APAR Industries Limited (APARINDS) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Apar Industries Q2 FY '22 Earnings Conference Call. Today on the conference, we have with us Mr. Kushal Desai, Chairman and Managing Director; Mr. Chaitanya Desai, Managing Director; and Mr. V.C. Diwadkar Chief Financial Officer Apar Industries. I would now like to hand over the call to Mr. Kushal Desai for his opening remarks. Over to you, sir.

Yes. Thank you, Ritesh. Good afternoon, everyone and a very warm welcome to the Q2 and H1 FY '22 earnings call of Apar Industries. I trust each of you and your families are safe and healthy, with the dropping numbers that we've been seeing in India on positive corona cases. I will start off with an overview of our performance, follow that up with a quick industry update. And then, we can get into more details on the segmental performance. And finally, once that is completed, we can open up the floor to questions. So with this global recovery continuing post pandemic on the back of policy support from various governments around the world, including to some extent from the Indian government and a strong vaccination drive, the Indian economy is also gradually coming out of this slowdown. And there has been support from both monetary and some fiscal stimulus from the government. However, the challenges which are there still continue to remain. And they are in the form of higher input costs from various commodities, in our case, particularly from metals and hydrocarbon products and unprecedented disruption in freight and logistics, both in terms of the cost of freight, especially in the export markets as well as containers coming in for import as well as the availability of containers, which is also creating a big bottleneck. And then, of course, as I mentioned, an increase in raw material costs, which in this case also include polymers besides the metals and hydrocarbons, which form the chunk of what we buy. So this has all resulted actually in some of the planned margins getting disrupted. It has also reduced sales from several key geographies as customers either now shift to buying product locally, which previously was not comparative relative to what we could offer or in many cases, customers have deferred purchases altogether when the purchases didn't fit into their budgets, and this is especially through of EPC contractors as well as some of the asset aggregators who are building transmission lines and projects, which are funded and where they have a fixed amount that they get. Like, for example, if you take a tariff-based competitive bidding line, the tariffs that you are bidding is corresponding to a cost of the line that you would have estimated. And those calculations have gone a bit haywire. We've also seen tenders which have gone back to the drawing board as the initially sanctioned budgets have fallen short due to the rise in prices. So in spite of all this, so many moving parts having various contradictory and retarding effects, we have still managed that our consolidated revenues for Q2 FY '22 has come in at INR 2,272 crores, which is up 53% year-on-year. And if you make a comparison with the pre-COVID period of the second quarter of FY '20 is 24% higher than that. Now that has really been contributed by a 67% year-on-year increase in the domestic business. The export percentage has fallen from 42% last year to 37% this year, largely because of the freight and logistics factors that I just brought up earlier. However, the EBITDA is up by 8% year-on-year and 17% higher than Q2 of FY '20, and it comes in at INR 128 crores for the quarter. The EBITDA margin is at 5.6%. Profit after-tax has come in at INR 57 crores, which is up 6% year-on-year and 68% above Q2 of FY '20. If you consider the first half of FY '22, the consolidated revenues have come in at INR 4,093 crores, with an EBITDA of INR 266 crores, that's 73% higher year-on-year. The EBITDA margin for the first half has come in at 6.5% versus 5.5% in the first half of FY '21. The profit after tax has grown by 59% from the pre-COVID levels on account of improved profitability, lower interest costs, which are coming from not only a lower interest rate, but also strict financial discipline, which we have tried to follow. I'd like to also discuss a few industry highlights. The government is working to offer quick short-term loans to some of the power distribution companies to help them clear dues to power plants and transmission charges on a onetime basis. So outstanding use of DISCOM, which has risen by 3.3% on a year-on-year basis to INR 116,127 crores as of September 30, 2021 should reduce going forward, A from increased sales that they would have of power and B through some of the financing, which is now being arranged. There is 6,586 circuit kilometers of transmission lines, which were added in the first half of FY '22. So this is 15% lower than a year-on-year basis and is only 45% of the targeted additions for this year. So even though a lower number was taken for the year, we are still 5% behind at the halfway mark. The transformation capacity addition came in at 33,923 MVA, which is 81% higher than the same period previous year, indicating that a number of projects have actually been executed now and are now in an operating mode. The key transmission development players have reported an order inflow of only INR 7,000 crores in the second quarter of FY '22. This is actually a marked reduction from the recent quarters. And I explained earlier that part of this is because tenders have gone back to the drawing board with quotations that have come in much higher than the budgets in place. In some cases, the asset aggregators have also held back orders being placed because the budgets are not being met in terms of their original contracts. Another interesting aspect that has come out is the Indian Railways is now rolling out 800 economy AC 3-tier coaches, creating an additional new class of railway travel. We assume that this is part of the sustainability effort, where increase of mobility through railways will be far more carbon efficient. If this works well, then, there will be a lot of additions taking place in this regard and that augurs well for our cable business in terms of supply of via to both locomotives and coaches. India has also set aside INR 70,221 crores for domestic defense procurement in FY '22. This is 63% of the military's CapEx budget. So the Made in India pitch is now being demonstrated through the allocation of the procurement contract. India has also signed contracts and cleared projects with INR 54,000 crores in the month of September itself. And that should also augur well for some of the cables that go into the