KEI Industries Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Record sales and profit, but margin compressed: Q4 delivered the highest-ever quarterly sales and PAT, yet EBITDA margin fell to 10.03% from 11.23% YoY as input-cost volatility and normalizing expenses bit.
• Retail is the engine, now 40% of revenue: Dealer sales grew ~55% YoY in Q4 and 65% for the full year, taking B2C contribution to 40% of turnover, with a stated target of 50% within two years.
• Gross margins hit a multi-year trough: Gross margin sank to ~24% versus a ~30% long-term average, squeezed by the mix shift away from high-margin EPC cable and a 15–30 day lag in passing through input-cost spikes.
• The balance sheet turned net cash: Net debt including acceptances fell to ₹270 Cr from ₹408 Cr, receivables improved to 2.9 months, and the company disclosed it had turned net cash.
• What to watch next quarter: Whether EBITDA margin recovers to the 10.5%–11% guided range as input prices settle, the pace of land registration for the Greenfield expansion, and any quantification of the new-product roadmap after six months.

Margin Walk: The Gross-to-EBITDA Bridge

• Gross margin at a historical low: Gross margin of ~24% in Q4 compares with a 6–7 year average of ~30%, driven by two structural shifts. First, the deliberate reduction of high-margin EPC cable sales, which previously contributed 25–35% of cable revenue. Second, sharp input-cost fluctuations created a lag effect: retail list prices are revised every 15 days, while institutional orders carry a 25–30 day lag with 2.5–3 months of pending order position and inventory.
• EBITDA margin held, PAT margin actually rose: Despite the gross-margin compression, EBITDA margin was maintained and PAT percentage increased YoY, helped by lower interest costs. Finance costs fell to 0.71% of net sales from 1.37%, a direct consequence of the net-cash position.
• Management targets EBITDA, not gross margin: The company explicitly manages to an EBITDA margin range of 10.5%–11% and a PAT margin closer to 6.5%, accepting mix-driven gross-margin swings between aluminium and copper cables as part of the business.
• Retail mix shift promises annual margin accretion: Once the dealer contribution reaches 50% of sales, management expects to improve pricing, adding 0.25 to 0.5 basis points to EBITDA margin each year.

Anil Gupta: "We are not working for gross margin, we are working for EBITDA level because sometimes the aluminium cables we are selling, sometime copper cable we are selling, so EBITDA margin will be in the range of 10.5% to 11% and our PAT margin will be closer to the 6.5%."

Retail & Distribution: The 50% Ambition

• Dealer sales grew 55% YoY in Q4 to ₹717 Cr: Full-year B2C sales reached ₹2,319 Cr, a 65% jump that lifted retail contribution to 40% of turnover from 34% a year ago. The company recruited over 150 marketing people from electrical and FMEG backgrounds at different levels pan-India starting in early 2021, and that investment is now converting into growth.
• House wire is the standout, from a low base: Market share in house wire is only ~6%, far behind Havells and Polycab, leaving substantial room to grow. Gains came from improved branding, micro-level planning on towns and districts, reaching previously unserved areas, and pushing dealer and influencer schemes. Management expects the growth rate to level off in about three years as the base becomes significant, at which point it will align with industry growth.
• Dealer-distributor team split into two streams: One team now handles consumers, another handles projects, a structural change designed to sharpen focus as the network scales.
• New products are at least six months away: The immediate priority is strengthening the house-wire and cable network to reach the 50% dealer-contribution target. Only after that will the company add one or two products a year, using the same dealers and manpower. Switchgear is explicitly ruled out for now. Management cautions that any new product will not be profitable for at least five years.

Anil Gupta: "since our base was low as compared to others. So what we did to get some more market share. We are still comparatively far behind the other players like Havells or Polycab in the wire segment so there is still a lot of room exist to grow in this area."

Institutional & EPC: The Deliberate Reset

• Domestic institutional cable sales grew 47% in Q4: EHV cable sales grew ~103%, driven by government capex and infrastructure spending across oil and gas refineries, fuel upgradation, solar power projects, tunneling and ventilation in highways and railways, and metro rail. Private-sector demand is also reviving, supported by PLI schemes in solar equipment, batteries, mobile sets and white goods, plus a pickup in steel, cement and real estate.
• EPC sales declined 18%, exactly as guided: The company did not book any new domestic EPC order in FY22, consistent with its strategy to restrict EPC to 10–12% of total revenue. The only turnkey orders taken were for EHV cable projects where 80% of the order value is cable manufactured by KEI itself. The reduced EPC book is the main reason the reported order book looks lower at ~₹2,419 Cr versus the historical ~₹3,000 Cr range.
• Institutional market share is 12–14%: Management sees room to grow here as well, supported by a strong inquiry pipeline from both government and private capex.

Balance Sheet & Working Capital: Net Cash Achieved

• Net debt reduced to ₹270 Cr from ₹408 Cr: The company disclosed it had turned net cash, helped by the receipt of over ₹150 Cr in retention money from government contracts. Receivables improved sharply to 2.9 months from 3.87 months, with a further target of 2.5 months in FY23.
• Inventory stable, creditors fell: Inventory held at 2.26 months versus 2.19 months a year ago. Creditor days dropped to 1.6 months from 2.13 months because the company used its ample cash to make cash purchases. Management believes the working-capital cycle is sustainable at under three months, depending on cash available for cash purchases.
• Inventory accounting method changed from FIFO to moving average: The shift was driven by the BAAN ERP system, which does not support FIFO. Management described moving average as "more scientific" and noted that other large companies like Havells have already adopted it. When asked how much Q4 profit was understated by the change, management said the amount was "very small" and did not quantify it.

Anil Gupta: "Basically the ERP does not support the FIFO method. So in FIFO we need to calculate them manually actually. So because of that the ERP supports only moving average. So all the big companies are now having only the inventory method is through moving average. So we have also shifted to moving average."

Growth Outlook & Capacity Expansion

• FY23 revenue guided at ₹6,600 Cr, 18–20% growth: Management expects growth to be driven more by volume than by price, with at least 18% volume growth achievable given existing capacity. Monthly order intake is running in line with projections, and demand softening is not visible: the only observed effect was a 15–20% deferment of purchases for 2–3 weeks in April/May when LME prices of aluminium, copper and steel spiked. Order booking has since normalized as prices softened.
• Greenfield expansion on track for Q3 FY24 start: A new plant for LT, HT and EHV cables will require ~₹800 Cr of investment staggered over 3–4 years. Land acquisition for the 100-acre site is ~35% complete, with registries ongoing weekly; completion is now expected in about two months, later than the earlier May 31 target. The plant will start in phases, and until then, annual debottlenecking of 5–7% at existing plants will provide adequate capacity.
• FY23 capex pegged at ₹150–200 Cr excluding land, ~₹200 Cr including it: Annual capex spend is expected to run at ₹200–250 Cr every year for expansion. Dividend payout will increase only modestly, constrained by these expansion needs.
• Exports targeted to grow 10–15% in FY23: Exports were stagnant for two years at ~₹585 Cr due to travel restrictions. The strategy now is to increase sales in existing countries, work on certifications in more countries, and form teams and networks in new geographies including South America, North America and Africa. The ambition is to move from ~₹400 Cr to ₹700+ Cr over time.

Anil Gupta: "We want a decent growth and a profitable growth that is our aim."

Guidance & Commitments

Key Metrics