R R Kabel Limited (RRKABEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Earnings Conference Call of RR Kabel Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Jain from Orient Capital. Thank you, and over to you, sir.

Thank you. Good afternoon. On behalf of RR Kabel Limited, I extend a very warm welcome to all participants on Q2 FY '25 earnings conference call. Today on this call, we have Mr. Shreegopal Kabra, Managing Director; and Mr. Rajesh Jain, Chief Financial Officer. Before we begin this call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinions and expectations as of today. These statements are not guarantees for our future performance and involve unforeseen risks and uncertainties. With this, I hand over the call to Shreegopal Kabra, sir. Over to you, sir. Thank you.

Thank you. Hello, and good afternoon, everyone. On behalf of RR Kabel Limited, I wish you Happy Diwali in advance and extend very warm welcome to all the participants on our Q2 FY '25 financial results discussion call. On this call, I have with me Mr. -- our CFO, Rajesh Jain. Despite facing a few challenges and achieving moderate volume growth, we are pleased to report our highest ever quarterly and half yearly revenue. This growth was primarily driven by double-digit volume expansion in our domestic Wires & Cables business. Our FMEG segment also delivered a strong revenue performance, driven by lower volume growth and improved product mix, maintaining its status as the fastest growing player among peers. With current growth momentum and gross margin improvement, we expect to achieve breakeven in FMEG business by early FY '26. Our numerous strategic initiatives, including capacity expansion, the introduction of high-margin products, new launches with international approvals and the expansion of our distribution channels continue to progress as planned. These initiatives are designed to enhance our performance with a major focus on achieving double-digit margin in the coming years. With this, I would like to hand over the call to Mr. Rajesh Jain to take this discussion forward.

Thanks, Shreegopal ji. India's growth story remains intact with its core drivers, consumption and investment demand gaining strong momentum. This foundation coupled, with the buoyant real estate sector, is set to make a substantial impact on India's GDP, potentially contributing to double-digit growth. The resilience of the domestic environment has played a key role in supporting of our volume growth in the Indian market, particularly in our Cable & Wire business. The export market, especially in Europe, has been impacted due to delay in shipments, impacting our export demand. The slightly sequential volume decline, along with the impact of a higher base year-on-year, is something we are addressing with the strategic focus on strengthening our domestic growth and exploring new opportunities internationally. Despite these short-term challenges, we are optimistic about our long-term prospectives and remain confident that the momentum in the domestic market, along with our ongoing initiatives, will lead to a better performance ahead. Now, let's walk through the financial and operational highlights of Q2 FY '25. We are pleased to report that in Q2 FY '25, we achieved our highest ever quarterly revenue of approximately INR 1,810 crores, reflecting a strong year-on-year growth of 13%. Similarly, we also posted a 13% growth in the first half of FY '25, marking our highest ever half-yearly revenue over the same period last year. This growth was primarily driven by domestic volume expansion in our Wires & Cables segment and more particularly in cable segment. Similarly, our FMEG top line has also grown by impressive 25%. Our EBITDA for the quarter stood at INR 86 crores while profit after tax was INR 50 crores. The reduction in EBITDA and PAT was largely influenced by a contraction in contribution margin, driven by heightened volatility in metal prices during the quarter. However, we remain optimistic about overcoming these temporary headwinds. Looking at the segment-wise performance, our wire and cable business recorded a revenue of INR 1,612 crores in Q2 of FY '25, up from INR 1,450 crores in Q2 of FY '24, marking a growth of approx 11%. On a half-yearly basis, we saw a similar 11% growth with revenue reaching to INR 3,190 crores in H1 of FY '25 compared to INR 2,874 crores in H1 FY '24. This growth is primarily attributed to volume expansion of approx 4% on Y-o-Y basis and 8% on half-yearly basis. The EBIT margin for the segment stood at 5.1%, impacted by copper price volatility and delay in passing the cost instantaneously. Our export market showed resilience, contributing around 27% of total revenue in Q2 of FY '25, up from 24% in Q1 of FY '25. Despite some challenges, we believe our ongoing efforts in both domestic and export markets position us well for sustained growth moving forward. When you talk about guidance of our wire and cable business, given the situation of high volatility in copper prices during the first half of the impact on demand due to shipment delays in export markets, we have revised our guidance to reflect a more measured outlook. For the second half of FY '25, we now expect a volume growth of approx 15%, which should help us to achieve an overall volume growth of 10% to 12% in FY '25. We anticipate a stronger performance in H2 FY '25 and expect our EBIT margins in the wire and cable segment to improve back to the range of 8% to 8.5% for second half of FY '25. On the export front, while shipping delays may persist for a while, we are actively addressing these challenges. We are in process of getting key product approvals in both the European and U.S. markets, which, once secured in the near future, will enable us to introduce higher-margin products to these regions. Despite short-term hurdles, these efforts are aimed at strengthening our position and drive sustainable growth in the long run. We remain confident that the measures we are talking will set us up for an improved performance ahead. In the FMEG business segment, we are pleased to report a solid revenue of approximately INR 198 crores in Q2 FY '25, reflecting an impressive growth of 25%. For the first half of FY '25, we have delivered a remarkable revenue growth of approx 29% over H1 FY '24. This growth was driven by sustained volume increase across key product categories such as fans, appliances and switches. Our segment margin improved, benefiting from an enhanced contribution margin driven by higher sales volumes and a favorable product mix. This performance has allowed us to maintain our position as the fastest growing player among our peers in FMEG segment. Additionally, we have successfully maintained our working capital days at 63 as of September 30, 2024, further underscoring our commitment to sound financial management and operational efficiency. Our strategic and initiatives remain firmly on track, and we are on course of complete the current CapEx cycles, which will enable us to achieve our future growth. In parallel, we are actively working on our next CapEx cycle for the coming 3 years. And we look forward to updating you as we mark progress on this front. Our FMEG segment is also on the -- well on track with continuous initiatives such as new product launches, investment in brand transition and increased advertising efforts. These steps will help us to move closer to breakeven in the near future. With these initiatives, we are confident that our strategy will drive long-term growth and profitability. With this overview, I would like -- now like to open the floor for questions. Thank you for your attention and continued support.