defense projects from our standpoint. I'd now like to cover in some more detail, the specific highlights of each of the business segments. The conductor revenue in Q2 FY '22 grew 71% year-on-year and is 20% higher than the pre-COVID level. It has reached a value of INR 1,080 crores for the quarter. The growth in the domestic part of the business is 136% year-on-year. We deferred some of the shipments to export customers given the high freight rates on mutual consent. And the focus has been a little bit larger on the domestic business. The volumes showed a decline of 14% year-on-year at 29,191 metric tons. But that is part of a conscious postponement of order execution, especially for geographies which are very disciplined and where the freight rates have increased and a very conscious focus to reduce conventional conductor business in favor of premium products, which we have brought up a few times on some of our previous earnings calls. The export revenue has declined 13% year-on-year and contributed to 52% of this quarter versus 56% over quarter a year ago. The higher value-added products or the premium products for us have contributed 58% of the revenue in Q2 FY '22. The high-efficiency conductor revenue was up 105%, contributing 25% to the revenues. And the revenue from copper conductors for railways in this quarter had a contribution of 26% as the backlog of orders was cleared post the high-court stay being vacated. The higher share of premium products has therefore delivered an EBITDA per metric ton post ForEx adjustment of about INR 17,199 per metric ton. That is 46% higher than the same period previous year, and it also represents a historical high in terms of the EBITDA per tonne. In terms of new order inflow, the new order inflow came in at INR 877 crores. So that's up 9% year-on-year, but it slowed down for exports due to a conscious decision of us to reduce the sales cycle as well as we are in negotiation with customers to move most contracts on an FOB basis. The order book stands at INR 1,846 crores, which is 9% higher than the same period previous year. And of this, 67% comes from a more premium offerings. If you look at the first half of this year, the conductor revenue came in at INR 1,759 crores, which is up 32% year-on-year. EBITDA post-FX per metric ton came in at INR 15,392 per metric ton. So that's 76% higher than year-on-year. The new order inflow was INR 2,428 crores in the first half. Several postponed tenders of OPGW are expected to come up for finalization in the second half of this year. The true revenue impact of that will come towards the end of this financial year and in FY '23. Coming to the oil revenue segment. Revenues in second quarter FY '22 came in at INR 895 crores. So that's up 49% year-on-year and 57% up from FY '20 second quarter. Total volumes have been stable at INR 113,981 kL. Export contribution increased to 46% versus 41% in the year ago period. The Hamriyah plant for the quarter ran at 108% of its nameplate capacity in the quarter. White oil sales volume declined 6% year-on-year due to lower exports, primarily from the impact of logistics. Transformer oil volume remained flat due to subdued demand in the distribution transformers category. Though the higher -- oils that go into the transmission side and the power transformers remains reasonably strong. As I mentioned, the export businesses remained affected in many of our high-volume strategic markets due to the abnormal increase in freight costs. And this will especially affect -- has affected the Hamriyah business towards the end of last quarter and will have some impact in terms of volumes in this quarter as well. If you look at the lubricants part of the business, that came in at INR 211 crores, which is up 39% year-on-year. It has contributed to 24% of the revenues of the oil segment. Our industrial volumes were up 12% year-on-year. The automotive lubricant volumes were flat because the OEM sales tapered off, especially those which were attached to the agriculture based product. The EBITDA per kL on a post FX basis came in at INR 5,258 per kL. If you look at the first half, the revenues that came in were INR 1,727 crores, which is 81% up compared to the previous year. Physical volumes in the first half were 30% higher than same period previous year. And the EBITDA per kL post FX for the first half came in at INR 6,334 per kL. So that's 41% higher than the same period in the previous year. Coming to the last segment, which is our cable. The cable revenue in Q2 FY '22 reached INR 425 crores, which is 66% higher than the previous year and 15% higher than the pre-COVID level of Q2 FY '20. The volumes however remained similar to the pre-COVID levels. The difference has come primarily on account of the higher raw material costs and the consequent selling prices. We continue to focus on international business, which has resulted in exports growing to 29% of the mix compared to 12% from a year ago. The EBITDA post FX came in at 4.1%. We are still finding the domestic environment being very competitive. And higher ocean freight rates and inflationary factors, including the price of steel and polymers having gone up has affected the margin. We expect in the second half the offtake from the railway is both locomotive and coach factories to pick up. And also business from the defense establishments is expected to pick up in the second half, which should result in higher sales of elastomeric cables going forward. If you look at the first half of FY '22, total cable revenues came in at INR 824 crores. So that's up 63% year-on-year. Export revenues are double of what they were in the first half of last year and overall contributed to 24% of the revenues. The EBITDA margin post FX came in at 5.1% for the first half. So in summary, the company's performance in the second quarter of FY '22, we believe has been reasonably resilient in spite of all these multiple challenges that we've had. A on account of input costs, B on account of slowdown in tendering and C in account of the disruption in terms of rate and logistics. We are optimistic that the business environment will continue to improve in all the 3 segments. Our effort is to focus on more profitable growth. And we continue to focus on improvement on the return on equity that we have to our shareholders. So with this, I come to the end of my comments. I would like to formally thank everyone for joining our call. And we would now like to open up the floor for questions. I also take this opportunity to wish all of you a Happy Diwali and a prosperous New Year. We are open to questions now. So please go ahead.

[Operator Instructions] The first question is from the line of Riya Mehta from Aequitas.

