KSH International Limited (KSHINTL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to KSH International Limited Q3 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thank you, Rudra. Good morning, everyone. On behalf of ICICI Securities, I welcome you all to the Q3 FY '26 Earnings Conference Call of KSH International. Today, we have with us Mr. Rajesh Hegde, Managing Director; Mr. Amod Joshi, Chief Financial Officer; Mr. Dhruv Chopra, Head of Investor Relations; and Mr. Nakul Patil, Head Secretarial and Legal. Without much delay, I'll now hand over the call to the management. Thank you, and over to you, sir.

Yes. Thank you, Mohit. Yes. Good morning, everyone. This is Rajesh Hegde, the Managing Director for KSH. I would like to welcome all current and prospective shareholders to our third quarter fiscal 2026 results call. Our IPO concluded late in Q3 of FY '26, and there are some moving parts to these parts -- this quarter, primarily due to the timing and activities related to the Supa expansion. Year-to-date figures will smoothen out any quarter-to-quarter movements. In our view, Q4 of FY '26 would be our full first quarter post listing and more representative of the underlying and sustainable trends in the business. Given our current capacity and a robust demand environment, we have the capability to produce 28,500 to 29,500 metric tons for the full year. Higher volumes generally also drive better operating leverage, which has adversely affected in Q3 of FY '26 due to the upfront costs related to the substantial capacity addition that came online in the quarter. Our third quarter and 9 months financial results, along with supporting information, have been submitted to the exchanges and have been uploaded to our website. On today's call, I would like to focus on 3 key areas. First, I will address what differentiates our business and the key drivers and trends. Second, I want to spend a little more time on our new Supa facility and its impact on the company. And last, we will address the financial and operating metrics for Q3 and 9 months of FY '26. To refresh all, KSH International is a 45-year-old manufacturer of magnet winding wires, which is the most critical component of coils used in large and small electric machines from power transformers to motors down to small compressors for air conditioning and everything in between. Based on currently available data and our capacity addition, we may now be the second largest winding wire manufacturer in India with an installed capacity of 43,445 metric tons, and we continue to remain the largest exporter of winding wires from India. Once Phase 2 of our Supa expansion is completed in 14 months' time, we would have an installed capacity of 59,045 metric tons annualized. We are a B2B company servicing approximately 120 leading domestic and global OEM customers and maintain long-term relationships with these customers, resulting in more than 90% of the revenue from -- being from repeat customers. Additionally, our business is make to order, which means we procure the copper and begin processing only after receiving a purchase order from the customer. Thus, LME copper prices and exchange rate is a direct pass-through, and we do not take any exposure to short- or long-term variations in the copper price. Roughly 75% of our revenue comes from large power transformers used in T&D, renewables, railways and data centers, driven by our core continuously transposed conductors or CTC product in which we are the market leaders in India. CTC is a complex engineered wire product, and all of our exports are exclusively to T&D customers across 24 countries. We continue to maintain our leadership in CTC with a comprehensive track record as well as OEM and utility approvals. We are approved for all classes of power transformers, including being the only Indian company approved to supply 2 HVDC 400 transformers -- 400 kV transformers. CTC is one of the key differentiators from our peers and accounts for more than half of our specialized winding wire business. Why do we succeed? In an ultra-precision field, our long-term mantra has been the quality -- has been that quality has to be built into the product we produce, not something that gets inspected at the end. This results in the quality and longevity of our products, most of which are still actively working in the field. The T&D sector is in a structural long-term cycle driven by renewable energy, grid modernization, urbanization and growing power demand for AI data centers. This is not just an India phenomenon but a global one. The primary bottleneck is the supply of power transformers, which is driving capacity expansion by transformer OEMs globally as evidenced by the public comments and financial performances reported by all our customers. This directly feeds into the demand for our products. Though there is a growth across all power transformers, one of the most exciting opportunities in our view, lies with HVDC, which is required to evacuate power over long distances for renewable energy projects. During the third quarter, we commenced supplying specialized winding wires towards cumulative orders of 37 HVDC transformers received to date. These orders would be supplied over a period of 12 to 18 months. So at the current level of 40-odd transformers, it will not meaningfully impact any given quarter's performance. But as more HVDC transformers begin to be supplied, we -- which we expect to happen, it should start to have an incremental benefit to the company given it is our highest value addition product. Meanwhile, momentum for 765 kV transformers and reactors continues with contribution in Q3 of FY '26 being higher compared to Q2 of FY '26. Shifting to exports. In Q3 of FY '26, our export revenue increased 37% year-on-year -- year-over-year, accelerating from the 22% year-over-year growth we reported in Q2 of FY '26. With new capacity, we are now able to be more proactive, target accelerating volumes for our existing global clients and over time from new clients and new geographies. In summary, our key strategies to drive sustained growth is to -- a, to grow volume from higher value-added segments like T&D, EV motors and exports; b, to expand our international presence, including expansion with our global clients; to increase wallet share with our existing clients and then to drive operating efficiencies through scale and backward integration; and finally, to improve sustainability efforts within the company as well. Moving now to our new facility in Supa. We completed Phase 1 at the end of September 2025, bringing 12,000 metric tons of additional capacity online. During the third quarter, we added a further 2,400 metric tons, bringing total capacity at December 31, 2025, to 43,445 metric tons. Supa capacity expansion is across all our product lines from CTC down to round wires or standard magnet winding wires. The rapid introduction of this capacity led to a short-term increase in costs as these are incurred in advance of the volume produced. We expect volumes to increase sequentially every quarter, in turn driving better operating leverage. During the first 3 months of operation, we achieved more than 50% capacity utilization at Supa, bringing consolidated company utilization down to 68% from 90% plus last quarter. Looking at our overall volume growth, we sold approximately 7,400 metric tons of winding wire in Q3 of FY '26, an increase of almost 24% compared to Q3 of FY '25 and the highest volume growth rate we have had in many years, maybe even 10 years. We are excited with the prospect of seeing our quarterly volume trend higher off this much larger base. I would now like to ask Amod Joshi, our CFO, to go over some of the financials and operational details. Over to you, Amod.

