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

Ladies and gentlemen, good day, and welcome to the R R Kabel Limited Q1 FY '27 Conference Call hosted by MUFG [Operator Instructions] I now hand the conference over to Mr. Chirag Bhatia from MUFG. Thank you, and over to you, sir.

Thank you, Sumit. Good afternoon, everyone, and I extend a warm welcome to all the participants on the Q1 FY '27 Earnings Conference Call of R R Kabel Limited. On this call we have Mr. Rajesh Kabra, Joint Managing Director; Mr. Rajesh Jain, Chief Operating Officer; and Mr. Jigar Mehta, Chief Financial Officer. Before we begin this call, I would like to give you a short disclaimer. This call may contain some forward-looking statements which are completely based upon our beliefs, opinions and expectation as of today. These statements are not a guarantee of the future performance and involve unforseen risk and uncertainties. With this, I hand over the call to Mr. Rajesh Kabraji. Over to you, sir.

Good afternoon, everyone, and thank you for joining us for R R Kabel's Q1 FY '27 Earnings Call. I have with me Mr. Rajesh Jain, our Chief Operating Officer; and Mr. Jigar Mehta, our Chief Financial Officer. Let me begin with the broader business environment. The quarter continued to see volatility in metal prices and foreign exchange along with uncertainty across global markets. At the same time, the demand remains supportive. We continue to see healthy activity across infrastructure, construction, industrial projects and power-related applications. Against this backdrop, I'm pleased to share that we have started FY '27 on a strong note. During the quarter, we delivered our highest ever quarterly revenue EBITDA and profit after tax. Our wires and cables business continued to be the main driver of growth. The growth was not limited to 1 market. We saw growth in the domestic business as well as costs even though we have a high exposure to the Middle East market. The disruption in the Middle East was partially offset by other export markets. Further, we also saw shipment normalization and recovery for Middle East market in May and June. However, supply chain lined issues still remain but we are confident of overcoming those challenges. Overall, Wires & Cable volumes grew by 17% year-on-year with similar growth seen both in domestic and export markets. Cables grew significantly faster with more than 25% volume growth, while volumes in growth in wires was approximately 12%. We continue to work on strengthening product availability, expanding our distribution reach and deepening our engagement with dealers and distributors. On the B2B side, our focus remains on building capability in project, industrial and power cables. We believe this will become an increasingly important part of our growth over the next few years. What is also encouraging is our progress in our FMEG business. The segment recorded a healthy revenue growth and reached breakeven position during the quarter compared with losses in the earlier periods. We have been working towards this for some time. So this is an encouraging development for us. FMEG revenue grew by approximately 28% year-on-year. Quarter saw good growth in lights, appliances and switches. While the fines business benefited from the improved realization and better premium product mix. We will continue to focus on premiumization, selected our launches, distribution expansion and tighter cost control. The quarter's performance reflects the strength of our team, distribution network, manufacturing capabilities and long-standing customer relationships. It also shows the operating discipline that we have been building across the organization. Our progress remains aligned with project announced last year. The first quarter has given us a good start. We will, however, continue to look at the business on a full year and long-term basis. Our long-term priorities continue to be the same. We want to grow ahead of the industry in Wires & Cables, improve our position in the cable and B2B business businesses and build FMEG into a consistently profitable business. We will remain focused on execution customer engagement and building the business for sustainable long-term growth. I will now hand over the call to Mr. Rajesh Jain to take you through the financial and operational performance in more detail. Thank you.