This is Pratiksha here. Sir, the first question that I have is that we have seen that conductors and oil, there is a significant amount of revenue realization increase. However, somehow, if I compare the margins on Y-o-Y basis, there is a decline. So if you could just explain that how do we look at the situation going ahead? I mean even with realization gain, we've not been able to improve our profitability, EBITDA level profitability?

Pratiksha, earlier also, we need to look at the margins on per tonne basis for conductor and for oil on per kL basis and cable on percentage basis. Because if the commodity prices are increasing, the revenue will go up, but it is not necessary that our EBITDA -- absolute EBITDA will go up actually because EBITDA comes on per tonne basis or per kL basis. That is why if the percentage margins, you might have seen that the percentage margins have gone down.

Okay. All right. And sir, on conductor front, we've seen that the order book now, the share of high value-added products is a significant portion as compared to what we've seen historically. Does this mean that a dependence on metals that we are not able to hedge right now is also increasing, and hence, the volatility and profitability will continue or increase?

So can you repeat the question? I've not understood.

So this HEC conductors and everything, I think the dependence on steel and copper is higher as compared to conventional conductors. Would that mean that our -- remain susceptible to volatility in prices of these metals higher than compared to earlier?

No, I don't -- no, I think, Pratiksha, that's not really actually the case. In the case of copper conductors actually, we have a very clear price variation. So there is not much variation that happens on that account. In the case of HEC, yes, there is a certain amount of fixed price execution that's there, but you have the ability to hedge the product as you get the order. So whatever fluctuations are there are not as much in terms of -- because of raw material inflation as much as the inflation that may have happened due to logistics and those sort of factors, steel and logistics, but it's not a higher proportion. In fact, when you go into these -- the copper conductors have no steel component in them. And if you go to the HEC product, the steel component as a percentage of the project is actually much lower. So in fact, as the premium product should result in a steadier EBITDA per metric ton compared to the conventional conductors. We've refrained from booking a lot of conventional conductor business primarily because competition levels have been relatively high. We don't see that there's adequate margin for the commensurate risk that we are taking in today's environment. And we've also stayed away from -- we've slowed down the booking of some of the export business on the conventional conductor side, given the challenges on freight and logistics. But some of the basic premises that we had of wanting to premiumize the product range, that is now actually clearly visible. So it's not something that's happened accidentally. Definitely part of a plan, which we've been talking about now for the last few years.

Sorry to interrupt. May I request Ms. Mehta to please rejoin the queue. We have participants waiting for their turn.

Sure.

The next question is from the line of Anuj Upadhyay from HDFC Securities.

Sir, 2 questions basically on the macro front. Just need to understand your view on the opportunity lying ahead across your conductor and cable segment? And again, for both the companies across the sub-segment, that is the opportunity we see across the transmission space and also from the railway side? And same thing for the cable, the opportunity which we have in the railway side and the renewable segment as well?

So if you -- in terms of the opportunities, let's address the conductor side first and then move to cables and the transformer oil can be also thrown into the mix. There is a definite increase in terms of the total infrastructure for handling power and the transformation. And as more and more countries sign up towards carbon neutrality and reducing carbon emissions, the use of electricity being generated from non-conventional sources has to increase. There is no other option in place. So we will see that on the conductor side, you will have transmission line upgradations taking place. You'll find mobility moving towards having like buses will move to being electric buses. So again, more infrastructure for charging. So essentially, the cable intensity will go up across the board in urban areas, in various systems. We have a very good position in terms of both wind power and solar power being the largest cable producer for both of those segments in terms of specialized cables. And Mr. Modi has also committed a 48-year period for India to reach carbon neutrality. If you see the incidence of non-conventional energy growth in India is amongst the highest in the world. So that's clearly one area where opportunity is there. Secondly, as I mentioned earlier in the call, mobility is clearly an area, both in terms of railway is being improved for carrying more amount of passengers as well as goods. Trains are all moving towards being electric driven as opposed to hydrocarbon driven, diesel driven. Also, mobility in terms of vehicles, buses, et cetera will also move towards electric. Our sense is that the first area where you will start seeing electricity being used and you can see it in the city of Mumbai for example is that BEST buses have already started coming in which are electric, and it's easy to make out because they have a green nameplate on them. We have some idea because JBM, which is one of the key players of supplying electric buses. They exclusively use Apar's e-beam cables for their internal wiring of the bus. And that segment of business, even though the overall context is not very large, it's a very encouraging sign that that segment is also growing. I also mentioned about the low-cost coaches for transporting for passenger transportation. So 800 economy, AC 3-tier coaches have been ordered. And if this experiment continues to work well, then, there will be a whole lot more coming in. So that's a bit on the cable side. Conductor side, the other area is that as electricity consumption goes up, right now it's clearly not available. You have seen that the HEC conductors are continuing to grow. About 4 years ago, we said that we see this being between 20%, 25% of our total revenues. And in the first half, we are at 20%. So that's clearly the direction that it goes in. In the case of transformer oil, as the transformation capacity increases, we are kind of growing, growing linearly in terms of the demand for transformer oil. Currently, it's been a bit subdued because the state electricity boards and DISCOM are actually in very bad shape. We are very confident that once the new electricity act comes in and the privatization of DISCOM start taking place, we -- a lot of infrastructure will be added. So these are the key drivers that we see going forward.

All right, sir. Just a follow-up, sir, on the conductor side. So like last decade, we saw a huge capacity admission on the transmission space, which actually has driven the volume for the conductor sector. So currently, is the replacement of a low voltage conductors with a high voltage one are the ones where we are looking at the growth opportunity? And is it actually happening at the ground level or it's been slightly at a lesser pace I would say than what it has been anticipated early?

