Kei Industries Q1FY18 Concall Summary

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Financial Highlights

Kei Ind Q1FY18 financial
  • Gross sales=823 crores; 37.7% increase when compared to Q1FY17
  • PAT at 27.47 crores; PAT margin=3.34% which is a 78% increase when compared to Q1FY17(1.87%).
  • EBITDA margin=9.52% which is a 6.1% increase when compared to Q1FY17 at 8.97%
  • 28% increase in growth in sales of wires and cables
  • 28% increase in net sales of export from 85 Cr in Q1FY17 to 109 Cr in Q1FY18
  • Segmental wise revenue breakup is as follows:-
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Expenses

  • Finance costs are at 29.94 Cr at Q1FY18, an increase of 7.8% over Q1FY17
  • However the financial cost margins have gone down to 3.64% from 4.64% in Q1FY17
  • Huge increase in other expenses singled down to product mix and EPC business which are a part of variable expenses.

Expansion plans/Capital expenditure

  • Addition of a 100 dealers during the quarter on a YOY basis with focus to increase dealers in terms of their selling capabilities and grow existing dealers in terms of business
  • Expected dealer network to be around 1500 dealers by next year(current dealers=1246), a 10-15% increase in number YoY
  • Strategy to increase presence in A,B,C class cities simultaneously where sales forces has increased to cater to retail segment but focus is build up the market overall
  • Small expansion plan devised to increase the capacity of LT cables, LT power and control cables
  • Investment of nearly 50 cr. In building and PPE to build up additional capacity of Rs300 cr. Per year for LT power and control cables at a land owned by the company located near its Chopanki factory in Rajastan expected to be fully operational by April 2018.
  • Capex plan for FY 2018 to be around 50 cr. For expansion capex And 10 cr for maintenance capex.
  • Company estimates that the market size for 400kV EHV is currently met only through imports and with growing power requirements in metros, most power transmission companies are upgrading their systems from either 220kV to 400kV or from 132kV to 220kV which will result in greater demand

EPC division

  • Net sales in EPC division=170 cr.; sales to EPC projects of company=71 cr.; Growth in sales from Q1FY17=102%
  • Overall Pending order book is around 2478 cr. Out of which 1850 cr. Belongs to the EPC division with the remaining in cables and extra high voltage cables out of which export orders are about 120 cr. Which are yet to be executed in the second quarter and the management feels that exports will increase with more inflows coming in.
  • Management is positive that the momentum in terms of growth in sales will continue and the order book position is very healthy
  • Total focus is on order execution which is why order inflow is low in the last 6 months and the company is expected to have a new order inflow of 500 cr. In the next 5-6 months
  • EPC business to be limited to 800-900 cr. So that bidding and taking out orders occur based on that target figure
  • Company expects EPC business to grow by 60% and sales to increase from 600 cr. To 900 cr. In this financial year including the cables

Impact of GST

  • Company expects that sales will grow as a result of GST and no pre-buying has been observed before the applicability of GST on July 1st regarding the house wire segment.
  • Inventory levels are normal as compared to last year and has been at nominal levels
  • Since GST has been launched from July 1st, there is no excise duty provisions on the closing stock. Excise cost is only readjustment on the closing stock provision where it used to be applied.
  • No hits on margins due to fluctuations in metal prices or increased GST as all taxes are payable by the customer extra actual at the time of dispatch.
  • 100% GST impact has been passed on to the customer from July 1st and company is quoting taxes extra as applicable at the time of supply.

Orderbook

  • Pending orderbook at 2478 cr. Out of which 1850 cr. Belongs to the EPC business.
  • UP contributes to 65% of order book and contributes to 70-75% of sales.
  • Company expects the order mix to change significantly by next year.
  • Present focus on underground cable projects under IPDL in the EHV segment which is being mostly executed and this helps the company’s own plant because it is their self-manufactured product
  • Company has already completed and charged one GIS substation of 132 kV which became operational in March 2017 with another 220kV substation to be charged in October 2017. A substation of 132 kV has been commissioned from PowerGrid and a fourth substation which will be completed by March 2019.
  • Huge number of orders coming from metro business with orders coming from Nagpur, Pune ,Ahmedabad metros, expansion of Bangalore and Chennai metros. Currently, the company is catering to the Lucknow metro.

Utilisation levels

  • Utilisation levels in EHV cable=35%;utilisation levels in LT and HT cables=90%
  • Overall utilisation level in Chopanki plant=70%
  • Expected Utilisation levels in EHV cable=50% for the whole year and company expects the utilisation levels to improve as credentials become stronger year on year
  • The utilisation levels are worked out through the tending system
  • Company expects minimum volume growth to be greater than 15%.
  • Utilisation levels are at 50% in EHV segment mainly due to delay in major qualifications because of state utility levels at many places which makes it hard to achieve the qualifications.
  • ROW issues present in state and non execution of orders is mainly because of ROW not getting period.

Expected future earnings

  • Company is showing a very conservative growth figure of 20% despite not expecting any weakness in third and fourth quarter
  • Company expects that there will be a 100-150 basis points improvement in EBITDA margins in the next year with consecutive improvements in the next 2 years.

Debt

  • In the next 3 years, 150 cr. Worth long term debt will be fully repayed while the working capital debt will remain in the range in the 350 Cr -450 Cr
  • Receivables=796 cr. As per Ind-AS.
  • Total debt(working capital+long term debt)=559 cr vs 573 cr in March 2017.
  • Total debt including VAT credit=685 cr. vs 713 cr. in March 2017
  • Trade payable has increased from 482 cr. to 584 cr. and this has resulted in a positive working capital cash flow
  • Receivables have seen an increase far greater than the revenue increase mainly because of the year-end sale and the Retention moneywhich is isaround 140 cr.

Pricing Issues

  • In all IDPL projects, the increase in prices of items like cables, conductors, transformers with respect to the metal content has a price variation clause
  • Underlying cabling which is gaining popularity over overhead cables costs 2.5-3 times the cost of overhead cables mainly due to excavation and civil work required to build the road.

Promotional Activities

  • 12-13 crores to be spent on brand building in the current financial year
  • Company has taken sponsorship with Kings Eleven Punjab

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