KEI Industries Limited (517569) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the KEI Industries Q1 FY '27 Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Achal Lohade from Nuvama Institutional Equities. Thank you and over to you.

Yes. Thank you. Good afternoon, everyone. On behalf of Nuvama Institutional Equities, we are glad to host the senior management of KEI Industries Limited to discuss the Q1 FY '27 earnings. We have with us Mr. Anil Gupta, Chairman cum Managing Director of the company; Mr. Rajeev Gupta, Executive Director of Finance and CFO. We'll start the call with the opening remarks from the management and then move to Q&A session. Thank you and over to you, sir.

Thank you, Achal. Good afternoon. I'm Anil Gupta, CMD, KEI Industries Limited. I hope that you must have received a brief of our Q1 results, it must be with you. I'll give a brief. So the net sales in Q1 of FY '26-'27 is INR 3,185 crore against INR 2,590 crore last year. Growth in net sales is 23%. However, the total wire and cable sale in Q1 has grown by 24.4% against previous year. During Q1 '26-'27, operating margin has improved to 12.43% Margin has improved mainly because of the product mix and operational efficiencies. EBITDA in this quarter is INR 415 crores against INR 297 crores last year. Growth is around 39.5%. EBITDA/sales margin is 13.04% as against 11.49% in the same period previous year. Profit after tax in this quarter is INR 274 crores against INR 195 crore. Growth in the PAT is 40%. PAT/net sales margin is 8.61% against 7.56% in the previous year same period. Domestic wire and cable sale in this quarter is INR 2,784 crore and it has registered a growth of 29%. Export sale in this quarter is INR 341 crores against INR 375 crore previous year. The export is impacted because of nondispatch of -- nonexecution of several orders of Middle East because of the war with Iran and also due to the custom duty issues in United States. However, for full year guidance, the export will be growing substantially and will be in line with our guidance which was given earlier. Total sales of extra high-voltage cable is INR 186 crore against INR 126 crore in the previous year same period. Growth in EHV sale is 47%. The contribution of sales through distribution network that is D2C is 59%. Total active working dealer of the company as on 30th June is 2,128. EPC sales is INR 43 crore against INR 61 crores last year. Out of the total sales of EPC, PHV EPC execution sale is INR 18 crore. Sales of stainless steel wire in Q1 is INR 53 crore against INR 51 crore in the previous year same period. Pending order book is INR 4,292 crores; out of which EPC is INR 271 crores, extra high-voltage cable INR 793 crore, cable domestic INR 2,400 crore and export orders pending are INR 822 crores. The long-term rating from CARE India Rating and Research and ICRA is AA+ and short term is A1+. Book value as on 30th June is INR 725.94 against INR 697 as on 31st March 2026. Cash and bank balances as on 30th June is INR 1,054 crores, which includes QIP balance of INR 303 crore. Interest income from bank deposits or others in Q1 is INR 14.59 crore, which is included in the other income. It was INR 28.77 crores last year in the previous year. The company had raised INR 2,000 crore through QIP on 28th November 2024, out of which company has utilized QIP fund of INR 1,785 crore up to 30th June and unutilized amount is INR 303 crore, which includes the interest on FDRs of QIP amount. Future outlook. During Q1, the company has incurred a capital expenditure payment of INR 191 crore, out of which Sanand CapEx is INR 180 crore. Total CapEx done in Sanand up to 30 June '26 is INR 1,722 crore. Another INR 300 crore will be spent in this financial year. Company is expected to incur capital expenditure of approximately INR 600 crore to INR 700 crore annually for next 3 to 4 years. Capacity utilized during Q1 is approximately 72% in cable division, 61% in house wire division, 91% in stainless steel wire division and 45% in communication cable. Sanand capacity addition is taking time to ramp up and in coming months, capacity utilization will increase month after month. So now also we have sufficient capacity to grow in wires and flexible segment for next 2 to 3 years. Based on the strong demand in domestic and overseas market, we are hopeful to grow more than 20% in next 2 to 3 years. There is a good demand in data centers and related energy segment in power transmission and distribution segment, renewable energy like solar and wind, electric vehicles, infrastructure, railway electrification, urban infrastructure, manufacturing in domestic as well as in global market. Also, the wire demand is strong in housing sector and in commercial spaces. So this is the commentary from the management side. We are very bullish about the market. We hope that with a strong market outlook in domestic as well as our export markets, company will outperform in the domestic as well as export markets and will be continuously growing year after year. Thank you.

