KSH International Limited (KSHINTL) Earnings Call Transcript & Summary

Thank you, Ray. Good morning, everyone. On behalf of Axis Capital Limited, I welcome you all to KSH International Limited Q1 FY '27 Earnings Conference Call. Today on the call, we have with us management represented by Mr. Rajesh Hegde, Managing Director; Mr. Amod Joshi, Chief Financial Officer; Mr. Dhruv Chopra, Head of Investor Relations; and Mr. [ Nakul Pathy ], Company Secretary and Compliance Officer. We thank KSH International Limited for giving us the opportunity to host the call. And now I would like to hand over the floor to the management for their opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, Rajesh.

Yes. Good morning, everyone. This is Rajesh Hegde. Welcome to our first quarter fiscal 2027 results call. Fiscal 2026 was a pivotal year in our 45-year history, marked by the completion of Phase 1 of our Supa expansion. In fiscal 2027, we are focused on utilizing the capacity while concurrently completing Phase 2 of our expansion, and I'm extremely pleased with the start we have made in the first quarter of 2027. Our first quarter financial results, along with supporting information have been submitted to the exchanges and have been uploaded to our website. On today's call, I will start with a quick summary of KSH and then focus on some of the strategic developments and trends we see as well as some of the key operating metrics of the company, including progress on Supa. Amod will then discuss the financial and operating metrics as well. For those new to KSH International, we are a 45-year-old manufacturer of magnet winding wires, which is the most critical component of coils used in electric machines from power transformers down to AC compressors and everything in between. We are the leading manufacturer of specialized winding wires in India and the largest exporter of winding wires from the country. Our installed capacity at June 30, 2026, was 43,445 metric tons. And once Phase 2 of our Supa expansion is complete by the end of this year, this financial year, we would have an installed capacity of roughly 59,000 metric tons, making us the second largest winding wire manufacturer in India. We are a B2B company servicing about -- servicing over 120 leading domestic and global OEM customers and maintain long-term relationships with these customers with repeat revenue in excess of 95%. 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 price and exchange rate is a direct pass-through. 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 5 continents. The T&D sector, as you know it, is in a structural long-term cycle driven by renewable energy, grid modernization, urbanization and growing power demand for AI data centers in India as well as globally. To address this demand, almost every transformer OEM is meaningfully expanding their own capacity. So to put it simply, more transformers require more winding wires. On our last call, we mentioned that some large transformer clients were exploring long-term multiyear agreements to ensure predictability of their supply as they ramp up capacity. We are very pleased to announce that we have entered into a 5-year supply framework agreement with Hitachi Energy Global to supply winding wires to their Indian plants as well as some of their global plants. As yet, this framework agreement and the details are still being finalized, we will, of course, provide an update when we are in a position to do so. Long-term agreements such as this further improves visibility for us to ramp up utilization as we complete the Phase 2 expansion at Supa. Looking at our export performance in Q1 of FY '27, our export revenue increased 76% year-over-year and 12% higher than Q4 of FY '26. Export growth remained strong across all our key geographies and was driven by wallet share gains with existing customers as well as new OEM customers added over the last 2 quarters. Specialized wire revenue overall grew at record 113% year-over-year compared to 62% growth in FY '26. Growth was driven by higher CTC contribution and exports. In fact, in Q1, CTC's contribution to the total revenue reached record levels in the last several years. Apart from the end-user demand environment, this was also partially driven by the fact that we front-loaded some of our Phase 1 capacity addition towards specialized wires. Over the next 2 to 3 quarters, we expect this to normalize to previous levels as we complete Phase 2 of our expansion over the remainder of this year. Domestically as well, we have added a number of standard wire clients, particularly as capacity has ramped up in Supa. As we have stated, our focus for standard wires is predominantly in the select end-user industries such as EVs, AC compressors, motors, alternatives for DG sets, et cetera, where precision technology plays a critical role. Standard wire revenue grew at a robust 83% year-over-year rate during Q1, similar to the 80% growth in Q4. Overall, sales volume was a little under 8,000 metric tons in Q1, up from roughly 7,600 metric tons in Q4 and 6,100 metric tons a year ago. This represents 