KEI Industries Limited (517569) Earnings Call Transcript & Summary

Hello, and welcome you all to KEI's Q2 Earnings Conference Call. We have with us from the management, Mr. Anil Gupta, Chairman and Managing Director; and Mr. Rajeev Gupta, Executive Director of Finance. I now hand over the call to the management for brief opening remarks, followed by the Q&A session. Over to you, sir.

Good evening, ladies and gentlemen. I'm Anil Gupta, Chairman and Managing Director of KEI. Along with me, Mr. Rajeev Gupta is there, Director Finance and CFO. Good afternoon, everyone, and welcome to this conference call. Before I brief you about the financial performance of the company in quarter 2 and H1 of financial year 2020/'21, I would like to give you a brief outlook about industry and present demand scenario. In the domestic business of wires and cables, B2C, that is retail segment, has done very well in Q2, and we have witnessed improved demand in comparison to Q1. Q1 was sluggish mainly because of the lockdowns in April and May, and then it started slowly opening up. We are bullish about the performance of the company in retail segment during 2021. Our dealer and distribution network, we are pursuing our dealer and distribution network and pursuing additional market channels. In addition, we seek to gain further penetration and consolidate our position in geographies that we currently serve. We'll also continue to deepen our engagement with our channel partners and influencers, including getting our products approved from architects and consultants to serve our customers effectively and efficiently. In this regard, we'll be increasing penetration of dealers in the unrepresented areas, semi-urban areas and rural areas across pan-India and also will add more dealers in metros and urban areas. Government schemes for affordable housing, health care and education are expected to gain momentum, which in turn will lead to increased demand for cables and wires in the retail market in house building as well as the construction sector. We aim to grow our retail segment with a twin goal of diversifying our revenue streams and strengthening cash flows as it offers higher margins and require lower working capital due to faster realization and lower inventory of finished goods requisition compared to other business segments. Now I'll to B2B domestic institutional business of wires and cables. This has also witnessed growth in Q2, and we are hopeful that same trend will continue in forthcoming quarters of current year and years to come. With the unlocking of most of the economic activity during Q2, we see demand firming up in the subsequent quarters. We are witnessing investment in railways, metros, highway projects, where a lot of undergrounding -- removal of overheads to undergrounding takes place; power transmission and distribution projects; construction sector, especially the hospitals, investments in the various building projects, airports, et cetera. We also are witnessing a good demand coming up in expansion and modernization of chemical and fertilizer projects as well as some construction, some improvement in construction in refinery projects for fuel upgradation. It will boost the manufacturing sector, and it will bring -- it is bringing more demand from the manufacturing sector. Exports, as part of our focus on increasing exports, we are working on developing many new markets for exporting our products. There has been a little halt in our activities because of COVID-19 and restrictions in traveling outside India. But oil and gas projects, which have been our major revenue segment in Middle East, is witnessing little slowdown due to travel and due to execution challenges. But we -- in the quarters to come, this activity will also pick up and will be bringing increased demand from this sector. In B2B segment, particularly extra high-voltage cable segment, we have done well. We have improved our sales compared to last year as we face lesser competition currently as only a few companies in the world have established capabilities to manufacture such cables. Stringent prequalification requirements for meeting tender conditions and securing product approvals in extra high-voltage cables further make it difficult for new players to enter the market. We are happy to announce that we have now taken our product capabilities up to 400 kV by securing INR 150 crore 400 kV voltage grade underground transmission project from Tamil Nadu Transmission company, and this project will be executed during financially -- during the calendar year 2021. The cables are already under production. In EPC business, where we do -- we take up underground cabling projects in distribution sector for distribution strengthening, we'll continue to focus on completion of existing projects and focusing on closing the projects with money recovery, while capping the turnover size in this vertical, maximum up to INR 500 crores to INR 600 crores per year from the previous year's level of INR 1,000 crores. This will free substantial amount of money into cash flows by improving the debtor cycle. The government's thrust on converting the overhead electric grid network infrastructure to underground infrastructure in certain cities and development of smart cities infrastructure will also -- is also leading to an increase in the demand for underground cables. Increased infrastructure spend by government will boost demand for wires as well as cables. Aided by a slew of recent reforms, construction spending is also expected to pick up in such sectors such as railways, roads, urban infrastructure, including metros, airports in the major cities and renewable energies, mainly solar, leading to higher... [Technical Difficulty]