[Operator Instructions] We take the first question from the line of Natasha Jain from PhillipCapital.

My first question is on the wires and cables margin. Now there has been a sequential sharp rise in wires and cables from 12.4% to 13.6%. If I see sequentially the OpEx number, that's pretty much flat despite we've gone aggressive on the retail side, which is a high margin, but a high spend channel and then even full commissioning of the Sanand plant should bring in some cost on the P&L. So could you throw some light here that what line item has remained consistent? Because ideally OpEx probably should have grown faster and even on a year-on-year run rate, this is the slowest that we've grown in terms of OpEx.

As we have earlier also highlighted that as the incremental sale is going up so the fixed expenditure does not increase in that way. So accordingly, the expenditure versus sales percentage if you compare, it is low and little bit because of the product mix, it is getting changed and some export, we have the good margin order. So all are reflecting in the P&L of the balance sheet. And we have already crossed now a hurdle which was earlier that less than 11% operating margin we were operating. So now that hurdle we have crossed and we hope that now we will be in the range of 11% to 12% operating margin for the coming year.

Sir, you mentioned that you've got in some high margin export orders. I remember in the previous many calls, you've always highlighted that export is a similar margin business for you as like it's in domestic. So have we now got orders which are better margin?

It is always when the demand is strong and in the global market, the demand is strong so little bit it is increasing. As you also witnessed that earlier our retail sale was close to 51% contribution, which has now increased to 59%. So put together all, it's all reflecting in the P&L.

Got it. And sir, on the Wires & Cables segment, the next question is I mean the value growth has been 25%. But if I see now given all peer set numbers have come out, I think the industry has grown by 35% -- 33% to 35% given pricing growth in itself is north of 28%. I know you don't give volume breakup, but could you at least tell us qualitatively as to are we prioritizing EHV or losing market share on the LV side or what's happening in the volume mix?

It is not the case of the losing market share because the demand is very, very strong because every sale required the capital. So whatever capital we are having, we have earlier guided also to grow close to 20% plus kind of growth because we are continuously having a CAGR growth target of 20% plus. Accordingly, we need to put more and more also on the capital expenditure. And yesterday, we also announced our new capital expenditure in our Bhiwadi factory that is Salarpur where we will put around another INR 700 crores to put another factory in next 2 years' time. So it will go hand in hand. So we need -- so whatever capital we are having, we are allocating at the same time towards the growth of the company as well as for the creation of the capital expenditure. So because of that, we are not comparing anyone else whatever they are doing, but we are growing whatever we are. So close more than 20% our target was there and we are continuously focusing that.

Got it. And sir, Salarpur is INR 500 crores plus this additional INR 700 crores, right, which takes it to INR 1,200 crores?

No, no, no. As in the commentary, Anil ji said every year our target is INR 700 crores per year. So our total CapEx of Salarpur is INR 700 crore. So in the current financial year, INR 300 crore will be remaining CapEx of Sanand and another INR 300 crore to INR 350 crore we will use in Salarpur. So then in the next year also, we will put the balance expenditure in the Salarpur and then we will use another capital expenditure in the new land that may be in Baroda or maybe in some adjacent location.

Got it. And sir, just one quick question, the last one. If I see inventory in your balance sheet, that has also increased sharply. So could you also throw some color in terms of what proportion would be, say, the exports which we could not do sitting in our inventory versus any inventory gains?

Major part of the inventory is increased mainly because of Sanand capacity is ramping up. So when the factory is new, the full inventory we need to create over there. So the major increase due to only Sanand only. And another nearly INR 60 crore to INR 100 crore in the finished goods, maybe sometimes it is delay in dispatch or in the export case even though the sale has happened by way of bill, but because of the Ind AS adjustment, if the finished goods has not reached, we need to reversal. So because of that, the inventory is highlighting high and the export is low. But actually the sale has happened.

We take the next question from the line of Praveen Sahay from PL Capital.

Just further clarification on the margin side because in the P&L, we can see there is a change in the inventory, which is on the higher side nearly around INR 600-odd crore. So is there an inventory gain as well you had to book for this financial -- this quarter Q1?