30% year-over-year volume growth while being 5% higher than Q4 of FY '26. Similar to revenue trends, specialized wire volumes significantly outpaced standard wire volumes growth. There is one short-term industry dynamic we have observed, and I feel it's worth calling out, which is that we have seen a few of the transformer OEM customers who are in active capacity expansion mode delay picking up their orders by a few weeks. We do, however, believe that this will normalize as soon as they are able to resolve the bottlenecks and make their new facilities operational. Our Supa expansion continues to remain on track for FY '27 completion with the next wave of capacity expected to be added in Q2 of FY '27. In Q1, annualized capacity was unchanged at 43,445 metric tons. With capacity unchanged, consolidated company utilization improved to about 73.5% in Q1, up from 70% in Q4 of FY '26. Last week, we completed yet another one of our IPO objectives on time by commissioning our Acast backward integration facility in Chakan. This facility will have a capacity of 5,000 metric tons and be used to recycle our own copper scrap, which in turn should provide some modest operating efficiencies and further strengthen our sustainability effort. I would now like to focus my remaining comments on 2 of the key metrics of our business, namely our capacity expansion through Supa and the EBITDA per tonne. First, on our capacity expansion in Supa, though Q1, we have completed 14,400 metric tons of the scheduled 30,000 metric tons expansion. Let me highlight 2 points. #1 being we are on track to complete the remaining Phase 2 capacity by March 2027, with the next wave of addition expected during Q2. To secure our long-term capacity -- and the second being to secure our long-term capacity expansion requirements, our Board last night authorized management to evaluate acquiring an additional 10 acres of land within Supa MIDC for its long-term expansion requirements. Purchasing land in Supa MIDC is the obvious choice for us given the established infrastructure we are currently building out. Moving now to our EBITDA per tonne performance. In Q1 of FY '27, we reported EBITDA per tonne of approximately INR 93,000 per metric ton, up from roughly INR 74,000 in Q4 and INR 66,000 a year ago. The key drivers for these improvements were: #1 being within specialized wires, we had a record contribution of CTC during Q1. While demand is undoubtedly strong, there is also a timing element of front-loading specialized winding wire capacity in Phase 1. And hence, we expect contributions from the standard wires to increase as we go into the second half of the year. #2, being higher export contribution and volumes during Q1, which are all for specialized wires. In addition, some of the new OEM customers have been more favorable and market-driven value addition rates compared to our established long-term customers on a like-for-like basis. #3, an increase in the consolidated utilization rates to 73.5% in Q1 of FY '27 versus 70% in Q4 of FY '26 on a larger installed base. And lastly, a persistent weaker rupee is also helping the EBITDA per tonne. Lastly, I want to touch upon our working capital management efforts given it is a key focus area of improvement for us and will take us closer to our goal of ultimately being cash flow positive despite the hypergrowth environment we face. After showing a 5-day average working capital day improvement in Q4, we were able to improve it by another 5 days in Q1 -- during Q1, resulting in an average working capital days of 60 days during the quarter compared to 71 days a year ago. There is more work to be done, and we are focused on doing just that. To conclude, I would like to highlight some of the financial trends we have observed over the trailing 12 months that we believe should be sustainable through FY '27. First, for the trailing 12 months, volume growth was 26%. The higher Phase 1 capacity will be available for the full year FY '27 as opposed to only for a part of FY '26. And therefore, we feel that we should be able to sustain this rate of volume growth for the full year. Second, we reported an EBITDA per tonne of approximately INR 74,000 for the trailing 12-month period. We, therefore, believe that we should be able to sustain approximately INR 75,000 per tonne for FY '27, though the actual performance will depend on the product mix, exports and currency. We also want to highlight that we expect some fixed costs to increase as we ramp up capacity utilization going forward in the Supa plant. In summary, our key strategies to drive sustained growth is, #1, being to grow volume in our ultra-precision higher value-added products in segments like T&D, EV motors and exports; #2, expand our international presence, including expansion with our global clients; #3, being increased wallet share with existing clients; #4, drive operating efficiencies through scale and backward integration; and lastly, to improve our sustainability efforts. I would now like to ask Amod, our CFO, to go over some of the financial and operational details. Over to you, Amod.

