796 crores in my first quarter against INR 652 crores in the same period last year. Growth is approximately 22%. B2C sale has contributed approximately 45% in the first quarter against 42% in the last year. Sale of EPC dividend is INR 111 crores against INR 84 crores last year. Sales of Stainless Steel Wire dividend is INR 58 crores against INR 61 crores last year. Volume increased in the Cable division on the basis of consumption of metal in quarter 1 of FY '23, '24 as compared to the previous year, the same period is approximately 22%. Bending orders as on 26 July, is INR 3,567 crores. External rating. The company has got an external India Rating and [indiscernible] Private Limited has affirmed its long-term rating as AA with a positive outlook. FICA and CARE long-term rating is AA stable. Short-term rating from India ratings, ICRA and CARE is A1+. Book value of the equity share of the company is 300.86 as on 30th June. Total borrowing is INR 130 crores. This is only for channel finance. Otherwise, all other limit utilization is nil. Cash and bank balances of the company on 30th June is INR 306 crores as against total borrowing of INR 135 crores. Cost channel finance and cash and then acceptance, credit as on 30 June is INR 151 crores against INR 219 crore as on 31st March 2022. So the net cash is INR 24 crores as on 30 June against net cash of INR 183 crores as on 31st March. The finance cost has decreased to INR 8.94 crores against INR 9.23 crores last year. Interest income on fixed deposits in Q1 is INR 5.92 crores, which is included in the other income. It was INR 3.44 crore in the previous year's same period. The future outlook of the company. At present, the company has repaired all its steps and is a debt-free company, but other cash accruals will be there. It will be used for CapEx for future growth and additional working capital requirements. Capacity utilized during -- I'll give you -- the company has -- the company is confident of increasing its top line by 16% to 17% in the current financial year. During the year, the company has incurred a capital expenditure of approximately INR 114 crores in last -- in the Q1. And during the current financial year, doing a down feed CapEx of around INR 45 crores in Silvassa plant, which will generate the additional top line revenue of LT power cables of around INR 500 crores. This will enable us to grow by approximately 16% to 17% in the current financial year. Apart from brownfield CapEx in FY '23-'24, the company has planned INR 250 crore to INR 300 crore CapEx on greenfield expansions of cable and [indiscernible]. Commercial production of which will commence in the fourth quarter of FY '25. We have already purchased land in Q1 and we will spend every year in capital expenditure of approximately INR 300 crores to INR 350 crores each year for the next 3 years to maintain a CAGR of 15% to 16% per annum as an achieved CAGR of 14% during the last 15 years. Industry outlook. As I said earlier, the demand for our products is strong in domestic as well as overseas markets. India has emerged as the fastest-growing major economy in the world and is expected to be in the top 3 economies in the world in the next 10 to 15 years. Demand in the infrastructure sector in the polar wind and other infra projects of the central government as well as industrial projects by the private CapEx is very strong. Demand for residential properties was first due to increased organization and driving household income. Increasing private and government investments in energy-intensive industries such as iron steel, aluminum, cement fertilizer and refinery. The government emphasis on infrastructure development and products such as energy, railway and metro construction, roads and highway building, ports and airports and modernization, among others. So we thank you for your participation, and we'll now invite you to ask any questions, which you may have, and we'll be glad to answer. Thank you.
Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions]. We take the first question from the line of Mr. Piyush Khandelwal from Bank of India.
Just wanted to understand, let's say, at current capacity, what can be the peak revenue that you can do?
At the current capacity as well as with the brownfield effect, which we are going for the next year, we can generate a revenue of INR 9,400 crores to INR 9,500 crores.
This will be able to take care of the growth? That's what I wanted to understand.
Yes. So that's why, I mean, we have said that next year also we will grow by 16% to 17%. As well in the current year also, we will be growing 16% to 17%.
Right. Understood. Sir, next question is if I look at the segment breakup in terms of growth. Our domestic cables business has just grown 3% Y-o-Y. I mean just wanted to understand because in the opening of your remarks as well, you mentioned that the demand is good. Then that side of the business is not done well?
In that domestic side, if you talk of the low-tension and high-tension power cables, we are earlier, our turnover was INR 472 crores last year. This year, our first quarter turnover was INR 537 crores. So we have grown by close to 14% in the local market also. In the case of the radial distributor, our growth is close to 22%, as earlier said.
