APAR Industries Limited (APARINDS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the APAR Industries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ambesh Tiwari from S-Ancial Technologies. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I welcome you all to the Q1 FY '27 earnings call for APAR Industries. To discuss the result performance and outlook, we have from the management side, Mr. Kushal Desai, Chairman and Managing Director; Mr. Chaitanya Desai, Managing Director; and CFO, Mr. Ramesh Iyer. I will now pass on to Mr. Kushal Desai for the opening remarks. Thank you, and over to you, sir.

Thank you, Ambesh. Good afternoon, everyone, and welcome to the APAR Industries Q1 FY '27 Earnings Call. Before we start, I did want to mention that the company has issued a notice to its shareholders, seeking the approval under applicable law for the issuance of securities. So under these guidelines to comply with them, we have specifically restrictions around publicity. Company will not be in a position to actually take any questions on guidance projections, forecasts pertaining to its business and financial performance or questions related to the proposed funding requirements. So having said that, I will focus and limit myself to giving you an outline of our consolidated financial performance and thereafter, deliberate on each division-wise performance and then we can open up the floor to questions. Coming to our financial performance. We started FY '27 on a strong note, our consolidated revenues grew by over 29%. So we are 29.1% versus last year. The revenue has reached INR 6,591 crores. The domestic revenue grew by [ 36.8% ], export revenue grew by 12.4% and the export mix is at 27.5% compared to 31.6% in the previous year. If in terms of EBITDA, EBITDA post open tier ForEx has grown to INR [ 803 ] crores representing a growth of 62.7% year-on-year. The margin came in at 12.4% compared to 9.8% a year ago. The steel growth in EBITDA is attributed to higher sales realization as well as unit profitability across all 3 divisions with our oil division in the highest incremental contributor. So if you look at profit after tax, profit after tax has increased by 77.7% to reach INR 467 crores from a year ago. The PAT margin came in at 7.1%. So it's up about 200 basis points. This incidentally is the highest quarterly sales as well as profit number that we have achieved in the history of the company. Otherwise, this has been a very challenging quarter from an external perspective. Even the impact of the U.S. Iran war, various logistics difficulties that have happened in the export and fairly significant manpower-related shortages in the month of May, which coincided with holidays as well as local elections. However, in spite of all this, the teams at APAR have managed to deliver a very good result, demonstrating superior risk management as well as strong discipline in execution. Coming to the Conductor division. Our revenues grew by 19.9% to reach INR 3,338 crores. Volume for the quarter was down 6.7% compared to a year ago. This can be attributed fundamentally to a surge in the metal prices that has impacted delivery schedules of orders which are in hand, where customers have withheld manufacturing clearance especially due to the sudden increase in the price of aluminum and where customers were not having hedged metal. So most of these contracts, there is a certain leeway in terms of delivery where the end contract has to be delivered, say, in 18 months or 24 months or 36 months. So there is a little bit of a leeway. In this case, we attribute this that in the absence of the aluminum hedge because of the sudden increase in prices, there are some customers who are waiting for prices to come down and then hedge the metal, and we are manufacturing clearance. So overall, we see this as temporarily because the orders have already been placed. And there is only a certain time line to which a delay can be done as there are very stringent penalties for the overall delay in the project execution. Domestic revenue is up 19.3%, while export revenues grew 22.2%. The export mix stands at 20.5%, which is marginally higher than what it was a year ago. What is -- I need to know is that the premium segment of the conductor division contributed well to overall revenues of 50.3% compared to 43.7% a year ago. So most of the [indiscernible] I spoke about of manufacturing clearance has been largely for conventional conductors going into the domestic market against TBCB projects and other projects of that type whereas the premium products continue to get executed. And that's how the mix has actually increased. It has also had a direct relationship with the higher EBITDA that I'm going to explain later. So EBITDA post foreign exchange grew 14% year-on-year to INR 285 crores. EBITDA growth is attributable to a higher share of the premium mix due to which despite a slightly lower volume of conventional conductors, the