[Operator Instructions] The first question is from the line of Praveen Sahay from PL India.

My first question is related to the volume growth. Sir, can you explain like how is -- volume is progressing now as you had already given a guidance of 10% to 12% for a year or 15% for a next half? So how you are seeing from a soft volume in the Q2 to Q3 of October, how that's progressing? And what exactly the confidence you are reading from the market for 15% of the growth for the next half?

So Praveen, when we see our -- this first half growth, like our growth was around 8.5% in first half of this year. And based on our historical growth and looking to the market conditions, even in wire and especially in cable, where we are aiming to grow at a much higher pace, so this gives us confidence that we can achieve a growth of 15% in second half, which will enable us to get the growth of 10% to 12% on a yearly basis. In -- even if we now also see, in spite of some challenges in export segment, still we were able to achieve this volume growth of 8.4% in first half.

So if you can highlight like from where wire is doing well or expected to recover or the cable growth to continue for you for the next half as well looking at the -- and also if you can -- and that's the new capacity, which you had highlighted earlier that is expected to come in the stages in the financial year FY '25. So how is the situation there for the cable especially?

Out of total CapEx plan for FY '25 or till March '25, already some of the capacity is available for production and based on that only, like when I'm talking about approx 15% volume growth, by thumb rule, we understand that approx 10% growth can come from wire and 25% growth can come from cable and -- which will give us weighted growth of around 15%. More particularly, though our base is very small in cable, but looking to the industry side, looking to a demand cycle and the way we have orders in pipeline and even the Indian infrastructure is working, we are expecting that we can achieve this growth of 15%.

Okay. Sir, next question is related to the margin. Also in the margin front, you have given some 8%, 8.5% of margin guidance, whereas 6% of the margin in the wire and cable EBIT you had delivered in the first half. So the contraction in the margin is only because of a fluctuation in the raw material prices or more to do with the product mix changes, how is that -- why that's got impacted and -- the 6%? And from where you are getting that 8%, 8.5% of a margin to achieve actually?

So when we see figures of this quarter or even for this half -- first half of this year, the major contraction has come at the gross margin level only. So it was affected by 2 things: One, copper price volatility; and second is passing on this impact to consumers in timely place. So in this quarter, we were not able to completely pass on the impact of higher prices to consumers. And that is why our reduction is approx 4% when I compare to last year, but the same thing reflected or transit in EBIT level also. So the major difference was at gross margin level only. And at the same time, when we are talking about 8% to 8.5% kind of EBIT level, which we could have achieved in last year also, so at the same level, we are expecting that in H2 of this year, we'll be achieving the same, which are normal level for our business, EBITDA margins of 8% to 8.5% for wire and cable segment.

Okay. Without considering any fluctuation in RM prices?

Yes. Yes.