See, the inventory gain or loss is part of the every quarter-on-quarter and year-on-year because prices are up and prices are down. So that is not the major factor for the inventory increase. Inventory increase, as I just explained, because of the new factory of Sanand where all the raw material and work in process and finished goods is starting to have that kind of capacity. And second, when we do the export sale or institutional sale at the quarter end, there is a reversal if the material has not reached to the customer. So because of that, even though the sale has happened, but as per Ind AS, sale has to reverse. So that's why the inventory is looking like this.

Okay, sir. Second question related to Sanand. So how much of the Sanand contribution for this quarter or what you are expecting for FY '27?

So Sanand Phase 1 capacity has already reached to 50% utilization as on today and in coming months, it will ramp up further from there.

So just referring to the media interaction. Sir has highlighted nearly around INR 3,000-odd crore of additional revenue from the Sanand for this financial year. So this financial year, you are INR 3,000 crores looking for from the Sanand and how is that?

No, no. Actually in media interaction, actually it was a little bit of a slip of tongue. We expect around INR 1,500 crore to INR 2,000 crore revenue from Sanand in this financial year, which will come in the contribution in this particular -- in FY '27.

But the overall growth, Praveen, will be more than 20% because as you see when the new factory is there, there is lots of challenges for manpower, then machine, then the other environmental factors. So that's how it is taking time and month after month, the production is getting increased over there.

[Operator Instructions] We take the next question from the line of Raman KV from Sequent Investments.

Can you hear me?

Yes, yes.

Sir, with respect to Sanand, we have already spent around close to INR 1,700 crores for the CapEx and we will be spending another INR 300 crores. You initially guided that we can do from Sanand facility around INR 6,000 crores of revenue. Am I right?

Yes, sir.

So yes, sir, I just want to understand in Sanand what kind of products are we catering to? And the Phase 2 in which we will be spending the additional INR 300 crores to INR 350 crores this year, are we planning to add the existing capacity or are we planning to add new high margin cable and wires facility?

So Sanand project is not yet completed. Phase 1 has completed that is for low voltage and medium voltage power cable. Then we added the machinery over there, which is operational now in the second quarter for the electron beam cable. And now we are in the execution for the extra high-voltage power cable for which we are making a 152 meter tall tower over there. So by March 2027, our extra high-voltage power cable project also will get commissioned. So by next year, the full capacity will be available and close to overall capacity in the next financial year, 70% to 75% we will be in a position to utilize for next financial year.

So the entire INR 300 crores will be spent on the extra high-voltage cable?

No, it is part of the project. The total cost of the project was INR 2,000 crore. So already we spent INR 1,722 crore and balance remaining will be spent in the coming 6 months.

Just a follow-up here. You said around 70% to 75% utilization you will try to achieve next year. That closely translates to INR 4,000 crores of revenue. Is my calculation right?

Yes, yes.

Okay. Understood. And sir, with respect to the margins, in the earlier guidance you mentioned that there was change in product mix, which led to the margin expansion. Is it because we had -- there was a good amount of contribution from extra high-voltage cable or can you just specify what kind of product led the margin expansion?

It is a mix of 3, 4 things. One is extra high-voltage power cable contribution has increased. Second is the overall retail dealer distribution contribution has increased. And because of the top line higher, the expenditure versus sales ratio has gone down. So it's a combination of 3, 4 things.

And sir, just a follow-up here. What will be the incremental margin, if you can give ballpark figures when we are producing -- when we are selling an extra high-voltage power cable versus low and medium power cable?

Our extra high-voltage operating margin was close to 15% as compared to low voltage and medium- voltage power cable institution side was 10.5% and retail side was 11% and export was more than 11%.

So out of the INR 6,000 crores of revenue expecting from Sanand, can you give a split between how much can we do with respect to extra high-voltage? I just want to understand.

INR 1,300 crore capacity belongs to extra high-voltage power cable and balance for low voltage and medium-voltage and electron beam cable.

And sir, with respect to the INR 700 crores CapEx every year which you want to do, is it on the extra high-voltage side? I just want to understand the market of extra high-voltage.

The new investment will be for low-voltage and medium-voltage, which we have just announced yesterday. Because extra high-voltage power cable capacity we will be expanding further only here only itself in Sanand. Whenever we need, we will add more lines.

And sir, what is the total market opportunity from extra high-voltage?

As of now, it will be more than INR 3,000 crore.

Okay. And you are the only player or is there any competition?

No, there are Universal Cable also and there are import also.

