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Earnings Call Analysis
Q2-2024 Analysis
KEI Industries Ltd
This quarter, KEI Industries Limited showcased a significant increase in their net sales, reaching INR 1,946 crores, marking a notable 21% growth. The financial health of the company appears strong, with EBITDA standing at 10.87% and witnessing a 27.53% increase from the previous year. Furthermore, the profit after tax (PAT) demonstrated a robust growth, climbing by 31% to INR 140.2 crores, indicating a sustainable profitability at 7.2% of net sales.
Exports were a highlight of this quarter with an astounding 79% surge, totaling INR 49 crores. This indicates that the company's products are gaining international traction, positioning itself well in the global market.
The company's dealer network continues to expand, with sales growing by 14%. This growth suggests effective distribution strategies and an increasing market presence through its dealer channels.
The extra high-voltage (EHV) cable segment saw substantial growth, with sales reaching INR 169 crores. This growth signifies the company's ability to meet the demand for more sophisticated products, which brings optimism for future sales in this segment.
The first half of the financial year marked a 17.51% rise in net sales, totaling INR 3,729 crores. The EBITDA for this period grew by 21%, and the PAT increased by 24% to INR 261.59 crores, reflecting sustained growth and profitability.
The Cable division reported a 26% increase in production volume based on metal consumption, demonstrating the division's scaling capabilities and market demand.
The company's current order book stands at INR 3,363 crores, with the retail order not yet accounted for, indicating a pipeline of secured future revenue.
KEI Industries cites a promising future for the Wire and Cable segment, backed by government infrastructure projects and demand from real estate, thus ensuring a strong demand outlook.
With a capital expenditure of INR 221 crores already incurred in the first half of the current financial year, KEI Industries has shown commitment to growth through capacity expansion. A specific highlight is the increased CapEx at the Chinchpada plant from INR 45-50 crores to INR 110 crores, suggesting that the company is scaling up operations to meet demand.
The company's capacity for house wire and low-tension power cables is set to increase by INR 800 crores to INR 900 crores per annum. These expansions are expected to drive a growth of 16% to 17% in the current financial year and project towards a 15% to 16% growth in the following year.
Looking forward, KEI Industries plans to maintain a CAGR of 15% to 16% annually, driven by new expansions such as the INR 250 crores to INR 300 crores CapEx on greenfield projects in Gujarat. These strategic moves, along with geographical and customer base expansion, especially in export markets, are expected to yield fruitful growth in the company's business in the upcoming financial years.
Ladies and gentlemen, good day, and welcome to the KEI Industries Limited Q2 FY '24 Earnings Conference Call hosted by Monarch Networth Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rahul Dani from Monarch Networth Capital. Thank you, and over to you, sir.
Yes. Thank you, Rio. Good afternoon, everyone. On behalf of Monarch Networth Capital, we're delighted 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.
We will start the call with opening remarks from the management, and then we'll move to Q&A. Thank you, and over to you, sir.
Yes. Thank you very much. Good afternoon to everyone, I'm Anil Gupta, CMD, KEI Industries Limited. Along with me, Mr. Rajeev Gupta, is there, CFO of the company. Thank you very much for joining us on this conference call.
I'll give a brief about this quarter's results, which we must have gone through. The net sales achieved is INR 1,946 crores. There is a growth in net sales at 21%. EBITDA in this quarter is 10.87%, which has grown by 27.53% compared to last year. Profit after tax in this quarter is INR 140.2 crores, so which is 7.2% of the net sales and grown by 31% compared to last year same period.
The major highlight is that the export sale in this quarter has jumped significantly to INR 49 crores with a growth of approximately 79% compared to previous period last year. Sales through dealer network has grown by 14%, so it is INR 923 crores against INR 808 crores last year. So the sales through distribution network is 47% of the total sales in the second quarter.
The sales of extra high-voltage cable is INR 169 crores, which has grown substantially compared to last quarter and last financial year. It is mainly because in second quarter -- in the first quarter, some cable manufacturers could not be dispatched due to [ nonplayer ] from the customers due to ROW issues, but with significantly healthy trend in the EHV cable in the coming quarters.
The net sales in first half, 6 months, in H1 in financial year '23-'24 is INR 3,729 crores and growth in the net sales in first half is 17.51%. EBITDA has grown by 21% compared to same period last year. And EBITDA/net sales margin is 10.68%. Profit after tax in H1 is INR 261.59 crores, so the PAT has grown by 24% since the same period last year. Profit after sales/net sales margin is 7% as compared to 6.64% last year.
Total volume increased in the Cable division on the basis of production for consumption of metals in H1 is around 26%.