Sir, last question is related to the FMEG because from the last couple of quarters, you are delivering a very strong growth. So this quarter also, this 24% of a growth, if you can highlight, is that more to do with the value growth or the volume growth is also there? And if the volume growth is there, from which segment you are getting this volume growth, if you can highlight the segment as well as geographical mix in that?

So Praveen, in FMEG business, it is not exactly or directly linked with volume growth because you have different, different units, be it fan, light or switches. So ultimately, if we see we have achieved a very good growth in fan, appliances and switches. So majority of the contribution will come -- in spite of the challenge in like price pressure or price correction in lighting, in spite of that, we will be able to -- we were able to achieve this growth of 24%. So it is a mix of like shifting some sales from economic category to premium and mid-premium category, which are high-margin products and even getting new prices from new product launches, what we have done in last year.

Our next question is from the line of Rahul Agarwal from Ikigai Asset Management.

Sir, firstly, to start with, did I get the volume growth numbers correct? So on domestic cable and wire, you said the overall growth was 8.5%. Is that number correct?

No. So my 8.5% is on H1 versus H1 of previous year, while my domestic volume growth is more than 10% for -- if I just compared quarter-on-quarter basis.

So 10% volume growth for India business for the second quarter of fiscal '25?

Yes, yes. On Y-o-Y.

And how much was international Y-o-Y for second quarter?

Y-o-Y, we were negative. Since our last year base was a little bit higher side and due to delay in shipment, it is almost negative by 9%.

Okay. Okay. Sir, one more question I had was that in case we were unable to pass on the price hike, my sense is from a pricing perspective in India, RR Kabel must be pretty competitive versus other brands in the quarter. So despite that, the volume growth looks like -- when you compare it to listed peers, the data that we have right now with us, it looks like we are the lowest in that hierarchy and which basically means that you have lost market share. So if our prices were lower, then we would have done better, right? So what could be -- like some -- was there a regional divergence in terms of how you performed and others performed? Could you elaborate a bit on this, please?

So Rahul, as per my understanding, the impact on pricing was with all competition also. If you see their margins have also reduced in the similar line what we have done. But -- so the thing was that since the correction in copper prices or fluctuation in copper prices were very high, and whatever the approach we have to pass on this price in a systematic manner with some lag impact to consumers, this time this cycle could not be completed as there were some delays in implementation of new prices or effect of giving new prices. So there was a reduction in -- at gross margin level. And I think it is similar with my peers also.

Sir, peers have reported better gross -- better volume growth. So I was just concerned with that. Margin, I understand.

Yes. No, I cannot -- I do not have that data, just my -- just if I compare the gross margin level of peers and myself, then there is similar kind of contraction in gross margins.

Fine, sir. Moving ahead, one clarification I wanted was in our export business. Our margins when we export, I think 70-30 is the mix between wire and cable in exports also. Our margins are better than India or lower than India?

So again, there are 2 segments. In wires, the margins are less when I compare with India. But in cables, margins are better in export markets when I compare with Indian market. So it is both way -- in cable, it is higher and the wire, it is less in export market. But since we started our export journey from wire only, so still majority of our export is coming from wire only. But now we are focusing on changing the product mix to have higher profitability. And our cable exports are increasing, as my capacity is also enhancing and we are getting good demand from export market, but this is continuous process.

The next question is from the line of Huseain Bharuchwala from Carnelian Capital.

Sir, just wanted to understand from you, basically your competitors, the largest player in the segment, has said that this growth in the wire segment was 2x that of cables. But -- and you being the largest player in terms of [Foreign Language] -- you are the -- you have a better mix of wires compared to cable, right? Your business -- your volume should have been better. So what went wrong in terms of the volume growth? Because I understand the margins, but what went wrong in the volume growth because the Street was estimating much better numbers when it comes to demand. And real estate is in a good cycle. So I believe your volume growth should have been much higher.

So what happened like when copper prices were very volatile at the end of Q1 and that impacted the demand of June as well as July and till mid August. So though at the end of this quarter, there were good volume uptick also, but it's still like the first -- initial first half of this quarter have impacted us to a large extent in terms of wire demand. But it has improved when I compared -- sorry, yes, please?

Sir, my point is your volatility in the copper prices, we understand. That is completely there, but if your competitors are able to grow much faster in the wires, and you are being the leader, so have you lost market share in terms of wire? That is something that we can understand -- that we can basically understand from you? Have you lost market share?

Since we do not have exact data of how much growth in wire and cable, but still we are giving the understanding what you are saying if others have grown at higher in wire and we have almost flat in wire. So if by that logic, it seems there may be some impact in our market share, but we do not have exact data.