Sir, does this mean that the Cables business that is around INR 588 crores versus INR 572 crores in the previous quarter, it's a 3% growth?
That's why we say power cable, which was a INR 100 crores, is now INR 50 crore. But now the order position of [indiscernible] quality power cable is very, very strong. So from the second quarter onwards, again, this will go to INR 100 crores to INR 125 crores per quarter.
So you'll be able to do INR 550 crores of annualized sales in this year?
Yes, yes.
We take the next question from the line of Mr. Rahul Agarwal from Incred Capital.
So sir, one question to you. I mean cable segment growth is at 14% Y-o-Y overall, everything put together. Was this in line with your internal planning for the quarter? Because it seems to be a low number when I look at your peer group who already reported numbers, it looks like tables are seeing some exponential demand in the country. So just need some of your thoughts on this. I understand EHC is down for some order execution delays. If you can explain that as well. But what happened on the LTFP side? Is it material enough to think about market share last year?
No. I'll explain you. We have grown actually by 22% in volume terms. The revenue growth is 20% because of the decline in the raw material prices and the metal prices of copper and aluminum due to which the revenue growth is only 14%. But in quantitative terms, we have consumed 22% more raw material during this period. Now your second thing is that we are not -- we have some capacity constraints at the moment, so we are doing a lot of debottlenecking process in our existing plants so that we maintain a growth of around 16% to 17% revenue growth and around 20% in volumes this year also. And I'm assuring you that it will be done. It will happen.
And Rahul, as per our earlier guidance, also, we have already guided every time that we will be growing 16%, 17%, 18% kind of thing. And volume terms, it has already grown by 22%. So our sale is as per the guidance actually, which we have given earlier also.
We absolutely agree, sir. I mean, the thing was, actually, most companies are beating guidance, given that there is some exponential demand scenario along the CapEx lines of the company, both private and public. Hence, I was thinking that in that context, it is low. I'm not saying, obviously, you have guided, and you've met the expectation.
But I'm not aware that the peer group has guided you about the 30% growth for the full year.
No, they haven't. They have not.
Because we always talk of the yearly growth. And since so many years in the past, we always guided you, and we achieved that.
Okay, sir. Moving on, sir, between the copper and aluminum mix, I just wanted to know for KEI in terms of raw material. Should we assume an equal mix between copper and aluminum?
Normally, it is a 55-45 kind of sometimes 60-40, something like that.
Okay. Got it. And one question on the balance sheet. Your net working capital looks like it's up INR 250 crores of investment Q-o-Q. The operating cash flow is negative for the quarter. Any thoughts on what really happened?
No, that is mainly because of we have paid more to the creditors because the money is in the business only. Whenever we would like to have increased the creditor, that will be available because right now, the cash is available. So we are purchasing more and more on cash. If you see, our creators has gone down. See the trade will figure.
Yes. I understand that, sir. That's been -- we have been doing that for...
Whenever we want, we can increase whenever we don't want a fee. So that is there. So that's basically the cash flow is available with the company.
Okay. Got it. So no major increase in inventory and debtor. Nothing unusual there, right? That's what I was asking.
As already last year was INR 1,387 crores, this year is INR 1,322 crores. Because the EPC projects, which we have already closed, we are getting our attention money. So data is slowly decreasing actually, even the sale has grown by 14%, even though that is low as compared to last year.
Got it, sir. And lastly, on the CapEx, this ground fund of INR 45 crores, this is the second time we are doing this. Is that correct?
Yes, yes. The first has already completed. And now the second is going on in the Silvassa, which will be completed by September. So the second half production capacity will be available. And another CapEx is going on in Bhiwadi, and another one is going on Gujarat. That's why overall, we have already invested in the land, and now we will invest in the planned machine by advances in the building for Gujarat and Bhiwadi. So approximately other INR 300 crore we will spend in this financial year. And for the next 2 consecutive years, every year, we will be investing close to INR 350 crores each year. So the growth target, whether for the current year or for the next financial year, we are keeping in our mind 16% to 17% kind of growth.
So there is a brownfield happening at Bhiwadi also?
Yes.
How much is the spend there?
It will complete by the first quarter of the next financial year. So it will take you for the next year's 17% growth.
