KEI Industries Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Sir, first question was on the QIP fund raise. Based on whatever cash flow projections, we understand of the business and based on your guidance for fiscal '25, '26. My sense was a INR400 crores to INR500 crores debt would have been sufficed to incur all the CapEx given the interim accrual improvement for the business. And so could you explain, sir, what is the rationale? And any change in the CapEx plan? Where do you plan to invest this money?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Okay. Got it. So this -- obviously, my sense is working capital is -- you have done a great job over years on the working level side. So we're still trying to get it down further. My sense is this INR2,000 crores obviously also have a growth angle to it. Any sense would you like to give some direction in terms of where most of this capital will get used for?

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Sir, you were asking the question for where will the growth CapEx be used for. That is where the line got disconnected.

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Okay. Okay. Fine, sir. Second question was on the quarter itself. It seems like the institutional sales and exports both have been weaker, while all the growth was driven by dealer sales, which is the channel sales. Could you help understand this better what exactly happened? My sense is --

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : So what it means is the margin which is --

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : Got it, sir. And lastly, one clarification on the volume growth for cable and wires. My sense is last quarter, we did 18%. You said first half, we did 14%. The 2Q volume growth looks lower. Any reason for that, please?

Question: Nikunj Gala - Sundaram Asset Management Company Limited - Analyst : Sir, just wondering QIP front, when we announced this greenfield CapEx and at that point of time, the requirement was INR2,000 crores. Even at that point of time, we were envisaging the incremental working capital requirement of the INR600 crores for the next two years. Considering the cash flow which we will be generating, still we will be having that kind for surplus. Then what's the need to raise INR2,000 crores at this point of time? Because the same situation was there one year ago when we announced this greenfield CapEx also, right?

Question: Nikunj Gala - Sundaram Asset Management Company Limited - Analyst : Okay. So out of this INR2,000 crores, there will be additional CapEx requirement for which we are raising this INR2,000 crores, like apart from the Sanand, is there a further plan?

Question: Nikunj Gala - Sundaram Asset Management Company Limited - Analyst : Okay, sure. And just one clarification on the TV interview which MD gave in the morning. Is that the comment which there which was made that after a few months, we will -- again, we'll be looking for a buyback of the shares. So that point was not clear.

Question: Nikunj Gala - Sundaram Asset Management Company Limited - Analyst : Okay. Because we are raising money and then again buying back the shares. That doesn't reconcile.

Question: Nitin Arora - Axis Mutual Fund - Analyst : Just moving away from this QIP thing to the business side. Can you talk about how's the demand, overall demand right now given that you have such high visibility you're putting greenfield also. And I think you also talked about that we want to increase even the brownfield CapEx where that QIP comes into play. So has anything again materially changed? I mean, whatever the growth the industry is seeing is pretty strong. That's what the sense you gave it last quarter in the con call as well. But has materially something changing where you're seeing some more levers coming in, and that's the reason really is upsizing the CapEx? Just your take on that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 6:30AM, KEIN.NS - Q2 2025 KEI Industries Ltd Earnings Call

Question: Nitin Arora - Axis Mutual Fund - Analyst : So that's what my question was. Can you elaborate a little bit more quantitatively, let's say, the end market? Obviously, you said 17% is something we are looking on a growth side. But sector-wise, because there is a thought process that after the election, things have really slowed down, whether it's the railways, whether it's the other retail markets. So I just wanted your take how you are looking at different pockets of the market. Number one, which you always talk about. So if you can talk in a little detail segment sector-wise if you are seeing any slowdown on how you're seeing the market. And second, I think what is your guardrail in terms of net debt to equity, where you are more comfortable as a promoter? Because, see, the point is not that you are raising fund is an issue. The point is the surprise element. Because we were thinking that you will not eventually -- the cash flow will be there and not requirements. So if you can throw some light, what is as a promoter as a company, we are comfortable with that. So as an analyst, we can assume that if you do beyond that much CapEx, eventually that has to come from the promoter doing QIP and all. So just your take on the net debt to equity side you got.

Question: Achal Lohade - Nuvama Wealth - Analyst : Sir, two questions. One is any particular reason for the EHV weakness? Is it entirely for the exports? Or how do we look at this particular subsegment in terms of FY25 and then FY27 onwards, given the new capacity?

Question: Achal Lohade - Nuvama Wealth - Analyst : Got it. And just with respect to your comments on various sectors, right, renewable, wind, transmission, et cetera. Is it possible to get a sense in terms of our mix, [KS] mix in terms of these sectors? Possible to have that kind of a split at this point in time?

Question: Achal Lohade - Nuvama Wealth - Analyst : Understood. And just one more question. In terms of margins, do they vary basis whether the sale is B2G, B2B or distributor through?

Question: Achal Lohade - Nuvama Wealth - Analyst : Margins on similar in nature. Okay. Even for export, sir? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 6:30AM, KEIN.NS - Q2 2025 KEI Industries Ltd Earnings Call

Question: Achal Lohade - Nuvama Wealth - Analyst : No. I was just --

Question: Achal Lohade - Nuvama Wealth - Analyst : Yeah, no I was not asking for that sir. I was just trying to understand in terms of you know whether the margins vary, whether it is domestic or export or within domestic whether it is B2G, B2B or distributed sale.

Question: Achal Lohade - Nuvama Wealth - Analyst : Got it. And just one more, one last question if I may with respect to working capital you know how do you see that evolving for next couple of quarters would this normalize immediately, or it will take couple of quarters to normalize?