So what is happening is more than the voltage levels, the ampere or the amount of current, which can be carried by the conductor is where the growth is happening. So that's where these high-efficiency conductors are coming in. And I think it's visible just from our numbers in terms of the -- not only what we've executed, but if you see the order book, the order book carries a much higher percentage of high-efficiency conductors. So it's a clear sign, this is going to happen. It's -- I mean, if you just look around, if you travel by road from outside any of the cities like Mumbai, Delhi or any of the metros, you will see that whatever lines are being -- which are bringing power into the cities, that's what you have. You're not going to get any extra line. So you just have to bring in new generation conductors to carry more power on that line. So it's a clear sign, it's going to happen. Problem that we've seen in our country is that the spending of the government has not been necessarily very consistent. It's been a bit patchy. But finally, that's the only solution that's there. There is no really any alternate solution in place.

Fine sir, thank you.

The next question is from the line of Maulik Patel from Equirus Securities.

Sir, few questions. A couple of projects that there was a shortage on the base oil side and that led to this broad market that led to the spike in the TSO margin. It looks like it normalized, any color on that side, sir?

So actually, what's happened on the base oil side, particularly for the light viscosity is that we as a company are buying over 70% of base oil on contract. So in the second quarter, there was a sudden excess quantity of low viscosity base oil was available with certain refineries that predominantly sell product on spot basis. So the spot prices are much lower than the contract prices. In the third quarter now, I think the situation will flip, where -- because there's been a sudden spurt in terms of the price of crude and diesel and gasoline and all these products, the spot prices will be higher than contract price. So in terms of shortage of base oils, there was no shortage, there was excess quantity available in Q2. Q3 will obviously be a bit tighter, because worldwide consumption of gasoline at least has gone up substantially, even consumption of diesel is actually finding a stronger comeback. If you read the papers in today's newspaper, it talks about diesel having overtaken the same month pre-COVID, that's 2019. So we don't see a shortage from our perspective, because we buy a large quantity on contract.

Does that mean that the EBIT per kL or EBITDA per kL, which has -- which was in the range of around average of around 8,000 in the previous 3 quarters, which was -- in this quarter was around 5,200 on the EBITDA level will improve from here onward?

So our target is actually INR 5,000 per kL. So there was a period where there was a shortage, it -- and we were on contracts. So we did receive most of the products that we needed. And we were able to capitalize with higher margins. But our planned target is to be at around INR 5,000 per kL. And if you see that substantially better than what it has been average of previous non-COVID periods, I mean in FY '20 and before. So there may be quarters where we will deliver better numbers, but our stated average is to get to about INR 5,000 per kL.

And last question is on the conductor. You already mentioned that a lot of contracts are getting going back to the table again, there was a delay. And also because of the raw material prices, which went up also. And our order book is also around on a relatively lower side compared to what we had or reported in the couple of past quarters. Do we think that in the next 2 quarters, this should improve substantially? I'm not saying that yes, from here, it will improve. But in the last 1 year or so, there is not so significant improvement in the conductor business. The way it has happened on the TSO side of business where the things have improved a lot. But, the conductor has been -- and it was pre-COVID also was struggling a lot from an order book perspective. Do we think that this renewable or more demand from the SEB side or reforms at the SEB side, can led 2 to 3 years of very strong growth in the conductor?

So theoretically yes. As I mentioned earlier, and as an answer to one of the questions that the electrification and the total amount of involvement of conductors, cables and transformer oils is bound to increase because electricity usage is a way to go in terms of being more sustainable as being generated through these non-conventional sources. But if you've seen in the last few months, in every aspect, there have been supply shocks in terms of inflation. So if you take non-conventional energy, you take solar, solar panel costs are up by 20%, 30%. The -- if you take wind mills, there is a lot of metal involved in terms of the whole structure, et cetera, in the wind mill. That also has gone up. Aluminum, steel, copper, all the polymers, everything has gone up. So there is definitely a price shock on the supply side. We are seeing many EPC contractors also pushing out purchases to the extent that they can because they're actually in trouble. They have built fixed price. And the prices of the raw materials has gone up substantially relative to what they'd budgeted. So they're pushing out requirements as much as they can. The same thing is that some of these projects, which have gone back to the drawing board, the fact is that they need to get executed. So either they'll come back with a higher budgetary allocation or they will come back with a lower quantity that will be bought within that budget. In either case, the purchase activity will pick up. So our sense is that second half is not going to be anything worse than the first half. It will only be at the base level of H1 and then something probably better than that in terms of volumes across the board for all the segments. And as we get into FY '23 and '24, some stability is mount to come. I'm not sure whether one can call this as a fact, but call this as a trend, sorry. But freight costs seem to have plateaued out at least. The second half of October, they are at a certain level. We haven't seen increases happening there at abnormal levels, but we haven't increased further. Otherwise, we were seeing an increase in cost happening every week on the same route. So hopefully, some of these things will start tapering off. There has been some major decisions that have been taken in countries that have created this big problem. The largest of which is the United States and particularly the West Coast, most of us may not know this, but the 2 biggest ports in California only operated 10 shifts in a week. They operated 2 ships Monday to Friday. Now they've announced 3 ships, 7 days a week working. So that actually doubled the amount of containers that can be handled. So it will take a few months to improve. But as these things improve, the pent-up demand will start kicking in. Now when this happens, how this happens, there are too many moving parts for us to be able to kind of predict exactly or put a timeframe to it. But the trend is something which will clearly show that things will -- things are looking better, in my opinion. I think the worst is kind of behind us.