Yes. Thank you, Rajesh. Good morning, everybody. I will discuss our third quarter and 9 months FY '26 financials and operating performance. During the 9 months and Q3 of FY '26, our revenue from operations were INR 2,089 crores and INR 818 crores, respectively. This resulted in an increase of 47% and 59% compared to the same period last year. Specialized winding wires represented approximately 75% of total revenue, excluding other operating revenue in 9 months and Q3 of FY '26 and increased 48% and 61% versus a year ago. This was largely driven by ongoing demand from our T&D clients. Standard winding wires also grew 48% and 55% in 9 months and Q3, respectively. Revenues from exports grew 37% compared to Q3 of FY '25 and represented around 27% of total revenues, excluding other operating revenue during the period. Volumes, product mix and material prices were key drivers to top line performance. In line with the shift to increased volumes of higher value-added products and cost rationalization, our gross profit per ton also improved approximately 4% over Q2 of FY '26 and nearly 12% over Q3 of FY '25. 9 months and Q3 FY '26 EBITDA of INR 136 crores and INR 49 crores improved from INR 87 crores and INR 40 crores last year, respectively. As we have stated, reporting margins can fluctuate due to movements in copper prices given that copper is a pass through. This quarter, copper prices increased sharply, negatively impacting the margins, but as you can see, did not impact EBITDA per ton. Therefore, to evaluate the underlying progress of the company's profitability, it is more important to look at the unit economics of the business. This brings me to the EBITDA per ton discussion. EBITDA per ton for 9 months of FY '26 was approximately INR 66,000 per metric ton, which is almost similar to Q3 FY '26 and up from INR 50,000 for 9 months FY '25. This performance is consistent with our prior commentary that EBITDA per ton at current levels are sustainable. There were a few non-recurring items during Q3 of FY '26, which we believe warrant being called out so everyone can understand the underlying trends in the business. First, there was an exceptional one-time expense of INR 1.6 crores related to implementation of the new labor codes in Q3 of FY '26. Second, the Supa Phase 1 facility, which was capitalized at the end of Q2 FY '26 had an interest to the tune of INR 2.7 crores approximately related specifically to the loan taken to fund the Supa Phase 1 expansion and was charged to the P&L in Q3 FY '26. Having repaid this loan in full in the last week of December '25, this expense is no longer expected to recur. Third, additional depreciation expense amounting to almost INR 3.8 crores relating to the same Phase 1 expansion was charged to P&L in Q3 FY '26 for the first time. Though this amount is recurring in nature and one we believe would be absorbed by growing volumes, we highlight it as it impacts the comparability of Q3 FY '26 results with prior periods. Now lastly, as is typical with the new facility that starts up, the Supa expansion saw some fixed and operating costs in Q3 FY '26. As volumes ramp up, we expect these costs to be absorbed and operating leverage to kick in over in due course. During Q3 FY '26, we reported PAT of INR 23 crores, which declined 9% from Q3 of FY '25 due to the reasons just mentioned now. For 9 months of FY '26, we have reported PAT of INR 75.6 crores, which is an increase of 53% from INR 49.5 crores in the same period in FY '25. I will now briefly provide an update on the utilization of our IPO proceeds as well as some additional financial metrics. In late December 2025, we repaid INR 225.9 crores of long-term and short-term debt, including the term debt taken for financing the Supa Phase 1 expansion. Therefore, at the end of December 2025, our debt-to-equity ratio, if you exclude the cash earmarked for redeployment from IPO proceeds, has come down to 0.42x from almost 1.35x in Q2 of FY '26. Additionally, in Q3 of FY '26, the company spent INR 5.4 crores towards the purchase of new machinery. Orders and advances for the new machinery have already been put in place, and we expect deliveries of this equipment to happen over the course of the next 14 months. Our endeavor is to ramp up capacity for CTC as quickly as possible given the current demand environment. Once completed, we would have doubled our capacity across all our products from 29,000 metric tons to 59,000 metric tons. Finally, working capital days remained in the 75- to 80-day range calculated on closing balances basis during Q3 of FY '26, though we expect this to start trending lower incrementally over the next several quarters. Let me now hand over the call back to Rajesh for his closing remarks. Over to you, Rajesh.