What is the CapEx there, sir?
Close to INR 110 crores.
Okay. So if I understand this correctly, you spent about INR 114 crores this quarter, you will spend another INR 300 crores in the balance 9 months, and from next year onwards, it will be INR 350 crores each?
Yes.
And this includes Bhiwadi CapEx also?
Yes.
We'll take the next question from the line of Mr. Shubham Agarwal from Axis Capital.
Just on the capacity, sir, what is the capacity utilization right now for you?
So close to 90% capacity, we are utilizing in our low tension and power capacity. And since our Silvassa plant in our household capacity, we have already increased. So that capacity utilization is close to 63%, 64% now. In our exit power cable capacity from the current quarter, it will be taking close to again 90% to 95% now.
Right. And this new capacity, as is LHP? I heard it right?
It is only for LC cable in Silvassa because the brownfield effect is going on. It is only for LC power cable.
Okay. And sir, can you just give me some detail on the pending order book, the Brexit that you gave?
Pending order book, as Rajeev said, that it is INR 3,557 crores, which includes our EPC pending order is INR 832 crore. Extra high-voltage power cable is close to INR 809 crores, and domestic cable for low tension and high tension is close to INR 1,690 crores, and export order is INR 236 crores for the cables. So put together, it is INR 3,557 crores.
The next question is from the line of Mr. Achal Lohade from JM Financial.
Sir, I just wanted to check on the margins. If you look at the margins for the cables in terms of the EBIT margin, we see that it has contracted on a Y-o-Y as well as Q-o-Q. The number is not large. But given we are -- we have a capacity constraint, which implies that we have utilized fully. Why would the margin contract? Is it to do with the raw material? Is it to do with the product mix? Or is there...
It is mainly because of the advertisement and IT expenditure during the first quarter only because of that one.
Will you be able to quantify what is the quantum of...
Close to INR 10 crores to INR 12 crores we spent on the advertisement and the IPL, which was in the last year quarter.
Understood. So this is obviously the accounting.
All that expenditure we were relating to the quarter 1 only. So we have to book in the same port proactive.
And how do we look at the spending from a full-year perspective? What is the spending we would look at in terms of percentage of...
The other expenditure on business promotion advertisement will remain same as we were doing in every quarter. Last year, we did not participate in the IPL, and we did not then be in TV advertisement for ICL. So because of that additional INR 10 crore was the expenditure in this quarter. Otherwise, overall business promotion advertisement, overall year-on-year basis, it will be close to INR 35 crores.
Annual okay. Understood. And secondly, can you talk a bit more on the exports? Which geographies have you got more customers now signed up in terms of the margins for the export? And what are the -- what is the mix in terms of export in terms of wires, cables and within cables, if there is LHD, et cetera?
See, as Anil earlier also guided this year that last year, our export was contributing close to 10%. So we have begun this export within 2, 3 years' time to go to the level of 70% to 20%. So in the current financial year, we are targeting a 17% kind of total contribution from exports. So even in this quarter also, if you see the contribution from export has reached 17% in the current financial year also. So the export order position is strong, it is INR 236 crores. And we are exporting mainly the cable part, low tension, high tension and a little bit [indiscernible].
Right. And just a clarification. In terms of the execution period, what is the typical period for the domestic cables as well as for these exports? Is it 3 months?
Yes, it is normally 2.5 to 3 months.
2.5 to 3 months from getting the order to the delivery?
Yes. So whatever pending order is there, we have to supply within 3 months almost.
The next question is from the line of Mr. Venkatesh Balasubramaniam from Axis Capital.
Now I had a few questions. The first question is on copper. Now can you please highlight how much percentage of the copper that you use, you procure from India and how much you import?
Normally major copper and aluminum we are using domestic only at the present. Few orders we take from the import side. Otherwise, most of the cases, there is validation. So we take even the duty from our domestic supplier. That is in Dalton with an [indiscernible].
Okay. So because the reason I'm asking you this question is primarily because the market leader actually claims that when you go to the -- when you actually -- if you import copper, there are contracts available where let's say, you place the order for copper today, the price doesn't have to be decided on that day. Let's say you will take the delivery of the copper after 3 months. You have the option of deciding how you want to price the copper, whether it be export or, let's say, if the prices have actually risen over the 3-month period, you can take the average price. So are these kinds of contracts available in the international market, first of all? And secondly, why is somebody like KEI not participating in the international market if these kinds of contracts are available?