Thank you, Rajesh ji, and good afternoon, everyone. Let me start with the overall performance for the quarter. Revenue from operations stood at INR 3,168 crores, representing growth of around 54% over Q1 of last year. Operating EBITDA stood at INR 285 crores, almost double the INR 143 crores recorded in the corresponding quarter last year. The operating EBITDA margin improved to 9% compared to 7% in Q1 FY '26. Profit after tax stood at INR 205 crores compared with INR 90 crores last year. The quarter also included an exceptional item of approximately INR 14 crores relating to reversal of the provision for the stator impact of the new lever courts. Coming to the segment performance. Wire and cable revenue stood at INR 2,880 crores, growing at approximately 57% year-on-year on the back of impressive volume growth, strong execution and favorable industry dynamics. Segment profit increased to approximately INR 285 crores from INR 139 crores in Q1 FY '26. The segment profit margin improved to 9.9% compared with 7.6% in the corresponding quarter last year. Profitability improved due to improved product mix, disciplined commodity management and operating efficiency. In the FMEG business, revenue stood approximately INR 288 crores growing by 28% year-on-year, supported by continued demand for premium and new products across key categories, along with ongoing distribution expansion. The segment reached an operational breakeven position compared with a loss of approximately INR 7 crores in Q1 FY '26 and a loss of approximately INR 9 crores in Q4 FY '26. Making a significant milestone in the FMEG business transformation, driven by premium products and operating leverage. Light appliances and switches recorded healthy growth. In volumes were broadly flat year-on-year, but revenue increased due to higher realization and a better product mix. Turning to working capital. Net working capital days remained broadly stable at 50 days. Our capacity expansion program is also progressing as planned with new capacities expected to be added during the current quarter in Silvassa. Looking ahead, we remain positive about the long-term demand outlook infrastructure development, housing, industrial investment, electrification and the shift towards Ornate and compliant products continue to support the industry. At the same time, we will remain watchful of metal prices, foreign exchange movement, inventory levels and working capital requirements. Our focus will be on maintaining healthy volume growth protecting margins through timely pricing and procurement decisions, improving the product mix and sustaining the progress made in FMEG. With this, I now request to open the floor for the question-and-answer session.

[Operator Instructions] The first question is from the line of Dhruv Jain from Ambit Capital.

Congratulations on very good numbers. So my first question is on cables. So in the last 3 or 4 quarters, we've seen that savings goes or improve substantially? So just wanted to understand where is this market share gains that you're seeing coming from? Is it more distribution or is it more B2B and b, where are we in terms of the utilization levels here incrementally? And how should we look at margins improving from -- on the cable side? That's my first question.

So when we talk about growth in our cable segment, as we explained in our earlier strategy also that our focus will be grow in B2B segment more focusing on cable side of the business. And now when we are at the execution phase, we see good growth coming from cable side. And the majority of this is we are serving for our distribution channel on -- and of course, margins, as you can see, it's like due to scale and improving product mix, and we are sure to maintain this kind of growth in coming quarters.

Sure. And sir, just on that, right? I mean, in the last quarter, you had mentioned that the full year FY '28 margin guidance for Wires & Cables was about 10.5%. Now that you're close to 10% in this quarter itself, do you think that you have to upgrade your guidance or are you still maintain that?

So we'll remain there because while we enable to touch our digit margins for the year. But since it is early in the year, we continue to maintain our overall margin guidance of 10.5% by FY '28.

The next question is from the line of [ Adil Lohade ] from Nuvama Institutional Equities.

Congratulations for great execution. Just 2 or 3 questions, if I may ask. First on the industry growth. What is your sense I know it's very hard to call out for a quarter, but still in terms of the growth for Wires & Cables, both if you could call out what would have been the industry growth for the quarter in your best assessment?

May be tough to call out at industry level, but I think it may be around 10 -- between 10% to 12% utmost.

Okay. Understood. The second is in terms of the export, like Rajesh ji called out that exports grew at almost similar pace compared to domestic despite the Middle East challenges. So if you could talk a little bit more about this export aspect in terms of the key markets, how are you seeing growth? What kind of mix are we seeing there? Are we seeing improvement in the cables pick up as well?

So as you are aware, we are geographically diversified company. And though there were like distribution from Middle East, but it's still like the overall performance is like based on other countries and other geographies we are able to have higher growth or at par growth with our domestic market also. And particularly since now we are changing -- or focusing on changing product mix and export market, more focusing on cable side. where we see good demand also. So this is helping us to achieve higher growth in export markets also in spite of so many global disturbance.

Any particular market you want to call out, sir, which has done very well and which is expected to do better. And secondly, in terms of approvals for the cable. Where are we in that journey? Are we like more than midway through or it's still the beginning for us.