Got it. Got it. And secondly, sir, on the export side, can you give us some color how is it spanning out in the export market? Have you got any approvals or any registration there? How we are seeing the export market? And what is the feedback in Europe? Is the demand better in Europe or things are -- like turn better going forward? Can you give us some color on that front?

So overall, see, we are very strong on export front. We have more than 42 international product approvals. Also like our export market is established. We are largest exporter as well as that almost 25% of my revenue is coming from exports. So in that way, we are doing very good. At the same time, being -- Europe is my largest export market. And due to some delay in shipments, what happens like if it was taking 25 days, now it is taking 35 to 40 days. So this has delayed some shipments also and even some few parties changed their orders from us to maybe some other suppliers also. So there was some impact from -- temporary impact on my wire demand from European market. At the same time, like we are in process to get approval of my cable products or some special cables in U.S. market also, which is in pipeline. And we are expecting that by this quarter end, we'll get those approvals. And slowly, we'll get additional business from new product lines also.

Got it. So U.S., what is -- if you can give us a ballpark figure of your U.S. share in your total exports -- if you can give some ballpark figure?

So as of now, it is contributing almost 10% in my export. U.S. is almost 10%, and Europe is maybe 50% to 55%. So in that way, we are very good in developed countries.

Got it. So do you think your U.S. share with time will go up? And pricing, I suppose, it will be better in U.S. compared to Europe?

It is not about Europe and U.S., but it is related to product. If we are in cable exports or maybe high -- specialized cable products. So in U.S., we are focusing only on high value-added products only. And same way, Europe also, our focus is increasing the cable segment where we have higher valuations. So overall, we are focusing on how we can increase our sales in high value-added products in export market.

Got it. But sir, in the domestic market, in the overall segment, I think there are very small -- there are a lot of small players have also entered in the market. So do you see heightened competition in the segment when it comes to Wires & Cables with the new small players? A lot of players have got funding recently So they have also started competing on some of the tenders. So is there something that you're seeing?

So still as per our understanding like 65% to 70% market is only with organized player and rest is with unorganized. Though over the time, we have seen very good improvement in market share by organized player. And what we understand that every brand has their own strength on like geographical strong presence. So every company is doing at their best. And competition will always be there, but we have our own strategy to expand my sales base and getting higher volumes in wires also in domestic.

Got it. Got it. And sir lastly, on BharatNet. So basically, BharatNet tenders are supposed to get announced. And a lot of players -- a lot of your competitors are basically bidding for those BharatNet tenders. So that is a sizable opportunity. What I understand, it's INR 50,000 crores sizable opportunity in cables. So are you bidding for some of those tenders? And what is -- what are you eyeing in that front, if you can give us some color on that?

So as of now, not on BharatNet because we have very limited capacity in cable. But still, we have already good demand from government as well as private sector. So we have such a demand in current customer base only. As of now, we have not participated in those tenders.

[Operator Instructions] The next question is from the line of Achal Lohade from Nuvama Institutional Equities.

Yes. Sir, 2 questions. First is with respect to competition. Now as we have seen in case of margin impact as well, has that continued in the month of October? Is this one-off? Is this is new normal according to you? And in terms of the pricing, how do we stack up against the peers in terms of pricing our product? Are we at par? Are we at premium compared to the market data? That's my first question, sir.

Okay. So if we see, it seems that Q2, which was extraordinary and one-off only in terms of reduction in profitability. But as a normal practice and based on the historical data also and based on our experience, it seems we will always keep on passing this price impact to our consumers in a systematic manner. Though there will be some lag impact, and there may be some impact when we see month-on-month basis, but when we see at longer time horizon, then we will always be able to pass on this price. The effect in Q2 especially was like a onetime only, where all of a sudden, the huge volatility we were not able to pass on both the sides, like at increase time also and at reduction time also. So there was one-off effect. But otherwise, you'll see every company has their own brand positioning, brand pricing. So we are at par with competition, and the price movement is almost similar for all companies.

Got it. And second question I had, I missed that guidance. So you said you are looking for a 15% volume growth for the second half. And what margin guidance you have given, sir?

8% to 8.5% EBIT margins for wire and cable for second half.

Okay. And does that assume pricing -- normal pricing scenario? Or it assumes a weak pricing scenario in terms of compared to competition, the aggressive pricing or anything of that sort?

It is based on current pricing scenario, like not very strong or weak, but it is like what -- how industry is behaving currently. It is based on that scenario only we are assuming.