[Operator Instructions]

So I will again start the result summary of Q2. The net sales of the quarter 2 of financial year 2020/'21 is INR 1,036.94 against same quarter in the previous year, INR 1,230.16 crore. Revenue declined by 15.71% year-on-year this quarter as against 31.08% year-on-year we have seen in Q1. The total wire and cable business of the company has reached 87% in Q2 and 82% level in H1. If we talk of our domestic wire and cable business, we have achieved 95.7% in Q2 as compared to last year same period. This was possible because of the strong network KEI is having, who are catering to diversified segments and diversified customer base with strong product range from wires to EHV up to 400 kV. The fall of 15% in sales is mainly attributed to fall in the EPC sales and a reduction in exports. It is -- I would -- it will be pertinent to mention that last year, we have executed a very large single order of exports from Dangote Oil Refinery, which was a INR 400 crore order, and due to which the export sale was disproportional. We could have done better in exports, but due to pandemic, lot of activities and ordering has come down from the overseas markets, and we are not able to travel because of the flight restrictions. However, we have seen increased EBITDA margins. EBITDA in this quarter has improved to 11.76% as against 10.28% in the same quarter. In value -- in figures term, EBITDA this quarter is INR 121.97 crores against INR 126.5 crores in the same quarter last year. So EBITDA declined by around 3.58% due to reduced turnover, but the EBITDA margin has improved by 1.5%. Profit before tax this quarter is INR 92.83 crores against same quarter in the previous year INR 77.28 crores. So the profit before tax increased by 20.12% year-on-year this quarter. Profit after tax this quarter is INR 68.21 crores against INR 76.17 crores achieved in the same quarter of last year. Profit after tax was higher in the previous quarter due to reversal of income tax provision of Q1 during financial year 2019/'20. Profit after tax margin is improving the EBITDA and reduction in financial charges. Debt margin is 6.58% as against 6.19% in the corresponding period last year. We had -- the sales in the institutional cable side domestic achievement is INR 409 crores in the second quarter as against INR 436 crores in the same period last year. So the sales in the B2B segment of cable has declined by 6%. So we have achieved 94% level. However, the sales through distribution network is -- we have achieved 92% of the last year level. So we achieved INR 348 crores as against INR 355 crores through dealer network in this quarter against earlier quarter in the last financial year. The sale through distribution network is around 34% of the total sales of Q2 as compared to 29% in Q2 of last year. The total active working dealers for the company as on September 30, 2020 was 1,600. The sales of extra high-voltage cable up to 220 kV this quarter is INR 102 crores against INR 95 crores in the previous year same period. Growth is approximately 7%. The export sale is declined, which is against INR 235 crores. The export sale in this quarter is INR 160 crores against INR 235 crores achieved last year, declined by 32%. Similarly, the EPC sales is INR 133 crores against previous year same period INR 201 crores. So the EPC sales declined by 33.8%. This was summary of Q2. Now I will come to the sales of H1, the first 6 months of this financial year. Net sales in the first half of financial year 2020/'21 is INR 1,782.24 crores against INR 2,311 crores last year. Sales in the H1 has declined by 22.9% due to lockdown and restrictions of business activity caused due to COVID-19 pandemic during the first quarter. EBITDA in the first quarter is INR 202.84 crores in the first half, sorry, against INR 245 crores. So decline in EBITDA is around 17.42%. EBITDA over net sales in the first half is 11.38% versus 10.63% in the same period last year. So EBITDA margin has improved due to conscious efforts of reducing expenditure and better product mix. So the profit after tax in the first half is INR 104.44 crores against INR 121.98 crores. However, PAT/net sales is 5.86% versus 5.28% over the corresponding period. The sales of extra high-voltage cable in the first half is INR 190 crores against INR 173 crores in the first half of last year. The growth is approximately 10%. And export sales in first half, H1 is INR 343 crores against INR 347 crores in the last year. The export was strong -- very strong in the Q1 because of the earlier booked off... The sales from EPC department division vertical is INR 211 crores as against INR 396 crores in the previous period. So this has declined significantly, mainly because of the execution issues in the first 3 months of April, May and June. And in the second quarter also, execution issues were there because of the heavy rainfall all over the country. So restricting the activity at site -- open sites. Pending order position as on October 31, 2020 is INR 2,663 crores. So in this, EPC orders are domestic INR 621 crores, EPC exports is INR 562 crores -- sorry INR 358 crores; extra high-voltage cable turnkey projects INR 562 crores; cable, domestic, INR 1,026 crores; and cable export spending orders are INR 96 crores as on October 31, 2020. As mentioned earlier, the company has bagged its first big order of 400 kv voltage grade of INR 148 crores from Tamil Nadu Transmission Corporation Limited. With this -- with the receipt of 400 kv EHV cable order, company has reached another milestone and has placed KEI amongst a few international players in the industry to manufacture and supply cables of this level of voltage grade, which is the highest voltage grade in the insulated cable segment. I'll come to CapEx now. We are undertaking a new project of manufacturing house wire and flexibles for increasing our retail segment, so the total cost -- at Chinchpada in Silvassa. The total cost of Chinchpada extension will be around INR 90 crores to INR 100 crores. The first phase is already operational, and we have spent approximately INR 74 crores till September 30, 2020. I will come to the -- a little bit of finance side. During first half, finance cost had -- in the H1 of 2021, the finance cost has decreased to INR 31.74 crores as against INR 68.50 crores in the previous year same period, primarily due to decrease in the debt. Percentage of financial charges on net sales has decreased in this period to 1.78% from 2.96% as against same period last year. KEI credit rating from ICRA and CARE has been upgraded to A+ for long-term rating and reaffirmed that A1 for short-term rating. Now I request all of you to raise any questions you may have in this regard. Thank you very much.

