KEI Industries Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Volume-led quarter, value lagged: Net sales grew 9% YoY while volume grew ~13%, as a ~10% YoY copper price decline compressed selling prices, particularly in House Wire where value growth was just 2.55% in Q4.
• Debt-free with cash to fund expansion: The company repaid all term debt, holds net cash of ₹183 cr, and will fund a ₹250–300 cr annual capex cycle entirely from internal accruals and its close to ₹400–500 cr cash balance.
• EHV cable is the FY24 swing factor: EHV sales fell to ₹102 cr from ₹146 cr YoY because transmission utility clearances blocked execution, but an order book above ₹850 cr supports a guided rebound to ₹550–600 cr in FY24.
• B2C mix shift is deliberate and margin-accretive: Dealer/distributor sales reached ~44% of revenue in FY23, up from 40%, with a target of 48–50% in FY24; the shift helps reduce receivable days and supports the long-term margin expansion plan.
• What to watch next quarter: Whether the Silvassa brownfield capacity (online from April) converts into the guided 16–17% FY24 top-line growth, and whether EHV execution clearances actually materialize to unlock the ₹850 cr order book.

Volume vs Value: The Copper Price Overhang

• Copper price decline masked volume strength: Q4 net sales grew 9.06% YoY while volume grew ~13% because lower metal prices during Q3 affected Q4 selling prices; copper prices decreased ~10% YoY.
• House Wire hit hardest: Q4 House Wire value sales grew only 2.55% (₹478 cr vs ₹466 cr) despite volume growth because selling prices decreased ~10% due to the copper price decline; full-year House Wire & Winding Wire sales increased 23.21%.
• Dealer destocking amplified the effect: Continuous decrease in copper prices caused destocking at the distribution level, so primary sales went down in Q4; stock levels at distributors are now very low.
• Historical resilience claimed: Management stated the company maintained 16–17% YoY value growth even in years when copper prices were declining, citing FY19 and FY20 as examples where growth exceeded 18–20% despite falling copper.
• The 15–25 day lag is structural: There is a 15–25 day lag effect of LME price changes on margins due to inventory holding of ~2.5 months for institutional sales and a 15-day price revision cycle for retail; on an annual average basis, the impact evens out.
• Normal correction is manageable, crash is not: If copper price corrects 20%, value growth may drop from 16–17% to 11–12%, but the company will not be flat; a normal ~10% correction is manageable.

Rajeev Gupta: "If anything goes exceptional, nobody can control. If it is in the range of the normal fluctuation, then it will be controlled. If your share market crashes, then how you will control the portfolio profit."

EHV Cables: The Blocked Order Book

• FY23 was a year of stalled execution: EHV cable sales fell to ₹102 cr from ₹146 cr YoY because large orders could not be executed; clearances from transmission utilities and right-of-way permissions were not available, preventing conversion into sales.
• The order book is the bridge to FY24: Management expects to achieve close to ₹550 cr to ₹600 cr in EHV power cable sales in FY24, supported by a strong order book of more than ₹850 cr plus new orders expected.
• EPC execution already showed the path: EPC division sales grew ~24% in Q4, driven mainly by EHV-EPC turnkey execution (₹65 cr vs ₹37 cr), suggesting the capability exists when clearances come through.

Rajeev Gupta: "In extra high-voltage cable, we had orders in FY '23, but a lot of large orders could not be executed because the clearances from the transmission utility and right of the way permissions were not there. So hence, it could not be converted into sales."

Capex Cycle: Silvassa Online, Gujarat Next

• Silvassa brownfield phase one complete: Out of ₹98 cr capex spent in FY23, ~₹45 cr was invested in Silvassa; that capacity has already come online from April onwards, enabling an additional ~₹500 cr in LT power cable revenue.
• Greenfield Gujarat plant is the next leg: Construction commences June 2023, with production to commence within 18 months, i.e., by end of September to December 2024.
• Funding is fully internal: ₹250 cr to ₹300 cr annual capex for the next 3 years will be funded entirely from internal accruals; the company has ₹400–500 cr cash available and accrues ~₹600 cr cash profit annually.
• FY24 total capex: ₹300 cr to ₹350 cr including the Silvassa brownfield spend.
• Asset turnover math: For the Cable division, asset turn is 1:4 in the initial year, then 1:5; including wire, it is 1:6.

Rajeev Gupta: "And all will be from internal accrual. Because right now, we are having close to ₹400 crores to ₹500 crores balance available with the company. And every year, we are accruing close to ₹600 crores cash profit."

B2C Mix Shift & Channel Strategy

• Retail is rising as a share of revenue: B2C sales through the dealer network contributed ~44% in FY23 vs 40% the previous year, driven by a focus on increasing retail distribution.
• FY24 target is 48–50%: Management is targeting dealer/distributor sales contribution of 48% to 50% of total sales, with dealer distributor sales growth expected to remain higher than total sales growth on a full-year basis.
• Dealer addition is measured: The target is 100–150 net new dealer distributors in FY24 (~7–8% increase), with focus more on strengthening and replacing existing dealers than aggressive expansion.
• Working capital benefit: Receivable days are expected to improve from 2.4 months to 2.2 months in FY24 due to the increasing retail mix; inventory levels are sustainable at current levels.

Exports & the U.S. Entry

• FY23 export growth was 18% to ₹693 cr, and the company started exporting to the U.S. market in the last quarter of FY23 after receiving product approvals.
• U.S. entry required a two-year effort: Low-tension power cable, solar cable, and HT cable have been approved by the U.S. market; UL approval was obtained after ~2 years of effort, and sales commenced from January 2023 onwards.
• FY24 export target: Exports are targeted to increase from ~10% to 12% of total sales.
• Broader acceptability: Management noted that good acceptability of Indian products has come in developed countries, creating opportunities.

Anil Gupta: "To sell in U.S., you need UL approval for specified products, which we have obtained after a effort of around 2 years to become eligible to sell in the market. And hence, the distributors over there are approaching us now, and we have already commenced sales from January '23 onwards and continue."

Margins: Absolute Profit Over Percentage Points

• Current margin level: EBITDA margin stands at 10.5–11%, with a long-term target to improve by at least 1.5% over the next 5 years (by FY26–27) to 12–12.5%.
• The expansion lever is operating leverage: As greenfield capex commercial production starts, overheads (head office, top management, marketing) do not increase proportionately; increasing retail and exports mix also helps.
• Management prioritizes absolute profit growth: The company is focused on growing absolute EBITDA and PAT rather than maximizing margin percentage, noting that interest cost is not increasing even as sales grow.
• Raw material cost as a percentage of sales has risen from 70% pre-COVID to 73–74% now, but management attributes this to a mix shift: earlier EPC scale was higher, and in EPC, material was less while manpower and contracting cost was more.

Rajeev Gupta: "But you see we are more focusing on the absolute number because we don't want that we should not increase in terms of the value and we increase the margin, but the absolute number will not be there. So we are focusing that we should grow at least 15 to 17 kind of percent range in terms of the value, even though we can increase a little bit in the EBITDA and the PAT because our interest cost is not increasing even though our sale is increasing."

Guidance & Commitments

Key Metrics