Understood. And just one more question, sir, I may, with respect to the distribution. Can you help us understand what are our targets we're looking at in terms of the distributor and the retail count, let's say, for FY '25 and FY '26? And what is it currently, if you could spell that out?

So for distributor and retail level, what we think that our current bandwidth is sufficient enough to serve the current -- my expansion plan also and growth also. The only thing now we want to increase the depth of my distribution. So per distributor sales should increase. And in that way, we are working. At the same time, our focus on retail and electrician is a continuous process. And we are working as we -- earlier also, we were always focused. Like we have more than 1.25 lakhs retailers or maybe more than 4.5 lakhs electricians in our loyalty management program. So that focus will continue to be there. The only thing, distribution level, now we are focusing on increasing the depth of my distribution.

So you're saying the breadth is already there. We are -- we want to have more extraction out of this current setup in terms of the sales throughput. Is that right, sir?

Yes, yes. Exactly that, sir.

Understood. Understood. Sure. And just last question, capacity utilization for cables and wires for the second quarter?

It was similar to last time only like almost 90% to 95% in cable and 65% to 70% in wire.

Our next question is from the line of Venkat Samala from DSP Investment Managers.

Sir, earlier you used to guide for 20% volume growth for us for the full year, right? Now we're talking about recovery in H2, but still we're talking about only 15% growth, right? So what has led to some moderation in our guidance versus the earlier expectation?

So when I see the current H1 growth and some impact on my export market also, so like overnight, I don't want to overcommit that our growth will be something. When we have achieved a growth of 8%, then what we see 15% is quite moderate growth. And first, we want to achieve this only, and then we'll see how market moves ahead.

Okay. Okay. So the impact essentially is on the export side versus earlier expectation. Domestic side, you don't see a challenge.

No. See, competition is there. Always, it will be there. But yes, we see good growth of -- even 15% is good growth, though it is below our earlier guidance. But still -- first, we want to achieve this figure and then we'll see.

No, that I understand. I'm just saying versus the earlier expectation, what has changed? Domestic has changed or export?

No, export. Export has changed. So like you have seen -- like we have degrown in this quarter in export markets. So ultimately, it will have some impact in my export growth. So domestically, things have not changed that much.

Understood. That is clear, sir. And in response to a previous question, you did mention about losing out for some of your orders to another vendor. Can you elaborate that?

So what happened like earlier, we were making export to Europe and like they were taking regularly from us, but when there were delays in shipment, so they might have changed and they might have some -- purchased some quantity from Turkey or similar places, which are very nearby to them. So in that way, we might have lost some orders.

Okay. Okay. And is it to an Indian guy or somebody else?

Turkey, I'm saying Turkey because Turkey, see, their transit time is hardly 7, 8 days, while it is taking almost 35 days from here. So in that case, some of my orders since there were delay in shipment and my -- some customers might have shifted some orders to Turkey, nearby country there, not from me.

Our next question is from the line of Amol Rao from One Up Financial Consultants.

Sir, could you be kind enough to tell us what could be the possible quantum of any inventory loss that we had? I mean just because of the quarter ending copper price, what is the notional -- not cash loss, notional loss that we could have incurred? Because this evens out over the course of the next few quarters, just to get a sense?

No. So it is not always possible to quantify that inventory loss because what happens here, price is moving on like fortnightly or monthly basis or sometimes even weekly basis. Also it keeps changing. But yes, you see from notional level, there may be some impact. But again, this -- you cannot predict that on -- for going basis also, it will be in the similar fashion. So since there was like very high volatility when I compare with just H1 of this year or even Q2 of this year, so there may be some impact that some prices we could not pass on to whatever price we were having inventory and could not be passed on and converted into sales. So there may be some impact of, say, INR 15 crores, INR 20 crores in this quarter.

Okay, sir. That's about it. Okay. So that is -- that limits to INR 15 crores, INR 20 crores only. Okay. So just wanted to get a sense how much because, I mean, the copper volatility is -- I mean it's been very rare to see such volatility. It's not happened very frequently in the last 10 years.

Yes.

Sir, secondly, sir, just -- I mean just on -- just curious on the profitability side. Even though, sir, I mean, our FMEG sales, the losses have narrowed, sir, you attributed it to a product mix change. So sir, what products did we favor this quarter that we got -- that we reduced the cash burn in this quarter, sir, if I may ask?

So if you see even within fan or maybe other products also, now what we are doing that we are focusing to have increased sales of premium and mid- to premium category product. So like always economy category have limited profit or higher competition. So now we are focusing that how we can achieve higher valuation by focusing on premium and mid-premium category product or new products, what we are launching in market. Even like if you see lights have higher volatility in pricing also. But in this quarter also, though it is off-season for fan product, but still we could manage good growth in fan also. So in that way, it is like improving my gross margins and reducing the losses.

