Finolex Cables Limited (FINCABLES) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Finolex Cables Limited. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Pratik Patil from Dentsu Creative Investor Relations team. Thank you, and over to you, sir.

Thank you, Mark. Good evening, and thank you all for joining us on the Finolex Cables Q2 and H1 FY '26 Earnings Conference Call. Today, we have with us Mr. Mahesh Viswanathan, Deputy CEO and Chief Financial Officer from Finolex Cables Limited. We will begin the call with the opening remarks from the management, after which we will have the forum open for the interactive Q&A session. I must remind you that the discussion in today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarter performance and to strategic questions only. I would now request Mr. Viswanathan for the opening remarks. Thank you, and over to you, sir.

Thank you, Pratik, and welcome to all the participants in today's conference. Very quick updates from my side. On the revenue side, we had a modest growth of about 5% for the quarter. And for the half year, it was about 9%. EBITDA levels for the quarter were pretty decent. Quarter was up by about 26% and half year up by about 19%. At PAT levels, for the quarter, we were above corresponding quarter by about 35% and for the half year by about 21%. If I get into the product segments, Wires and Cables, the quarter revenues were up by about 8%. And for the half year, we were up by about 12%. I know that this is modest in comparison with our -- many of our peers. But we do have certain business lines, which are -- which were facing certain headwinds. Agriculture, for instance, we had a very prolonged monsoon and the applications around agriculture, the volumes were depressed. Building Wire, in reaction to a kind of moderation in the real estate sector, the growth was more or less flat. Where we did grow was on the Industrial Cables and Solar Applications. Auto is geared for growth in the future. Cables, we had a very good quarter. We grew volume by close to 60% in the quarter. Commodity volatility continued during the quarter. We had to take one pricing action that was later in the quarter -- towards the end of September. In the initial 2 months, there was a dip in the commodity prices and then it suddenly surged towards the second half of August -- from second half of August, it has been climbing. And we took pricing action in September. On the Communication Cable side, most product lines, the volumes were muted. BharatNet, I'm sure you will have questions. We still do not have any meaningful contribution yet from the BharatNet business. Fiber prices, again, were low, continued the trend from the previous quarter in this quarter as well. That depressed the Cable revenues. We understand that there is a sign of the fiber prices hardening. We are yet to see it, but we are waiting and watching it. On the metal-based communication cables, like I said earlier, the volumes were muted, but that is more to do with contract negotiations. We have yearly contracts with the customers. Some of those contracts, we had to get into protracted negotiation, and we are recently closing with some of them. So I think that catch-up will happen in the coming quarters. Balance sheet, as always, our balance sheet has been strong. Working capital reasonably well managed, slightly over a month of working capital is what we carry. I think there, we are ahead of our -- most of our peers in that sense. On the CapEx, we spent approximately INR 75 crores in the quarter, INR 100 crores for the half year. Two of the major areas where the money was spent, 2 of the major programs was one on the preform plant. The plant is ready. It is awaiting production trials. That should start in the next couple of weeks. And the fiber draw plant, the building is nearing completion and the machines are expected any time. So once the -- once that is done, we hope to complete this by March end. So both the major spends that we had announced 1 year ago would then be completed by March '26. So with this, I open up the floor for questions.

[Operator Instructions] First question is from the line of Vidit Trivedi from Asian Market Securities.

My first question is with respect to the top line. If you look at our peers, they are growing in the double digits. But if you look at our top line growth, it's quite muted. So where are we lacking on this? Any color on that?

So my opening remarks, if you remember, I said the growth was very modest this quarter. And I also understand that we are -- some of our peers have done much better than us. The difference is in -- 2 major areas. We are a rather small player on the cable side. Although we have -- we had a fairly good growth in the Cable volumes in this quarter, our base there is relatively small. In a total market size of about INR 25,000 crores, we do approximately INR 200 crores, INR 250 crores, whereas some of our peers are fairly big on that, and their focus is on that. So that is one big differentiator. The second, like I mentioned, the prolonged monsoon also hit us on the agricultural applications. That application accounts for approximately 10% of our -- 10% to 12% of our revenue, and that was really muted there. So good monsoons, good for the country, but not really good for us in that sense.

Got it, sir. My second question is on the competition side. UltraTech in their recent con call have mentioned that they have already started -- they will be starting the production in Q3. I mean, according to them, they must have started by now. And by January next year, they are anticipated to get it into the market. So how are we planning for this? How are we planning for the incumbent competition from a new player?

Okay. Two major business houses have announced their intention to enter. One of them has been very specific about what their plans are. The other one has not yet spelt out their plans. But I think we will -- we have a brand. The brand is well entrenched across the country. So at the retail end, I think we will remain a relevant player. And actions that are necessary, we will take to protect our turn. And that is something that we will do.

And sir, what's the price hike during the quarter?

September, we took a 3%, 3.5% correction.

The next question is from the line of Balasubramanian from Arihant Capital.

Sir, net working capital days increased to 33 days in H1 FY '26 compared to 22 days in H1. And what could be the reasons for increase in net working capital days? And is this a new normal driven by the project business mix or when we can expect to back to 2025 kind of levels? And what specific initiatives are in place to manage receivables from DISCOMs and other mobility clients?