Sir, if you allow the last -- one more question. On the cable side, the margins are on a relatively lower side, isn't that the copper prices have not been able to pass to the customers? Or is there something that is related to the revenue mix, the product...

The copper, it's been things which are not covered under price variations, where there's been some massive increases, which are fundamentally on the polymers. So if you see...

The PVC polymer.

Yes, PVC, and we use much more complex polymers also, which are used in the elastomeric tables, et cetera. Those have gone through the roof. Also the spread, many of these are imported. So where freight was 2% of the cost of a material, in some cases, today is 10% of the cost of the material, the income in freight. So these are shops which have come in that were not planned for they could not have been planned for. And that's what has resulted in some of these. And our business being largely a B2B business. It has taken some amount of its toll. Also, as I pointed out, our counterparty for some of our higher-value products are the Indian railways and the defense establishments. And they have been most adversely affected so far through the entire COVID period, where the production of locomotives, coaches and submarine ships, et cetera, have been at the lowest point. We have reason to believe now based on projections that have been given by these various entities that their production levels are increasing. And that is the reason why I made the statement earlier saying that in the second half, we will see increased offtake taking place to these segments, which do play an important role in terms of the margin profile that we have.

Got it.

So H21 cable, we expect volumes to be higher as well as the margin to be higher.

Correct. Thanks for the opportunity and wish you and everyone at APAR very happy Diwali.

The next question is from the line of Sriram Rajaram from Ratnatraya Capital.

Sir, I remember that you had exposure through your cable business. So I just want a quick update from you on that.

It's over to Mr. Desai.

So Mr. Diwadkar, you probably have better numbers on this, but our exposure to electricity mods and discounts are actually very limited. So I have mentioned in previous calls also that we are very selective in terms of which distribution companies we would like to deal with and to be very specific, our exposure is more towards the discounts in Gujarat, Maharashtra, Karnataka, and to some extent in Kerala. And these are more disciplined, better run distribution companies. Even within Karnataka is fundamentally the only BESCOM, which is the one that covers Bangalore. So we have not really taken any undue risks in terms of discounts. We do business with a number of private discounts that include entities of torrent entities, which were elsewhere Reliance now part of the Adani Group, some of CESC's subsidiaries. So that's where our exposure is on the distribution side.

So has the exposure easy? I mean, whatever level that you have over the like a couple of years?

No. In fact, the exposure has decreased because some of these discounts have actually reduced their spending at the moment because of budget constraints and increases in the cost of materials. So overall, exposure has been reduced. We are targeting utilities and EPC contractors and suppliers in overseas countries more to make up the volume.

The next question is from the line of Riya Mehta from Aequitas.

One question. If you could give the details of our borrowings, LC linked borrowings.

LC interest-bearing, ForEx is INR 1,174 crore. And domestic is INR 736 crore. Long-term borrowing is INR 284 crore. Short-term is INR 63 crore, and cash on the books is INR 273 crore.

All right. Okay. And just one question, what would be the execution period for our order book for conductor division?

6 months.

6 months?

Yes.

The next question is from the line of Pawan Nahar, an individual investor.

I just wanted to first congratulate the entire management team at APAR for almost touching the 20% ROE number. If I look at your trailing 12 months, INR 250 crores profit. So you're almost reaching towards that 20% mark. So I just wanted to congratulate all of you. Thank you so much.

And yes, we are 2 percentage in short.

So yes, 2, 3 percentage short, but still, this is -- in fact, the second thing I wanted to say is that in this environment, where all the things that could have gone wrong has gone wrong, whether it is commodity prices. Of course, I know you'll hedge you all try to do as much as we can, trade, et cetera, and still these numbers have come. So that was the other reason why I just wanted to say congratulations. Third was Kushal, I mean, you've already said that second half volume should be better than the first half. Now I'm sorry, I have missed parts of this discussion. But would you be able to talk a little bit about spread outlook for the second half because the, let's say, the conductors have done exceptionally well, 16,000 for the first half or the oil business again, 6,000 per kl for the first half. So if you can talk -- and already cables, you have said is going to be higher because of these 2 segment outlook on spread.

So it's -- Pawan, we can give only a very high-level view because as you rightly said, there are still a lot of moving parts, and there's still a bunch of uncertainties. So if we just quickly run through the 3 segments. When you look at the conductor side, the domestic business is a little bit more predictable for us because it doesn't have this issue of logistics and freight. We've deferred with mutual consent, a bunch of orders, most of them are conventional conductor orders. So depending on how the freight plays out, the execution of that will happen. However, we have a good ACC order book for the second half. We have a reasonable order book on the copper conductors from the railways. Our CTC business, which is going into transformers, that is growing as we are receiving more approvals from transformer manufacturers and utilities. The OPGW, which is actually, to some extent, a joker in the pack as far as FY '23 is concerned. For 2 years, the government has been constantly deferring tenders. As there are a number of Chinese bidders in the OPGW space. And then as they have been excluded, tenders have been refloated, then obviously, the cost implications came in. So again, they got refloated. But now they've reached a stage where these lines have to come up. And data being the new oil, it does meet that segment in there. So it's very difficult to just put, but I can only tell you that the first half, we did 51,000 metric tons. In the second half, we should see 51,000 and something more than that is what our sense is in spite of the current environment and all the pluses and minuses. If the world settles down, you will see a definite increase that takes place, which will only be positive for us. On the cable side...