[Operator Instructions] The first question is from the line of Lavina Quadros from Jefferies.

Congrats on a good set of numbers. Just 2 questions I had. One is your EBITDA margins have done very, very well. I understand the mix of cost changes as well as product mix. But I just want to understand how much of the cost cut measures you'll have taken, how much of that do you think will come back, just to understand where margins can normalize at? I mean versus 11.5%, does it settle on a full year at this 10.5% number? Or can it actually go closer to 11%? Because some of the cost cut initiatives will be temporary, I'm guessing, because of the lockdown. That's one. Secondly, sir, on working capital, there's been a bit of a stretch. I understand the industry is still normalizing, but particularly on debtors, I mean, has it gone up because of institutional primarily? So just to understand a bit of that and when do you see that easing off?

The working capital cycle is -- has improved in wire and cable segment. The -- it has increased because of mainly the debtor -- high debtors in EPC segment. So we are -- I would like to give a guidance that we are working on reducing our EPC business from here onwards. And we'll be cutting it from earlier levels of INR 1,000 crores per year. We will be restricting this business to INR 500 crores to INR 600 crores from here onwards or in subsequent years. Because the main problem is that the payments are delayed by state governments and departments, and which leads to higher debtor level. And also the 10% retention money, which is stuck for various projects, is very slowly coming. So we are hopeful that we will be able to recover INR 250 crores to INR 300 crores of stuck money and a substantial amount of retention money of earlier executed projects, which are already closed by March, which will improve our working capital cycle and also will bring down the debt further, almost reaching to 0 debt level. So our future working will be more towards cash flows and we'll be focusing -- putting that money into retail segment and focusing on increasing the retail by recovering the cash from the EPC.

Okay. And sir, on margins?

Margins as of now, I can definitely give a guidance of around 11% on a full year level, and we will try to improve upon it.

Good. And sir, last one, could you please give a breakup of the interest cost, like term loan and working capital and LC if available?

Lavina ji, in the first half, the interest on term loan is INR 2.5 crores and the interest on working capital is INR 13.6 crore. LC interest is INR 7.4 crores and bank charges on LC is INR 2.8 crores and then charges on bank guarantee INR 3.6 crores and processing fee is INR 1.74 crores. So put together all is INR 31.73 crores.

The next question is from the line of [ Dhruv Bhatia ], an individual Investor.

I see that our order book is reducing on a quarterly basis from... [Technical Difficulty]

[Operator Instructions]

Hello? Am I audible?

Yes, sir. You are.

I see that our order book is reducing on a quarterly basis, which was around INR 3,400 crores a year back, we are to around INR 2,600 crores. So what is the major reason for that?