absolute EBITDA has grown, which came in at INR 53,418 per tonne compared to INR 43,680 per tonne a year earlier. This quarter, APAR has also achieved its all-time highest reconducting installations. APAR also has got an approval to one of the largest U.S. utilities for OPGW with 144 counts, which is a very critical approval for the U.S. market. The trend of products is that it has been increasing in terms of the fiber count given the fact that there is more and more data transfer that is taking place. The pending order book stands at around INR 10,190 crores with an export proportion of 56.8%. New orders received by the Conductor division were INR 5,245 crores in the quarter of which exports contributed to 65.8%. This includes large orders exceeding INR 2,800 crores from 2 major overseas electric utility company, one in the U.S. and the other one in Europe with the delivery schedule that is spread over the next few years. Coming to the oil division. Revenue grew by 34.7% year-on-year to reach INR 1,701 crores. Volume for the quarter stands at [indiscernible] down 13.7% compared to a year ago and down -- yes, the volumes were affected really because of our facility in the UA, which because of this crisis, and the resulting closure of the Hungaria port was restricted to only making local deliveries of the product that it had in inventory. The India volume is down only by 4.4%. And this is quite creditable given the fact that in the very first month, which was in the month of April, the brunt of the initial impact of the war and the movement of vessels took place during that time frame. Domestic transformer oil volumes reduced by 6.2%. Global transformer volumes were down by about 8%. However, auto oil volumes grew by 6.6% and our industrial lubricant volume grew by 12.1%. So the company managed to navigate this volatile environment quite adroitly, by executing all the pending orders that were there at the start of the year and then maximizing the realizable value of the inventory, which we had on hand. So with the price of crude oil and gas oil having risen very sharply at the beginning of the quarter, and then falling quite sharply at the end of the period, the company has followed the requirements of accounting standards and has provided for approximately INR 93 crores for the oil division in the quarter. However, post taking this provision into account, the EBITDA margins came in at a substantially higher level of INR 25,482 per kL compared to INR 7,000 per kL a year ago. The overall EBITDA has grown by 214% to reach INR 329 crores. And this is about 29% more than what it was in the sequential quarter. Coming to the Cable division. Cable revenues grew 29.5% to reach INR 1,838 crores. Domestic revenue grew 9.9% in Export revenue is down to -- down by 13.7%. Export mix stands at 37.6% with the U.S. revenue actually growing 2.5% year-on-year. The new order inflow has started increasing from the U.S. Today, APAR is approved in the U.S. for cables being supplied through data centers of Meta, Microsoft and Google by various major electrical contractors. The U.S. market is actually 66% copper and 33% aluminum. With these approvals, APAR has started receiving orders and participating in RFPs, which are for copper cables that covers both low voltage as well as medium voltage segments. And of the PVC variety, HLB as well as [indiscernible]. Thus far, cable exports of the U.S. has been mostly aluminum cables. Pending order today stands at INR 1,925 crores. So it largely covers the plan or the requirement for the current -- for the coming quarter compared to INR 1,653 crores from a year ago. EBITDA post open ForEx came in at INR 194 crores, which is up 6.7%. The EBITDA margin has come in at 10.6% in Q1, which is up by 60 basis points over a year ago. So in conclusion, the company has produced a good result with demonstrating strong execution capability with all 3 revisions increasing profitability year-on-year, making this the all-time high quarterly sales and profit of any quarter in part the history. With this, I would like to end my comments and now open the floor to question and answers. I would like to remind that the company will not be able to take questions on guidance projections, forecasts pertaining to the business or any questions related to the proposed funding requirements as per the regulations. I'd also like to thank all of you for attending this call. And with that, we are open for questions, please. Thank you.

[Operator Instructions] We have a first question from the line of Amit Anwani from PL Capital.

Congratulations for a very strong set of numbers. So first question, on the oil business, I understand you're not [indiscernible]. But how you think why there was like the 20,000 per kL, you've given some explanation in the peso. I just wanted to understand, shall we consider that business will be as usual in the remaining period? And why this 25,000 per kL, which came this quarter?