[Operator Instructions] We take the next question from the line of Umang Mehta from Kotak Securities.

Congrats on a strong margin trend. Sir, first question was again on margin. So you mentioned product mix and efficiencies in the operations. Actually, sir, 5% going to 6% won't move the needle too much, right? And secondly, in terms of operational efficiencies, if you can share some more color? And thirdly, I just wanted to check have you changed anything on wires pricing? You were earlier looking to reduce the discount versus peers. Is that something that is helping your margins?

[Foreign Language] There are 3, 4 things where the pricing played a role. Then the overall growth of the company and resulting in expenditure versus sales ratio. So in each and every market, we are trying to build our product well placed because we are spending in the advertisement, we are pushing through the IPL. So our brand are very popular. That's how our dealer distributor sale is also reflecting from 51%, we have now reached to 59%. So our focus is to shift the market where the lower working capital are there, how we can improve the margin whether from retail or from exports. And ultimately, this is resulting to increase 1%. So now we are in the trajectory for the future where 11% to 12% operating margin we will be operating. So earlier our hurdle was reaching out to 11% plus. So now we have crossed that hurdle actually.

Understood, sir. And sir, second question was on this growth versus margin tradeoffs. I understand where you come from where you don't want to grow or maybe from working capital perspective, you want to restrict growth to a certain percentage. In counters where peers are growing faster or where you might be letting go of some business, is it easy to win that back when the situation turns? How do you think about that I mean on competition front?

Sir, we are very old in this market and continuously since last 15 years we are growing at 16% to 17%. Then we started our growth rate to 17% to 18%, then 19% to 20%. Now we are targeting 20% plus because we are a debt-free company now and we are continuously allocating our capital in 2 parts, one for working capital and another for the capital expenditure. So certain discipline and capital allocation needs to be there in the company so that long-term goal sustainable manner we can achieve. So that's how we are going ahead with our original plan of which we given you in 2024 while we were raising the QIP. So the same kind of growth plan we were maintaining and we will be maintaining. So this kind of discipline also we will be maintaining. And those who are -- those investors, those who are dealing with us since last 5 years or even 10 years also. So we are very conservative people. Whatever we say, we try to deliver more than that.

We take the next question from the line of Disha from Trinetra Asset Managers.

Most of my questions have already been answered. Just few questions from my side. Could you share the current utilization level across cables and wires for this quarter? And I think I heard it correct, is it 70% to 75% of ultization would be by this year, right?

No, no, no. First of all, at present because of increased capacity of Sanand, our utilization rate is 72%. And for the future, somebody was asking that how much capacity will be for the next plant, INR 6,000 crore plant. So as I explained, 70% to 75% we will be utilizing by next year.

Okay. For the next year. And sir, at what utilization would the company require another major CapEx cycle beyond this ongoing expansion as you see the demand clearly coming up?

To maintain a CAGR of 20% plus, we need to continue growth of the capacity also. So for that, we have given our guidance to do the capital expenditure of INR 600 crore to INR 700 crore year after year because we need to grow every year. So then we need to add the capacity every year because whenever we go for a greenfield CapEx, it takes us to complete the process for the 2 year actually. Like yesterday, we announced for the Salarpur project where we will be investing around INR 700 crores. So there also it will take another 2 years to complete construction, plant machinery, trial run production, like this. In the current market, the demand is strong because of the electric vehicle, data center infrastructure boom and the global demand is also very, very strong. Yes, please, you are asking something?

Yes sir. I was asking about this new CapEx plan that you have announced. That would be for EHV cable, right? You answered that question, sir.

No, no. It is for low-voltage and medium -voltage power cable.

Got it, sir. And one on the EHV cable segment side. Could you please update how much of this customer approvals or order inflow is coming from EHV and at what point do you expect that EHV business will become a meaningful contributor to the consolidated revenue and margin? And any further increase in [indiscernible]?

No. Whatever capacity we are adding for extra high volage power cable, close to 9% to 10% will be the contribution from EHV cable.

We take the next question from the line of Achal Lohade from Nuvama Institutional Equities.

First, in terms of the global markets, if you could talk a little bit in terms of how we are playing across the regions? Where are we in terms of the scale up? What kind of mix can we expect over next 2, 3 years in the export segment across different geographies? If you could comment a little bit on that?

