KEI Industries Limited (517569) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q2 FY2022 earnings call of KEI Industries Limited hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anubhav Rawat from Monarch Networth Capital Limited. Thank you and over to you Sir.

Thank you. Good afternoon everyone. I hope everyone is safe and healthy. We are pleased to host the senior management team of KEI Industries and today we have with us Mr. Anil Gupta, Chairman and Managing Director of the company; and Mr. Rajeev Gupta, CFO of the company. Let us start this call with management's initial comments about the results and then we can take your questions. Over to you Anil Sir.

Yes. Thank you very much. Good afternoon. I welcome you all to our KEI Q2 results conference call. I will a give you brief about the performance of the company in Q2 and the first half of financial year 2021-22. Net sales in Q2 of this FY '22 is INR 1,353.43 crore against INR 1,036.94 crore last year. So the growth achieved is 30.52%. Company has achieved highest ever quarterly sales in this quarter, if we compare it with our past history. EBITDA in this quarter is INR 148.83 crore against INR 121.76 crore, the growth in EBITDA is 22.23%. EBITDA/net sales -- net sales margin is 11% as against 11.74% in the same period previous year. EBITDA margin declined mainly because of some expenses, normalized that to peak of COVID level and sharp fluctuations in the input cost. Profit after tax this quarter is INR 91.98 crore against INR 68.06 crore in the same quarter previous year. Growth in profit after tax is 35.15%. Profit after tax/net sales margin has improved to 6.8% versus 6.56% last year same period. The domestic institutional cable sale of high tension and low tension cable is INR 420 crore against INR 307 crore, so the growth is approximately 37%. And domestic institutional cable sales of extra high-voltage cable is INR 154 crore in the second quarter against INR 102 crore in the previous year same period. The growth is approximately 51%. Export sales in this quarter is INR 129 crore in which cable is INR 86 crore, EPC, INR 18 crore and stainless-steel wire INR 25 crore against INR 160 crores last year. The decline is approximately 19%, mainly because of sales to Dangote Oil refinery last year. I mean it's a very large order of INR 450 crore. The sales to Dangote in the same period was INR 41 crores. So the total institutional -- cable institutional sale contributed approximately 49% in the second quarter against 52% in the same period last year. Sales through dealer network, dealer/distribution network achieved is INR 580 crore in this quarter against INR 348 crore in the same period last year. So the growth achieved is approximately 67%. From the beginning of the year 2021, company has been working on strengthening its dealer network and has expanded its marketing network by adding around 150 additional salespeople from electrical and FMEG product background at different levels on pan-India basis. This has resulted into good growth in the dealer network and this segment. The total active working dealers of the company as on September 30th, 2021 was approximately 1,700. The dealer sale -- the sales through dealer network contributed 43% in second quarter against 34% contributed last year in the same period. The sales of EPC division, EPC sales other than cable is NR 92 crore as against INR 133 crore. The decline is approximately 31% in the second quarter. So the -- out of the total -- stainless wire sale in Q2 of financial year 2021-22 is INR 52 crores against INR 33 crores in the same period last year. The growth is approximately 54%. Now the net sales in the first half of 2021, first 6 months, H1 achieved is INR 2,371 crore against INR 1,782 crore achieved last year. So the growth in net sales in the first half is -- overall 6 months is 33%. EBITDA growth in the first half is 28% -- 28.4% compared to last year. And EBITDA/net sales margin is 11.19% as against 11.59% in the same period last year. Profit after tax in the first half is INR 159 crore against INR 107 crore in the last year. The growth in the profit after tax is 48% -- 48.28%. The net sales -- net profit margin over net sales has improved to 6.71% versus 6.02% last year. The sales of domestic institutional cable sales in the first half, the growth achieved is 60%. And in the extra high voltage cable sales in the first half is INR 183 crore in the first half against INR 70 crore achieved in the previous year same period. We had some pending dispatches in the first quarter, which were affected in the second quarter in this year. Export sale in the first half grew INR 222 crore against INR 343 crore. The decline is approximately 35%. Again, the reason explained through a large-scale of INR 137 crores then to Dangote Oil refinery last year in the first half of the last financial year. The total institutional cable sales contributed 49% in the first half against last year same period, 57%, and the sales through dealer network contributed 41% against 30% last year. The sales for 6 months through dealer network is INR 967 crore against INR 534 crore. The growth is approximately 81% in the first half of this financial year. Similarly, the EPC sale is in the first half is INR 178 crore against INR 211 crore, decline is approximately 16%. This is in line with our