No, no, Kushal Bhai, just a moment, I wanted your outlook on the spread volume, I'm assuming if there is a market you will send, then you will get good -- and in fact, I must also congratulate you, when I see the order flow on the conductor side, the incremental orders from the different profitable or more profitable segments that are coming. So congratulations on that, too. So I wanted just outlook on spread.

So our conductor spread, we are targeting -- our target has been INR 12,500 per metric ton. And we are trying to focus on achieving that. You've seen a higher percentage happening because high-efficiency conductors turned out to be a higher percentage. And we had deferred some of the conventional conductors, especially on the export side. If some of that kicks in the, per metric ton may fall a little bit. But one thing is clear that we are on that trajectory to do the 12,500. That's the planned number, and the whole business is being driven towards getting to at least that 12,500 range. We also have a focus on premiumization. So depending on how successful we are, that will determine how much delta we have above 12,500 so we are hoping that now that 12,500 is being established as a base. I'd like to declare that victory, if we are able to do it for 3, 4 quarters in a row. If you have trailing 12 months coming in 3 or 4 times at the 12,500 plus range, then I think all of us will have confidence that this is the new normal, which is there. But I think we are moving definitely in that direction.

Sure. On the oil side outlook contract?

So on the oil side, if you really -- if you look under the hood of the tar, the lubricant side has been steadily growing. There has been a little bit of up and down in agriculture, a period of agriculture was very strong. Last quarter was a little bit weak because the monsoon ran longer than it should have. But then the silver lining is the Rabi crop could be the bumper crop, something that is one of the best crops in India would ever have. So the water table is high. Everything is set up for that. So overall, the key parameter that is there for us to look at is how much is the lubricant side continuing to grow because it brings in a certain level of stability in earnings. In addition to that, our export business continues to grow in spite of all these problems on freight, logistics, et cetera, et cetera. So once that settles down, you will see further growth happening. Some of the markets where we've developed really good market share are markets like Australia, Turkey, you've got Latin American countries. So these are all countries which, over the next 5, 7 years are expected to continue to grow. There's a lot of infrastructure spending going in, demand is increasing in these sort of places. Now they've been all very badly affected by freight, freight is anywhere between 5x to 10x of what it was pre-COVID, when you look at these particular geographies. Same thing with South Africa, we have 35% market share, 35%-plus market share in transformer oils, for example, about 30% market share in white oils. The freight has gone up from $60, $70 a ton to $700 a ton, $600 a ton. So in spite of all this, you're seeing these numbers, which are there. So once the work starts settling down, I think we will be moving in the right direction. So again, that INR 5,000 per kl is a base that we'd like to make sure gets established. And depending on the markets and how successful we are in pushing premium products, lubricants, et cetera, it will be a delta above that.

So on this lubricant, right, in fact, that was the other thing in my mind. You have done 30,000 kl, let's say, annualized 60,000 or 70,000, 65,000 kl. So yes, the 70,000 Kl. What would this be versus, let's say, a Castrol or Gulf in terms of volumes?

Just so I guess Castrol, if you look at our comparable set of products, it's around 175 -- between 175,000 and 200,000. So -- but...

Really, really scaled a big time now.

But Castrol is a company which is not comparable with any other in the country in terms of the premium that they managed to pull, particularly on the B2C side, they get 3x the margins, 2.0 to 3.0x the margins or the next best player at a net level. But in terms of Gulf, if you take total volumes that we have, we are probably about 60% of the volumes, there at about 100...

Once again congratulations, I mean, this is amazing.

120,000. They do have some very premium contracts, especially with the sister company, where they have a monopoly for Leyland buses and trucks and, et cetera, where they pull a very, very good margin. But we don't have any dowries like that coming into a steadily growing. So if you take -- we -- as I mentioned earlier, we've broken into being in the top 10 lubricant players where 20 years ago, we were a lowery. We didn't even exist on the radar of selling lubricants. So it's a steady game. It's building brick-by-brick. But that business continues to grow. So that's what is giving us the confidence that this INR 5,000 per kl, we should be able to maintain as a day.

Got it. And on the cable side, finally, I mean, you've done INR 40 crores EBITDA in the first half. I don't want to ask you percentage margin because so much -- though we do look at percentage margin in this segment.

Only bring up in here that we've taken some strategic calls. It's apparent in the numbers, which is showing the amount of export that is growing. So this export is growing primarily from markets like the United States. This is not selling product into Burma or into some African countries. So we are establishing ourselves there in terms of the nonconventional energy sites, solar wind, some of the EV-related stuff, we've broken into some of the bigger EPC players there who have, in the past, bought conductors from us. But the amount of cables they buy is significantly larger. But I wouldn't want to declare any victory at this stage. Let us see how we perform over the next 12 months. But clearly, those signs are very favorable. So the quality of sales, actually, on the cable side has shown a marked improvement, is buried under the pressures that have come in on inputs -- input cost, especially freight. So even the U.S. freight has gone up 3x, 4x of what it was pre-COVID. And containers are not available. So what is not in these numbers, and Mr. Diwadkar will collaborate that, we have INR 75 crores worth of cable, which are in transit. And we'll not be able to recognize the revenues under the Indian financial standards because it's on a DDP contract basis. And that would probably carry INR 6 crore, INR 7 crore of margin easily. And we have around INR 45 crores of cables which are in stock as of the end of the quarter, which could not be dispatched because the containers are not available. And subsequently now, they have moved. Of course, this is a rotating thing. But I'm just saying that the U.S. market for us is a very strategic market. It is clearly a China plus 1 play over there. And we -- I think the quality of earnings on the cable business also will continue to show signs of improvement. So all 3 businesses are showing an improvement in terms of quality of business.