I've mentioned that we are reducing our major order backlog of high-value is always from EPC orders. So we are reducing our dependence on EPC. That is the main reason. But our order book in the wire and cable is maintained, and you can watch from the -- our earlier conference calls also that figures are maintained. But EPC business figures are reducing because we are reducing our order intake into that division.

Okay. Secondly, we see that like in the housing and wires, so on the retail end, what kind of wires do we sell as of today, apart from the house wire?

We are selling house wire, we sell single core flexibles, multi-core flexibles. We sell panel wires, and we sell coaxial cables, telephone wires and data cables.

So are these categorized under LT cables?

No. This is where we are categorizing...

Look, whatever house wires to the retail segment, we are selling the house wire segment.

Okay. Apart from that, what do we sell in the retail in terms of our major heads?

We are selling LT cables through our retail segment as well as -- mainly it is house wire, flexibles, LT cables and winding wires. Winding wires for agricultural pumps.

Okay. And lastly, with the reduction in the EPC business that we are looking forward to control our debt and working capital cycle, what kind of growth do you see going ahead in terms of top line?

See, we will be able to -- retail, we want to take the retail to 40% level of our turnover. And this year, we expect that in the coming quarters, we'll be able to maintain our sales, but growth in the -- because last year, our base itself was very high in the quarter 3 and quarter 4. Our turnover was quite high. And projects at this moment are not that big. But a lot of new opportunities are coming up, and we will be able to build up our order book and grow the sales in the next year by at least 15% level in the next financial year.

Okay. So we can say that excluding FY '21, we will maintain a 15% run rate for the next at least 3 to 4 years from FY '22 onwards.

Correct.

Correct. This minimum of 11% EBITDA margin?

Yes.

The next question is from the line of Andrey Purushottam from Cogito Advisors.

Congratulations for a decent performance coming back to near normalcy level. I just wanted to do a follow-up question on the margin -- EBITDA margin that we're having. Going forward, some of the savings that you've had is maybe COVID related, right, like less travel or work out of home, et cetera. So how much of this will be sustainable? The second thing is that with your increasing emphasis on the retail sector, I'm assuming you would resume your expenditure in brand and advertising, et cetera. So how do I see -- if I look at various aspects here, increase -- go back to increased advertising expenditure, some element of reduction of your COVID savings and some element of product mix. If you could just spend a little time on this in terms of your margin implications going forward, it would be useful.

We will be able to maintain our margins because mainly by cutting down the -- by freeing money from the EPC debtors and putting that money into retail segment. So that will lead to a reduction in the finance cost. So whatever expenditure we'll be incurring on brand promotion and advertising, et cetera, that will be covered through that.

Secondly, brand building, we are already doing the expenditure because in this quarter, the IPL expenditure is also there. Because IPL, we have participated in the fifth row -- in the fifth year in continuation. And as far as our traveling expenditure is concerned, slightly, it will increase because in the first 2 quarters very less travel expenditure, but at the same time, the proportion of sales will also increase. So in terms of percentage, it will not get much affected.

Right. So supposing the travel expenditure normally to be 100 and it has come down to 50. I'm just giving some figures. Some of it will come back, but is it possible that your travel expenditures and even some savings from work from home will remain permanent going forward?

Yes, yes. There -- definitely. Because now a lot of -- we have now developed new habits. Lot of customers -- I think 80%, 90% of the customers have now developed a habit of doing virtual meetings. Even our internal meetings, we used to call people from our different branches for discussions and et cetera, that also we are now changing our habits. Instead of calling them, we are doing virtual meetings. Even we are doing regular virtual meetings with our dealers across the country. So -- but basically, it has brought a change in our habits and working pattern.

Right. And how about work from home, will that continue? Will some of that continue going forward? Or after the...

I think that will be just 10% to 20%, not more than that. We are not a financial services industry or IT industry. We are a -- we need physical presence to do the work.

The next question is from the line of Saurabh Patwa from HDFC Mutual Fund.

Just wanted to understand, so since you're saying that we -- since you now plan to reduce the business from EPC, so this will also result in lower cable sales, which we used to, which were part of the EPC project. So -- and the EHV business, as you had highlighted earlier, is largely EPC. So does it also mean that large part of non-EHV EPC business would be done away with?

No. We are not going to reduce extra high-voltage cable turnkey business. That is our core activity, where 75% to 80% value of the project order value is cables.

Exactly, sir, that is what...