previous guidance to lower EPC business and restrict it to 10% to 12% of the total revenue. Out of the total sales of EPC, the sale of the extra high voltage cable execution portion is INR 55 crores. Stainless steel wire sale in the first half of first financial year 2021-22 is INR 100 crores against INR 54 crore. So the growth is approximately 83% in -- during first half in stainless-steel wire business. The current pending order book, pending order position is overall INR 3,296 crore, out of which INR 1,077 crore is EPC orders. In this INR 663 crore are export EPC, which are World Bank and ADB funded projects in Nepal and Gambia, in Africa. The pending order position of extra high voltage cables and its execution portion is INR 532 crore. Domestic orders against domestic customers is INR 1,525 crore and export order pending are INR 162 crore of the cable. The company's credit rating from ICRA Care and India rating is AA- for long-term bank facilities and A1+ for short-term bank facilities. The book value per equity share of the company is INR 215.16 as on September 30th, 2021, as against INR 197.38 as on March 31st, 2021. The total borrowing, including channel finance of INR 144 crore as on September 30th, the total borrowing including channel finance is INR 340 crores and cash and bank balances of INR 64 crores as against borrowing of INR 305 crore and cash and bank balance sheet is INR 221 crore as on March 31st, 2021. Acceptance that means creditors against letter of credit as on September 30th is INR 138 crore as against INR 323 crore as on March 31st, 2021. So the net debt, including acceptance is almost at par at INR 405 crore as against INR 408 crore as on March 31st, 2021. It was INR 922 crore as on March 31st, 2020. During the first half of financial year 2021-22, finance cost has decreased to INR 21.36 crore as areas INR 31.74 crore in the previous year same period. Percentage of financial charges on net sales has decreased to 0.9% of the net sales from 1.78% a year ago. So the company has used operating cash flows for cash purchases resulting into reduction of trade payables, acceptances substantially by INR 195 crore as compared to March '21, which has further reduced finance costs during the first half. Though it may impact certain financial ratios like ROC, return-on-capital employed and working capital cycle, but it has benefited the company in the form of reduction in the finance cost. Future outlook, our strategy is to increase continuously retail sales and downsizing PPC business is working well. And in future, within 2 years' time, our retail sales will reach at 50% of the total sales of the company, with annual growth of 30% to 35% per annum in retail business, which is evident from H1 first half results of financial year 2022. The retail business offers superior growth prospects with better margins and lower working capital requirements. The capacity utilized during first half of 2021-22 is 67% in cable division, 62% in house wire division and nearly 100% in stainless-steel wire division. So the company has -- already has capacity in place to achieve growth for the next financial year. The company is in process to expand the capacity by setting up a Greenfield project for LT, HT and Xi voltage cable with an investment of INR 700 crore to INR 800 crore, which will be incurred in 3 to 4 years' time to maintain 17% to 18% CAGR growth for the coming years. Our last 15 years CAGR is 15%. And in last 5 years, the company has achieved a CAGR of 20%, except 2020 -- except financial year 2020 21. Overall, company's targeting more than 25% growth in the current financial year with strong order book in hand and good demand from the government and private CapEx. Further, the company is also exploring various options, so big opportunities to launch some additional FMEG products at appropriate time and probably at the end of financial year 2022. We will be able to give some more concrete details on FMEG later. The industry outlooks and demand drivers, we have seen strong demand coming from government CapEx as well as private CapEx, broad-based growth across all categories and sectors. We have seen good upside in real estate projects and demand from residential sector in the metro cities as well as the Tier II -- Tier B cities. CapEx in industrial sector continues -- a good demand from solar power projects and oil and gas sector, refinery extensions, fuel upgradation and capacity upgradation projects. Lot of investment is coming up in tunneling and tunnel ventilation projects along with railway -- for railways as well as highways, which offers a good opportunity for the supply of cables to reach these projects. Underground cabling projects of transmission and distribution in metro cities and Tier B cities conversion of overhead cable and overhead lines into underground cabling. Metro rail projects, bullet train project has being executed between Mumbai and Ahmedabad. Modernization of railway stations, smart city projects. Announcement, modernization of new airports, ports, et cetera, and construction of highway resulting into elimination of overhead network into underground cabling. Steel industry expansion and the expansion in other industrial sectors. So this is a broad outlook. And I would now invite you, if you have any questions, we will be glad to answer. Thank you very much.