Got it. And sir, I mean -- this product optimization, I mean, is this going to be -- I mean, obviously, we're going to take a tactical call every quarter. But you see this to be a trend over the next few years that we are more towards the mid-premium and premium side rather than the economy side? Or do we need to -- I mean, what I'm trying to ask is, will economy still continue to be a big chunk of our FMEG thing because we need to have a wholesome product basket?

So see, one thing is for sure in FMEG, you have to focus on all the categories. If you have to make higher growth, then you have to focus on economy category also. But at the same time, if you have to become a premium consumer brand, then we have to add a few products in medium premium or mid-premium category also. So it will be always a mixed approach that at one side we will always focus to have increased sales of premium, mid-premium category. At the same time to spread my market and to have a higher presence in the market, we'll have a focus on mass sales also. So it will be always like having good approach or equal approach on both sides.

Okay. Sir, just to take that question one step forward, sir. We have got a good size -- a decent size, and you have guided towards a breakeven in FY '26 in this -- in the FMEG business. Is it safe to assume that INR 1,500 crores of annual run rate could see the cash burn end? At that level, we stop burning cash because then our product portfolio is quite mature. It covers all the categories, and we are making enough money to cover up everything, all our expenses, INR 1,500 crores...

So we are expecting to achieve breakeven much before that. Like at INR 1,100 crores of level of top line, we are expecting to achieve EBIT level breakeven.

Our next question is from the line of Rahul Agrawal from Ikigai Asset Management.

Yes. I think I got dropped off asking questions last time. Sir, one question was on the status of capacity expansion. If you could explain product-wise, what's really happening on the cable and wire side? How is that shaping up?

Yes. So like if you see earlier also what we explained that we are doubling our power cable capacity. And at the same time, we are also increasing almost 20% to 25% my wire capacity. We are on track to enhance this capacity and this CapEx cycle, major part will be completed by end of this financial year. And a few machineries are already operational out of that. So we have now -- like it will be ongoing process that whatever capacity we are enhancing, this will help us to achieve the growth of next 2 years.

Yes. Very clear on that. What I wanted to know is a bit more specific in terms of we were planning to launch power cables, both for export markets as well as for Indian market. So is that already started?

No, no. Full capacity -- Rahul, full capacity has increased, but still the major part of power cable will start in April '25 only.

Okay. Got it, sir. And one last question, sir. From October -- I mean, most of October month is over, but copper has been acting funny. I don't think it's pretty stable even in this month. How are you seeing the channel behave for this month? Any color?

So like this month is at normal level. So what we have seen a very good demand in September or very poor demand in July or June. But this is a normal month in terms of demand. Even at copper price though, we have seen volatility on a day-to-day basis, but on a monthly average, if you see, like copper prices are almost 3% up than September level. So in that way, it is like a normal month for us.

Which means that we are better off from September, right? September to October, we are better off?

No, no. As I told, September was a really good month for us in terms of volume. And that could make whatever we could not do in the month of July or till mid-August also. But at the same time, we see on average basis, yes, we are doing better than previous quarters.

[Operator Instructions] Our next question is from the line of Tanay Shah from DAM Capital.

Yes. So I just wanted to understand as to the guidance, which we're reiterating for FY '25, how is the demand which we're kind of looking at it? Like what's the demand outlook for H2 because...

Tanay, can you speak a bit loudly, please? Can you repeat?

Yes. Can you hear me now, sir?

Yes, now it's better.

Yes. So I just wanted to understand, given that H1 has relatively been weak versus our expectation, how are we kind of expecting the demand outlook for H2 because the ask is fairly high for H2? And similarly, apart from the demand, how are we seeing the RM price volatility kind of faring out for us because even the margin ask per se for the EBIT margin is fairly high. So sir, if you could just guide on that, it would be great.

Yes, Tanay. So first, you have to see historically also or traditionally also, H2 is always better than H1. In this industry, what happens like majority of the product or real estate projects also get executed in H2 at much higher volume in compared to H1. So one is that reason. And secondly, even what -- when you are talking about margin improvement or margins, so what we are thinking is what we have achieved in last year, like our EBIT margins for wire level were in the range of 8.4%. So we are expecting that range only. So we are -- like we are on back to normal situation, where we could achieve whatever margins we were historically achieving. So we are not forecasting any much, much improved version or higher targets. These are in line with our trend and industry figures only.