So Amit, as we have already mentioned earlier, in the case of oil, we typically carry inventory in the system, which has historical cost. And in terms of rising gasoline price, the IC gas price enerics, you are able to get a premium pricing in the market. So with the historical cost based on which you are procured and current price, which are on the higher side, the margins look disproportionately higher, which is the reason due to which we have got the higher margin in this particular quarter. And that's the reason -- that's what explains why the margin is so high. And as you can see that the current situation is volatile in terms of how the crude oil price, how the gas oil price moves. So that will have the volatility as long as this price keeps on futurity in times to come.

On your second question, whether we'll get the similar margin in the future or not, that's something as we explained, we won't be able to answer that at this stage. At the same time, [indiscernible] have already mentioned that depending on the prices of the products in line with the requirements of accounting standards, we have made provisions to the extent it is necessary as on 30th of June.

Right. Sir, second question on the premium products where a very strong contribution there. And you explained 2 things. One, the premium product was good. And second, there was a higher contribution of reconducting. So on [indiscernible] I just wanted to understand what exactly is contributing to the volume strikes as you did at probably, if you could highlight the key products where the growth is happening. And second, we saw the export probably especially the numbers are not highly encouraging this quarter. So any color on that would have the premium products, what -- which products are driving the growth in domestic market? And when are we really expecting the bounce back in the U.S. for this business?

So let me ask both the questions one by one. So first, when you -- when you're talking about the premium product, the entire category has grown in the quarter. So whether it's HTLS as we mentioned, that it's been the highest quarter in which we can -- the physical installation that has happened. There has also been growth across the copper range of products, which is our copper transport conductors. There has been suppliers on to the railway [indiscernible]. The whole range has actually gone up. While you see a higher EBITDA per tonne as was explained earlier, is that the orders on hand for which the manufacturing clearance got postponed, for none of these premium product ranges, but it was mostly the conventional conductors, either AL59 or other conventional types, which customers have pushed out taking delivery of the product. So that's why you see a drop in the volume, even though you actually have the order on hand. But the profitability was high because of basically the HDFS conducting as well as these products. On a U.S. brand, if you recall in the last earnings call that we had, which was not very long ago, basically, there was a quarter when the Section 230 was initially for all these grades of classifications came under because of which, for one quarter, there was very little ordering. There was a lot of confusion in the market even with the local players in terms of what the pricing would be like, et cetera, et cetera, what the legislation was like -- so we are kind of facing the corollary of that period where there were no orders, which have filled into this period. And keep in mind that most of the U.S. deliveries are on a GDP basis. So as a consequence, even if the product is manufactured, [indiscernible] reaches the client side, the revenue cannot be recognized. So there is a bit of a lag in terms of the recognition of U.S. revenues. The quarter has otherwise seen good business in the U.S. because we've completed receiving approvals, as I mentioned, on the table side from the -- from 3 companies, which are very large in terms of data center expenditures. In addition to that, 2 major utility, one in Europe and one in the U.S. have finalized in this quarter a big rate contracts. So I think the large shipments, which have been there is primarily attributed to just tiny. The rest of in the order books, which are representative of whatever we've bought in this quarter itself are showing that the export deliveries will take place as these orders get executed.

All right. Sir, lastly, on the cables, you did highlighted about participating in the RFPs for the quarter. And I think you highlighted about 66% and 33% copper and aluminum portion there. So just a clarification. Currently, we are doing aluminum and now we will be participating in RFP for copper. Is it the understanding?

Yes. So I mean it's not that we did not have the range of products, but the market access is important. And with these approvals coming in place, they not only formed why this so important. They're important not only because these major infrastructure builders on the data center side can now -- mean contractors who are servicing the data centers can procure from us. But it also forms the reference of other data, meaning for other electrical contractors. So once you have approvals on these 3, then market access automatically improves. So, so far, whatever business you saw at [indiscernible] just aluminum. Going forward, we will be able to participate now in aluminum and copper because of these approvals which have come in this quarter.