Thank you, Amod. Given we are approaching the midpoint of our final quarter of fiscal 2026, I want to highlight where we ended fiscal 2025 and the year-to-date trends, we have reported so far this year. First, in FY '25, we reported a volume of 23,345 metric tons. So far, volume growth has been 18% for the 9 months of FY '26. Q3 of FY '26 volume grew at 24% due to the inclusion of Supa, which we believe is a sustainable rate for this fiscal year given the additional annualized 14,400 metric tons of capacity available in the second half of this year. Second, in FY '26 -- in FY '25, sorry, we reported EBITDA per ton of approximately INR 52,500 per metric ton. And for the 9 months of FY '26 -- and for the 9 months of FY '26, and we are operating at roughly about INR 66,000 per metric ton, which we have previously said is a level we feel is sustainable. And third, for FY '26, we reported -- FY '25, we reported PAT of INR 68 crores. For 9 months of FY '26, we have delivered PAT growth of roughly 53%, which is a rate of growth we believe is also sustainable for this year. In summary, we are excited with the demand environment for our products and even more so by having the capacity now available to service this demand. Like any capacity expansion, we have -- we had some short-term cost implications for adding such said capacity in Q3, but we believe that this is the inflection point and looking forward to executing our strategy for the remainder of the year and beyond. With that, I would like to hand the call back to the moderator to open up for questions.

Our first question comes from the line of Nidhi Shah from ICICI Securities Limited.

So my first question is on the duties. So post the U.S. trade deal, how are we looking at the duty scenario? What were the duties for India prior to this on the fabrication portion, not on the copper, on the fabrication? And now going forward, are we -- in terms of cost competitiveness with China and other countries, where do we stand?

Yes, this is Rajesh. So before the duties were on the value addition part was around 54-odd percent. And now, of course, this is still work in progress because we are hearing conflicting information between 18% to 25%. So I think we would wait for a final revert from the information that we have to receive. But we believe that it will be somewhere between 18% to 25%.

All right. And could you just call out...

As compared to China -- I mean your other question was compared to China, China is still at about 34% on the value add, U.S., I think, yes.

And could you just call out what was the amount of exports to the U.S. in 9 months in, say, rupee terms?

Yes. We -- Nidhi, this is Dhruv. We provide that on an annual basis. So for last year, it was about 9% of total revenue.

All right. My question on the HVDC, with the 37-transformer order that we have, I'm assuming that a portion of that comes from the BHEL order. And where is the remaining portion coming from? Is it from India? Or is it from abroad? And can we assume that this order -- the entirety of the value of the order for the fabrication alone should be closer to [ 250 million ] or should be closer to [ INR 80 million ]?

This [ 250 million ] to [ 80 million ], I'm not sure. I mean, in terms of fabrication, whether we have put out a number. But what I can tell you is that this order is from India itself from another manufacturer of HVDC transformers.