[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.

I had 3 quick questions. Firstly, on the housing wire, the sale was INR 400 crores. I think that beats your own guidance as well as our estimates as well. First question on that, is this a normal quarterly run rate going forward or this had some element of pent-up demand for 1Q? And obviously, second half generally is better than first half for cable and wire company. So what kind of run rate are we looking for housing wire? That's my first question.

No, no, there is a -- no doubt, there is a pent-up demand, but this is -- the run rate will improve from here. I mean we expect an improvement from this number in the coming months.

So for full year, what kind of numbers we should look like for housing wise?

So as we have earlier guided that in the houseware segment, we will grow for this year will be close to 2x sales we are planning to do. So already, we are in the path. And as we have engaged the consulting for guiding us to for the policy and making strategies, we are taking the help of the digitalization. So we have -- now we have developed an app, wherein all the retailers, electricians and distributors are on that page. So we are able to guide them where they are lagging behind so that the whole centralized monitoring is going on while we are doing the dealer sale of house wire. So that project is going on. So there is our focus is to increase the number of distributors all across the country, and each distributor has to increase the number of retailers in their fords. And we are also going to engage more and more electricians and architects because they are influencers.

Specifically answer your questions, I expect a growth of around 50% to 60% in this financial year as compared to last financial year.

Secondly, on the gross margins, obviously, they were down, but you maintained EBITDA margins quite decently. Given Havells and Polycap, both reported some optical cable and wire margins, what was your strategy in the second quarter? Because what we understood was copper was easier to pass through because that's a very established method but other metals like steel, aluminum as well as PVC was very tough. So what really happened in terms of price hikes and how did you manage that?

Better purchase management and inventory management linking to the booking -- orders booking.

And lastly, on the CapEx, so first half looks like you just spent INR 22 crores. My sense was this was the first year to basically start our large CapEx. You just guide please for the current year and next year CapEx. I think some delay of this year will be caught up in next year. So any sense on that?

So we are in the process of acquiring the land because we are buying the agriculture land, so a little bit small, small hiccups are there. So now it is being resolved within this quarter itself. So then we are going to spend around, as we have earlier guided also INR 200 crores per annum, we will be investing. So in that case, once we got the land then our major investment will start over there in land, building, plant machinery, et cetera.

So for this year, it looks like the CapEx is going to be below INR 100 crores and next year it will be higher...

INR 300 crores. Definitely, it will be below INR 100 crore now because it will be land and then the construction will start.

And next year, we should assume INR 200 crore - INR 250 core? Or how is it?

Yes, close to INR 250 crore next year.

The next question is from the line of Naval Seth from Emkay Global.

Few questions on revenue, like EHV segment, if I look at on a first half basis because last quarter -- So my question, sir, first question is on EHV segment on first half basis, if I look at, the number on an average is lower than pre-COVID number of last year also. So what kind of growth you are expecting in H2 in EHV? Second, on stainless steel, you are already at 100% capacity utilization and strong numbers in H1. So is this run rate sustainable? Or there were some one-off orders in first half, which led to this kind of run rate?