We are not going to reduce that. We are going to reduce which we categorize as EPC business, where our cable portion -- in the distribution segment, where our cable portion was only 25% to 28%. That -- and rest is distribution strengthening like installation of transformers, installation of poles, rural electrification. That business, we are going to reduce. And let me mention that transmission utilities all over the countries are very good in payments. And there, projects are executed well before time and in very short duration. And there is no stuck-off retention payments in those segments.

Understood, sir. And does this impact our -- the original CapEx plan in some way? Or that whole project is...

No, no, no. Our CapEx plan for new projects is well on the card. It's just delayed by 9 months to 1 year because of the pandemic. This whole year is a washout. We could not -- we were searching for a lot of land, et cetera in Gujarat, which we will be starting from after Diwali, and we hope to finalize it in -- by January. So we will start building up the new project, maximum in the next financial year from March or April -- or next year, March or April, we'll start building up the new project.

Great, sir. Sir, in terms of when you say that we are increasing focus on the wire segment, and we are also putting some CapEx for that. So any plans on how we plan to strengthen our distribution network? Any specific area where which you believe we have more scope to do things and something of that sort?

We are working on it on pan-India level. One is that we are strengthening and reviewing our teams in various branches who are focused on retail network. And we are reviewing their activities, monitoring their movement, their footfalls to the dealers and reviewing the retail schemes. And this, we are doing on the pan-India level, ensuring that our stock levels in depots or supply chain is completely in place all the time. So we have seen -- I can't talk of October, but we have seen substantially improved results in retail sale in October also, which is our highest ever sale ever achieved in the company in the wires and flexible in October. So that is showing the trend that what actions we have taken, that is going to bring improved results in this segment.

Just last question, just related to this, you can just add. Would this uptick which you are seeing, can -- would you term it as a market share gain? Or is it -- the market itself is growing very sharply?

I won't say that market -- I don't know the estimate that whether market is growing very sharply or I don't know whether it is -- definitely, it is some proportion maybe market share gains. But second aspect to it is that we are entering into unrepresented area, where our presence was not there. So we are making dealers in Tier 3 cities or even smaller cities and giving -- doing good penetration in the rural area. So we are basically increasing our sales in the unrepresented areas.

Right. So essentially, it is market share gain only?

Correct. And also, I think we have seen -- we expect that unorganized market share will also be going down year after year.

The next question is from the line of Vikas Khemani from Carnelian Capital.

I just have a couple of questions. I think our KEI brand is pretty strong. And it's been kind of household name. We have a reasonably large distributor network of almost 1,500 dealers now. So do you have any thoughts, and especially now the attention on the EPC business is going down, any adjacent category on the consumer or retail side where we would like to organically or inorganically get into? So that's -- I mean many companies have grown in the past, whether it is Polycab or Havells by going into adjacent markets and they are especially strong brands. So is there a thought process you can share on that?

Yes. Now we have started conceiving that idea, and we are working on adding new retail products, which can be serviced through our established dealer network, whether from the same dealership or like-minded dealership who cater to this consumer durables or other type of electrical products. So but we are in the very initial stage of working on this. I think it will take another 4 to 6 months to crystallize and launch further, when we will be able to give a definite outlook on it in the -- for the next financial year.

And secondly, sir, on the exports front, because I think historically, we have also done reasonably well on the exports in the last 5, 7 years. So -- and especially given the change which is happening in the current environment on the export, do you see any specific increased momentum on the export side, any change you are seeing in the environment on that and any specific targets you have in mind on that?

See exact numbers cannot be predicted. But we are definitely seeing a shift towards India because of the problems in China. And many countries are trying to develop alternative sources for their imports. But it will be more visible in maybe -- we'll be able to give some more picture after 3 to 4 months. Because the problem at the moment is we are not able to travel anywhere. There are complete travel restrictions, no flights are going. So and our -- we are also restricting our movements, ourselves and the staff as well. So this is the reason that it will take -- I think by this end of this financial year, we'll be able to give some picture out of it. And there will be definitely a shift.

The next question is from the line of Hiten Boricha from Sequent Investment.

Sir, you mentioned that you have like -- you mentioned something about CapEx that we have stopped the CapEx due to this pandemic issue. So what is the CapEx guidance for FY '21 and '22? And what was it earlier?

