KEI Industries Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Margin expansion with volume-led growth: EBITDA margin improved to 10.98% YoY while cable volumes rose ~20%, demonstrating the resilience of the company's natural hedge against raw material volatility.
• Dealer channel is the growth engine: Sales through the dealer network grew 26% YoY in Q3, with contribution rising to 45% of revenue, as the strategy shifts from adding dealer count to deepening existing dealer performance.
• EHV revenue reset, not a structural problem: EHV sales are now guided to ₹350–400 cr this year vs the earlier ₹500–550 cr target, because Right of Way delays pushed out project execution, not because the order pipeline dried up.
• Balance sheet transformed to net cash: The company moved from net debt of ₹270 cr to a net cash position of ₹85 cr, driven by lower receivables, reduced EPC mix, and strong retail collections.
• What to watch next quarter: Whether the guided Q4 margin improvement to 11% materializes, the pace of EHV order conversion as ROW issues resolve, and the trajectory of export orders now that the post-COVID customer acquisition process is complete.

Margin Mechanics & Profitability

• Natural hedge in action: The company carries 3–4 months of pending orders and 2.5–3 months of inventory on the shop floor, so only 15–20 days of the order book is exposed to raw material price moves, limiting EBITDA margin fluctuation to 0.5–1%.
• Q3 margin walk: EBITDA margin improved to 10.98% from 10.14% YoY; PAT margin improved to 7.21% from 6.47% YoY, helped by finance costs falling to 0.5% of net sales from 0.77%.
• Nine-month trajectory: First-half margins were lower due to raw material volatility; Q3 saw improvement, and management expects further improvement in Q4 to reach an 11% EBITDA margin exit.
• Gross margin not disclosed: Management declined to provide gross margin calculations, citing product mix distortion from EPC (which carries very low raw material content), and asked investors to focus on EBITDA margin instead.

Anil Gupta: "I think we have been maintaining for quite long that we are really balancing our raw materials versus the orders booked and meticulously matching the raw materials in the factory and in pipeline and the orders. So that is how we have been able to maintain margins in a very-very narrow band."

Dealer Network & Domestic Distribution

• Dealer sales accelerating: Sales through the dealer network grew 26% YoY in Q3 and 38% in the nine-month period, with contribution to total revenue rising from 41% to 45%.
• Depth over breadth: Active dealer count remained flat at approximately 1,900, because the strategy is to strengthen existing dealers through sales and financial support, replacing weak dealers with stronger ones rather than chasing count.
• Housing wire moderation in Q3, not in trend: Housing wire grew ~13% YoY in Q3 (₹466 cr vs ₹412 cr), a slower quarter, but nine-month growth was 32%, keeping the full-year target of 30–35% on track.
• Market share ambition: Current housing wire market share is approximately 5%, with a target to reach 9–10% over the next five years, supported by elevated growth that management expects to continue at least through FY26–27.
• Dealer count target: The company aims to increase dealer count by approximately 20% every year, though the immediate focus remains on per-dealer performance.

EHV: Delays, Strategy & Materiality

• ROW issues caused the miss: EHV revenue is now expected at ₹350–400 cr this year vs ₹515 cr last year, because Right of Way clearance delays and non-clearance of certain orders from utilities pushed projects out, not because demand disappeared.
• Next year rebound guided: Management expects EHV to deliver close to ₹550 cr next financial year, because the order book is strong.
• Profitability over market share: In utility bidding, gaining share requires being L1 on price; management explicitly prioritizes maximizing revenue based on profitability rather than cutting price to win volume.
• Not material to the overall story: Per management, a ₹100–150 cr swing in EHV sales on a future ₹8,000 cr turnover company is not a material matter.
• Capacity is fungible: The same plant and equipment used for EHV also manufactures medium voltage cables (33 kV, 11 kV), so capacities never remain idle even when EHV production is lower.
• Brugg Kabel cooperation restructured: The 12-year cooperation with Brugg Kabel for up to 220 kV has been discontinued; KEI is now technically qualified independently in that segment, while cooperation continues exclusively for the 400 kV segment. Fees paid to Brugg were not disclosed, termed commercial information.

Anil Gupta: "It is very easy to gain the market share by -- because in utility business, you have to be L1. So you reduce your price and gain market share. Our aim is to maximize the revenue based on the profitability."

Exports: Order Book Rebuild & Geographic Expansion

• Export growth trajectory: Export sales grew approximately 30% in the nine-month period to ₹530 cr, and management confirmed the full-year projection of around ₹700 cr will definitely be surpassed.
• Order book improvement: The cable export order book improved to ₹284 cr, because the process of acquiring new customers, which had stalled during COVID, is now complete.
• Geographic mix shifting: Maximum exports currently go to Australia, the Middle East, and select African countries, with substantial volumes to Nepal and Bangladesh; exports to Sri Lanka stopped over the last year. The company is now targeting the United States, with a good amount envisaged in the current quarter.
• Conviction on sustained growth: Management expressed confidence that exports will grow better every year, expanding both product-wise and geographically, with no worry about volatility in the trajectory.

Anil Gupta: "I don't think that there will be any worry what volatility in that because we are growing our export markets product-wise and geographically also. And I think our export and exports will be grow better every year."

Balance Sheet & Working Capital

• Net cash achieved: The company moved from a net debt position of ₹270 cr as of March 2022 to a net cash position of ₹85 cr as of December 2022, driven by three factors: EPC/EHV sales going down, collection of retention money, and retail sales rising substantially.
• Receivables shrinking: Receivables reduced from 3.87 months in 2021 to 2.37 months as of December 2022, with a further reduction to 2.2 months expected next year.
• Working capital release: Approximately ₹100 cr is expected to be released during FY23 from EPC data retention payments, to be deployed toward increased cable sales and capex.
• Credit rating upgrade: India Ratings, ICRA, and CARE upgraded the company's long-term rating to AA from AA- and affirmed A1+ for short-term bank facilities.

Capex & Capacity Expansion

• Brownfield capex at Silvassa: ₹40–45 cr being invested for LT power cables, expected to generate an additional ₹500 cr in top line in the next financial year, enabling approximately 15% growth.
• Baroda greenfield plant: Landfilling has started; construction begins from April onwards. Next year's capex will be close to ₹250 cr for this plant, and may be higher depending on machine delivery and construction progress.
• Capex runway: The company plans approximately ₹200–250 cr per year in capex for the next three years, funded entirely from internal accruals, to maintain a CAGR of 17–18% per annum.
• Greenfield EHV capacity: Planning is underway for greenfield capex to expand EHV capacity, though details are not yet finalized.

Guidance & Commitments

Key Metrics