First of all, stainless-steel wire, this run rate is absolutely maintainable. Even -- I think if we have more capacity, we can sell as much what we can produce. So we are adding some additional capacity of 15% by -- in the same plant by debottlenecking. That process is on. And I think within the next 1 to 2 months, that capacity will come. So the growth will further come in this division in the fourth quarter. So far as EHV is concerned, because of the lot of turbulence in the commodity cycles, a lot of customers have not finalized orders during the second quarter. So the first or second quarter, a lot of orders are under discussion. And I think in the first quarter in commentary, I had mentioned that we were not able to dispatch lot of cables because of the non-clearance on the customers. So that was dispatched in the second quarter. And hence, the 51% growth has come in the second quarter. So we hope that some more orders will -- are in the pipeline and which will be materialized. And overall growth in this segment looks to be 10% to 15% only in the whole year.

And thirdly, on volume growth, if you can bifurcate in house wires or LT cable, so how has been the trend because LT cable, I believe, the volumes are still under pressure. So by when we are expecting things to normalize?

See, if you talk of only house wire sales, then close to 16%, 17% in first half was the volume growth -- through the volume growth out of the total incremental sale. But if we talk of the company as a whole, on the basis of the production we did, we have grown close to 24% in terms of value. Because whatever production we had made, which will be going into the third quarter because now our run rate of per month sale has increased. So that's why a little bit finish goods inventory has got also increased. So this is the sign wherein we are consuming the material more as compared to last year. So overall, volume growth is close to 24%.

Last question on retention money, any update you want to share, what you have stated that INR 150 crores will be covered this year. So anything on that incremental?

[Foreign Language] Already, we have received around INR 50 crores and by end of this year, additional INR 100 crores will come.

The next question is from the line of Lavina Quadros from Jefferies.

Two questions. One is, again, the standard, what is the interest rate breakup across -- I mean, different heads for the quarter?

Yes, Lavina, You can note down. In this quarter, our term loan rate of -- tern loan interest is only INR 0.5 crore. And working capital interest is only INR 2.27 crore and the other interest on LC is INR 1.81 crore So the total working capital entrance is INR 4.08 crore. And then we have the healthy interest is very, very nominal, just only [Foreign Language]. And bank charges hardly close to INR 1.73 crore and the processing fee of the bank is close to INR 3.5 crore. So overall, is INR 9.95 crore is the interest cost.

And sir just to understand your working capital, when I look at it, your current liabilities has come down, that's because you are choosing to pay cash?

And reduce interest.

So I am just trying to understand that.

Yes.

So that's the only reason. There is nothing else there?

The only reason because we are getting the direct benefit by way of the interest savings, which is already evident from the balance sheet itself.

Okay. So you're setting that up. And sir, just to understand...

But the negative side of this is you must be seeing the cash operating flow is the negative because we have paid extra to the creditors actually.

Yes sir that's the reason I ask. So basically, that is the reason. And sir, the other thing is, I know on retail you all have mentioned that 50%, 60% is the outlook for the full year. But just wanted to clarify again, there's nothing one-off in this quarter on the revenue line? So therefore, this run rate should continue to improve, like you are saying.

Coming quarters, the revenue will be again up from this quarter. That I can say.

And it's been the -- you think it's the market size growing or it's you all gaining share, if you are to put your finger on it?

So market is growing. Demand is increasing. Our retail reserve distributor network is increasing because, we are having the different, different vertical of the sales, like in export, sale is increasing, retail is increasing. Our other low tension, high tension power cable sale is increasing. So some growth is coming from the volume and some growth is coming from the value. So both have contributed.

And sir, last question on your EPC side of the business, you have still had reasonable numbers in this quarter. So will -- on a full year, it will possibly the INR 7 billion to INR 8 billion, you think it ends this year?

On our total sale of EPC was like last year other than the extra high voltage if you see, close to INR 500 crores. It will be below the INR 500 crores this year also.

Because they have not booked any new orders in the last 2 years in EPC side, except one order from Greenfield which is a World Bank credit project.

We are doing only the profitable business. That's it.

And having complete price variation on all elements of the project, including steel, cables, everything.

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

My first question is in terms of the competitive intensity from smaller players, how you are seeing that in this quarter unorganized versus organized? And in terms of our market share, will you be share some numbers? That's my first question.