The pending order book at the moment is INR 3,363 crores in the company. This does not include the retail order, which we do not count in the order booking because they come and dispatch from the stocks or from the [ default ] within a few days. Rest of the commentary is already available with you, which you may please go through and we are there to answer your any questions.
I'll brief you about the industry outlook. We see a reasonable and good outlook for the Wire and Cable segment in the coming quarters from the government infrastructure pipeline as well as from the real estate. We also are seeing good traction of [ whole ] demand from our overseas customers.
I would like to talk about the actions taken by the company for incremental capacity condition. Company has incurred a capital expenditure of INR 221 crores during the first half of current financial year. Earlier, the company has planned a downstream CapEx of INR 45 crores to INR 50 crores at our Chinchpada plant at Silvassa. Now that we have increased its CapEx to INR 110 crores in Chinchpada plant, which will increase our capacity for house wire and LT, low-tension power cables by approximately INR 800 crores to INR 900 crores per annum, out of which INR 240 crores per annum capacity has been in place in October '23 and balance capacity and another similar capacity will be available by summer in this year and the rest will be available for production by end of this financial year.
Another greenfield -- or brownfield expansion is being done at our Pathredi plant in Bhiwadi with an approximate cost of INR 110 crores, which will increase our capacity of low-tension power cable by approximately INR 800 crores to INR 900 crores per annum. It will be operational in the Q1 -- quarter 1 of '24-'25 financial year, that means by May or June 2024. This will enable us to grow by approximately 16% to 17% in current financial year and also 15% to 16% growth in the next financial year.
Apart from these brownfield effects, in financial year '23-'24, the company has planned INR 250 crores to INR 300 crores CapEx on greenfield expansion for cables and wires in Gujarat at Sanand. The construction has already started. We expect the first phase of the commercial production will commence by fourth quarter of FY '24-'25. Further, we will spend every year in capital expenditure approximately INR 300 crores to INR 350 crores for next 2 to 3 years and to maintain a CAGR growth of 15% to 16% per annum.
So we expect a good growth in the company's business from domestic market as well as exports in the coming financial year and the consequent years. We are focusing on geographical expansion in the export markets and also expansion in the customer base, and we expect we are getting reasonable and good results from our efforts.
I would like you to now come back with your questions, and we are ready to for the questions and answers on these aspects. Thank you very much for listening.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.
Sir, first question was is there a reclassification of dealer sales because I can see revisions in first quarter number.
Yes, Rahul. You are right. Binding wire product share that we reclassified. Earlier it was shown in the Institutional sales, so it has been reclassified and some other regrouping also. So that said, we have reclassified. But the total sales remain same. Only Institutional versus Retail has reclassified.
Actually, binding wire was always [ rolled ] through dealer network. So it was never in Institutional sales.
Okay, okay. Got it. So after this reclassification, could you help me understand overall the dealer distribute of sales. I think my sense was we were growing faster there. What is the full year outlook for this segment?
This outlook is also there because in the wiring segment, if you see, we have grown. In first half level, it's close to 22%. And in the Cable, because of the capacity, we are diverting this capacity to the export now. So it is some time export is higher, sometimes dealer/distributor is higher, sometimes HP is higher. So that will remain the same.
But as overall, we will grow 16% to 17% in the current financial year and the same kind of growth we will see on the basis of capacity expansion, which our CMD has highlighted in the next financial year also.
Got it, sir. Very clear. Second question on EHV full year, I think INR 550 crores to INR 600 crores that guidance remains?
Yes. That guidance remains.
Okay. Anything specific on steel wire sales because that looks like it's a bit volatile. Is it more...
[indiscernible] metal, it all depends on the pricing. So sometimes it goes up, goes down, but the production level is same.
The capacity segment, we are not increasing the capacity over there. Our production in quantum -- in quantity has grown. But because of the substantial fall in the stainless steel prices, the value sales have gone down. But in tonnage, it has improved.
Got it, sir. What is the peak revenue here we can achieve assuming current pricing for steel business?
We can achieve 750 tonnes per month at our best capacity. And at the moment, we are operating almost at between 700 to 750 tonnes per month, month after month -- month to month.
Got it, sir. And last question. After this brownfield, which got completed, I think Silvassa, 240 crores is completed and it will come in phases. Just to understand this better, the peak revenue potential for the company overall across all segments put together, if you could help me with that number as of September.
As of September, the capacity utilization in the Wire and Cable segment is close to 97% in the Cable segment. But in the case of the house wire segment, it is 89%. So now we are adding the capacity in the house wire also, which Anil has said that it will be added in -- by March. And in the Cable also, which will be added in the earliest coming December, coming March. And then in the first quarter, our operated plant will add.
So approximately new capacity addition. Like October, we added INR 240 crores, another INR 240 crores will be added in December and another INR 500 crores will be added by the -- our house wire division capacity utilization was 70%, actually. So we have sufficient capacity over there.
