KEI Industries has lined up a CapEx of Rs 800 crore for the next four years: Anil Gupta, CMD

Anil Gupta, Chairman & Managing Director, KEI Industries Ltd, talks about the demand situation, growth drivers for FY23, challenge, the surge in commodity prices, price hike plans, margins, outstanding payments with the government, CapEx, FMEG segment, export market and decline in EPC segment among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: How will you summarize the situation that is panning out and how is the demand looking?

A: So far this year the demand has been good and quarter-on-quarter, we have seen that the demand has increased. After the pre-COVID level, we are expecting a 30-32% growth for the entire year compared to the last year, when the base was quite low. As far as demand is concerned, we can see very good demand as well as pipeline especially, in the infra projects and solar projects through metro railways, infra and solar projects.

Q: Government has a push towards infrastructure which augurs towards wires and cables, so, what is your outlook for FY23 and from where do you expect higher growth and what are the pockets that cab performs better? Also, what could be the growth drivers for the next year?

A: I think, all the sectors are going to be growth drivers, growth will come in all. If I will talk then the real estate sector is performing well and will continue to do grow well for many more years. In terms of infrastructure projects, especially, the metro is being created in almost every city, so the demand for metro and overhead to underground transmission lines is quite high. The third sector is solar, where the demand is quite strong because we are heading towards the electrical vehicle and electrical mobility. So, the pace at which the infrastructure is made will need power, which can come only by renewable energy and wind is running quite low at the moment. So, the government's main thrust is towards solar. In terms of solar, many companies are coming forward to make photovoltaic cells, battery charging systems and many more equipment and the government has also provided a PLI scheme for the purpose. The fourth big sector is the industrial sector and I feel that the PLI schemes that have been announced for different sectors will encourage many companies to invest in the Greenfield projects because many of the companies have deleveraged from the loan and have strong balance sheets and even the banks are ready to lend.

Q: Do you foresee any challenges or there is any pocket that will need some more time to recover?

A: I do not think that was because the corrections that had to happen has already happened in the last two years including the banking sector, bad loan recoveries which have led to the strengthening of the balance sheet of good companies and their profits have also increased. The government has given the PLI scheme and also reduced the corporate tax which has improved their investable surplus a lot. So, I cannot see any such sector that has not recovered yet.

Q: There has been a continuous increase in the commodity prices and it would have an impact on your business as when raw material prices move up the end product gets costlier. What impact have you seen on your business? what is your outlook amid a surge in copper and aluminium prices, the key raw materials of your wire and cable business and will this surge have any impact on your margins? 

A: As far as copper and aluminium prices are concerned, I think, the ongoing levels has almost stabilised. I agree that there was a sudden surge in aluminium and copper prices in the last 15-20 days because of this Russia and Ukraine war. There was a sudden surge due to supply constraints but it has corrected in the last seven days. I have said in the past as well that aluminium and copper do not hit us a lot because we hedge them in accordance with our orders. In the last few days, maybe a month or two, steel prices have surged a lot and gone up by Rs 20-25 per kg in the last three months. Although it is a small component for us all the component has some impact on the margins. But, I do not see a lot of risks and do not think that it will have a huge impact on the margins.

Q: What are your plans related to price hikes and what is your outlook on pricing this year and the Q1FY23?

A: Price hikes are a continuous process and as the prices of raw materials or some other raw materials go up, accordingly the list prices are revised every 15-20 days and are corrected with respect to the raw material input cost. As far as B2B business or cables is concerned then every time while quoting the tenders, we factor in the current levels and the risk factor in it. When it is negotiated, the prices are normalised at those levels. So, I do not see any challenges that the prices will have some big impact on our margins.

Q: What would be the margin band for this year and what is your outlook on margin for the next year?

A: Because of this input pressure, the margins have been around 10.50% this year and I feel that the level will be maintained. Next year, I think the margins will improve by another 1%.

Q: What is the status of your outstanding amount with the government, whether a full refund has been made or is there anything pending?