Actually, next year, our CapEx -- I mean planned CapEx was around 150 to -- around INR 150 crores in this year. So now it will be done in the next financial year. And we will plan to do similar CapEx for next 2, 3 years to build up a new greenfield facility.

Okay. So INR 150 crores to INR 200 crores of CapEx for next 2, 3 years? Is that right?

Yes.

The next question is from the line of Sparsh Raina from Mirabilis Investment.

Sir, I joined in the call late, could you just let me know what are the sales for domestic and retail sales for this quarter? And also product wise?

Product wise sales you can write now -- you can note down. In the Q1, low tension power cable is INR 390 crores and high tension power cable is INR 148 crores. Extra high-voltage power cable at INR 102 crores and house wire INR 227 crores. Stainless steel wire sale is INR 33 crores and EPC sale is INR 133 crores, and balance -- and the [indiscernible] INR 4 crores.

Okay. Sir, on domestic and retail sales overall, like exports we have given an...

Overall, Q2 retail sales was INR 348 crores as against INR 355 crores last year in the same period.

On domestic?

And domestic sales was INR 544 crores versus INR 651 crores last year. This includes all institutional sales of domestic, including India.

Sir, in terms of our order book...

Export sale was INR 160 crores versus INR 235 crores last year.

Sir, order book, sorry.

Order book was INR 2,600 crores at the end of October 31.

Sir, in that segment, in terms of EPC cable export?

In terms of EPC, domestic order was INR 621 crores. And EPC export order is INR 358 crores. And extra high-voltage order cable is INR 562 crores. And our domestic institution cable order is INR 1,026 crores and cable export order is INR 96 crores.

And cable order is INR 96 crores?

INR 96 crores. So all INR 2,663 crores.

The next question is from the line of Charanjit Singh from DSP Mutual Fund.

I just want to understand now this reduction in the EPC revenues, how we would be able to compensate either through exports or increase in the domestic sales, which particular segments, be it low tension or high tension can offset this reduction in sales?

We'll compensate it mostly through the increase in the retail sales and maybe to the extent of 75% and the balance we'll compensate it from the sale of wire and cables in B2B segment and extra high-voltage cables.

Okay. So sir, from the retail sales perspective, now you had earlier talked about increase in the distribution reach. So can you give some number in terms of the touch points, what we are adding now in the coming time frame, what was our earlier run rate and what we are going to add in terms of how the distribution reach is going to expand?

See, I mentioned that we have a dealer network of 1,600 dealers pan-India. So we will be adding around 200 to 300 dealers in this financial year. But more than that, we are helping our dealers to increase their sub-dealer retailer network under them to improve the distribution. That is another activity, which -- so we are increasing indirect retailers attached to our dealers so that our touch points increases.

Okay, sir. And on the B2B business, generally now, how is the pipeline looking like on the tenders or the overall government ordering in the second half from different end markets?

We are witnessing a good vision and good growth in that. And we will -- we are hopeful that we will be able to achieve our targets of B2B business from the domestic segment.

The next question is from the line of Mayank Bhandari from B&K Securities.

Sir, I just want clarity on the export number for Q2. Can you help me with that, export number for Q2?

Yes. Total export in Q2 is INR 160 crores.

And sir, H1, you had told how much, H1 total?

INR 343 crores.

So sir, it means because Q1 number was INR 163 crore, so has the Q1 number restated or...

So cable export as well as the Dangote cable was separate, including that was to INR 343 crores.

Okay. Okay. And sir, for the full year, like any guidance for the finance cost as a percentage of sales?

Finance cost will be in the same ratio, the way it is going on.

Okay. And sir, we have seen uptick in the house wire sales after 2 quarters, like last quarter was like 40% decline. And 4Q was also 14% decline. This quarter, it seems like you had a growth of 3%, 4%. So any particular comment, like, how we are seeing the residential construction uptake or any particular comment for that in different...

Sir, Q1 was declined because of the lockdown by the -- at every level, including dealers. So when nobody was working, where will -- how the sales will come. In Q2, we have achieved around 98% of the sales of the last year level, so in spite of partial activities at all over the country. So I think this 98% achievement is at par with most of the similar companies in our segment.

In future, it will grow. Actually in this first quarter...

Balance quarters, it will grow further.

So I can assume, like next 2 quarters, it will grow only?

Yes.

Yes, yes. It will grow only.

Sir, lastly, what is your L1 position as in terms of order EHV L1 or any....