Sir, these type of contracts are available that we can definitely do the copper LME pricing on a forward note when the actual delivery is taking place. But ultimately, it is a call which we had to take, what kind of risk it carries. We do not look why we -- we are not playing broad line. We do the forward booking only in case we have a forward contract on fund prices. So that our actual supply is measured with the prevailing copper prices at that time.
Okay. That is very helpful. The second thing is a couple of years back, there were talks about -- you had mentioned that you were evaluating an entry into the FMEG business. But I guess, I don't know, is there any thought process on that? Because it doesn't look like FMEG is that great a business now, with almost everybody entering the business. So have you completely trapped plans on the FMEG entry? Or is it like you still have a thought process that you will enter that business?
We have no plans to enter that business.
Okay. And one last thing, one last question from my side. Obviously, some of your peers, like somebody like Highway who has more wire heavy, has grown at around 25%. Polycab, whose cable heavy has grown at 40%. And we have grown at a lesser pace. Is it basically only because of the capacity constraints that you are already operating at almost 90% utilization? That is why you couldn't grow. Was there a possibility that if you add that capacity, you could have also grown at, let's say, 20s, 30%? You can demand an environment that's strong.
Yes, yes. You are right. Demand environment is strong, and it is only the capacity constraint due to which we have grown less.
Okay. If I could just ask one more, pardon me for it. Some of your competitors have started talking about China plus 1 in wires and cables that a country like U.S. wants to diversify our supply chain in terms of buying wires and cables. Are you facing these kinds of -- are you getting queries from international clients that can you please export to us because we don't want to buy from -- we want to buy less from China. So this is something some of your competitors are actually highlighting.
Yes, you are correct. We are also getting a lot of inquiries. And in the coming quarters and months and years, the export will grow substantially. We have also started exports to U.S. since February this year. And quarter after quarter, where you will see our exporters jumped to 17% of our sales, which was in earlier years, yes, it was only 10%. It is definitely a growing subject to us -- I mean, whenever we are able to feed them with our capacity.
Okay. Out of the export margin compared with the domestic margin, is it higher, lower, same?
It is almost 1% higher.
[Operator Instructions] We take the next question from the line of Mr. Praveen Sahay from Prabhudas.
So related to the export only, as there is good growth we had seen for a quarter, you are guiding also for a 17% contribution for this year. Is it because largely of a geographical expansion, or you are seeing in the existing locations there is growth is coming in.
No, no, it is coming from existing customers in existing countries also and also from the new direct also. But I mean, that action is definitely strong for cable products from international markets.
So as you also highlighted in the export that the U.S. in the last call also, you had said that the U.S. approval everything is done. How much is the U.S. contributing right now in export?
So figure-wise, we cannot disclose country-wise, but overall, it was strong.
And one clarification that related to your CapEx. So 2 of the brownfield expansion CapEx for this year lined up for the next year?
At least in Silvassa going earlier also. So in the last year, we invested around INR 50 crores into Silvassa. And this year, we are again investing INR 45 crores in the Silvassa plant. And in our Bhiwadi plant, we will be investing around INR 100 crores, INR 110 crores. And then [indiscernible], we are investing in the increase sites. So overall the current year, close to INR 400 crores, we will be investing put together all whether it is [indiscernible] or it is Bhiwadi or it is Silvassa.
Okay. And one more clarification on the greenfield. Last quarter, you said it will be operational by Q3 FY '25, now it's delayed by a quarter.
It will be operational by Q3 end actually. So the fourth quarter sale, we will be started getting from there.
The next question is from the line of Mr. Sanjay from HSBC.
Sir, I wanted to ask you regarding to the timelines of the CapEx. So the Silvassa will be done by September, right? And the brownfield expansion will be done by Q4 this year.
By the first quarter of the next financial year.
Q1 FY '25?
Yes. And Gujarat, the first phase will be completed by -- the sale will start from the fourth quarter of next year.
Okay. And sir, on the EHV side, sir, are we confident of reaching revenues of INR 500 crores to INR 600 crores this year? Would that be reasonable?