Still, I would say it's like just opening of our larger journey, and we are in way to execution of overall global projects also and in many new area, geography and new products. Also, we are in the process to getting approvals and from new geographies also we are getting some good gains in export markets.

Got it. I have more questions, but I'll follow back in the queue, sir.

The next question is from the line of Vidit Trivedi from Asian Market Securities.

Congratulations on pretty strong set of numbers. Sir, last quarter, you've mentioned data center as a medium-term growth driver -- just wanted to check, have you started receiving repeat orders from this segment? Or is it -- will it be fair to say that the opportunity is still largely at the bidding stage?

The data center, still it is more on like announcement phase rather than acquisition. And of course, we have started getting a few orders. And it is like a continuous process, we will keep adding new customers in data center. And there, we are supplying like conventional cables, which is like a regular part of our product strategy.

So what's the share of the overall data center cables in the top line?

It will be very less. To be very frank, the wire and cable industry as large, very big and data center is 1 of the area where it applies.

Got it, sir. Sir, additionally on the exports front, with the rising investment in power infra and data center in the U.S. How do you view the opportunity there? And what approvals or investments are required to meaningfully scale your exports business?

Of course, U.S. is a very big opportunity for Indian markets and for us also. And already, we have a few approvals, we are in process to onboarding to customers also. But as you know, still things are not clear on tariff brands and still people are not aware how the things will process. But definitely, this will be 1 of the very big opportunity for us in future.

If I may squeeze just 1 more question pertaining to the FMEG segment. Sir, which FMEG categories are witnessing the strongest traction. And if you could just call out the premium mix in all the categories?

So like we have seen very good growth in light supply and switched, which has already informed that in France, we had like flattish type of volume growth. But at the same time, we will improve our realization and better premium product mix. Almost 25% of our revenues are coming from premium product side.

The next question is from the line of [ Umang Mehta ] from Kotak Securities.

My first question was on margins. So if we look at the Y-o-Y expansion, I understand the base was slightly low. But is it possible to split the expansion into the buckets of mix, leverage and advantageous gains? I just wanted to kind of understand how much is mix contributing to margin expansion.

So what do you see the biggest benefit of the best contributor is scale because of scale benefits, we were able to improve our margins apart from better cost absorption and we are also taking many other initiatives to improve our margins. So this is a result of a combination of all these efforts and product mix and scale benefits.

Sure, sir. Second question is on pricing growth. So this 40% odd pricing growth, which we've seen in 1Q, if spot price is sustained, should we expect pricing growth to go further in second quarter? Or should has been more or less stable at current levels?

If I compare with 2 press of last quarter and if we consider current prices to be stable in current quarter, then it may reflect around about 30% in terms of pricing or the rate fluctuation or rate hike in LME prices of raw material.

Got it. And just 1 last 1 was on channel stock. So there was some correction in commodity prices towards quarter end. So did we see any kind of stocking, destocking impact? Or would you say that your channel inventory is more as of quarter?

So when we see on a very short span of time, you may say there are some reflection of stocking or destocking. But normally, what we believe this is an area which is like wire and cable is consumed throughout the year or in every sector. So there may be like some impact in like end of this last quarter also. But I hope that in longer term, we have to see ties as usual in a longer-term time frame.

Got it. Just to clarify, you mean positive impact at a quarter end or negative impact on volumes?

So if I consider only last part of Q2, then there was negative impact in volume growth.

[Operator Instructions] The next question is from the line of Natasha from PhillipCapital.

Congratulations on great execution. My first question is, could you give us some color in terms of the domestic expansion. We understand West is your strongest market, but how has expansion for say, the Eastern northern part in for you? And any particular color which domains in India is doing better for you at this moment.

Yes. So if my large , we are making good progress even in South part of the country also apart from already Western North where we are doing fairly good. East, of course, still we have not in that much kind of growth. But in South, we have again -- we are doing better than previous plans.

And sir, what about North India for you? Could you also give us some color and quantification in terms of the contribution geography-wise?

I do not have exact breakup, but North and West contribute almost 55% in our domestic revenues.

Understood. And sir, second question is in terms of working capital. Is there any sign of stress in the trade in terms of payments?