So this additional [indiscernible] will be there. And then the Pathredi plant approximately INR 800 crores to INR 900 crores capacity for next year, it will be there. So because of this new capacity addition in our existing locations, we will be able to grow the same kind of growth, which we are growing in this financial year. And after that, our new greenfield capacity will be available.
Got it, sir. So basically, Bhiwadi and Silvassa adds about INR 2,000 crores of top line. Is that correct? Approximately?
What were you saying?
I'm saying Silvassa, the brownfield additions, are adding up about INR 700 crores to INR 800 crores of top line and the Bhiwadi is...
Basically INR 1,100 crores to INR 1,200 crores.
So overall INR 2,000 crores of top line?
And plus Pathredi, so you are right, INR 2,000 crores additional.
Overall INR 2,000 crores additional worth of capacity will be available by end of this financial year.
The next question is from the line of Shubham Agarwal from Axis Capital.
Sir, just a question on the greenfield capacity additions that are coming. Sir, can you give a sense what are the percentage increase in capacity of the peak revenue or the revenue potential of these capacities in Phase 1, Phase 2 and Phase 3, similar the way you've given for the brownfield capacity?
So in greenfield, we are spending around INR 1,000 crores-plus there. We will generate 4,000 to 4,500 per capacity. The Phase 1 will be approximately 2,000 crore capacity will be added by the fourth quarter of the next financial year. And balance we will be adding in the '25, '26.
Okay. So on the brownfield, just reconfirming, if I've got it right. In the Silvassa plant, INR 240 crores revenue potential capacity has been added in October '24. INR 240 crores will be added in December -- sorry, October '23. INR 240 crores will get added in December '23. And the balance, about INR 300 crores, will get added in March '24. Is that right?
Correct. Correct.
Okay, sir. And Bhiwadi plant, Q1, the whole INR 900 crores will get added in Q1 FY '24, Bhiwadi?
Yes. '24-'25.
Right. Q1 FY '24-'25. Sorry, yes, Q1 FY '25. And just a related question, how long does it take us to ramp up these capacities to 100% utilization? I believe brownfield capacity will be very -- the utilization can come up really fast. So if we add in October 31, we added the capacity, we can reach this utilization for that plant in, say, how many days?
Since we are having the order book position, so in the Chinchpada plant, the LT power cable we are adding we will be utilizing immediately.
Okay. It doesn't take -- it's not like a Phase 3. And a question on your answer in the last participant that you're diverting your current capacities to exports, the cable capacity. I believe last quarter you were saying that you'll be focusing on servicing the domestic demand first and then going on to export -- going on to service export demand. With that understanding...
We are serving domestic institution, we are continually serving. But once we get the export order, we have to deliver on time. So that's why I said that we are -- this export has increased. But the dealer/distributor, the Cable division has not increased to that extent. But the market is available.
And it will always be the case. Sometimes EHV will increase, sometime HT will increase, sometime low-tension power cable will increase within the product. And within this segment also, sometimes the dealer/distributor will increase. Sometimes, the domestic institution will increase. Sometimes, export will increase.
So overall, put together with the diversified, whether it is a product or it's a customer base, we will be growing in a 16% to 17% per annum basis. It is not the case like in the last quarter where the EHV sales was low, but still we have grown in this quarter. So again, our growth rate will be the same, will be very, very stable.
Right. Sir, yes, I get that. Sir, my intention of asking is that since you were saying that we'll incrementally divert more capacities towards exports, are you sensing any kind of a slowdown in the domestic demand for cables maybe because of election or something, that was my intention of asking that.
No, no, no. There is no slowdown. But we have to create a balance with our available capacity for -- yes.
See, now we are going to create a INR 2,000 crore worth of capacity by next year. And after that, another INR 2,500 will be added. So if we are not tapping right now the new geographies, then how we will grow and we will utilize those new capacities then?
Right. Got it, got it, sir.
The next question is from the line of Swati Jhunjhunwala from BOB Capital.
First question, what was the B2B contribution in the second quarter?
Please repeat your question.
The B2B contribution for the second quarter.
B2B contribution, 27% the domestic institution and 15% from the export. And dealer/distributor contribution is 47%. Apart from this, there is extra high-voltage power cable contribution is also -- that is also B2B, that is 6%.
All right. And could you give me both mix of the order book in terms of EPC, HP, domestic cable and export cable?
Yes, you can note down. EPC order book position at INR 804 crores. [ High-voltage ] power cable includes the little bit EPC portion attached to it, INR 725 crores. Domestic cable order book position is INR 1,548 crores. And export order book is INR 286 crores. Put together all is INR 3,363 crores.