Thank you so much, very evident. And once again, all the best.

[Operator Instructions] The next question is from the line of Nagraj Chandrasekar from Laburnum.

My questions are all answered. Congratulations on the fantastic performance again in a very tough quarter. The one question I have remaining would be on cash flows. Higher EBITDA has seen a lot of cash flow eaten up by working capital this quarter. As your other input costs, hopefully or theoretically come down over the next 2 or 3 quarters. And our utilization bumps up, what sort of cash -- cash from ops conversion do you see happening from EBITDA going forward over the next 2, 3 quarters?

Actually, commodity prices drive of the working capital, actually. Any increase in -- you have seen that there is a good amount of increase in all the commodity prices, that is aluminum, copper and oil. And that has -- so our cash has been consumed over there actually, basically. So overall, CapEx program was there about -- we had a program of about INR 130 crores original program was there. And we will be adding another, say, INR 20 crores or so on the conductor side. So we will have about INR 150 crores CapEx program is there, actually, out of which INR 40 crores have already been spent, actually, and balance INR 110 crores is balance actually.

So I think for us, as a management, we are keeping a very close eye on the fiscal discipline, which we can measure by a number of days. Of outstanding that you have, the number of days of inventory that you hold. So these are the markers that we are really focused on because every business has a certain model, and you can't swim upstream beyond a point. So the question here is that you pick a number, which is a feasible number. It's a trade receivable or a trade payable that actually is required to keep the business running and then manage that risk in terms of those numbers very carefully. And so one of the things which you will see is that even though the cash flow may go up and when the commodity prices came down, we had up to INR 350 crores, INR 400 crores of cash sitting with us. Now with the commodity prices going up, obviously, some of it has gone into funding the operations. But the numbers in terms of receivables and inventory days have not really changed very substantially. So we're kind of focused on that number. So I hope that answers your question.

No. No, I agree. Our performance has been very good compared to 2 years ago on this front, no comps there. Just one more question on what you responded to the last participant on cables. How big can the cables business be at current commodity prices, if we were to get all our end markets firing and this INR 100 crore CapEx up and running for the additional capacity on a full year, say, in FY '24, how can this business actually be?

The business can be easily in the range of around INR 3,000 crores. If you take our current capacity that we have, and if we were to run a full year on that, at today's prices, you would be in the range of INR 3,000-odd crores on the business, which, so far, we've turned in the peak value at around INR 1,600 and odd.

Understood.

The next question is from the line of Adit Shah from Vibrant Securities.

My first question is on the cable side. What would be the kind of margins which we are sort of targeting an ever to normalize it and you read that scale of INR 60,000 crore and the new markets. Previously, we have done 10%, I think, 11% -- or 11%, 12% EBITDA.

We've done 6.5% EBITDA in the first half. And our expectation is that we should end up doing something in that -- at least that range going forward, the value per ton will be higher. So if you look at the absolute EBITDA, will be a bit higher. But delivering something which is in the same range, 6.5%, 7% is what I think we could target. As I said, there are many moving parts in here. So putting an exact number is difficult, but that at least is something that we would aspire for.

Are you respond to this number as a steady state long-term number or a lower term number? It should be 6.5%.

It is likely to increase. As you have seen earlier, we have recorded EBITDA of 11% also. But right now, the market is very competitive on certain cable side actually. And certain good margin products are there, they are not moving. As Kushal already said that railway and defense, which are good margins, products are there. They were not moving because of COVID. So once these things start moving actually, we will be progressing towards our earlier target, actually, which was 10%, 11%.

Right. But can we expect that to happen in, say, two years? Or can it take much longer than that? So if I before can be reached a double digit margin? Because if you are doing 7% at INR 3,000 crores, you are at almost, I think, say more EBITDA, 3 years back. So it doesn't mean much, right, in terms of EBITDA contribution?

So it's difficult to put a time frame in this. Our aspiration is to get back to a double-digit margin. At the moment, we are at 6.5% in the first half. Our sense is that in the second half, we will be at 6.5% or a little higher than that. The situation keeps on changing. If we are successful in terms of selling into some of these more sophisticated, more premium markets, then the number could change. But I don't think we can offer a guidance beyond this at this stage.

And even the commodity prices that has driven down the EBITDA margin actually. Because here also, if the commodity prices increase, that doesn't mean that our EBITDA will increase. So if the commodity prices itself that has brought down about 2% and 2.5% to 3%, actually, EBITDA. The commodity prices were in the same range as last year, the COVID or may even pre-COVID year, the EBITDA would have been...

22% higher.

22% higher.

