APAR Industries Limited (APARINDS) Earnings Call Transcript & Summary

Yes. Good morning, everybody. On behalf of Nirmal Bang Institutional Equities, I welcome you all to the session with the management of Apar Industries as part of our virtual investor conference. The company is represented today by Mr. Ramesh Iyer, who is the CFO. At the outset, I would like to thank him for taking the time out for the conference. And I would request him to share comments this session with some of his opening remarks and presentation on the business environment as it stands today, after which, we can open up the floor to question and answers. So thank you so much, and over to you, sir.

Thank you, Hitesh. Good morning to everyone. I'll give a brief background about the company. We have a corporate presentation that we have put on our website, and I would like to take you through the website to get you an introduction into the company. Hope my screen is visible. Hitesh, can you see?

Yes. So I just have to put up the presentation window again? Yes.

Yes.

Now it's come. Yes.

So brief background about Apar Industries. We are a 6 decade-old company, which was founded by the grandfather of current promoters. We basically are into 3 basic segments, which is Specialty Oil and Lubricants, Conductors and Cables. We have a small division of polymers and automotive solutions. But basically, the Oil, Conductor and Cable division predominantly takes care of the -- most of the business that we are in. So we broadly are into the electricity transmission stage. Our products are designed for [indiscernible] most of the products under Conductors and Cable are for that purposes. About 1/3 of our oil business also gets into transformers, which actually helps in the transmission stage. We are amongst the largest in terms of global aluminum and other conductors' manufacturer. We are amongst the largest manufacturer of transformer oils, we're third largest globally. And in terms of the renewable space that's there in India, we are about #1 when it comes to cable products. Our consolidated revenue stood at about INR 9,346 crores for FY '22. Over a period of 5 years, our CAGR grew about 14.1 percentage. So basically, our vision is to be a global leader in the energy infrastructure, transportation and telecommunication sectors by providing the best solutions and value creations for stakeholders. We believe in innovation because that's a core to our business, and the success of our company has been largely innovation-led. We want to be ahead of the curve when it comes to the competition and be able to understand the customer needs and service them in a better innovative products. Very briefly, our 60 years of legacy, it's actually started from 1958 in the conductor business and over a period of time, we diversified into multiple businesses, oils, auto lubes and slowly, we started manufacturing at our plant at Rabale. And over a period of the last 60 years, we have been able to get into 3 very big business divisions that is founded on the strength of [indiscernible]. So we are the only company in this space at such a scale to have 3 kind of divisions, that is there [indiscernible] Conductors, Cables and Specialty Oils. Each of the business division has its own strength and it's well diversified within the product category. That itself, there are multiple kinds of product lines within the conductors, within the cables and also within the oils and lubricants that helps to kind of serve our customers. [indiscernible] house of brands, which are there for our different product categories. We have about 8 plants in all. We have 3 plants for our oil divisions, [indiscernible] conductors and 2 for cables. One of the oil plant is there located at Sharjah in the [indiscernible]. So in terms of conductors, we are one of the largest global manufacturers, having strong leadership and competitive edge in the marketplace. FY '22, revenue stood at about INR 4,200 crores, 5-year CAGR stand at about 13.3 percentage. We have invested about close to INR 350 crores over the last 6 years, and that has basically helped to kind of innovate our products and be strong leadership position in the market. Our EBITDA per metric ton stands at a high number of INR 17,095 , which is historical high in FY '22. A key driver of this business has also been our focus on high-value products, which we call as the premium products, which as of FY '22, it's close to half of our value, which has risen from about 25% to 30% way back in FY '19, FY '20 and '21. So that has been a key focus for this particular division. Credentials on our conductor business. In terms of oils and lubricants, we are third largest in the transformer oils globally. FY '22 revenue stood about INR 3,500 crores, growing about 16% CAGR over the last 5 years. We have a capacity of about 5.5 lakh kL per annum basis. Here also, we kind of invest about INR 230 crores over the last 6 years to set up capacity for this division. Coming onto cables. We are the largest domestic player in the renewable space in India. We kind of have a 60% share in the wind sector. We have a very high share in the solar segment as well in India. Our FY '22 revenue was close to about INR 2,000 crores. We're growing about 18% CAGR over the