All right. And lastly, on the CapEx front. So H1, we have done INR 221 crores. Are the INR 45 crores to INR 50 crores that we had targeted for Chinchpada, is that already included in the INR 221 crores this year?
Yes. Out of the INR 221 crores, we spent around INR 43 crores in Chinchpada, INR 5 crores in Pathredi and INR 140 crores in our Sanand plant. And balance is for the maintenance CapEx and in our [indiscernible] , which is in Baroda.
Got it. And the increment INR 65 crores for Chinchpada, the INR 110 crores for Bhiwadi will be incurred in H2. Is that right?
Yes. In Pathredi, H2 will be another INR 75 crores and balance INR 30 crores will be in the first quarter.
Okay. Okay. And lastly, the INR 250 crores for greenfield, how much that will be done in the second half?
Repeat your question, please?
The INR 250 crores for the greenfield capacity that we are adding, how much of that INR 250 crores will be incurred in the second half of FY '24?
On projects, we have already spent INR 140 crores for the land. Another INR 150 crores will be spent in the second half and close to INR 400 crores will be spent in the next financial year and INR 300 crores will be in '25-'26. That's how this INR 1,000 crores will be spent over there.
[Operator Instructions] The next question is from the line of Alok Deshpande from Nuvama Institution Equities.
Two questions. One, on the margins, we have seen a good margin expansion this quarter. Can this be attributed to the EHV revenues going up sharply or is it just the operating leverage playing through? That was question, sir.
And sir, second question was if you could just give me the volume versus pricing breakup for this quarter, that would be all, sir.
See, now the EBITDA level will improve towards 10.75% to 11% range because of the top line is increasing. So this kind of EBITDA level will be maintained in future also. And what was the second question?
That was the -- so it was about the volume and pricing breakup for the quarter.
In the first half of the current year, as well as compared to the last year first half, copper price more or less is same. It was hardly 1% to 2% differences here. So these prices are stable. Only aluminum prices had reduced by more than 10%, 12%. Otherwise, prices are stable now.
So close to 26% volume growth on the basis of the consumption of metal, on the basis of production we did because our production is higher also. So that will also because our level of production has also gone up because now we have to improve our sales more than INR 2,000 crores a quarter. So because of that.
The next question is from the line of Koundinya Nimmagadda from Jefferies.
Sir, firstly, a bookkeeping question. Can you provide us with the interest cost breakup for 2Q and first half?
This cost is very, very less right now. But still, you can note down. Because practically, all interest expenditure only for the bank charges right now. So in first half, the working capital interest is close to INR 10 crores and then charges is close to INR 2.86 crores. And processing fee of the bank is close to INR 1.57 crores. So put together all in H1 is INR 16.47 crores.
Sir, what was the pickup...
And INR 8.8 crores, close to INR 9.83 crores is the interest income on FDR.
Understood, sir. Sir, can you provide some of the breakup for the second quarter as well?
Second quarter, the working capital interest is close to INR 5.4 crores and the bank charge is close to INR 1.5 crores and processing charges, INR 0.5 crores. So put together all is INR 7.53 crores. And interest on FD is INR 3.8 crores.
Understood, sir. Sir, my second question is on the outlook front. I mean you did speak about no [indiscernible]. On the infra part, what are the key segments that are driving growth for your domestic side? Also, if you can provide some more color on the exports? I mean we saw a strong growth during the quarter.
See, on infra side, metro rails, [indiscernible] trains, NCRTC, et cetera, that is number one. Number two is power distribution and transmission. And thirdly, solar developers, solar power projects. They are the major drivers.
But in fact, all segments are contributing, including industries, but I just mentioned some of it. And real estate as well and the construction sector and the new industry.
Understood, sir. Sir, how about exports?
Export is definitely there. And exports are from solar plants, solar wind farms and power distribution and transmission.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.
Congratulations for good results. Sir, just want to understand on the house wire side where we are speaking about faster growth, historically we have spoken about faster growth since we are growing on a low base. What kind of demand are we seeing? So first is the inherent demand because of a lot of real estate completions.
And second, what kind of growth we envisaged for ourselves assuming it would be higher than the rate at which industry is growing? So first question is on domestic house wire.
In house wire segment, as we have earlier guided also to grow by 22% to 25%. So we are in line with that also.
With regards to [indiscernible], which we all are witnessing in the top metro cities since last 1.5 years, so that demand is already there on ground now. I mean apart from there, individual bundles are being made by each and every city and town. So that demand is continuing since last so many years and it will continue.
For our case, since we are increasing our geography, we are increasing our [indiscernible] also in the house wire segment, we are adding more and more number of retailers under the dealer/distributor, so we are growing 20% to 25%.