Yes. Thanks, Rajesh. I will discuss our first quarter FY '27 financial and operating performance. During Q1 FY '27, our revenue from operations were INR 1,164 crores, which is 108% higher compared to the same period last year. Specialized winding wires revenue in Q1 increased 113% versus a year ago, driven by ongoing demand from our T&D clients domestically as well as from the export market. Standard winding wires also grew 83% year-over-year in Q1. Revenue from exports grew 76% compared to Q1 of FY '26. Volume, mix and material prices were key drivers of top line performance. Q1 EBITDA of INR 74.4 crores improved from INR 40.3 crores last year and INR 56.3 crores last quarter. As we have stated, reported margins can fluctuate due to movement in copper prices given that copper is a pass-through. Therefore, to evaluate the underlying progress of the company's profitability, it is more important to look at the unit economics of the business. EBITDA per tonne for Q1 was approximately INR 93,000 per metric ton on a consolidated basis, up from approximately INR 66,000 in the last year and INR 74,000 in Q4. During Q1 of FY '27, we reported a quarterly record PAT of INR 42.2 crores, which increased 86% from Q1 of FY '26 and 22% higher than INR 34.5 crores reported in Q4 of FY '26. Lastly, turning to cash flows and the steps we are taking to improve cash flow generation in a high-growth environment. Working capital days calculated on an average balance basis improved to 60 days from 65 days in Q4 and 71 days in Q1 of FY '26. In Q1, we made further progress on both payable as well as receivables compared to Q4, payables showing a 5-day improvement and receivables a 2-day improvement. Inventory days remained flat given the nature of our business. We will, of course, keep looking for further efficiencies over the next several quarters with the goal of being operating cash flow positive even in the high-growth environment. With that, I'd like to hand the call back to the moderator to open up for questions, please.

We take the first question from the line of [ Diksha Jain ] from InCred Research.

Congratulations on some very good numbers. My first question was regarding the EBITDA per tonne. As you discussed that the EBITDA per ton number has been very high this quarter. How do we see this moving for the rest of the year? Also, has the EBIT margins improved for standard wires as well? How sustainable is this?

[ Diksha ], I think Rajesh just addressed this particular point in his prepared remarks. But essentially, what we feel is that there are some obviously strong structural trends supporting the EBITDA per ton -- but there are also various factors in there. First of all, as our Supa Phase 2 capacity comes in over the next 3 quarters, there will be additional higher costs, which is a counter as well as ultimately, what is the mix between the product CTC versus others as well as standard and special broadly. So from our perspective, where we feel comfortable is INR 75,000 a tonne for the remainder of FY '27 for the full...

Has the EBITDA per tonne improved for standard wires as well? I'm not asking for a specific number, but I just want an idea regarding that. And how has the share of higher kV classes CTC moved in the specialized wire segment?

Yes. So as the round wire or the standard winding wire capacity utilization has gone up, the EBITDA per metric ton of standard also has improved marginally from earlier quarters. And your second question is in terms of higher value-added products for 765 kV, yes, the quantity has been higher as compared to both the earlier quarters.

Similar. I think it's around...

25% of the higher kV classes within specialized...

We take the next question from the line of [ Gaurav Bhatia ] from Goldman Sachs.

Congratulations on great set of numbers. Again, asking this question again on EBITDA per tonne. Is there any lumpiness in the CTC orders that we've executed in the current quarter?

So as we mentioned in the call, Yes, go ahead.

Let me explain the question. So the question is when you're talking about specialized -- nonspecialized wire capacity also coming up and that growth going forward being higher than, let's say, CTC growth, will absolute revenue that you've generated from CTC business, will that fall? Or will that also grow, but it will grow slower than the nonspecialized wire? That's my question. That's my first question.

[ Gaurav ], so to simply answer your question, no, there's no lumpiness. I think it's a question of proportion. So as capacity on standard wires and others come in, those volumes will pick up. So if CTC, as an example, was at an extremely high mix percentage of the total, that mix percentage will revert closer to normal. It doesn't mean that it would necessarily go down on an absolute...

So if I were to just look at EBITDA per tonne or EBITDA separately for CTC business versus, let's say, non-specialized business, both will grow, but the mix could change, and therefore, we could see a lower EBITDA per tonne on an average for the company. Is that what you're trying to imply?

Yes. I mean I wouldn't say explicitly that EBITDA per tonne for both will grow, but EBITDA will grow on an absolute basis for both, yes.

Fair. Because the number that you just mentioned, INR 74,000 for the full year, and if you've done INR 93,000 in the first quarter, it essentially implies lower than 74,000 for the rest of the 9 months, which is a bit surprising why it would be below last year Q4?

So [ Gaurav ], again, we have mentioned that this is not a guidance in that this is a number we are going to deliver. We have said that 75,000 is a level we are comfortable delivering.

Understood. That makes more sense. Second question on this 10-acre land and the capacity. Now at the Supa facility, I remember you had mentioned that there's another 12,000 tonne expansion that is possible without any need for extra land. Then this 10-acre land is on top of that. So 2 parts to the question. One, if I were to use this 10-acre land, how much incremental capacity is possible on a 10-acre land?