[Foreign Language]

The next question is from the line of Ankit Babel from Subhkam Ventures.

My first question is, what is the current retention money pertaining to EPC business in the balance sheet?

It's close to INR 290 crores.

INR 290 crores, and this would be for a business of INR 1,000 crores. So when you're targeting that INR 500 crores, INR 600 crores could be the new run rate for the EPC business, which is almost 50% of the current run rate, so you believe this retention money will also come down from INR 300 crores to INR 150 crores on a run rate basis?

Yes, sure. Actually, in the current financial year, the receivable of EPC will come down another INR 250 crores to INR 300 crores. So that's why the CMD sir told that the cash flow will further improve. The working capital cycle will further improve by the March end. And all our cash flow, we will put into the retail sales for growth for the next financial year and for the balance 2 quarters.

Invest in the sense it's is the CapEx part?

No, no. CapEx part is separate. But we are saying that right now, we were not aggressive in the retail like by giving the credit to those dealers. But now we will go aggressive. And so that we can invest more into the retail side, whatever money we will be having in hand. You see -- at present, if you see our balance sheet, we have repaid almost to INR 400 crore to the creditors. That's why the working capital cycle looked like high. But if you consider that we were [Foreign Language] working capital cycle [Foreign Language]. Almost 1 month back [Foreign Language]. We were having the money. That's why we were buying the -- on cash purchase.

Okay. So sir, my question. Another question is that this INR 500 crores, INR 600 crores of EPC business which you plan to continue. So will EHV be part of this or EHV would be in addition to this?

No EHV is separate. EHV is always separate.

EHV, the execution portion is very small, not more than 20% is cable. 80% is only the value of the cable, 7% to 8% is joints and terminations. And only 10% is the execution portion where we have to dig and insert the cable. So it's a very small area. The EHV cable project is spread in a very small area of maximum 5, 6 kilometers unlike EPC project of distribution, which is spread over 400, 500 -- each project is spread over 300 to 400 square kilometer area. Manpower requirement in executing EHV project, we just need 1 or 2 engineers at site. That's all, not a big team. Our total EHV business, which we have only 50 or 60 people for execution all over the country and some 30, 40 jointers. That's all.

Okay. Sir, just a clarification. You did mention that the working capital which would be released from this EPC business will be deployed to aggressively grow the retail business. So now -- so is it fair to conclude that the throughput would be higher now onwards because the working capital requirement for the retail business is fairly low as compared to the EPC business. And even the margins are also higher. So for the company as a whole, the throughput will be higher with the same amount of money. Is it a fair conclusion?

Yes, yes, much better. And moreover, cash flow, which will be freed, will reduce the debt and also the working capital cycle will improve.

The next question is from the line of Forum Makim from Equentis Capital.

Congratulations on a strong recovery. I just had 2 questions. Sir, are the employee costs back to the pre-COVID levels?

Yes, employee costs whatever has reduced, it was reduced because of the EPC project was closer. So it is mainly because of that. Otherwise, the employee cost run rate will be same as you are seeing from the second quarter.

Sir, what would be the run rate?

Whatever second quarter employee cost is there, the same you will see in the balancing quarters, third and fourth quarter.

Okay. Okay. And how will we fund our CapEx?

CapEx from the internal accrual only.

Coupled with reducing our debt?

Yes, reduced -- debt has already reduced and hardly INR 148 crores debt -- net debt is in the balance sheet as on September 30, you are seeing. As CMD sir has explained that approximately INR 250 crores to INR 300 crores recovery will be from the EPC receivable. So that money we will put into the working capital, and whatever cash accrual will be available, it will be used for the new CapEx in the next financial year.

So sir, would we be debt-free by the end of this year?

Yes. It is almost -- it will be debt free.

Okay. Okay. Sir, just 1 last question. What is the outlook on our order book? Like, where is -- where are you seeing the demand from? Where is it coming from?

You see the order book in the cable business since last 8, 10 years, we are maintaining only 3 to 4 months order supplies because in cable, only in extra high-voltage, we are having the order book position to 5 to 8 months. But normally for low tension, high tension or export cable, order book always maintain only for 3 to 4 months supply.