Right. Sir, what explains the margin increase because I can see domestic has grown by 60% for cable. And also the margins have gone up by 60 bps. So is it...

We've been continuing to supply to defense railways, Indian [indiscernible] quite a lot of products in the last quarter. Defense bought some products in the last quarter. So it's just a good product mix that has been sold in the domestic market.

And it's also, Amit, in line with the guidance that we gave about 10% to 11% scoring around that particular number.

Correct. Sir, lastly, and then that U.S. sales, if you could share for cables and conductor this quarter?

We don't give specific sales for that geography, Amit.

We have a next question from the line of Umesh Raut from Nomura.

My first question is on the Conductor side. So if I look at our existing order backlog, that is now touching closer to INR 10,000 crores. And out of that, I think there are 2 large orders contributing about which are exhibitable over the course of next 4 years. So if I want to have a color about revenue backlog, how much of that is executable during the course of the next couple of years? If you can guide in terms of exception time line for remaining order backlog. And in terms of geographical mix as well out of INR 10,000 crores, how much of is being contributed by the U.S. or Europe?

Yes. So barring those 2 orders, we'll have a last part of it being [indiscernible] in the -- about close to the year or so. There may be a few orders that may spill over the next year. And what was your second question? .

In general, overall backlog mix in between, say, India, U.S., Europe, Africa and then rest of Asia.

Most of it is domestic. [indiscernible]

Total backlog mix.

Yes, even I mean, within the exports, exports contributed about, I think, 66% now. I think if you [indiscernible]

It's actually an exposure spread across different [indiscernible] Africa, Asia, Latin America, it's actually spread out.

Okay. So I'm asking how much being contributed by Europe and North America within the backlog.

The bulk of the product is coming from the Americas, North America, Latin America and Europe. And -- so out of the [indiscernible] export is about, as I mentioned in the earlier statement, it's about 56.8%. That's coming from the Americas and Europe. Yes, I mean North and South America and Europe. The rest of it is all domestic. .

Understood. Understood. Second question is basically about these 2 large orders that you have issued in the conductor business. So is it fair to assume that this is just the start that you are seeing good [indiscernible] on the utility side in oil market and probably approvals are also there for you. So in future, we can expect a recurrence of similar kind of orders? And second, to kind of fulfill these requirements, is there is any plan to kind of set up manufacturing the presence beyond?

Unfortunately, you're [indiscernible] has drawn. I would urge you to look at all the commentary that have come in previous earnings calls and from that, you will be able to figure out where exactly the company stands. So these are, of course, 2 very large utilities there amongst the largest utilities in this geographies and so very prestigious to have actually got this business. It's multiyear business because many of these utilities work on a plan that runs across a few years. And for one line, they usually would take a single vendor to supply. .

Got it. Just a question of...

That's the answer I can give.

Okay. Okay. Understood. Just -- if you can give me color about the breakup in between, say, conventional products and premium products in these 2 orders, is it more towards premium or [indiscernible]

[indiscernible] markets are largely taking -- was these markets will largely take varieties conventional CSR or AAC. There is some small quantities which are there of some of the premium ALC and OPGW, et cetera, also embedded in this. So it's a combination of it but largely conventional.

We have our next question from the line of Vidit Trivedi from Asian Market Securities.

Congratulations on great numbers. Sir, last quarter, you indicated that material ordering from the large STC products would gradually flow through FY '27. So could you please help us understand what proportion of the current order book is now related to HVDC and premium products? And would it be possible for you to tell us when can we start all these orders to contributing meaningfully to the volumes and margins?

So in the last quarter, we did receive a very small part, which was pertained to HVDC. We are -- we've already mentioned in the past, as you've correctly mentioned, that other orders will be flowing in.