last 5 years. FY '22 has been very strong year from a Cable perspective. Also, this was a year where we could venture into new geographies from an export perspective, and that has helped to increase our revenue during FY '22. We invested about INR 300 crores in the last 6 years into this division. So we have looked at LDC as a business and we want to grow that thing, and it's a light-duty cables business -- division within the Cable division. And that's the business where we want to grow, and a lot of efforts have been put within the company in terms of developing channels in terms of having complete separate team who will be catering to this business. We have recently [indiscernible] a new brand ambassador, Sonu Sood, as the face of Apar Industries. And for this -- the next 6 to 8 months, we'll have the film production going on, and we'll be soon on [indiscernible] to promote our light-duty cable [ great ] efforts. So clearly, our focus is on revenue growth and increased efficiencies, enhancing operational efficiencies, increasing penetration in high-growth markets, boosting customer revenue for the India business and continue to invest in R&D, design and engineering. Our unique capabilities are the diverse businesses across the product portfolio, market segment, customer base and geographies. We seem to be having a well position to capture industry trends both globally and in India. We have a strong competitive position in attractive growing markets, coupled with lower cost and strategically located manufacturing footprints, a stronger financial performance sustained over the years, robust in-house technology, innovation and R&D capabilities and an experienced management team and technically skilled and motivated employees. Our financial performance continues to be strong. If you look at the last 6 years, [indiscernible] has always been on an increasing curve. Exports stands at a good -- close to about 40% of the revenue in FY '22. EBITDA, which is strong at INR 574 crores is about mid-single-digit percentage. All the 3 divisions have been consistently growing in terms of value over the last [ 5 years ]. Balance sheet continues to be strong. We have very less debt on our books. And the ROE stands at 16.5% in FY '22. We export to about 140-plus countries across our 3 product lines. And the export revenue has been up 35% Y-o-Y and have actually contributed to about 38% of FY '22 revenues. This is a number which we want to increase it further. And our cable business, once the export starts picking up more being in FY '23, you'll see much more -- the [indiscernible] actually going up in this particular year. Anyway, brief about the industries that we cater to and brief details of our customers' [indiscernible]. So basically, we export 38 percentage and then [ 28 ] percentage are to various industries and corporate groups like cosmetics, pharma, rubber, plastics, lubricants, et cetera. There are 11 percentage that goes to specific industry groups, which includes rail, defense, shipping, [ mining ] telecom [indiscernible] percentage goes to OEMs. Another 6 percentage goes to EPC transmission companies, and there are utility transmission companies. There are products in the renewable space that goes there. About 1.5 percentage goes to the utilities, which are basically the electricity distribution boards and about 1.5 percentage to EPCs, which are diversified customer base across other verticals. And [ the rest are balance ]. So with overall change in our customer mix, there has been limited exposure to the state-owned electricity distribution boards. So key growth drivers who continue to be driven by the spends that has happening across a global level with more and more electrification, rise in power spending, new transmission and distribution systems globally will be helpful for our business to grow in the future. Clearly, China Plus One strategy will help us as customers want to have an increased vendor beyond China. So the risk [indiscernible] manufacturing capabilities. So the more and more about carbon neutrality, green energy will actually help us adopt many of our renewable products that we have in the pipeline. So these are all plus that will help us to grow in the future. And also consolidation of supplier base with more organized business and higher compliance will be a boon for our industry. So we believe in product diversification and innovation that will be core for us. The renewable energy power infrastructure [indiscernible] significant increase in products, capacities for solar, wind and power telecom convergence, exploring new markets with export-led focus, B2B; wider distribution network, B2C; improvement in supply chain and production process; and innovation and digitalization. On ESG [indiscernible] report, we ranked third among the industrial sectors. So we've kind of have ESG champions across our locations to look at ESG and areas where we can reduce -- improve our ESG scores. To slides on how we do on the society. So I'm not trying to cover the financial overview. I'm sure this already be there, and you would have looked at this earlier. So I just thought of covering the brief background about the company, and I'm willing to take on any questions that you may have on this front.