That has been historically the same. And the order book, what we receive from metro projects, railway projects, all sort of projects, be it power segment, distribution, power distribution and transmission side, industries, infrastructure, construction sector, so whatever sectors are there traditionally, the same sectors -- actually, the cable demand comes under [Audio Gap] sectors of economy.

The next question is from the line of Harshit Kapadia from Elara Capital.

Congratulations for a good set of numbers. I have a couple of questions. First, last year, in EPC segment, we did INR 760-odd crores of revenue. Can you help us what portion would be the EHV portion for this EPC segment?

Out of INR 767 crores, close to INR 130 crores or INR 140 crores was EHV, and balance was the EPC transmission and distribution.

Okay. And as you mentioned that you would be reducing the INR 1,000 crores to INR 500 crores. So that would also include cable business as well, right, revenues in INR 500 crores?

Out of INR 500 crore, close to INR 125 crores to INR 130 crores is the cable portion. That in, any way, we can generate from any institutional sales because we have a very large institutional clientele in our hands.

Okay. Okay. Okay. So that means you would be ramping up this business to close to around ex of cable would be around INR 300 crores, INR 350-odd crores. Would that be the exact number to work with, sir?

Repeat your question?

Sir, as you mentioned that almost INR 130 crores, INR 140-odd crores is the cable business. So EPC business ex of cable would be...

For the INR 500 crores sale of EPC.

For INR 500 crores cable. Okay. And secondly, sir -- second thing, you mentioned that you will be aggressively looking at retail as a segment. Would you be able to just give a sense on what kind of overall dealer network strength the industry has? As you've correctly mentioned that you are around 1,600 dealers, but all over India, what is the strength of the dealer network? And which of the geographies are you looking or which states or regions are you looking to strengthen your dealer network over the next, let's say, couple of years to reach whatever the target of 40% retail contribution you are looking at?

Harshit, we are looking all over India, though our north is very strong and west -- and the western part is very strong. So now we are more working towards the east and south part, wherein we will be adding more dealer distributors as well as strengthening the existing dealer/distributor network. All over India, dealer/distributor figure, we are not having actually.

Okay, okay, okay. But would you -- would it be correct to say we are at least around 30% to 40% of all in our distribution, if you are getting a sense, anything on that, that would be helpful.

So our dealer/distributor strength is very less as compared to our peer group of Polycab, Havells and RR Kabel because they are working in this retail market since last 25, 30 years. We are working only since last 9, 10 years. So far way to go for us and lot of scope for us. That's why we are releasing our money from EPC to put into the retail market.

The next question is from the line of Manish Agarwall from Edelweis.

Just a couple of questions, sir. About the capacity expansion, since you're talking about INR 150 crores per year from maybe next year -- '22 onwards. So sir, by when can we expect this capacity to come on board. And will it be largely cables and stainless steel wires?

1 Manish ji, the capacity expansion only will be for low tension, high tension and extra high-voltage power cable. Because house wire capacity, we have already completed in our Silvassa-Chinchpada plant. And almost INR 150 crores, INR 275 crores, we will be spending year-on-year basis to maintain the growth of 15% to 17% per annum. Because whatever capacity we are having, almost close to INR 4,600 crores is the manufacturing capacity and INR 1,000 crores was the EPC. So this kind of manufacturing capacity already we are having. So we are having almost a next financial year capacity available with us to grow further from here to close to 15%. But from the '22, '23 onwards, to improve the sales, we have to put the new plant. So that's why CMD sir explained that we are going to acquire the land in the third quarter itself and we will start expenditure for the capital for low tension, high tension and extra high-voltage power cable.

Okay. So sir, basically, by like for FY '22, we will have this capacity readily available?

Yes. In '22, '23, it will be available.

Sir, just 1 clarification, sorry to repeat the question. If you could please give the order book breakup once again.

Can you repeat the question, please?

Sir, just if you could repeat the order book breakup, the INR 2,600 crores order book, if you could just give the breakup?

The EPC domestic order book was INR 621 crores. EPC export was INR 358 crores. Extra high-voltage power cable order is INR 562 crores. And domestic institution cable order is INR 1,026 crores and cable export order is INR 96 crores. This is as on October 31.

Over to the management for any closing comments.

So I thank all of you to join our investor conference call -- earning call for Q2. If you still have any queries, you may write to us or you may talk to us, and we'll give you a relevant clarification. So thank you very much for joining us this evening and have a good evening.

Thank you very much to all.