A: There has been a good recovery. We have made recoveries of around Rs 150 crore in the old projects that have closed and the remaining/balance money will come back in the next year. So, our working capital cycle will look quite improved by the end of March.

Q: You have recovered around Rs 150 crore but what is outstanding?

A: It stands at around Rs 150 crore and it is expected to be recovered in FY23.

Q: What kind of CapEx has been lined up and what the company is doing from an expansion point of view? Also, what is your current capacity situation and will you undertake any expansion then in what verticals that will be in?

A: We have lined up a CapEx of around Rs 800 crore for the next three to four years and its work will start from April or May 2022. We will make this CapEx in the next four years. Our current capacity in value terms stands at around Rs 6,800 to 7,000 crore. So, I don't think that there is any problem with our growth plan of 15-17% for the next year. Secondly, by debottlenecking in the existing plant we will improve the capacity by 5-7% next year. Thus, by the time this project will start - in the next 18-24 months - we have the capacity that will allow us to grow by 15-18% annually and I believe that there will not be an issue with it.

Q: The company has announced that it will foray into the FMEG segment. What are the plans and what will be the products and what will be its size in your overall business?

A: We haven't taken any decision on this front, yet. Currently, we are completely focused on growing the sales of our house wires through our retail sector. Secondly, there is a surge in cable sales through distribution channels. This year around 40-42% of our business is likely to happen through the B2C (dealer) network and we are trying to take its mix to 50% in the next one to one-and-a-half years. After this, we will decide on it because other products will be taken through those dealer channels. But, we haven't made a final decision on it, yet.

Q: Update us about your product launch pipeline and plans related to increasing the geographical presence and reach? Also, what the international business is looking like and has the ongoing geopolitical tensions have had any impact on the business?

A: These tensions, the Russia-Ukraine war, has not had any impact on the export markets to date because we do not have any business from Russia or Ukraine. In the Middle-East countries, where we have major business domination in the oil and gas sector is growing a lot because the oil prices are bringing big investments in the area. Similarly, there is good traction in the Australian and African markets. We have not been able to do a lot in this in the last two years because travelling was closed but now as the travelling has opened our people will travel and develop new customers and also extract other countries so that we can increase our reach.

Q: What is the product pipeline? 

A: In the product pipeline, our major sale is in low tension and high tension power cables. We also export our extra-high voltage cables in a few of the markets. There are few markets where we sell our house wire or other low-tension wires or multi-core flexible.

Q: What is the traction in the railway sector and the power sector and what kind of business is expected for FY23?

A: In the railway sector, our major focus has always been on the metro projects. So, the major projects all over the country either it is in Delhi, Mumbai, Agra, Kanpur among others as metro projects are running in many cities, the demand for cable is very high for bringing power on the railway lines as well as within the stations and complete infrastructure. So, it is a major focus area for us and is also a major market at this moment. As far as normal railways are concerned, it is a routine demand it continues.

Q: What is happening in the EPC segment as there was a slight decline in sales on a year-on-year basis which was an almost 24% decline in Q3FY22 and its contribution has also gone down to 6.9% Vs 11.35%. What is the reason for it and will a similar trend will be seen in the future as well?

A: We have reduced the EPC division strategically in the last two years because money was getting stuck in it because we were not getting payments from the projects of many state governments. They had to say that their GST revenue has declined due to which they are not being able to release the payments. So, we had a major focus on the completion of the projects that were taken and got back the retention payment from these projects. Secondly, even from the cash flow angle strategically, we have decided to reduce the EPC division, which was taken up to Rs 1,000-1,200 crore, by 50% and we will make it happen only to the tune of Rs 500 to 600 crore annually. And, we will do such projects, which is completely funded, whether by the World Bank or PFC or REC due to which we may not face the fund crunch situation in it. Our EPC division is an extension of the cable and we do only such projects where cable supply is significant. So, we have started the business from the same angle.