See unorganized sector has already reducing because of their personal issues like working capital availability and the capital they are not having. And also the management member they are not having. So because of those additional demand is coming to the top companies, number one. And they are losing market share by 2%, 3%. They have already reduced to 27% as compared to 30%. And by end of this year, they will come out to 25% market share by all the unorganized sector in the house wire segment.

So on the -- this is you are talking only about the housing wire or both housing wire and cables, put together?

In cable, mainly the organized player because there is quality issues and the inspection issues. So all these companies, those who are having in the range of INR 200 crore to INR 600 crore, they are also competing. But since they are also struggling with the working capital issues and the management member issues. So the additional demand we are getting.

And sir from the current capacity relations perspective, can you tell us what are the capacity relations right now across the different plants and...

Current capacity utilization in the cable segment is close to 67%. And in the case of house wire, that is actually 62% because we have added the capacity 1.5 year before. And stainless-steel wire division almost, we are operating at 100%.

And so now Anil also talked about the year overall outlook is extremely positive. And we could see maybe a longer cycle in terms of how the infrastructure overall things are picking up. Would you be able to give us more from a KEI's perspective, how KEI looks itself in terms of, one is the top line and how our margin profile can change over the years as we scale up the top. Additionally, the retail thing in terms of house wires where we are trying to scale up in a big way, how that contribution will be in the next year extension?

I think we have already given some guidance about that we expect retail business to grow by 30% to 35% year-on-year. Because our complete focus is there on the -- and this -- I am talking of house wires flexibles and cables through retail network. And outlook looks strong. I think that a good amount of CapEx is coming up in all over the country, and it will further expand from government as well as private CapEx and including the solar power projects. So we are confident that a growth of 18% to 20% or 17% to 18%, but we are projecting for coming financial year is feasible. And retail growth of 30% to 35% because the focus is there. This year, because of the lower base last year, we are expected to grow overall 25% or maybe even 30% because of the lower base of the last year.

And sir, on the retail side of the business, the housing wire, if you can just give us update in terms of the addition of manpower or the distributors that we have added in this quarter. And for the second half, what is our plan around the housing wire sector? That's my last question.

We have already mentioned that we have added close to 150 salespeople all over India for -- in the retail network in the company. And our total dealer numbers are 1,700. But more than number, the number may not have increased, but our whole aim is to strengthen and increase the output from the already existing dealers. means we are trying to increase their volumes. Each and every dealer must grow by 50% to 70%. That is the endeavor, what we are doing. And our teams are helping them in doing secondary sale and other tertiary sale and then the business development process, including reaching out to the influencers, which may include architects or consultants or the electricians in the lower segment. So this is the whole process, we are undergoing at the moment. And similarly the intense training of the sales staff towards that direction. Thank you.

The next question is from the line of [ Nikatya from SI NPL ].

In case of retail wiring, if you can just further dwell on our understanding, since you have a strong growth outlook, of this, how much would you attribute this 30%, 35% targeted growth or, let us say, stronger industry demand, market share gains from unorganized or, let us say, from other leaders in this category. Also, if you can just throw some more light on what exactly -- when we say we are acquiring market share even with -- from some organized players, what is the value proposition here largely? Is price we are completing on or is it something else. So if you could just elaborate on some soft points?

Definitely, there is an increase in the market demand. Some portion is -- will come from there and some growth we are taking from the shifting from unorganized to organized sector. And some -- a little bit of market share from the existing large players, the shifting of market share. So it is difficult to quantify that what growth is coming from where because that minute data, micro data is not available at the minute.

Because we have increased the reach because we have added the number of people, almost 150 people on the ground all across the country. So wherever we were not present or our manpower was not sufficiently was having this time to handle -- because earlier, they were having merely 5 cities, 7 cities, now they are concentrating more on 1 city or 2 cities. So this kind of penetration and the time they are giving to the secondary market. So it is improving the sales.

The next question is from the line of Ankit Kumar from Alpha Capital.

My first question would be we have done really well on managing the cost in terms of margins this quarter compared to our peers. So any guidance on how second half is going to be because the copper prices are still quite volatile.