Okay. Net working capital this quarter was slightly higher than the previous quarter. That's true, 33 days against the earlier numbers. But if you look at it, the major change was on the payable side, I think. The payables had come down drastically. And so that is a cyclical thing. It should correct itself once those payments are out. On the receivables side, we are at, I think, 15 days. Inventory was slightly higher at 65 days, but that was also a planned exercise in the sense there were certain disruptions in some of our -- close to some of our sites, and therefore, we needed to carry additional inventories at that point in time.

Okay, sir. Sir, on the Communication...

You had a second part of your question. What was that? Can you repeat that, please?

Sir, what specific initiatives are in place to manage receivables from discounts and other operating lines?

So when you're saying receivables from discounts, meaning going deep on the -- deep discounting on the sales. Is that what you mean?

Yes, yes.

Okay. Look, when it comes to large projects or big time customers, big builders, there will be a price differential between what you sell it at the retail level and what you sell it on the project side. So yes, one will have to moderate those. One will not have to -- one will have to make sure that it still makes sense to the company in terms of while getting top line, you should not lose your bottom line as well. To that extent, I think we are careful. But it is -- it has to be a price which the market will bear. So we will have to be competitive at that stage. I think the process that we follow is, bag the orders, but not orders at any cost.

Okay, sir. So on the Communication Cable side, I think EBITDA has declined nearly 61% year-on-year. And with the new preform facilities, I think it is expected to reduce cost and what kind of improvement we can expect in those areas? And given the dependence on lumpy government orders like BharatNet kind of orders, so what are the tangible order pipeline for Phase 3? And what portion of your capacity is already underpinned by full customer commitments?

So about BharatNet, like I mentioned, we still do not have anything meaningful from the BharatNet set of tenders that were floated last year. There were 16 tenders which were floated out of which 12 have been ordered to the suppliers, are going in for retender. I think the retender is expected in December. So those 12 have been -- where orders have been placed, to come. While we participated in the tenders, we were not successful in any of the tenders. We are now following up with people who won the tenders and who do not have the cabling capacity or the fiber capacity. But those are discussions which are ongoing. On the non-BSNL side, the state tenders are yet to be floated. There are about 7 states which are coming out. I think only Gujarat had floated tenders. The other states have not yet done so. Those are all expected in the next 2 to 4 months. And we are hopeful that we will gain some positions in those. Coming to the private side, we are one of the largest suppliers to Bharti, and we have an ongoing yearly contract with them. We also supply to the other telecom service providers, be it Reliance or be it Vodafone. Currently, factory booking is probably around 60% of the capacity.

Okay sir. Sir, advertisement and promotion spend increased to nearly INR 20 crores in this quarter from up to INR 11 crores last quarter. Is that...

I can't hear your question.

Sir, ad and promotion spend increased to INR 20 crores in this quarter. I think last quarter, it's around INR 11 crores. Whether the spend for supporting new FMEG launches or defending brand premium in wires? So where we spend majorly?

So if you look at the ads, it will be on brand promotion for sure. And we do command a premium over many brands in the market. So I think it's on both counts. We are conscious of the fact that you will need visual impact, you will need to message the customers, not just the immediate customers like the builders or the contractors, but also eventual end users like you and I. Because if the -- if I, as an investor in a home, I'm concerned about safety, and that is the factor that we are focusing on, that our wires are safe, it gives a long life, you can use it and then you can forget it for the next 40, 50 years. So that's the messaging that we are giving. So it is definitely useful. But do I have a direct correlation between the spend and its immediate impact on the numbers? No. It is, in a sense, an investment.

Sir, my last question on that FMEG business side, I think we have been missing internal targets for -- since long. So what is the strategic review underway? And what are the new product launches are planned in the next 2 or 3 quarters? And how do you look at in this business in next 2 to 3 years' time frame? I think the industry itself, some of the products are facing headwinds. If you could share which are the products are picking up, which are the products are slowing down?

Okay. So we are broadly in fans, water heaters, lighting and switches and domestic switchgear. Each one has its own characteristics. Fans this quarter had faced headwinds. The monsoon was fairly long. And I think numbers were -- numbers were low for most of the competition there as well, lower compared to the previous second quarter. So we were no exception there. New models are under design, new models should be coming out. In lighting, the issue has been more on price erosion across the market. That has been something consistently happening over the last few years with the drop in prices of LEDs. I think it has now come to -- it's now nearing or rather bottomed out. So I think we should see more stable numbers going forward with the volume -- and with the volume increasing, that should show up reasonably well. Switches and switchgears, we are -- there are multiple models on development. So next few quarters, we should see newer variants coming in from our side. Broadly, we are committed to this segment. I think we made a statement somewhere saying that we would reach a number of INR 500 crores by 2028 or so. And I think that target is still within reach.

The next question is from the line of Vishal Shah from Sameeksha Capital. [Operator Instructions]

Yes. Sir...

Sir, you are not audible. Hello, sir. Vishal... Sir, should we move on to the next one. Or... Hello?

Am I audible?