No, we have not seen any stress in working capital. And as you have seen in our receivables, we have done fairly well in our days have removed -- reduced by sides in this quarter.

The next question is from the line of [ Nikhil Purohit from Fident Asset Management. ]

Congrats on a very, very strong set I have 2 questions. I joined the call a bit leads. I'm sorry if these questions have been answered. Sir, firstly, we had mentioned that exports would be impacted in quarter 1 in the last quarter, we mentioned that. So can you throw some more light or the kind of growth that we saw how are the margins here? And also, what did the geographic mix look like?

So though in earlier days of Q1, we are expecting there may be some disturbance. But thankfully, we were able to achieve similar growth in this quarter, what we achieved in domestic also. So overall, almost 57% growth over previous year. These were -- we were able to achieve it through other geographies in this quarter though there were like middle is disturbance in initial part of this quarter, but it was offset by other export markets. And now we have also seen shipment normalization and recovery from miles market.

So that is visible in this quarter as well, right, in the organization?

Yes, yes.

Okay. Okay. And sir, secondly, generally, it's true it is stronger than H1 in the wires and cable industry? Do we expect that trend to continue for this year also after seeing such strong numbers in Q1?

Normally, historically, we have always seen H2 is always better than H1. So we expect the similar thing in this year also.

The next question is from the line of Sandesh Shetty from HSBC.

Congratulations on a very great set of numbers. Just so my first question is on project execution still in Power T&D. We have seen some disturbances in execution due to Middle East prices. Are you seeing improvement there now that things have subsided a bit. Are you seeing demand inquiry better there in that segment?

So Middle East, as I said in last question also that now it is becoming normal, and we are back to normal situation kind of things and we are seeing recovery from Middle Eastern Markets. So I think that now we are at normal levels in this quarter.

Okay. And sir, there has been a significant rise in other income. Is there a one-off in that? Or is it like a normal run rate now?

I will not say it is normal on that. But since you have seen there was like positive or rather dollar was inserted in this quarter. And since we are export heavy companies, so we have seen good impact, but it is part of our business only.

The next question is from the line of Rahul Agarwal from IKIGAI Asset.

Sir, 2 questions. Firstly, on the CapEx side. You said Silvassa starts in the current quarter. I just wanted to understand, if you could just elaborate a bit on what capacities are going to come on stream over the next 12 months? And what are products we are talking about?

Yes. So if in this quarter, we are expecting new capacities to be added in Silvassa, which will be on wire side of our business but at the same time, this year will add few capacities at [indiscernible] also, which will be highly focused on cable side of the business. So overall, our CapEx is planned in such a way that we'll be able to meet our projected growth or volume at targets, what we have said at the beginning of. So this will be like well balanced among capacity addition and expected growth in revenues ourselves.

Got it, sir. Sir, could you highlight some new product development in terms of pipelines you will roll out over the next 12 months from the new capacity?

See, probably it will be like in power cable side, where we keep adding few capacities. But at the same time, we will focus on new product or rather new industries also where we can have a more share of the business, like in maybe a specialized kind of cable or within power cable also until now we are like in LV Cable more and HV cable side is still our presence is low, so we will keep increasing our presence in HV cable side of the market.

Got it, sir. And last question was on FMEG because -- share your thoughts on how do you think about in-house manufacturing? What are the products? Right now we are making in-house. -- and incremental thoughts on how do you look at manufacturing for FMEG overall?

So if you see our rent break up, almost 1/3, we are doing in-house 2/3 is out which are doing outsourcing in which like ceiling fan and it a category we are having in our production. And by large, we'll maintain this kind of situation only because -- our focus will be more to increase market budgets through better R&D and brand presence and maybe manufacturing scenario remain as it is what we have currently.

So the lighting and appliances are all outsourced. Is that correct?

Few part of lighting like commercial lighting, we are doing in-house also but largely appliances and lighting is outsourced.

Okay. And appliances include what products or like in terms of meaningful revenue?

Pso appliances are contributing almost 10% to 11% in our overall FMEG revenue, which comes really from like geysers or coolers and small appliances. .