You see our margin earlier also basically maintained between 10.5% to 11.5%. So we will be in the same range actually. Because we don't have much margin. So that's why we are operating in a very tight situation. So -- and we have the market like I said export, extra high voltage power cable, little bit EPC and lower tension and high tension power and dealer distributor sales. So each and every segment, we are taking care. So the same kind of aim will be there.

So far as input cost volatility there, we are managing it well by -- I mean, taking a good position at metals and other raw materials also in terms of [ visits ] our orders booked. So we have not been hit by any input cost volatility so far.

Next question would be there has been decent level of promoter selling in the last 3 months. Any reason for that? And what can we expect in terms of?

So whatever selling was there, there was close to INR 20 lakh share, he want to sell because he want to use for the personal loans -- personal use. So he wants to buy the house in the Delhi. So he has bought also.

And that money has been used for buying a residential property for our use.

And sir, no more plans to selling?

No, no.

No, no.

And sir, on Dangote, there was nothing done in the last half of last year. So am I right on that? Second half, there was nothing on Dangote?

There was nothing.

And sir, overall guidance for second half would be, I think we have done 30% for the first half and we were used to guiding 18%, 20% long term? So second half would be equally strong in terms of 30-odd percent or how should we look at it?

We will see as our overall guidance earlier was the 20% growth. Now our guidance is growth more than 25%.

Actually, we are very conservative in giving guidance. So -- but we have always performed better than the guidance.

So whatever extra will be there, will be there.

The next question is from the line of [ Samir Patel from AUM Finance ].

Sir, can you just highlight on the working capital cycle as in because our inventory has increased by INR 150 crores, that I can understand with the increased sales, but our payables have also reduced by around INR 150 crores. So what is currently happening?

So the payable has reduced because of the lowering of the interest costs. So whatever cash we were having, so we have utilized for cash purchase and reducing the creditors. So there, we have saved the interest costs. As far as inventory, inventory finished goods has increased because of the higher valuation as well as the higher run rate now. And sometimes in a single order, sometimes got -- inspection got delayed, so it will be displayed in the next month. So these are the normal things actually.

So what is your target on number of days for the cycle?

So number of days for the inventory is close to 2.5 months. And for the receivable close to 3 months. Already, it has reached to 3.42 months. It will further come down to 3 months by end of this year.

And on the payable end?

Payable because we are having the cash. So we are saving the interest cost. That's why we are paying to payable. Otherwise, in the earlier, we were having the 3-month payable. Now it's only 1.25 months payable.

Okay. So should we -- so that means that our working capital cycle will increase to almost 4 months by the year-end?

[Foreign Language] because if we want to pay creditors, then it is working capital cycle looks like high. But if we don't want to pay creditors then working capital cycle will go down to 2.8 months or maybe less than that. Because that is the creditor, which is a available period is 3 months, but we are paying because we are getting extra benefit.

And sir, currently, the term loan that we have, what is the interest percentage on that?

It is on close to 6% percent. It is below. Close to INR 32 crores is outstanding term loan.

The next question is from the line of Rahul Agarwal from InCred Capital.

Sir, just couple of questions. One is debtor balance as you highlighted, it's a bit higher. Is it related to that extra EHV order dispatch or is there something else?

No, no, debtor holding is getting down. Earlier, it was 3.87 months, [Foreign Language]. By end of this year, it will go down to 3 months level only.

I understand. I was referring to the absolute number INR 1330 crore...

Absolute also depend on holding because [Foreign Language].

And lastly, you said your current capacity is enough to cover fiscal '23 growth. Is that correct?

Yes, yes. Financial year 2022-23. We will be having the capacity close to achieve that top line of INR 6,200 crore plus. Thank you, Rahul.

The next question is from the line of Rajiv Mehra from Sanctum Wealth.

Sir, obviously, you have spoke and touch upon the margins. I just wanted to understand the sustainability of margins going ahead should be in the range of 10.5% to 11%, as you mentioned. Is that correct?

Yes, yes. But normally, since we have crossed a bridge of 11%. So hopefully, we will be targeting 11%.