Yes. So I had mentioned in the last quarter that as that high-voltage products are actually not only India building infrastructure for this, but also in the overseas market, there's more and more high voltage that's going in. So in this quarter, part of the large order that we got from U.S. utility involves actually high-voltage transmission line. Much of India ordering is still to come. So we just [indiscernible] mentioned some of it has started now. This is like a multiyear sort of transmission lines that are going to come in. Not only that is the entire HVDC system. So they have just recently been awarded. So most -- I mean, a little bit of the ordering has come in this quarter, but -- most of that ordering is still to come.

Got it, sir. Sir, in Conductor volumes, as you mentioned, they were -- they took a hit during this quarter. So just wanted to check have order inquiries and booking activity normalized after the recent modernization in copper and aluminum prices?

Yes.

Sir, what's the capacity utilization across all the 3 divisions?

It changes for different products, and it changes anywhere between 80 to 90 percentage for different product categories across the division. And as you know, we are doing a fair amount of CapEx. So we are building our capacity for the growth. .

Yes. Within the last couple of earnings calls, a lot of details have been provided on the CapEx, et cetera. So the current capacities, as Ramesh has mentioned, are running very high, as a high percentage. And I will get the bottleneck through these CapEx investments are taking.

We have our next question from the line of [indiscernible].

The first question I wanted to ask was just when I look at the Conductor segment, on the order book, you have about 57% in exports, largely in the conventionals. And this quarter, we've had a good domestic premium mix. My reading is that typically the export in conventionals comes at a lower realization EBITDA per tonne. Would that understanding be correct?

Actually, it will depend on different product specifications. It may not be true to generalize that export comes at a lower margin because each product has its own specification requirement and the margin for each product are different.

Got it. But as you have it on your order book now, would it be lower than what you've seen this quarter? Or how is it?

No. So you take the pecking order, which we've spoken about even in the past, you typically have HTRS which is the highest. Then you've got fundamentally in the domestic market, you have conventional products, which are in the domestic market, conventional products are at much lower relative margin compared to the same products being sent overseas. The fundamental difference is the quality standards that are required as well as the acceptance criteria that is there for. So our strategy has been -- which we've spoken about very much in the past that we focus on premium products in the domestic market and the standard product range, we would rather focus on the export market. So this is pretty much -- what has happened in this quarter is exactly in line with that. You're [indiscernible] apples and all.

Exactly. Exactly. Sorry, go ahead.

Yes, exactly [indiscernible] that question, right? Because this quarter, the exports from what you're saying, I mean, there was obviously a decline. I mean, in the volume terms, I think there are some orders being held back. So domestically, you sold more the premium agent, right? So the export mix this quarter is 22%. But in your order book, so as you start executing the conventional exports, there might be at a lesser realization in the premium and domestic [indiscernible]

So let me just clarify. What has happened in this quarter is that where the orders are in place, but the manufacturing clearance has been delayed is largely in the domestic market.

Also, I'd like to clarify, the order book also has these 2 orders which are over a few years. So the premium business will come, but with a shorter cycle compared to these 2 export orders which are over a few years. So it is possible that the ratio between the premium and the conventional will be similar except that the order book position will vary depending on time to time, what sort of orders we receive.

Got it. Got it. That's very clear. And in volume terms, we've [indiscernible] 7%. If you could just bake that up by exports and domestic for the quarter, what was the growth [indiscernible]

I have given that data earlier, if you see the domestic revenue is up 19.3% in the Conductor business. Domestic revenue grew by 19.3%. Export revenues grew by 22.2%. Exports make [indiscernible] the domestic sales was at 79.5% [indiscernible] that of premium products in the conductor division contributed to 50.3% in this quarter compared to 43.7% from a year ago.

Yes. I think the reason I'm asking that question, just as a follow-up, because at the realization level, you're right, I've had the number. But because I don't know the realization for domestic and export [indiscernible] I'm not able to understand the volume.

I think you're getting confused that when we said that the volumes in the quarter were down by 6.7% is largely what happened in the domestic market. .

Not in the overseas market. In the overseas market, actually, it's -- the revenues came -- grew by 22.2%.

Okay. And just the last question on working capital. If you could just tell us where the position is compared to last year.