Right now, we don't have an answer to that question because the focus is on identifying the land. And ultimately, the tonnage that comes out of any plot of land will depend on the mix of the machines and products that you're putting in, and we are a long way off from determining that. This is more to ensure that longer term, we have the ability to add more capacity as we need it.

Okay. Okay. Okay. And just the last bit on working capital. Now we've seen a steady improvement in this -- in the working capital number of days. Where do you think is the sweet spot? I mean, where do you want to head to ultimately in whatever time frame, but what is that number?

So if you look at the industry standard overall, see 30, 35 net working capital days is what the industry is operating at some of our -- including some of our peers are even lower than that. But we feel that 30, 35 days is something that is fairly achievable. And that is what our aim going forward will be to do better than that also, if possible.

And any time frame you think is reasonable...

Sorry. So yes, on the time frame, it's a multi-quarter process, not multiyears.

But...

[ Gaurav ], can I ask you to jump back in queue so we can give some...

We take the next question from the line of [ Viyank Subramaniam ] from a Capital.

Just one on the long-term contract, which you've signed with Hitachi. Could you talk a bit more about that? And what kind of product does it cover? And what is the EBITDA per tonne potential from it? That's one. And number two, related to that, you mentioned last quarter that a lot of OEMs were looking to sign similar such contracts. So do you think that over the next few quarters, you could see more OEMs locking in supply primarily because of the scarcity in supply today?

So with Hitachi, as we mentioned, this is a framework agreement where the broad construct is decided upon. But still, there is no quantity or price defined as of right now. It's more of a framework that we agree on. But it's in due process. We will also frame the quantity as well, which we will, of course, communicate as we go along. Now the trend in the industry, what we had mentioned before also is since most of the transformer manufacturers globally are sitting on an order book of, say, about, say, 3 to 4 years. So the general tendency is to at least lock in some amount of the capacity that would be required. And that's where we come in because we have already been servicing most of these customers. And this discussion is ongoing. And we will report back whenever we are in a position to finalize any more agreements. That time, we will probably come back to all of you and mention it in the call.

Understood. And just if you could throw some color on the EBITDA per tonne, would you be able to say like whether this is higher, like a customer like Hitachi, given that they are very prevalent in high voltage, is there -- is the EBITDA per tonne higher than the company average when you supply to them?

No, it will be similar. And except like, I mean, when you look at it from a 5-year agreement, then there would be obviously some clauses, which going forward might move the EBITDA per tonne. But this is still work in progress. So I don't want to give any real guidance as such on the EBITDA per tonne going forward. But definitely, we'll be able to maintain it.

Understood.

And the products you mentioned, I think one of your other questions was what products. So Hitachi transformer companies use special winding wires. -- which is your CTC, your paper insulated or your enamel insulated rectangular conductors.

Understood. And I think just on the EBITDA per tonne, I think previously, your guidance was INR 65,000 to INR 75,000, but I think now you're confident of sustaining INR 75,000 at the very least. Is that the right way to look at it?

Yes. That's what we are saying.

We take the next question from the line of [ Shubham Bor ] from ICICI Securities.

Congratulations on excellent set of numbers. So my first question is, in this quarter, exports contributed 24% to the revenue, which was 29% in last Q1 FY '26. So what is management's outlook on this? And what number can we expect for the full year FY '27? And second would be in this quarter of total exports, how much were to U.S. and Middle East? That was my question.

I'm sorry, can you repeat the second question?

Out of total exports in this quarter, how much was U.S. and Middle East...

Okay. So on the first question around export percentage, I think you are calculating -- I mean, the way we typically calculate it is on operating revenue.

Excluding the other operating revenue.

Including other operating revenue. So on that basis, I think it was 27-ish.

Around 27%...

Yes, this quarter. And what we have said is over time, so not specifically in this period of this year, the target is to increase it back to its historical peak of around 40% of total revenue. And on the second question was the mix...

Middle East and...

So quarterly, we don't provide that information. But annually, Middle East, Europe and U.S. are our key 3 export geographies. and each of them represented between 8% to 11% of total revenue.

We take the next question from the line of [ Jinesh Karia ] from Union AMC.

I hope I...

Yes...

Congratulations on a very strong set of numbers on the operating front as well as on the balance sheet side. The question is more from an industry demand outlook. How do you see the cycle panning out? Do you expect the cycle to remain strong over the next 3 to 5 years, growing incrementally each year? Or you expect the growth rates to slightly moderate in the next couple of years? What is your view on the cycle?