From this quarter onwards, you will see that there is a -- we will cover up the decision of first quarter also in this quarter.
Okay. And sir, one last question from my side. Sir, there has been a slight receivable improvement this quarter. So is it sustainable? Or should we...
Just in the same range. As I clearly said, because of the change in the mix, the house where the retail dealer distribution division will be contributing in the current financial year close to 46%, 47%. So because of that, last year, our receivables had reached to 2.5 months in the current financial year, it will be going, holding will be close to 2x tons. Last 3, 4 years, if you see continuously from 3.5 months to 2.9 months, 2.9, it has come down to 2.4 months. Now it will be closing 2.2 months.
Sir, one thing on the margins. You mentioned that there has been a slightly higher A&P spend this quarter, and it would normalize in the subsequent quarter. So can we expect the margin expansion in line with Q4 for the rest of the year?
Yes, yes. Definitely.
[Operator Instructions]. We take the next question from the line of Amit Mahawar from UBS.
Sir, my question is for Anil. So this year, FY '24, what kind of volume growth do you see for the industry in TLT cable?
Now I expect close to 20% volume growth. Overall for the industry, I don't have figures at the moment, but we can provide you an estimation, it will be only an estimation.
Sure. And second thing is, FY '24 has started on a very strong note. We saw all the peers in volume growth in cable reporting very strong volume growth. It also tells us that a lot of states are inviting supply tenders. We've seen a lot of states where some of the IPs have supplied very large quantities. Do you think in your assessment and understanding this year, it's going to be a very heavy first half and a relatively slower second half considering we are going to also enter the election period? Is it right to say for cable is larger?
No, no. I think the year will be good and strong, even in H1 and H2. And I think overall, it will remain a good period.
And maybe last question for Rajeev. Sir, what's the target by next year for debt levels and interest cost to sales fatality?
Amit, as we earlier said, at that level, we will be maintaining a debt-free company now from here onwards. So that will not be there. Because of that, we are having a disciplinary approach wherein we are maintaining a growth target of 16% to 17%. Accordingly, whatever internal accruals we are generating, we are investing in the capital expenditure as well as keeping for docking capital requirement. So to maintain a certain kind of discipline and capital allocation, the same kind of growth we are targeting for the next 5 years or 10 years as a debt-free company.
The next question is from the line of Akshay Kothari from Envision Capital.
Just wanted to know regarding the earlier participant's question. If we are seeing a very good demand on the -- very good demand tailwind on cables, wires and everything is going good. And why not go for that forward contract LME? Because in that case, we won't be playing blind because we are actually seeing a lot of tailwinds across the sectors.
In the past also, as we have earlier communicated that we don't run the treasury, #1. Whatever natural hedge is available to us. We are having a 3 to 4 months kind of pending order book position. And we are having 2.5 months to close to inventory in our shop floor. So it is under natural head. Only in the case of the contracts from the customer, which is the longer period only against that only if we do forward the contract, otherwise, we don't do it. So that's why the -- neither we lose, neither we gain from the copper purchase.
Okay. And Rajeev, we are also planning the CapEx on the EHV side, right?
Just in our new Gen project.
The next question is from the line of Natasha Jain from Millbank.
So this is regarding one of the earlier participant's questions. So you said that in this quarter, there has been a higher ad spend of about INR 10 crores to INR 12 crores. So even if I add back that number to your EBIT, your margin expansion only improved to 50 basis points. I just want to understand. So is it fair to understand that most of the expansion was let go because you had to take a price reduction?
Repeat your question? We are not able to understand.
So if I do not consider the higher ad expenses in this quarter, which you said you incurred of about INR 10 crores to INR 12 crores. I mean your margins would definitely expand, but probably from 9% to say 9.5% to maybe 9.7%, whereas the peers have shown a very strong growth in terms of margin. So I just want to understand, is it because we had to -- the raw material pricing softened and that's where we took the hit.
No, no. It is not like that. In the earlier also, in the house wire product, our margin is 11%. Their margin is 14%, 15%. We have already also communicated. So our margin EBITDA is 10.5%. So we will be maintaining the margin in [indiscernible].
As far as advertisement is concerned, normal advertising will continue. It is only the IPL expenditure, which we incurred in the first quarter, may not be there in the second quarter.