My last question would be that given that we have seen this increase in capacity and you also mentioned on the call that we can expect this run rate going forward. Did you mean for current capacity, the run rate should be closer to 7,500 per quarter? Or is it that we can expect a similar increase in volumes for Q4 as we did see for Q3?

Similar increase, we are expecting.

All right. So would that be fair to assume that by Q1 FY '27, we could see probably 10,000 tons per quarter?

Yes. Nidhi, I mean, that will ultimately depend on the utilization rates. But clearly, we will continue to focus on driving those up.

Our next question comes from the line of Mahesh Bendre from LIC Mutual Fund.

Sir, in first 9 months, we have reported volumes of around 20,500 metric tons. So based on our capability order book, what kind of volume we are looking for this financial year?

Yes. I think we have mentioned in our call that between 28,000 to 29,000 is what we are expecting, 28,000 to 29,000 metric tons for the full year.

Okay. Okay. So I mean, if I assume the midpoint of that 28,500, then we will end up around 8,000 kind of volume this quarter?

Yes, yes, that's right.

And sir, what will be the corresponding number last quarter, Q4, that number will be?

You're asking last quarter of last year, right?

Yes, Q4 FY '25.

Around 6,000 it was, below 6,000, just below 6,000 tons.

Okay. So 30%, 35% growth is feasible in terms of volume?

Yes, yes. With this additional volume that's available, so that's what we are saying that we have this additional volume that's available for the rest of the quarter.

And sir, our utilization is around 68%, you mentioned. So this 43,000 capacity metric tons, what kind of utilization we expect to achieve next year?

Look, overall, 43,400, like we said, the capacity ramp-up generally takes 2 to 3 years to reach 80% to 85%. And with that trajectory, we expect to keep the same trajectory over the next 2 to 3 years for this 43,400. No. But I think your question was on this capacity base of 43,400 tons. I mean, if you do the math, then it will be approximately -- I mean, if you take between 28,000 to 29,000 metric tons that we are saying. So I don't have the immediate percentage...

60 to 70%, yes. But Mahesh, just one clarification point is that 43,000 metric tons is also not static. That capacity is going to keep increasing till 59,000 over the course of the next 14 months.

No, no. I assuming this currently 43,000 additional comes, that's well and above. But this 43,000, which is available for next year, entire year. So what kind of utilization we are expecting?

Oh, next year, you're saying. Okay.

Next year.

Yes. Next year, I mean, our endeavor is, of course, to keep increasing. So like what Amod said, 85% is normally a good capacity utilization or optimal capacity utilization. And on this 43 000 you could probably 80%, 85% would be our target, of course, 85%.

Okay. So 37,000 is feasible?

Yes, yes.

Yes.

Okay. Okay. Sir, last question from my end. I mean the interest cost last quarter was, I mean, much higher, I think INR 14 crores. So given the loans we have paid short term and long term, what kind of interest we are going to pay for the last quarter and maybe next year?

Look, as far as interest is concerned, the working capital interest actually increases in proportion to the top line. And like we mentioned, the indicative tonnage of top line for the Q4 will be higher than Q3. So from that perspective, the working capital interest will be slightly more than Q3. Having said that, we have repaid the term loan for Supa and INR 2.7 crore saving will definitely kick in, in the Q4 of FY '26.

So this number will be -- I mean, this INR 14 crores used to be slightly higher. The number will be lower in this Q4?

No, because the utilization also will go up. So we don't expect that working capital interest to go down significantly from the Q3 level.

Yes. But the extraordinary item will not come, right?

Yes, that INR 2.7 crores...

That's the term loan interest, yes. That will not be there.

Our next question comes from the line of Kaushik Doshi from ICICI Securities.

Sir, my first question is, copper prices has grown 30% year-on-year. Will this affect all the magnetic winding wire manufacturers? And do we see a delay in order finalization due to this?

No. So how we -- like we explained, our business model, copper is a complete pass-through for us. And once we receive an order, we book the copper and with our supplier and then the copper LME price and the exchange is a pass-through, and we focus on the value addition. So when it comes to standard winding wire, I think especially people who are doing more the B2C business, we are a B2B company. There, you might expect people to have some exposure to the copper price, and you cannot really have a complete pass-through on that basis because there is some stock that is there at every point as well. In terms of demand, I mean, if you look at transformers, we are talking about power transformers. These are all typically long lead items. we don't see copper prices really affecting the power transformer segments. And even in some of the other segments, we don't see that happening. But it could be maybe in some of the small motors, people would think about like fans, et cetera. They would think about switching from copper to aluminum as an alternative, and we manufacture aluminum as well in our manufacturing. So that's something that needs to be seen how it will be.