Just one follow-up. So against that 20% to 25%, what would be in the different industry group? I mean, industry itself is also growing at healthy pace?
The industry will be growing 12% to 13% since all the smaller players around this segment, they don't participate in the industry growth because of the [ management ] bandwidth and the capital they are facing the scarcity. So the smaller company does not grow their sales to their customer.
Okay. Okay. And second on export, the kind of growth that we all the -- including KEI, all the Indian companies are seeing, it is -- I mean, anything that gave any kind of tariff or nontariff barriers on imports from some specific country? Or this is just that there also CapEx spend is driving growth for companies in India? So any structural changes happening?
See that before COVID also, in our case, our export was close to 13% before COVID. During the COVID, we were not able to add new customers and new countries. So that's why sales were up to 10% of the total sales. Again, now marketing team was able to add more geographies, more new countries. So Anil earlier said that this year will be close to 12% to 13% of total.
And by next year or another year, his focus is to grow exports close to 15% to 17% of our total sales irrespective of the market of our base. So that's why the focus is there. So now energy can contribute more about the -- what the U.S. is going on and the Europe is going on or the other oil and gas sector products, which we are selling there going on. So Anil, please.
There is a good spending in power distribution and infrastructure in the United States. And capacity over there are definitely lacking because for over many years, they have not increased their industrial base for manufacturing of cables. And definitely, we are getting some benefit out because of China Plus One policy, followed by Europe and U.S.A. So we are getting the opportunity, and those opportunities are converted into business.
The next question is from the line of Shrinidhi from HSBC.
Congratulations on good set of numbers. Sir, I have a question on exports business. There seems to be significant investments happening in the Saudi Arabia market, both in hydrocarbon sector as well as overall infrastructure. Wondering, does KEI have presence in that market from both certification point of view, business development team point of view and execution capabilities?
We have all the certifications in place. But at present, our sales to Saudi Arabia is not significant. But in other Middle East countries, we are present significantly like Abu Dhabi, Kuwait, Qatar, et cetera.
We are trying to make some inroad in Saudi Arabia, but -- especially focusing on oil and gas sector, Saudi Aramco, et cetera. And we hope that we will get a breakthrough very soon over there.
But in other markets, like in U.S. and in Europe, we are steadily getting inroads and we hope that we will be doing a reasonably good work in next few years in these markets.
Is there any legacy reasons why we are less present -- the company is less present in the Saudi market versus rest of the Middle East countries?
Actually, Saudi has already a substantial local capacity of manufacturing cable. There are several companies producing cables in Saudi. And it is only because of the excessive demand at the moment we can get opportunity. Otherwise, they are themselves a large producer of cables within. And they don't allow imports easily when they had their own manufacturing capacity.
Understood, sir. Yes. We have seen EPC business scaling up in this quarter. Is it in tune with the EHV business scale-up we saw? Or is the company trying to scale up the EPC business?
No, no, it is mainly because of the EHV. Because in EHV, almost 20% of the supply goes to the EPC, so because of that only. Where the pure EPC contribution of the total sale has remained 4%. Earlier, it was 5%. This year, it will be less than 4%.
Right. And last one, if I may. I just want to understand, would you say that in Q2, you missed some of the revenue because of capacity constraints. And if yes, is that a meaningful number?
See, our target which we have said for the current financial year to grow 16% to 17%. So we are maintaining that irrespective of the market is available because we want to run a debt-free company that we are running. So under risk mitigation plan and capital allocation, we cautiously have made the strategy that a 16% to 17% to 18% kind of growth we will be continuing maintaining for next 5 to 7 years. Not for 1 year, but we are saying for next 5 years.
Last one, sir, if I may. Again, the 16% growth -- the 16% to 17% growth that you're guiding for the next year, does it factor in the greenfield plant commissioning in Q4 and there's some dependence on that? Or even if that, unfortunately, if it slips into the following years...
For the next year, we are not taking because only the end of the fourth quarter they're coming. That's why we have increased the CapEx in our existing Chinchpada, Silvassa plant so that we will have the sufficient production capacity to grow 15% in the next financial year.
The next question is from the line of Amit Mahawar from UBS.
Great execution again. Sir, I just have 1 specific question on your expansion and export strategy. So exports may -- can you just help us understand and maybe, Anil, you can help here next 2, 3 years, how will we move in LT, HT and maybe branded house wire also that you're targeting because you will eventually start developing channels there, maybe in U.S. market and non-U.S. market. So how will we -- how should we think about the composition of export business for KEI for the next 3 years?
Our exports will be mainly focused on export of cables. We are not targeting export of wires to anywhere because wire in every country, there is a lot of local capacity and competition from the local suppliers is there and also a lot of stocking is required everywhere to sell this product because of the instant delivery requirement from the market.