Got it. Got it. Correct. Got it. That's helpful, sir. The other question I have is on the finance cost. So if you look at the previous quarter, sequential quarter, it has gone down from INR 38 crores to INR 31 crores. And this is in the backlog of a significant rising commodity prices. And of course, for us, that means higher working capital absolute level. And even I don't believe interest rates have gone down in this last 3 months. So how have the interest costs actually reduced? That will be helpful to understand.

This is because of good financial discipline and the product mix actually. One aspect which is there on the conductor side is the railway copper conductor, which was not moving because you were aware of about issues we had with the railways and all those things. So once it started doing the railway popper conductor cycle is very short cycle, actually. We get the money between 30 and 45 days, actually. And even the manufacturing from the time for the time for manufacturing and clearance also is short actually. So that cycle is short. And once you have a fixed amount of railway conductors in your product mix, actually, you will see the interest cost going down.

So there is overall, I think there is a level, the rate itself has gone down. And as we've been saying, we had maintained a pretty strong fiscal discipline. If it has meant leaving orders, not taking business, which otherwise seem profitable, but the payment terms weren't favorable. You just let it go. So it's really come from the -- taking advantage of the drop in interest costs and maintaining fiscal discipline in terms of total receivable inventory combination.

Plus the product mix.

Got it. Got it. Got it. Yes. However, just one comment there. I just want to make one comment there. I understand receivable and inventory in terms of days might have gone down. But in terms of absolute amount, we see that in the first half, there's almost INR 400 crore increase, more than that. So sort of doesn't fully explain that, then it's only because of the falling interest rates, maybe then, right, global interest rates, yes.

We had a good amount of cash on the balance sheet. The cash the balance sheet was sitting in mutual funds actually.

Okay. Okay. You used that.

At the end of that actually, we have used that actually. So then you are not required to do any bill discounting or something. So that interest is saved.

Understood. Understood. That's very helpful. Can I put with one last question, and I know we are over time here. Is it okay to question one good question?

Yes, we'll answer it quickly. Go ahead.

Sure, sure. Sir, I just want to understand what are the initiatives that APAR is taking as a company, who make a market more B2C side of things in tables and maybe in other businesses as well, if you can spend some time there because I think sustainably doing 18% to 20% will depend a lot in cutting down your -- the below EBITDA level items, which I believe can only be then incrementally in a B2B business, right? They can't be very significant changes beyond the point. So just want to do your take on as a company, do you think that, that is something like B2C part is a big focus area for you in the next 3 to 5 years?

So the B2C part is clearly a focus area for us, both in -- so the lubricant side of the business, both the B2C as well as the B2B part of the lubricant business in industrial oils, et cetera, has a faster cash flow cycle. We are dealing directly with consumers and customers. So there is a little bit better pricing power also that's available. So that's a business which we've been growing. And that's how we are confident at least on the oil side, because margin of 5,000 is something which we are in a position to look at and protect. So that's clearly growing. In terms of the cable side, we have started growing our B2C side of the business in the wires, what they call light-duty cables. So this year, we will do -- last year, we've done a little over INR 50 crores out of that whole pie. This year, we will do 100, a little over INR 100 crores in spite of us having difficulty in going into market and bringing on new distribution. That's happening only now in the second half of the year. But as we go into FY '23, our expectation is that we will cross INR 200 crores in that. So our B2C initiative on the cable side is definitely on, but we would like to discuss that more. Once it is cross 10% of the turnover of the cable business. Otherwise, it's too small to move the needle, but it's an area where we are clearly focused on. We've put a lot of resources behind that in the last 6 months. And I think in the next 18 months, the numbers will clearly start slowing. They'll become visible in the total number that we have. You will also see more visibility in terms of branding taking place, at least in the market. It will mostly be BTL, but in the markets where the retail is taking place, you will see much more signage of APAR products and stuff coming up. So it's clearly an area which we want to focus on. But the numbers and our success will be dependent on what happens over the next 12 to 18 months.

Sure, sure. That's what happens to listen as a long-term shareholder. We would be happy to be patient and see how this plays out because I think that can have a good impact on the numbers, both on...

Our target, when you get to cable business of INR 3,000 crores, would be to have INR 500-plus crores coming from the B2C side. That's the target. Now let's see how we end up achieving that. We put resources behind it. We've rebranded our product, pre-packaged our products, all the early things which need to be done have been done. And the whole process has been initiated on the wire and cable side. The opportunity there is huge. You're looking at a market which is INR 30,000 crore market. And the other advantage on that is that it's formalizing at a pretty good pace. So that is showing us more opportunities. We have a very unique offering there, which is electron beam run wires, which we have started selling under the APAR Anushakti brand. We took Kerala as a sort of a pilot market, we've reached INR 4 crores a month revenue there. Last year, we did 1.5%. And now we are moving to other markets based on that success. So we have a recipe in place, which has worked in one market. We are looking at getting into 6, 7 markets over the next 12 months. So we have talked about where it kind of reaches a certain size where it does move the needle.

Sure. Sir, I just wanted to know the intent because that was more important. And hopefully, as you become bigger, we will listen more from you on that side. And thanks a lot for such a great results and hard work for the APAR family.

[Operator Instructions]

If there are no more questions, we can -- in terms of closing comments, I'd just like to wish everybody happy a Diwali and a prosperous New Year. And we feel reasonably confident that second half should be equal to a better than the first half. And as the moving parts start slowing down, there will be no predictability for us going forward. Thank you very much, everybody.

Thank you. On behalf of Apar Industries Limited, that concludes the call.