Okay. And sir, if you could just touch upon your export business going ahead, what kind of traction are we seeing there? And what could be the contribution going ahead in the next, say, in the next financial year or maybe in the next coming couple of years? And also in your opening remarks, you touched upon the launching of a couple of products on the FMEG side, if you could just touch upon your CapEx plan or how much spending have you done on that segment and what could be the contribution going ahead in the next couple of years from this side?

In the export front, Anil has a specific focus, and we will be maintaining close to 10% to 12% export. Because of our sales, our run rate will be close to INR 500 crores this year and next year will be more than INR 600 crores export. With regards to FMEG, we are in the planning state. And just we are waiting to settle down our house wire business to grow by 100% this year, so that we can -- we will be on the path of 50% contribution through the dealer/distributor business of the whole company. So we are in the process and hopefully, by end of this quarter or maybe in the fourth quarter call, we will be giving you the certain guidelines that for which product we are going ahead. Definitely, we will be going ahead because all the manpower, which we have taken has come from the various background of FMEG. With regards to CapEx for the new FMEG products in the initial 2, 3 years, it will be through outsourcing model only. So whatever CapEx we will be doing, we will be doing only for our existing product range of cable.

The next question is from the line of Manoj from Equirus Securities.

Sir, you already mentioned about the support to dealers that you have been offering. Can you elaborate more, like what is the exact role that you are providing to your dealers other than engagement with the influencer so what are the other kind of support that you are offering?

Yes, support in terms of the incentive to the electrician and incentive to the retailer directly so that we can map the sales.

The support we are providing to the dealers by way of through our business development teams, so that we are helping them to sell, to create demand for them in that -- their area by approaching them by mapping the live projects, residential projects or whatever live projects where they aim to sell. And then helping them in tertiary field, reaching out to influencers like architects or consultants or electricians. This is the help we can provide to them.

And selling to more retailers also because these distributor will have the more retailers.

Sir, secondly, see, you have been guiding and you have always outperformed your guidance, and you have been guiding for the sustainable growth. But currently, obviously, there seems to be some pressure on volumes from the cable side, whereas post-COVID, if you look at demand for volumes have definitely picked up, and those has been pretty robust for the industry as a whole. How do you look at the cable demand with regards to volume in the coming times and what do you think would be the key figures over there?

We have already mentioned that the key figures are the CapEx outline of government and private CapEx. So actually if -- the demand is always -- demand will always come from the CapEx in the infrastructure, in the industry, new industries, in the new real estate buildings, construction sector, the demand will always come -- they are the demand drivers. I think in my initial commentary, I have mentioned the demand drivers and the business outlook.

Right. No, I do understand that. But with regards to volumes, obviously, even when the last year, we were expecting some demand to pick up. So not in KEI in specific, but the industry as a whole from fourth quarter. So I was just trying to understand on that.

It is for the industry as a whole. The demand pick up benefits everybody, not only KEI.

Sir, you did mention on the gross margin pressure that, obviously because of the RM volatility, there was some sequential impact on gross margin. So would you attribute the total impact on sequential basis, purely on the basis of volatility or there has been some channel has as well with regards to price held?

Some volatile -- there are mixed reasons. The volatility of the prices as well as the -- when the prices goes up very high, definitely, there is some deferment of purchases by the customers. But eventually, when the prices settles down in, say, 15 days or a month's time, that purchase comes back because they cannot indefinitely delay their purchases.

The next question is from the line of Shrinidhi Karlekar from HSBC.

So my first question is on this government's recent scheme on power distribution sector where they plan to spend about INR 3 lakh crore. A lot of it goes in cables and high-voltage distribution infrastructure. So just wanted to know your perspective, does that really improve the volume growth or outlook for the power cable segment and does it improve the visibility as well or just the packaging of the existing demand that anyways come?