Yes. I'll comment on that. In different markets, we are targeting different sectors. Like in U.S., we are steadily working with oil and gas sector and also with data centers projects and now we are also working with some distribution projects in U.S. Secondly, in Australia we are mostly working with solar and wind energy projects and also some manufacturing factories, industrial projects as well. In Middle East, our major customer base is oil and gas refineries and upstream facilities of oil extraction. So our majorly oil and gas market is there in Middle East. In Africa, we are working with distribution and transmission utilities and also the oil refineries. So this is the major focus areas in a few of the countries where we are working in our export markets.

And any possible mix you would talk about, let's say, in 3 years' time?

See, it is very difficult to determine product mix because it keeps on varying. Whatever -- we have a very versatile product range and production facilities. So we are able to adapt to any change in the type of products in our factories as per the market demand. But how the market demand emerges is very difficult to predict.

Got it. Sir, second question I had was with respect to Sanand plant. Given INR 2,000 crores of CapEx and the EHV and the non-EHV mix, how do we look at the asset turn and the total revenue potential from this facility?

So Achal, earlier we told that this total INR 2,000 crore will give us the production of INR 6,000 crore. But in the past experience whenever we go for a greenfield project, after the commissioning of the full project, there is a scope for the balancing of equipment. So then another INR 100 crore, INR 200 crore we are putting for balancing of equipment, which will give another INR 1,000-plus crore turnover. So the total capacity will reach around INR 7,000 crore within 2 years' time in Sanand. So that's how we executed in the past also. If you see our Chinchpada plant, it was only for the wire. Then we added the power cable over there, then we added a few more capacity over there. So as of now, this plant is giving us very huge turnover, approximately INR 225 crores to INR 250 crores per month turnover is coming from the Chinchpada plant. So that's how the balancing of equipment work actually.

Got it. Sir, if you could just -- you did make a comment demand is strong, but if it is possible to get some more color in the domestic market, how the different verticals within the demand drivers are doing, if you could talk a little bit on that as well.

See, demand is there in India mainly in power generation, transmission and distribution sector and also the power energy user sector, which includes data centers, manufacturing plants, urban infrastructure and railway infrastructure. There is a strong demand in the housing and commercial spaces also. So these are the major sectors where the domestic demand is there. And now even the thermal power projects are also in strong construction phase. So that will also be bringing substantial demand in India.

Understood. Any of these are particularly doing very well and a little bit weak, if you could call out a little bit, sir, on that?

No, I have no comment on that.

Achal, always it happens because it's a rotating demand. Sometimes demand comes from transmission, then comes from distribution, then again from the generation. So it's basically move on. So sometimes the refinery projects are there, sometimes fertilizer projects are there. So the demand is also rotating because in every year the capital expenditure is rotating from one sector to another sector.

Fair point. Just last question from my end, sir, and we again go back to the queue. In terms of the demand supply, we see that practically everybody is adding capacity. How do you see this demand supply scenario? Is there any risk of overcapacity over next 1, 2 years in your opinion or things are pretty much tight for next 2 years?

Sir, whenever there is an addition of capacity, it takes 2 years, 2.5 years' time to put up a project. Then another 1 year time for ramping up the production facility. You see in our Chinchpada plant. We started in 2023, now almost 3 years is there. So now the project has commissioned, still we are ramping up. So it takes time. So from your angle, you must see that so many projects are coming. But those companies, those who are putting the projects, they are putting the projects -- the construction time of the project is also 2.5 years to 3 years' time. Then for utilization of capacity is also 3 to 4 years' time. So it is not the case that whatever we put, we will use the capacity only in 1 year. So that's how we are again guiding for the disciplined growth that 20% plus CAGR growth we will maintain. So we are never targeting for a growth of 35% or 40%. So that's how we are having the discipline and accordingly, the market is available.

We take the next question from the line of Manoj Gori from Equirus Capital.

Congratulation on strong margin performance during the quarter. So ideally the barrier of 11% has been great help. So my only question to you would be that if we look at the end of fourth quarter FY '26, we were talking about roughly around 18% volume guidance. In the media interview, we said around 25% kind of value growth for the current year and now we are talking about 20% value growth on Y-o-Y basis. So if you can clarify?.

Now also I'm sure that our growth in this financial year will be more than 25% in financial terms in revenue terms. But normally in the interactions, we generally like to be conservative instead of giving too bullish numbers.