Sure, sir. So while it obviously is in line with what we kind of achieved last year, but given the RM volatility, which we've kind of seen and obviously, the increased competitive intensity as well, so is there any improvement on that front as to where we believe that this can kind of normalize going forward into the second half?

As per our understanding, Tanay, the impact in Q2 was abnormal. If you see normally, there is always a price fluctuation or volatility was always there. And there were a good system also to pass on this price impact in systematic manner by changing your sales price and passing on this price impact to our consumers. The only thing in this quarter, we could not pass on that, in fact, completely because there were high volatility. And with a very small span of time, there were both side movement. So this is one-off thing. Otherwise, normally this normal price movement will always be there, and we will -- always we pass on this impact to our consumers. So that will not impact my gross margins.

The next question is line of Naushad Chaudhary from Birla.

A couple of clarifications. So firstly, on the margin side, sir, in terms of -- if I look at the nature of the business, one or two quarters here and there is fine, but if I look at your numbers from that...

I think I'm not getting exactly. Can you repeat?

Yes. I think -- hope it's better now.

Now it's better, yes.

Yes. So firstly, on the margin side, sir, see 1 or 2 quarter volatility here and there is fine. But from last 5, 6 quarters, consistently, we are losing margin. And given the nature of the business, we have not experienced this kind of consistent decline in one direction of the margin. So is there anything else which we should understand from the business or mix point of view? Or is there any unfavorable contract, which is sitting in our book, which is impacting this margin? Help us understand it more what exactly is there apart from the raw material volatility, which we are not able to understand with this consistency in the margin decline?

So here, I would like to clarify one thing that we are not in the long-term contract kind of business and majority of our business, since it is more B2C. So the current prices only impact or whatever long-term orders we have that all are having PV clause, price variation clause. So frankly, the major impact is due to price volatility and time gap between my purchase or my stock cost versus passing on the price impact to consumers. When we compare on quarter-on-quarter basis, there are some variation. But if you see on a yearly basis, like in last year, we have seen improvement of margins by almost 140 bps in my wire and cable segment. So this year, again, first quarter was one of the off -- first half of this year was off from our normal figure. But again, second half, we are having target of getting that normal EBIT level or margin level only. So we are on track on that, and there is no impact other than what...

I understand that, sir. Help us understand in terms of your overall length of the contract which you signed, what percentage of your business comes from the contractual business? And how often you change the price?

So hardly 5% to 10% my business comes with that kind of long-term contract business. And there also, we have like 100% businesses with PV clause only. So PV means the last month average, whatever last month raw material prices keep changing on every next month's supply. So we do not have any fixed term contract either for 3 months, 6 months or 1 year.

No. But see, nature of our export business, sir, it takes 35 days to deliver the product. So somebody has to agree on some price. So if you're making the product, if you're taking 15, 20 days, then 35 days to deliver the product, so in a way, directly or indirectly, we get into 45 to 50 days of the contract, right?

Yes, yes. So this is very good question. But just let me explain in export, our prices are very transparent. At the time of placing the orders, we have -- in our pricing seat, we have like 3 things are variable: my copper price, PVC price and freight, while my conversion profitability is fixed. So whenever they are placing the order, they place their order either on month average basis or some average or some days average. And whatever basis they're placing the order on me, I also cover back-to-back on my purchase side also. So copper -- like my export business has 0% risk in terms of price volatility as well as ForEx fluctuation also. Both end, we are quite secure. I hope this will answer your query.

I'll take it offline. I'll just have one other question to clarify. In terms of your overall copper procurement policy, if you can help us understand what percentage of the requirement you import? And why do we import it? Is it because of the price difference or availability? And do we hedge this position? Overall help us understand your procurement policy.

Yes. Just I will answer in briefly, maybe detail we can -- in detail we can later also. But right now, what I can say to you that like almost 30% of my copper procurement, we are importing. And the reason being, since I'm exporting also and my exports are covered under advanced authorization scheme, where I can import duty-free material. So that is a good way to have my -- compensate my import and export balancing.

Okay. And just lastly, then I'll come back in the queue. See, I -- we have reduced our growth guidance, and we are giving some reasoning to the export market. So can we be a bit more specific here? When you were giving 20% growth guidance, what was the thought process there? And what has exactly changed here to reduce our growth guidance?

See, historically also, we were always -- we were in the range of 20%. This first H1 was one-off and where we could not achieve, and the major reason was export only. That's why we are just moderating for this half of our guidance. And later, we'll see how things move. So since we are meeting every quarter, we will keep updating you about...