All right. Understood. And sir, my second question is more on a longer-term basis. So we hear the infrastructure development that's going on, and then there is a decadal tailwind in the cable sector. And the infrastructure is not something that's going to end in 1 year. It's a multiyear project that the government and private CapEx, et cetera, is going to be done. So, sir, understanding from a 3- to 5-year perspective, given 2020 -- FY '24 start was very strong. How do you see midterm? In the next 3 to 5 years, the demand, is it going to remain as strong? How do you see it?
Definitely, demand will be very strong. And just in the last 15 years, KEI has grown at a CAGR level of 14%. The next year -- in the next 10 years, we are planning to grow by 17% a year because now we are a debt-free company. So we are talking of a longer-term perspective, not for 1 year but for a 5- to 10-year basis that we will grow by 17% CAGR.
We take the next question from the line of Mr. Prashant Kothari from Pictet Asset Management.
I just had this question on the capacity, like you're constrained for the capacity today. Does it mean that you have the ability to maybe prioritize your customers better and therefore kind of retain more tire margin business? I just wanted to understand how you are kind of thinking about it, how you are prioritizing which clients to kind of supply towards, which dealers to supply to and dealers not to.
But we are among the second largest company in the country. So we cannot deny our old customers. So we have to maintain the relations with all of our customers. So we cannot choose and pick only for higher margin because business has to grow for a longer period. So it is not the case. The case is that we are serving our customers. We are having the [indiscernible], some of our old customers, and we will be maintaining that. EBITDA margin, we will be maintaining, as we said, 10.5% to close to 11%, definitely, we will be taking. And that is our goal also to reach 11% EBITDA margin, with a growth rate of 17% kind of CAGR. Accordingly, the capital, which we are earning, which we are allocating.
Okay. And just in terms of your future capacity planning, sir, how do you think about kind of having more spare capacity than what you have today? What is the downside if you were to invest rate than INR 30 crores, INR 40 crores if you are to invest maybe a bit more...
So you see, we cannot see that only in 1 year if a competitor has increased, we should chase them because then the accident will happen. In the past also, in the last 14 years, whether it is a competitor or it is a KEI, all have grown 14% to 15% CAGR. We know that in future also, we may grow by 17%. So CAGR level depends on [indiscernible] much higher. We are talking for the 10 years.
The next question is from the line of Ms. Sangeeta Purushottam from Cogito Advisors.
So wanted a little more color on our margin. We have talked in the past and also said that one of the reasons you do by the margins have not grown despite the growth in sales was that you were investing in advertising, et cetera. But now that that business has also grown a lot, when can this stuff begin to see some meaningful expansion in the margins? Because if I look at my last 5, 6 years, you've been very stable around a 10%, 10.5% level. Is it possible to take it a notch higher?
We also spoke about that, that when our capacity will increase from the new infield project and the existing downfield project, our EBITDA margin will expand by 1.5%. So within next -- but it will be next 3 years kind of thing. Because one capacity when this greenfield CapEx will be there due to economy of scale, where the marketing expenditure and the head office expenditure will not increase to that extent. So EBITDA expansion will be from their side. And another, we are bridging the gap of our houseware price versus our peer prices within the next 2 to 3 years' time. So because of these 2 reasons, our EBITDA expansion will be 1%, 1.5% in the next 2 to 3 years' time.
Okay. So over 3 years, so roughly 50 basis points a year kind of thing and what we should expect?
For the current year and for next year, it will be 11% range. But after that, it will start increasing because the commercial production in the greenfield project will start only in the next financial year.
The next question is from the line of Mr. Anubhav Rawat from SUD Life.
Sir, my question is again on the margin side. But can we say earlier, we have seen a margin of like 12%? What sort of environment will that provide that because at some point, our ad expense will also stabilize and as well as we'll get some operating leverage. So shall we expect from the FY '25 or good growth in margins?
FY '25, '26 financial year, we may reach to 12%. So we are very, very transparent with all of our investors, all about bankers that whatever we are doing, we are communicating. There is no surprises in the negative side or positive side. We always communicate to all of you well in advance.
Okay. Because given that we are also increasing in our export as well as EHV, the margins are sort of looking like improve from here.