So we are not -- we have no sales for house wires from our plant anywhere and we are not focusing this.
So we are only focusing on LT, HT and EHV cables.
Sure, sure, sure. So nobody -- I think I would definitely even don't have any doubt on the potential we have for export market. But generally speaking, if you compare with the conditions that you have, the terms of contract that you have in supplies in India vis-a-vis the export market, generally, how is the working capital different for us in exports?
So in export, also the same. We are supplying to institution over there. Same case with India, we are supplying to institution. So close to 2.5 months or 3 months is the normal period for this.
Normal payment period is 60 to 75 days even in export sales.
The next question is from the line of Natasha Jain from Nirmal Bang.
My first question is more of a follow-up from the previous participant's questions. Sir, I want to know on a more macro term as to what is the demand supplied for cables in the international market? And what kind of time frame visibility do we have in terms of getting very good orders? So like we have a tailwind in the domestic market for cables. Is it also internationally? And can we assume that for the next many couple of years, that will continue to be? So first question is that.
See, we don't have any data about demand and supply in the international market. It varies on the country to country. But the kind of markets and the customers we are developing or we have developed so far, we see a consistent demand of cables into several projects over there, which we are doing like wind farm -- I mentioned in wind farms, solar farms, solar power developers and also a lot of customers who are using our cables in manufacturing plants over there and also in the product transmission and distribution side.
There are -- it is very difficult to, I mean, predict -- our capacities are not that large that we are trying for large international markets.
Understood, sir. But then there is -- what I wanted to know is there is a strong opportunity, right, from the international market as well for cables particularly?
The possibilities are there. As we said that we have the strategy to grow 16% to 17% per annum. So our focus is to add more and more geographies and add more and more customers in our kitty. So that any given point of time, at any time the retail is lower, domestic institution is lower, so that this, too, then can be contributed to exports. Otherwise, we have to grow only 16% to 17%. Our target is not to grow 30%.
Understood. And sir, one follow-up on this question itself. Sir, is the international market a more brand-conscious market for cables? Or is it not that? Just some light on that.
International market is not brand conscious. International market is qualification conscious. Where the kind of segments we are supplying, we have to get our products certified by the regulatory entities over there. Like in U.S., we have to get mandatory UL-certified cables. In Europe, we have to take their Construction Protocol Registration (sic) [ Construction Product Registration ] in different countries, CPR certifications.
So in every country, there are some certifications required, which we have obtained and using for that -- or to that country.
So the certification is given to the company. So naturally, that brand got registered in their system. But if we see that we are selling branded products, like Louis Vuitton like that, that is not the case in case.
Understood. Sir, why I asked this question was I understand that wires is absolutely not -- it's perceived more as a commoditized product internationally. So just wanted to understand where R&D spend for cable is more.
First of all, I mentioned that we are not selling or trying to sell wires in the international market. We are only selling cables in oil and gas, in power transmission where it is -- if the product is approved by the -- using the institutions or authorities and the product is certified to be used in that country. Like in India, we need mandatory BIS certification. In every country, there are some certifications required.
Understood. Sir, and my last question is on the margins over a longer period, not in the medium term or short term. So given that all your greenfield and brownfield capacities will come into play, say, by FY '26-'27 at good utilization levels, so then I believe that sharp operating leverage benefits should kick in. Sir, so then where can we see these margins, EBITDA margins, moving to probably in the medium term, say, over 3 to 5 years?
At least 1%, 1.5% will improve by '27-'28.
The next question is from the line of Manoj Gori from Equirus Securities.
Congratulations on good set of numbers, sir. Sir, my question would be, so obviously you've already commented a lot on the demand front. But there is one bookkeeping question. So if I look at the [indiscernible] expenses, has there been any change in classification? Because when I look at the EBIT margins for Wire and Cables have improved significantly. But on the other side, [indiscernible] expenses have also shot up. So can you throw some light? Or this is just one-off quarter?
No. Expenses depend on the raw material, operating expenditure and the EPC division. Because in EPC division, some quarter our sale is higher because their raw materials is very, very less. Expenses, mainly. So that's why you see the EBITDA margin.
Okay, okay, okay. But there is nothing exceptional or probably it should be normal in the due course?
Yes, it is normal.
Okay. Right, sir. Sir, and also when I look at from an export point of view, obviously, this quarter on Y-o-Y basis, numbers look very strong. So probably, how should we build in, in the coming quarters and probably from '25 perspective as well, if you can throw some light. Because obviously, you've thrown a lot on the demand side.