Yes. Thank you, Ramesh, sir. Now we'll open the floor for question and answers. If you want to ask a question, you can use the raise hand function of Zoom or you can comment directly, introduce yourself and your company name and go ahead.

Yes. [ Prashil ] here. I had a question on -- we are -- there is a brief -- there's a movement of China Plus One that's happening. So are we seeing any traction on that front? Are we seeing some interest from other companies?

Yes. Actually, yes. So this will actually benefit companies, especially located in India, which having a good capital availability, low-cost manufacturing capabilities, et cetera. So if you look at overseas countries, a lot of their imports has been from China, and they really want to have alternate supplier base for there. And therefore, markets like India, which are kind of having this capability definitely would be on advantageous position. And actually, we are also seeing a lot of demand actually coming in from countries like U.S. and Europe because of the China Plus One policy. So yes, that's actually going to be, as I mentioned, a key growth driver for us, and it will be a boon for us as well as many other companies in India.

What would be the typical acceptance period for you to regularly supply to them? Could you throw some light on that? Like you become a regular supplier to your customers. So what would be typical acceptance cycle?

So our image is well known in the market. And now we have been in this business for the last 60 years or so. And we have that kind of legacy in terms of demonstrating our product capabilities to existing as well as new customers. What also happens in this kind of business is that before the kind of product gets finally sold, there are detailed specification, based on which we need to first manufacture the product. After that, there is a period of inspection and the customers themselves, with their representatives, come and inspect the products to ensure that it falls within all the parameters of their specification. And only after then the kind of sales invoicing and billing happens there. So basically, once the product is inspected, when it is in line with the specification, then you already get the acceptance over there. And we've had quite a good kind of image from our customers in terms of our quality approved products and our innovative capabilities. And therefore, the product acceptance kind of happens once you are kind of successfully invoiced the product with the quality parameters.

That was very helpful. My second question is regarding the demand prospects. So we have seen this Ukraine-Russia conflict. So how is demand in Europe? And it would be very helpful if you could give us kind of a segment-wise demand scenario for the Europe region.

Yes. So definitely, this -- we don't have direct impact on the Russia-Ukraine war because our exposure to Russia and Ukraine is actually negligible. But it actually throws a lot of opportunities from a Europe continent perspective, and they are definitely looking at alternative forms of energy, and renewables being -- going to be the -- more of the demand requirement. And with the renewables going up, our potential of getting into the solar and wind will actually help us, and therefore, our cable business would grow because of that. And also with increase in renewable, what happens that you will need more of your transformers and transformation capacity. And therefore, one part of our oil business, which is basically transformer oil, that requirement is also more. So our transformer oil business is about 1/3 of our oil business actually gets into the transformer and with increase in the renewable sources of energy requirement, you will need more transformers and therefore, it will help us to kind of have more volumes on our [indiscernible]. So over a long period of time, I would say, definitely, this will throw a lot of opportunities for companies like us. And we feel that at this stage, having a wide basket of products with us, it will help us to kind of meet the challenges or the requirements of the customer that comes around.

That's very helpful. My -- like moving our questions to cables. Like we were very -- even during our conference call, we were very optimistic on the cable business, and we were expecting to be the largest contributor of revenues going ahead. So if I were to look at a 7, 8-year kind of an outlook, so how would I be seeing cables business as being your driver of the growth? So what are the key growth drivers? Could you highlight that?

Yes. So the growth drivers will actually come from key things that I kind of talked about in the presentation. Basically, it's about the level of infrastructure spends that happens globally as well as in India with urbanization and electrification, the requirement of electrification will just increase over a period of time. And also China Plus One would be a key growth driver for us. And from a Cable perspective more, all these forms of renewable energy would be a kind of growth driver for us. So the reason why we kind of feel that cable would kind of be our largest business segment because as already mentioned in our earnings call, the addressable market has huge potential there. It's kind of much more than the combined market of oil and conductor business. And that is where the opportunity lies for us as well as many other places around. And if we're able to tap that market, we'll be able to definitely have a kind of good volumes over a period of 7 to 8 years, as you mentioned. So that's a key thing for us to be able to service to the renewable sector, to be kind of a supplier from a China Plus One perspective. And also to tap the opportunities that happens on a global platform when [indiscernible] countries are getting into the infrastructure spending.

Thanks, [ Prashil ]. A reminder to the investors. If you want to ask a question, please use the raise hand function of Zoom or please comment directly, introduce yourself and your company and go ahead. So as we wait for the questions, [ Prashil ], would you like to continue?

Yes. So a question regarding to your Indian market. So there has also been a big power push from the government. But considering the DISCOM health is not -- DISCOM financial health is not much better, so how do you think that would -- would that have an impact on demand if I were to look from a medium-term perspective?

Not that significant because as I was mentioning in my slide, our exposure to kind of distribution companies is about 1.5 percentage. So that's the mix that we have. And therefore, the advantage for Apar is that we are widely spread across our 3 businesses. So our customers are not -- this distribution electricity board, which is about 1.5 percentage, we cater to a wide range of industries, corporate. We cater to special industry groups, like railways like the mining sector, the shipbuilding and defense. We cater to a lot of transmission companies when it comes to transmitting the electricity part. We cater to a lot of EPC companies which, in turn, go -- work for transmission over there. So we have a wide range of basket there. And clearly, post-COVID, the spends on infrastructure will be increasing. If it's not enough, slowly, definitely, it will be on a higher side. And these actually present us a good opportunity. So there could be a momentary kind of ups and downs. But I think clearly, a medium to long-ish perspective, we really see the kind of spends happening on infrastructures. And therefore, those things will actually help us more. Also what happens is that with a lot of urbanization and requirement of electrification, these things are kind of -- have a tendency to increase over a period of time.

Okay. Second, sir, we are rolling out our B2C kind of cable. And we are coming out with a very differentiable aspect in terms of higher power capacity. So could you throw a light on that, how differentiated is the product versus our current typical players, like Havells or a Polycab kind of thing. And second is on the replicability aspect of sides. So if someone wants to look at how replicable they would take, could they easily replicate that kind of our wires?