So on the industrial side, we mean, we have to maintain the quality while we are doing exports. We are doing to the institutional sales. Since we are doing the institutional sales, please appreciate each and every institution, all the sale goes through the inspection process only. We are not the 75% selling to the dealer distributors. We are in -- the inspection agencies are there. So any company can sell anything. So we are selling in the institution side, we are [indiscernible] to others are available. All these companies are appointing the inspection agencies to our company, the quality of the product or at an international level, with the KEI as KEI is giving to all our customers.
Okay, sir. And sir, what is your margin difference in retail and institution sales?
The retail is close to 11%, and the institutional sale is close to 10% to 10.5%.
[Operator Instructions] We take the next question from the line of Mr. Venkatesh Balasubramaniam from Ramanan from Axis Capital.
I just had a follow-up question. Now I am aware that historically, KEI, a very long time back, used to have leverage problems. But over time, you've done fantastically and have executed very nicely. You have reduced working capital. You've reduced debt. Now you are at almost net cash. Now one participant earlier asked why not do more CapEx, for which you had replied that over the longer term, the growth is 14%, 15% only. So we should target that kind of growth only. But you are also aware of the fact that this China plus 1 is a new opportunity which is coming up. And normally, when a country like U.S. or large countries move supply chains to a different country, it is not a one-time opportunity. It could be an opportunity for the next decade. So is there any merit to go back to the drawing board and perhaps double the CapEx than what you're doing, maybe even borrow for it and maybe have slightly higher leverage over the shorter term because you might actually miss out on a large opportunity if you don't do the necessary CapEx. So is there any...
We will not miss out on anything. The longer-term sustainable growth for any company, please note my words, will be 16% to 17%. That is I'm talking for the next 10 years. So we are not planning for 1 year. We are planning for the next 10 years. And we are raising our CAGR growth from 14% to 17% now on a sustainable basis for the next 10 years. We will be running a debt-free company, that is for sure. So neither we will borrow, and we will be maintaining a 17% CAGR. We are very, very transparent to all of you.
The next question is from the line of Mr. Rahul Agarwal from Incred Capital.
Raj, one question on credit. Just trying to understand that better. I know the company's strategy in terms of reducing payables, so I know that. What I'm trying to calculate is when I look at March balance sheet and June balance sheet, the creditor balance is down about INR 160 crores. Is that correct?
Yes, sir.
So you're saying that because we did this...
[indiscernible] whenever we have the extra test, we buy the metal on cash for us to buy on cash because where we utilize the money. [indiscernible] the project because we don't run the treasury. So we don't invest anywhere. We don't invest in the capital market as a company. So we want to remain within that business. Now we are going for capital expenditure. So whatever money we are generating, it will be put only there. So [indiscernible].
Sir, I understand that. My question was, can we quantify the savings we have done on this INR 160 crores?
So saving is only -- we are opening the letter of credit, it is [indiscernible]. If we are not opening [indiscernible]. So it's a 14% growth is there, or 16%, 17% growth we are going to do, but interest cost is not increasing. Otherwise, the interest costs will it increase.
Yes, I understand that. Okay. No problem. I'll take it offline.
Only in proportion to that one.
I understand that, sir. Because I was looking at the acceptance number, it has gone down by INR 70 crores Q-o-Q. So is there a linkage between the difference of creditors being repaid and exercise going down?
No linkage because copper and aluminum always purchasing on cash. So if we are having the cash extra, we are paying them directly. If we are having sometimes going for later of credit, but if the import is increasing, then definitely, we have to open the letter of credit because in the import, we need to open the letter of credit.
[Operator Instructions] We'll take the next question from the line of Mr. Raj Shah from Ambit Capital.
Sir, just one question on the capacity again. So I just wanted to understand that in the short term, we have capacity constraints. So is there any possibility of outsourcing for the incremental growth that we get?
To maintain the quality of the cable, we need to manufacture in our company, but again, as we earlier said also whenever we plan for growth of 16%, 17%. So it is a well-defined process. We have already communicated to you as well as communicated in our company, internal Board also. So the same way we are growing 16%, 17%. It is not the case somebody is having more growth. We should jump into that, we should not do that. We know our strength, and we know what quality of products we need to produce and supply, whether in the domestic market or in the export market. So accordingly and ethically, we are doing our business.