Yes, I take that point, sir, but if you can be more specific, what exactly is changing there in the export market? Is there an overall slowdown you are experiencing in the...

So I think I have already answered this question that there is no slowdown, but some impact due to delay in shipment. There were some orders shifted. And due to the shipping time changes, there is some impact, but it is not permanent kind of impact. Still our business or demand is good, and there is good presence of our brand all over the Europe and particularly in more than 85 countries. Good thing that we export our products in our own brand, which is again a very big achievement for us.

Sir, is it because of the high volatility in the copper prices and nobody wants to take 35 days open exposure in the copper, that's why they are preparing nearby...

I think not that reason, but they don't want to have that kind of material in transit. See, when they are getting 8 days transit time, then why they'll wait for 35 to 40 days? So this is just time being. Otherwise, normally like...

But it was the case earlier also, sir, right?

So there was like a gap of 2 weeks only earlier, like 8 days versus 25 days. Now it is 8 days versus 35 to 40 days. So -- and plus, if you have seen like freight costs were also very high. And since this cost is variable, so everything they were bearing. So that was also one of the reasons.

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

Sir, you said 10% volume growth in the domestic cable and wire business. Would it be possible to further break down in how wire has grown, now cable has grown?

Yes. So still like in domestic also, we have grown at a much higher pace in cable and compared to wire. In domestic, our wire business has grown by 2% only, while cable business has grown by 36%. And I'm talking this about quarter-on-quarter -- on Y-o-Y basis for Q2.

Right. Right. Okay. Sir, 2% volumes particularly looks not only on absolute basis, but very weak compared to on a relative basis compared to some of your peers. So anything that happened like what your growth -- why your growth rate was just 2% in the domestic wire business, particularly given there was a lot of stocking that happened in the channel because copper was inflationary towards the end of September?

So we had a high impact of lower demand in the month of July and mid of August. So like my first 45 days or first half of this quarter was very badly impacted. Though we could make good progress in the last month of this quarter like in September, but still like it was much lower than our expectations.

Great. And my second question is on the margin front. So do you get to track your contribution margins and the EBIT margins by product categories like how much is domestic wire, how much is domestic cable, how much is export cable? Like do you get to track that like separately, both at contribution level and EBIT level?

So to some extent, we have our MIS system where we track these margins. And whatever impact we are seeing in this quarter mainly in reduction in my margins or gross margins at wire level in domestic. So that was a big reason of sharp fall in our margins.

Right. And sir, how much would you -- like there is a 400 basis point kind of a reduction. How much would you say is basically underlying margin decline at this wire segment? And how much is actually related to the cable business growing faster than wire, which actually comes at lower margins? Is it possible to break down in mix versus underlying decline?

Not in that way. But what I can say is when we see 4% reduction in gross margin, and this was, again, mix of both the things. One, we were not able to pass on the increased price. So then maybe I can say 1.5%, 2% impact on that side. At the same time, since my copper prices have also increased -- so for example, if prices have increased by 4% and I was able to pass on 2% only, and there was time impact also. So overall, this was a mix of -- major impact was in wire only and of course, cable also there, but cable was not that much impact because there, again, the effect was to the extent of orders what we were having in hand only.

The next question is from the line of [ Raman KV ] from Sequent Investment.

Hello? Can you hear me, sir?

Yes, yes.

Sir, can you give the volume guidance for the FMEG business?

So in FMEG, volume is very tough because all 3 lines like switch, lights or fan have different kind of units. But still, when we talk about like 25% -- 20% to 25% kind of the revenue growth we are expecting in FMEG business.

In next quarter or in the next half?

In next half also.

Okay. 20% to 25%?

Yes.

Sir, and what is the CapEx you are planning to do in Q3 or in H2?

So overall, our CapEx plan was of INR 500 crores, which was spread over 2 years, which is like FY '24 and '25. Since we are executing that CapEx only, then this will be completed by March '25. So this is like ongoing CapEx plan. So particularly for this quarter or half, it is not separate CapEx plan, but whatever we are executing is part of our master CapEx plan only.

In the interest of time, that was the last question. I would now like to hand the conference over to the management for closing comments.

Thank you, everyone, for joining this call. We appreciate your participation. If you have any questions or queries, please free to reach out to us directly or contact Orient Capital. We look forward to connecting with you again next quarter. Thank you. Once again, I wish you Happy Diwali and Happy New Year in advance.

Okay. Happy Diwali to everyone for -- and thanks for joining the call.

Thank you so much, sir. On behalf of RR Kabel Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.