Yes. So I think the key thing as people like us who live in houses, a very important thing that we need as part of house wiring is protection and safety. And the product that we have on our basket, which already we are marketing in Kerala and also we are expanding to [indiscernible] is to increase that shock absorbing capacity to about -- by about 50 percentage. So from an average wire that you see in the market, the product -- the unique and differentiated product that we have actually increases our shock-resistant capacity by about 50 percentage. And therefore, it's much more shock-resistant so to say. And that's -- it's our key feature because once you do a wiring, which actually happens once in many years, and you want to be sure that the wiring is all intact because you don't want to get into removing the wiring and then drilling the wires, et cetera. So this has a larger flame-retardant and melt-resistant capacity. And therefore, we call it as a very unique and differentiated product. The product is already there in the Kerala market. It's there for the last 3 years in Kerala and Gujarat. And we are expanding to many other Southern states and also in the Western part. That's our plan. And in terms of the technology, basically, currently, we are the only player in this industry to kind of use this technology. We haven't seen any other competition using this technology so successfully as we are because that's the way it is. So we are actually using this thing very successfully. We already have 3 E-beam machine, which actually help us to do this kind of a product, not only on our LDC segment but also in some of our B2B segment. And the fourth E-beam machine is likely to be commissioned by the third quarter of this financial year.

Just a follow-up on that. Like, so if there is a sudden power surge, so that wouldn't affect the appliance. Is my understanding correct?

Yes. So this wire will have a higher shock absorbing capacity than the normal wire. So it will be higher by about 50%. The normal wire has a kind of 70 degrees capacity to absorb shock, this will be 50% higher, which is about 105 degrees.

Okay. But so if our product starts gaining a lot of traction, so let's say, Havells or a Polycab kind of a player would look at, so can they easily replicate this?

It won't be easy to replicate that. It definitely needs a lot of efforts and technical capabilities to be doing that thing. But it's not impossible at the same time. But if you see in the market, there are no other products with that technology which is there...

Okay. So on the price differential front, so how would be the price differential versus a typical wire. So are we on the high end or it would be a similar kind of pricing?

So pricing, basically, in our case, would depend on a lot of market competitive forces, the kind of -- we are very nascent stage in this category. And it's also subject to our raw material prices, which is copper, which kind of keeps on moving. So we'd like to be about around the range of -- the price at which it's operating in the market. Current our focus is to kind of develop channels and have a proper distribution and retail channels there, have a proper team in place through proper branding and more importantly, do a lot of demonstrations of our products. Because unless this product is understood by consumers like you and me, nobody would like to go and buy that thing. So it's important for us to kind of communicate our uniqueness and differentiated product abilities. And that is where we've been focused here. And more and more awareness that it kind of creates, it will ultimately get more attraction as we go along.

So -- but what would be our typical target? Like it's not clearly the consumer that would be [ driving ], it's more like you kind of outsourcer's decision to typical electricians. Are we targeting an electrician kind of a crowd? Or are we targeting kind of a consumer or a B2B builder kind of a market?

So it will be both definitely, as you rightly said, these products are influencer-based, and therefore, it's very important for us to influence electricians who are there. Because we are -- the consumer actually outsources part to the electrician. And therefore, it's very important for us to work on the electrician to explain them how important or how safety [ this product is ] there. At the same time, we are also into the project business for this product. And we will also be doing an awareness with the consumers. And therefore, you see our brand ambassador [indiscernible] signing up. And also we have our films and advertisement there because it's also important that beyond the electrician, the consumer is also aware that such kind of products exist in the market. So we'll do from all -- push will be from all directions, not only from the consumers, but also influencers like electricians. We have a lot of electricians needs, the [indiscernible] needs that happen and wherein we'll be able to demonstrate our product and its uniqueness to the influencers.

So just a small follow-up. So on the project side, so is that part of business more price-sensitive? Or -- yes, is that more price-sensitive? So what is their unique USP to sell over there?

Relatively, it will always -- project business will always be more price-sensitive. But there also, our messaging is clear in terms of this protection that is there. And clearly, even if you look at a project, once they are able to put showcases that this project and buildings are made wires, which are 50% more shock-absorbent, definitely, it will have a great significance and they kind of approach their consumers who get into that project. So our USP is going to do the same thing, which is flame-retardant and melt-resistant and having a more shock-resistant capacity than the other player -- wires that are available in the market.

Yes. Thanks, [ Prashil ]. A reminder again to the participants. If you want to ask a question, please come in directly, introduce yourself or you can use the raise hand function on Zoom. Or if you want, you can also put the question to us on the chat window.