Okay, sir. Got it. Sir, can you provide current inventory levels and net working days?

Current net working days on an overall basis is, like we mentioned, around 75 to 80 days on a closing balance basis. Inventory days are a little higher in that 75 days, which occupies almost 40 to 45 days is on account of inventory.

Okay, sir. And sir, adding to the question of some other analysts, as you said that China is at 34% and India will come around 20%, 25%. So if India comes at 24% on a mandate basis, how do we compare in terms of prices with China? So -- if you can explain on that?

So first of all, when we look at the Chinese manufacturers of similar kind of products, U.S. is not a market for the Chinese. In fact, Chinese manufacturers so far, at least we have not seen them, although it was at one point in the past, quite a significant market for the Chinese manufacturers. But I think U.S. has taken the view that they would look at other countries to procure from. So we are not finding them prevalent in the U.S. market. And -- you wanted to add something?

No, just generally on vis-a-vis the Chinese manufacturers in any territory where you look at a level playing field in terms of duties, we are cost competitive with them in those markets. And Japan would be an example of one such market.

Okay, sir. And sir, you mentioned that you do aluminum as well. So what percentage of your is aluminum?

Less than 1%, yes.

Our next question comes from the line of Kushal Kasliwal from InVed Research.

Sir, my first question was on our current realizations. It seems like at the current top line level and the volume numbers which you have reported, our current realization of copper was around INR 1,100 per kg. Is that a right number for 3Q?

Yes. I mean if you just take the top line and divide by the tonnage that we've given, the number should be close to what you are seeing.

Understood. But the prevalent market prices currently in 3Q, looking at some of the other companies as well as their public disclosures, it was around INR 1,300, INR 1,350. So just wanted to understand the reasons of this gap because some of the leaders actually in this space have reported like -- and that is a public data, which is 3Q numbers are somewhere near INR 1,300.

So how our business works is that when a customer places an order, it could be on an unknown LME of the day's CSP, it could be the month CSP or it could be like a 15-day moving average. So if you take all of these orders, I mean, it's very difficult to just say -- and this -- from time to time, we'll keep getting these orders. So if you take that average, I mean, what you're saying is that if others are at INR 1,350, why are we at INR 1,100? Isn't that, right?

Yes. I mean the public disclosures have been in INR 1,300, although their number cannot be tallied because they do not really report the quantity number which we report.

Correct, correct. So in our case, I mean, what we do -- like it's very difficult to correlate to some other company because he could be maybe only working on an average model or maybe his orders could be only coming on maybe a week's average. So that really -- and again, whether it's a complete pass-through for them, I'm not very sure. But in our case, it's anyway, it's a complete pass-through for us.

Understood. So from what I'm getting is there can be a lag between actual copper prices, which are prevalent in the market and our realizations per ton, and it can be like almost 1.5 to 2 months lag.

For us, you're saying.

Yes, for us versus the current copper prices, let's say, per ton or per kg prices of realizations of copper.

I would not -- I mean, lag the -- see, once we get an order, we normally take about 15 to 20 days to manufacture the material on a make-to-order basis and supply. So -- but then even for that 20 days, we don't have any exposure on the copper price. I mean that's why we say that copper is a complete pass-through from the date of ordering itself till the time we manufacture it and dispatch it, the invoice would carry the same copper price. So I'm not sure when you say lag, what exactly you mean by lag.

I think I got my answer. I understood what you're saying. So I'll just move on to my next question. My next question was around our HVDC orders, which are currently we are executing roughly 37 orders. So -- and also, we are into peak winding wire, which are used in EVs. So I just wanted to understand on a 2- to 3-year basis, how large can this new age business become for us as a percentage of overall top line and maybe some understanding on cadence of that coming on to our EBITDA per ton level from here, how higher we can go in terms of EBITDA per ton also?

So when we look at HVDC, now, of course, there's the Khavda Bhadla project, which is there, that is already out. And there are some still some more orders in that -- that still need to be finalized. But apart from that, there is a GE order which they have recently got, then there are some repair orders, which some of the other transformer manufacturers have got also. So all of this, this is an addressable market for KSH because there is a localization content that is required also, and we have the credits for supplying to these transformers. In terms of quantifying, I mean, I'm not able to really give you an exact number right now in terms of quantity, but we can work on that side of it in terms of quantity. And do you want to say something?