See, all these strategies of INR 3 lakh crore what government is giving, basically -- it definitely improves the demand of electrical products for these power utilities indirectly. What happens is that this money is given to them for cleaning up their balance sheets, so that they become eligible for fresh borrowing because all these utilities are incurring losses due to lower tariffs than their cost or whatever technical and commercial losses they incur due to the tariff or to the theft electricity. So year-on-year basis, government keeps on giving them new packages to clean up their balance sheet. And when they clean up, they need CapEx. So they come up with the fresh CapEx, they have again become eligible for further loans from Power Finance Corporation, REC or banks. And then they are able to pay back to the generating companies for the power purchase. So everywhere then ultimately, the money rotates back from one form to another.

But sir, this time, it sounded like it is very project specific, and they want to spend it only on 2 areas. One is like, of course it is smart metering and another is they typically talk about cabling. So I was just wondering, is it different? Or it's like the 1.0 where balance sheet is getting improved?

No, I don't have much detail about smart metering, I am aware, but cabling is definitely will be there because it is only through cables that they can eliminate the theft and reduce the technical losses in the transmission. As far as purpose of the project is to improve the -- reduce the technical and commercial losses and improve the metri.

And sir, I just want to know how large is the solar cable business for KEI? And how large is this overall solar cable industry in India? And sir, related second question is, you -- in the past, you have highlighted that how solar -- utility solar power plant increases demand for cable business because the evacuation of power happens through cables as against overhead transmission. So I just wanted to know in what -- how much percentage of the case is actually to the evacuation of power happens through cables and how much happens through overhead transmission?

This industry is now -- has become very big. And you must have seen that even Reliance industries and Adani are coming up in a very big way in manufacturing of solar panels and battery storage systems. As on now, the yearly targets are 20,000 megawatt to 25,000 megawatt additional capacity in the solar, I mean, the solar power generation. And so far, these developers were mainly dependent from import from China. Now indigenous capacities are coming up, which will give more stability to this sector in times to come. So far as cable demand in these projects is concerned, I think there is roughly 6% to 8% of the CapEx goes into cables because the entire creation of the power is been done through 33 kV cables and then connected to the grid and for further transmission.

And sir, how large would it be for KEI already this business in terms of percentage?

KEI is already, I think, exact numbers. I don't -- I can't -- I have no quantification at the moment, but at least INR 260 crore to INR 300 crore worth of cables are going into solar business directly or indirectly through the developer.

And sir, like in the past, sir, company did collaborated with the Swiss company to get the capabilities on EHV side. I was just wondering, are some schemes, are such partnerships are in the works to build capabilities on the offshore wind power evacuation cables because there, I think you need submersible cables. So just wondering, I know it's not an immediate demand in market, but some few years out, you would have demand for these. So just wondering, are plans there to develop these cables?

At present no. But we will -- we also -- we are looking for opportunities, whenever the good demand comes, we will also try to have that.

And just last one, sir, if I may. So just want to understand this EHV cable. Is it fair to understand that the entire EHV cable direct sales as well as through EPC, it goes to the distribution utilities, right? Eventual customer is distribution utilities, right? In most...

No, no, no. Extra high-voltage cables are always sold to transmission utilities because these cables are used for underground transmission of bulk power and the transmission utilities -- the transmission companies in various states and the central sector transmission company like Powergate Corporation on India, they transmit the cables in the -- through these -- to the distribution companies. So on a distribution product.

Ladies and gentlemen, this will be the last question for today, which is from the line of Amit Mahawar from Edelweiss.

So I only have one question. Typically, sales teams, dealer network and ground presence is more eastern focused. If you correct me, if I'm wrong or can you give some details of which regions have driven the super growth of more than 50% in first half in house wire retail?

I think all regions across the country have given this growth, but our -- I mean, strongest regions are the northern region, North and Eastern India. And even West is also performing very well. And we are also ramping up the marketing positions in South India. They have also done decently well, and they will also come up to the level within next 3 to 4 months.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to the management for closing comments.

So I thank you all our investors who have joined this conference call. And I wish all of you a very happy and prosperous Diwali and the New Year, a new summer. So thank you very much. If you still have any further questions, you can reach out to us. Thank you.

Thank you very much. And wish you all happy Diwali.

Thank you. On behalf of KEI Industries and Monarch Networth Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.