First of all, Manoj, as we have earlier spoken also to you or some other investors, we have to grow 16% to 17% to 18% kind of. So we need to take care. It should not miss whether for a particular geography demand is heavy or not heavy. That's why we have developed over a period of time the domestic Institutional sales, which is high entry barrier; and international export sales, which is again a very high entry barrier. Then we developed to maintain a working capital -- low working capital for the dealer/distribution segment.
And every time, all the 3 segments will not gradually increase. Sometimes, 1 will expand more. Sometimes, another will expand more. So that's how we maintain the overall growth like you are maintaining the portfolio.
So we are maintaining the portfolio. Sometimes export increase, sometimes domestic increase, sometimes dealer/distributor increase. So here [Foreign Language].
So we have basically additional working towards customers, towards geography, towards segment, towards product is mainly to insulate the risk overall. So that because of this, our sustainable growth model is there and we are happy with 16% to 17% to 18% kind of growth. To maintain that, we are working there effectively.
Right, sir. Sir, lastly, so when we do our checks at the ground level. So probably one thing what we are able to figure out is that Cables are doing better than Wires and B2C has been a bit sluggish on a related basis versus in...
Nothing is better [Foreign Language] No product is comparable to each and every product. We are running a portfolio of the products. Whether wire sells more, EHV sells more, LT sells more, HT sells more, like this. So our customer managers for product provides the information only, segment-wise view only, geography-wise view only. But we need to take care a 17%, 18% kind of growth.
Right, sir. So my question was like this is for the industry. So industry we are getting this feedback. Obviously, you guys are doing far better. So probably, how do you see the overall demand picking up, especially for Wires?
Overall demand earlier, it was 11% to 12%. Now it is 12% to 13% with respect to the industry as a.. Whole for Wire and Cable segment because lots of infrastructure CapEx from the government side going on like in the road, in the rail, in the metro rail, in the [indiscernible] rail, in the airports and the seaports. Then the government is pushing towards affordable housing. Then government is pushing towards the generation of the power through the solar, through the wind and through the traditional route of the thermal.
Then the government is focusing on to attract the manufacturing -- all the manufacturers worldwide to create the manufacturing hub in the country. For that, they have started through the PLI scheme. And slowly, slowly, they are adding more and more products under PLI scheme. That's why the private CapEx from overseas market is coming in India.
Apart from this, lots of [ various ] expansion is going on because of local consumption. Lots of fertilizer units, lots of cement units, steel industries, pharma, IT, everywhere you are seeing the -- or you are witnessing lots of investment is going on because the affordable generation is there. Because of that, the consumption is higher, the demand of consumption is higher, so suppliers will clear the supply.
[Operator Instructions] The next question is from the line of Pulkit Patni from Goldman Sachs.
Just one question in order to understand the industry better. Like if I look at the last many years, the sector wasn't generating a lot of cash and which means everybody had to do a balancing act between how much is involved in inventory, how much is involved in CapEx and how much is the free cash flow that every company in the sector was generating.
Now last 2, 3 years have been phenomenal for the sector. It seems everybody is making money. Do you worry we could get to a stage where there is more investment in the sector, i.e., you are adding capacity, some of your peers are also adding capacity. Do you think this could be a challenge? Like today it's not a bad problem to have where you are saying I'll grow 16%, 17%, but that's because of capacity, not demand.
So I'm just trying to understand, do you foresee that there is over investment happening in this sector today, but maybe in some time we could be in a situation where industry is oversupplied? Just wanted to get your sense based on whatever you've seen and you have heard from competition.
It may happen. But I think it will not happen that rapidly. The kind of investment and CapEx required to augment the capacity is substantial and not many companies have that kind of capabilities to invest, present existing players. And I don't see any new players are coming up in this.
And to insulate ourselves from variation in the demand in the domestic market, that is why we are creating export markets also in different geographies so that we are not dependent on any particular area, although domestic will always be our main bread and butter.
But maybe so that sometimes if the demand is less or many players are there, margin may be impacted by 1% or 2%. But we are already working on very low margins and working -- and operating a debt-free company. So I don't see any risk factor so far as to us is concerned, and I don't foresee any new players coming up in this way.
Okay. So no new players you've seen really come on or out?
Yes.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.
Sir, just to get clarification. You mentioned about 16%, 17% growth for this year and going ahead also. Now of this overall growth, how [indiscernible] is growing faster and export is also growing faster. So domestic Institutional cable business should steady-state grow at 12%, 13%. Is that correct understanding?
It always depend on the mix, which we are having the order book for this. Because ultimately, we have to grow 16% to 17%, whether from a spot market we get or we are serving our domestic we are serving. We have to balance because, as Anil already has said, that we will maintain all the customers so that any given point of time we should not be having any risk.
I think on a low base, you are growing faster in the house wires, I think 20%-plus you have mentioned. So that portion of the sales is growing faster. Export also is growing as a percentage of sales, so that is also growing faster.