Question: Pulkit Patni - Goldman Sachs - Analyst : Sir, just one question. Historically, you've said that you want to, over time, reduce the EPC business. And it's been very volatile. So could you give us a sense of how should we be looking at our EPC business going forward? Because the revenue fluctuation happens to be pretty wide in that particular segment. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 6:30AM, KEIN.NS - Q2 2025 KEI Industries Ltd Earnings Call

Question: Rahul Agarwal - Ikigai Asset Manager Holdings Pvt. Ltd. - Analyst : We have already substantially cut down the IPC business.

Question: Keyur Pandya - ICICI Prudential Life Insurance Company Limited - Analyst : Two questions. First, on the capacity side. So this probably INR1,000 crore potential revenue capacity in Diwali would help us grow in FY25. So what will drive -- do we have enough capacity to grow in FY26? That is first question. And second question. From the balance sheet perspective, you mentioned that you would want to keep your balance sheet debt free. If I just take ballpark, 15% kind of growth, say, for the next two, three years, annually INR1,500 crores to INR1,700 crores kind of incremental sales would be required. That will require incremental CapEx plus working capital of around INR800 crores, INR900 crores, considering working capital. So now is it fair that -- and if the annual requirement of capital is INR800 crores, INR900 crores, until that time, you won't raise further funds going ahead also. Basically, when we OCR, operating cash flow meets your CapEx plus working capital requirement, there won't be any fund raise? . REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 6:30AM, KEIN.NS - Q2 2025 KEI Industries Ltd Earnings Call

Question: Keyur Pandya - ICICI Prudential Life Insurance Company Limited - Analyst : Just clarification. So next year's growth, part of it depends on the, say, commissioning of the Sanand plant. Correct? And that commission --

Question: Harshit Kapadia - Elara Capital - Analyst : Congratulations for a very strong results again. Just wanted to clarify. On the Sanand plant, we are spending INR900 crores, and that will only be for the cable manufacturing. New wires would be manufactured, right? And secondly, within cables, what proportion would be EHV, LT and HT? Could you give us some color on that, sir?

Question: Harshit Kapadia - Elara Capital - Analyst : And HT and EHV is fungible. So that will be INR2,700 crores If, let's say, if you want to do completely EHV or complete HT on demand?

Question: Arshia Khosla - BOB Capital Markets Ltd - Analyst : Sir, I just wanted to understand on the export side. So in the previous quarter, our export decline because of some logistical issue at the customer end. So any -- if you could just highlight something for this quarter, have they been resolved? Or --

Question: Arshia Khosla - BOB Capital Markets Ltd - Analyst : Okay. And sir, I just wanted to order book by submission.

Question: Arshia Khosla - BOB Capital Markets Ltd - Analyst : Yes. The order book by division --

Question: Arshia Khosla - BOB Capital Markets Ltd - Analyst : Yeah. Can you please call the L1 number?

Question: Nitin Arora - Axis Mutual Fund - Analyst : Sorry, sir, just one follow-up. Having stated that we always want to be now a debt-free company. the cycle of CapEx will continue. So I just wanted to know your thoughts that if your CapEx, even the first round will happen now, the brownfield and the greenfield both. And eventually, we keep spending INR400 crores to INR500 crores until less we decide after three, four years another greenfield. So now when you've done your math, how one should look this debt-free argument? Because when you put your new CapEx, let's say, greenfield comes after two years where you decide to put another one. Now we are confident that this will remain as debt free? Or that time also eventually, the working capital will always remain, right? That is the nature of the business. And that time also, you will say that, okay, suddenly, we didn't envisage the working capital at night, but now the working capital be done. So this argument which you're giving off debt free, what we wanted to know, this is something even a new greenfield announced after two years or three years that we are sticking to.

Question: Sandeep Jain - Baroda BNP Paribas Mutual Fund - Analyst : Partly has been answered in the previous question of Nitin. Just one clarification in terms of if I look at the debt raising part, right, FY24, we have done somewhere around INR800 crores of free cash flow. So just wanted to understand the thought process that even at a 17% growth and even REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 6:30AM, KEIN.NS - Q2 2025 KEI Industries Ltd Earnings Call if we don't take any equity raise now, whatever the debt we required in FY25 or FY26 that can be paid off by FY27, right, because of the cash flow generation ability.

Question: Sandeep Jain - Baroda BNP Paribas Mutual Fund - Analyst : If we can raise at that point of time. That is the only point which I'm trying to understand.

Question: Sandeep Jain - Baroda BNP Paribas Mutual Fund - Analyst : So currently, we have a net debt of [INR6,970-odd] crores kind of thing if I remove the acceptance, right?

Question: Sandeep Jain - Baroda BNP Paribas Mutual Fund - Analyst : Okay. No, I understood.

Question: Sandeep Jain - Baroda BNP Paribas Mutual Fund - Analyst : No, that, I understood, that will always be there whether you raise the fund or don't raise the fund, the acceptance will bear the interest. That will be the part and parcel of the business, right? You cannot just you kind of substitute that.

Question: Sandeep Jain - Baroda BNP Paribas Mutual Fund - Analyst : So as a management, when you take a debt, you include the acceptance also this year.

Question: Keyur Pandya - ICICI Prudential Life Insurance Company Limited - Analyst : Sorry to harping again on the fund raise. Just -- the question is being asked because the promoter over holding is already below 40%. So the thought is that the working capital requirement that you mentioned for the incremental INR5,000 crores of sales. However, it will be gradual, so very probably incremental INR250 crores to INR300 crores kind of working capital requirement would be there based on the 15%, 17% growth number. I mean, that is not onetime required will come gradually, whereas the fund raise would be onetime front loaded and that could impact the basically ROC and balance sheet. So just wanted to understand, just like previous participants suggested, can we do it at the time when it is actually required, that is first? And second, just on the export side, are we seeing any structural challenge since export is low for you as well as for other players for the last few months? So just more color on the export .