So if you -- let me just break it up into some parts. I mean if you look at the T&D side of it, like we mentioned, a lot of the customers locally and globally, we find them they are sitting on an order book of anything that could be from, say, 3 to 5 years and depending on which customer you talk to. Most of these customers are also in expansion mode. But some of them have expanded. Some of the capacities are going to come in this financial year. Some of it is going to come by around 2029. And every year, you're going to have some capacity that comes into the market. So what we expect going forward on the T&D side, definitely, the volumes are there as we go forward. And that's the reason why we decided to add capacity for the T&D segment. Then the other drivers, if you really see are the EV or the AC compressors or even the alternators, which are used in DG sets. Finally, these alternators are being used for the data centers as well. So there also, we are finding like if you see alternators for DG sets or some of the motor segments and AC compressors, there is a strong demand pipeline that's coming up because of the sectors that they are going to be used in. And there are some other factors also like BIS, which is being implemented. So there's a lot of localization of the winding wire that's happening, which was earlier being imported from -- imported into the country. But now because of BIS, the standard wires are necessarily being -- the supply base is shifting to Indian companies. And then lastly, the EV motor side, this is a more long drawn-out process because the EV -- the winding wires, which are going to be required for EV, the 2-wheeler side is very, very strong. 3-wheeler side is also very strong. Passenger car and bus in terms of volumes, I feel that still, we would say around '28 -- FY '28, FY '29 is where the incremental meaningful volumes would really play. But then you have to be a part of those programs right now, so that whenever those programs mature that time you are in a position to supply to these companies. Have I answered your question?

Yes, sir. That was really very helpful. Next is on the margin front. While you already guided that you will be able to maintain at least margin of INR 75,000 per ton -- is it possible for you -- so I'll break my question in 2 parts. Is it possible for you to break down the 93,000 tonnes margin as to qualitatively or quantitatively, however you would like to answer between inventory gains, value mix improvement from specialized wires and standard wires and operating leverage. That is the first part of the question. And second part of the margin question is with the HVDC and other higher value items increasing going forward, maybe not immediately, but 2, 3 years down the line, can we see an upward trend in the margin from the 75,000 guidance?

I think you have answered that first one. I mean from the operating leverage, Yes.

Yes. So see, the breakup of the EBITDA that you asked in terms of the improvement, what you mentioned, all 3 factors have contributed to the increase in EBITDA. However, we do not give a full breakup of the 3 on the call over here. Second question is on your higher specialized value-added products. Yes, there is -- expectation is that the quantities will go up, and it will help to sustain or improve the EBITDA going forward. But like it was mentioned on the call earlier, we are comfortable to say that 75,000 is a long-term sustainable EBITDA.

INR 75,000...

INR 75,000.

So [ Jinesh ], if I can just add, this is Dhruv. One quick thing on that EBITDA question. Look, I think the key driver, which is what we called out on the call rather than the individual components is the mix. And we have always mentioned that specialized wires are more profitable than standard wires. And even within specialized wires, CTC being even more so. And so in this particular quarter, the contribution from CTC reached historically record levels. And that was a much bigger driver of the higher EBITDA per tonne than any of the individual components.

We take the next question from the line of [ Mayank Chaturvedi ] from HSBC.

Sir, just to one of the earlier participants, you were mentioning some percentage of revenues that has come in within the specialized wires from higher-rated transformers. Can you just repeat that percentage for me, please?

You're talking about the 765 kV in HVDC?

Yes. Yes.

Yes. So for the last 2, 3 quarters or so, that has trended above 75% -- 25% of overall CTC volume is coming from the large power transformers, and that continues to hold.

Okay. So within specialized, you have historic high CTC levels and within CTC, you have 25% above coming in from 765 kV and HVDC?

Yes correct.

Okay. And that historical high level of CTC mix within specialized, would that be -- would it be fair to assume it would be more than 50%?

So again, we are conscious about what specific metrics are disclosed. But I think if you look at our overall specialized wires, CTC will represent anywhere between 50% to 75% of that segment.

All right. All right. Got it. And just sir, on this new land parcel that you're trying to identify in Supa, I'm assuming would it be a mix of specialized and standard wires? Or would it be for one of those capacities? If you can just give me some color on it?

So the land we are identifying, it was mentioned earlier, is for future expansion, and it will be in our existing products. But currently, that is under discussion within the company, and we'll give you more details as and when we finalize it.

We take the next question from the line of [ Priyanshu Jain ] from Growth Infinity.