[Foreign Language]
The next question is from the line of Anupam Goswami from SUD Life.
Sir, can you tell me the outlook on your EHV cables? And give me a little breakup of your segment-wise, let's say -- margin breakup, like say, what was in the EHV, what was in the Cables and Wires this quarter? And the next question is on the...
Yes. Anupam, I can't give you the broader figure at the average level because we don't have any calculation on a productivized margin because our facts are same. But normally, while we are selling to domestic institution side, which is a high entry barrier and tender-driven sales, their EBITDA is 10% to 10.5%. And while we are selling to export market, EBITDA margin is close to 11%.
In extra high voltage power cable, because of the low completion in the domestic market, EBITDA margin is 15%. And the dealer/distributor business, whether it is a [ wire or cable ], its EBITDA margin is close to 11%. So in EPC division, the margin is close to 12%.
So put together all, the margin comes between 10.75% to 11% kind of range.
And sir, what is your outlook on the EHV segment?
The outlook on EHV segment, we have the capacity of INR 550 crores to INR 600 crores capacity. So that we are utilizing.
Do you see a strong traction going forward? Or do we see some slowdown as the election year is coming or in the last quarter or so?
At the last quarter with [Foreign Language]. Because [indiscernible] manufacturing capacity for [indiscernible], capital allocation for defense, how much we need to put in working capital. So everything is required through the capital only. Even though the market is there, if we target for 25% to 30% growth, then what will happen, we will again end up with the debt position, which we don't want.
And we are clearly guiding to every investor that whatever internal approval we will be generating year-on-year basis, we will be deploying to increase our capacity to that [ tax ] sale, and it will be sufficient for 16% to 18% kind of growth.
[Operator Instructions] The next question is from Rahul Agarwal from Incred Capital.
Just wanted to take this point on EHV forward, nothing related to KEI, but overall, what would be the EHV consumption today in India? I mean, this current year, would you have any idea, sir?
Should be close to around INR 2,500 crores to INR 3,000 crores.
And India still remains a 3-player market?
I think 3 or 4 players are there.
Rahul, any new player comes, it will take another 3 to 4 years to 5 years kind of time to put the factory and then the [indiscernible] approval and the prequalification process. Any new player comes in the EHV, it will take at least 4 to 5 years.
Yes, sir. I completely understand that. I was just trying to understand, KEI did like INR 400 crores of EHV sales in fiscal '20. Today, this year, we should do -- we'll utilize full capacity. We have a large import available there. Can we increase our capacity and take advantage and do more EHV sales? Is that...
[Foreign Language]
Sir, very clear. And EHV, last question was who is the end client? Is it power grid only? Or is it other state?
The client, power grid only.
High voltage cable is purchased by either the state transmission utility and central power transmission utilities. And now it is purchased substantially by the companies who are developing data centers and also, the solar power development for evacuation of power, which they are generating in their solar plants.
So this is not a government business, right? I mean, to be very clear on this.
No, no, no. The state transmission utilities is a government business.
So almost 50% is government and 50% is...
Yes. Central utility like power is government business.
Yes, of course, as Rajeev just said, I think 50-50 as of now. And incrementally, it should remain like this, right?
Yes.
The next question is from the line of Koundinya Nimmagadda from Jefferies.
Just one question I had. You spoke about INR 221 crores of CapEx in 1H. So just wanted to reconcile, I mean, what is the full year CapEx for FY '24 and FY '25 that we are now looking at? And what was this number earlier?
See, earlier, the greenfield CapEx is not all there. So now the Sanand project, which is the major greenfield project, wherein we need to invest INR 300 crores to INR 350 crores each year. So in the greenfield, we are investing INR 300 crores this year and the next year INR 400 crores and in '25-'26, INR 300 crores.
For the brownfield CapEx, we are -- we have incurred in first half INR 48 crores and we will invest another INR 150 crores in the current financial year in the second half in our Bhiwadi, Pathredi plant as well as in our Chinchpada, Silvassa plant.
Understood. So that roughly translates about INR 500 crores of CapEx for FY '24?
In the current financial year because the land value is also there in that.
And what was this number earlier, sir?
Earlier means?
I mean prior to.
Only [ development ] in CapEx. And plus the -- at Silvassa, a little bit brownfield CapEx. Not more than INR 40 crores, INR 50 crores.
That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
To summarize, thank you very much for this question-and-answer session and in listening to us. We are available for any further questions, which you may have.
Overall, I can say that the company is on a healthy trend to grow and in a disciplined manner with its own internal generation of resources and the money. And we'll be growing in a disciplined manner so that to remain largely debt-free over a period of time. Thank you.
Thanks, everybody.
Thank you very much. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.