Okay, sir. And just one additional question. So if I just look at the margins of the market leader over the last 10 years. So then we have gone from around 9% to roughly 14%, 14.5% for FY '23 '24. While we have maintained margins at around 10% to 11%. So just wanted to understand, going forward, what are we spending more on branding? What are we doing differently on the branding and advertising part so that we can reach -- as we reach a good decent scale, we can also reach margins comparable to --
So we are not competing with anybody. We are competing only with ourselves. As we said, our margin in '25, '26, '27 will reach to 12.5%. So we are not guiding that we will be taking up the peer group or something else. We will be growing with a 17% kind of thing for a CAGR growth, having EBITDA margin close to 11% right now, which will be reached within 3 years' time, 12.5%, and we will be running at that 3 companies. So these 3 things we are maintaining.
[Operator Instructions] The next question is from the line of Nirav Vasa from Anand Rathi.
So in FY '22, our installed capacity across all the multiple cable options that we have was 14.95 lakh kilometers. Would it be possible for you to share what is that number currently? And what can that be number end of this year and FY '25?
Sir, this I will communicate. Right now, I'm not having the kilometer number. In my presentation, you will see which will be in the site by evening. So we are already disclosing the capacity in our every presentation.
The next question is from the line of Mr. Sudad Puros from InvesQ Investments.
Sir, any bifurcation you provide how much of business normally we get from a government elected, like projects and how much from nongovernment and particularly from the railway side?
So we don't have that kind of number, but we are having a segment type of number. We're in the institutional business for low tension, high tension power cables contributing 30% of our total sales. The leader distributor business is contributing 45% of our total business, and export is contributing around 17% of our total business. The institutional business includes not only railways, metro projects, EPC contractors because when the LNP is giving the order, we don't know whether it is a distribution and transmission order or it's a material project order, or it is any refinery order or any respect product. So we supply lots of cable to these EPC contractors like LNP, Siemens, ABB like companies, large companies.
Okay. The reason I was asking is that there are very few large companies like yours, and the government is on a massive expense and more both in the U.S. as well on [indiscernible].
So you are seeing the government expansion. Now we are always telling you since the last 3 years that demand is good. But since the capital allocation basis and the capital availability to us, we are in a more wearing we will grow 17%, 18% kind of growth.
The next question is from the line of [indiscernible].
Let me say that you are foreseeing growth of 16% to 17% for the period of next finance. Is there any particular segment that you see this growth were to slow towards one particular segment, or this will be a broad-based number that you are projecting?
No burden can a project like this, actually, we are running a complete profile portfolio like you. So we are having low tension, high tension, extra power cable, we're having wire. And we are having these segments like we are supplying to institutions, supplying to export markets. So protectant segment. No one can know which of the product will be higher, or which of the products will be lower like you. So as a whole, we will be doing like this.
We take the next question from the line of Ritika Gupta, an individual investor.
I just had one question. [indiscernible] you're bullish, which is the geography that you're most bullish on. U.S. market started in [indiscernible], so what percentage of our exports are going to the U.S. market?
Close to 10% of the -- or maybe more because I cannot disclose those numbers actually to you for country-wise actually.
But which geography are you lose portion?
You see the war in the geography of East and the Middle East, Australia, U.S., these are the major geographies wherein we are operating.
Okay. And you see mainly growth coming from?
The growth is coming from every sector every year. It is not the case that the Middle East is not doing or Australia is not growing, or Africa is not growing.
No. But I ask you for [indiscernible]
[indiscernible] because of that, our CMD has already increased the contribution target from 10% to 17%, actually.
The next question is from the line of Mr. Rahul Agarwal from Incred Capital.
This is my last question. Sir, just one question on channel finance. The INR 130 crore number, if I understand this correctly, this is a recourse debt, which is basically related to your dealers who have taken channel finance. Is that correct?
Yes, you are right, sir.
So my understanding was, generally, when I look at another balance sheet, typically, this is shown as a contingent liability, right? It's not part of the balance sheet. So is there any difference in accounting policies, what you fall and other...
All were accounting for sesame resource level is also same. Sometimes, KEI companies have open directly the recourse [indiscernible] otherwise banking channel is for everybody's time.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Thank you very much, thanks for participation and listening to us. If you have [indiscernible]. If you still have any further questions, you can reach out to us. Thank you very much.
Thank you very much to all of you.
Thank you. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.