KEI Industries Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Broad-based 18% revenue growth: Q4 net sales rose 18.76% YoY, with B2C distribution surging 25% and exports up 57%, while full-year EBITDA margin expanded to 10.94%.
• Export story is structural, not cyclical: Western demand for infra, solar and T&D is bullish, new manufacturing capacity is not coming online there, and India is gaining from China Plus One supply chain shifts.
• Capacity build-out unlocks the next leg: Brownfield expansion at Pathredi adds ~₹800-900 crores of LT cable capacity by June 2024; the Sanand greenfield for LTE, HT and EHV cables begins production in Q1 FY26.
• Margin expansion path is laid out: Management expects another 1% to 1.5% EBITDA addition by FY27-28 as new projects, retail mix and exports scale, with ROCE already at 27.4%.
• What to watch next quarter: Pace of B2C dealer expansion in southern and eastern India, conversion of China Plus One inquiries into orders, and whether EHV cable growth can sustain triple-digit rates before Sanand capacity arrives.

Demand & Volume Growth

• Volume-led growth: Entire Q4 and full-year growth was volume-driven; price contribution was less. Volume grew 24% in Q4 and 22% for the full year.
• Real estate tailwind intact: New projects in metro cities are being sold out, and management observed no dullness in the sector.
• Copper price is a pass-through: Demand is essential and projects cannot proceed without raw material for more than a month, so copper price volatility causes no long-term demand destruction.
• Wire outperformed cable: Wire growth was higher because capacity was available, the base was lower than peers, and the company tapped newer areas by expanding its dealer base, while LT and SG cable faced capacity constraints.

Anil Gupta: "I mean demand, this is the essential sector of the economy. And projects which are being constructed or nobody can install it for the want of raw material for more than a month or so."

Export Opportunity

• 57% Q4 export growth was driven by strong demand in Western countries for infra, solar, power T&D and oil and gas, where new manufacturing capacity is not coming online and existing capacity is underutilized due to manpower and input-cost pressures.
• China Plus One inquiries are real: Customers are referring to developing one country apart from China as a significant supply chain alternative, aided by India's political relationships. Conversion requires technical certifications and a sales network in those countries.
• EHV cable exports grew faster than domestic (58% vs 19%) because the export base was low, but both domestic and international demand remain strong.

Anil Gupta: "world over, especially in the Western countries and other parts of the country, the demand in infra projects in solar, power transmission and distribution is as well as oil and gas sector is very bullish. And in Western countries, the new manufacturing capacity is not coming."

Capacity Expansion

• Pathredi brownfield: Operational by end of June 2024, adding LT power cable capacity of ~₹800-900 crores per annum, enabling 16-17% growth in the current and next financial year.
• Sanand greenfield (Gujarat): Construction started in FY24; Phase 1 commercial production to commence by Q1 FY26. The project covers LTE, HT and EHV cables and will take close to 24 months, so EHV cable growth can accelerate only after two years.
• CapEx phasing: ₹900-1,000 crores planned for FY25, with the remaining ₹500-600 crores in the following year to complete the project and maintain a 15-16% CAGR over the next 3-4 years.
• Cable capacity utilization is at 92%, while wire utilization is at 70-75%, leaving headroom for wire growth without immediate new investment.

Margins & Capital Efficiency

• Q4 EBITDA margin improved to 11.2% from 10.7% YoY; full-year margin improved to 10.94% from 10.62%.
• PAT growth lagged EBITDA slightly because financial charges increased due to bank guarantees on large orders, booked in the same quarter.
• ROCE at 27.4% and return on capital above 20%, with capital efficiency improving as scale increases and overheads reduce on a larger production base.
• A&P spends will increase by only ₹4-5 crores extra year-on-year, keeping incremental cost pressure contained.

Rajeev Gupta: "As we have earlier guided, Bharatji, that after the implementation of the new projects and increase in the retail prices retail sales and exports, we will be adding another 1% to 1.5% EBITDA by financial year '27 and '28."

Channel & Product Mix

• B2C distribution grew 25% in Q4, contributing 46% of total sales versus 43% last year, driven by dealer network strengthening and geographic expansion in southern and eastern India.
• Target is 50% B2C: Management aims to reach B2C at half of total sales, beyond which it will maintain direct sales to large customers.
• Dealer network stood at 1,990 active dealers as of 31 March 2024, with a target of ~20% growth in wire and cable through the distribution channel.
• EV charging cables were added to the portfolio in the last financial year; production and commercial sales have started.
• Stainless steel wire was the lone soft spot, with Q4 sales declining to ₹56 crores from ₹63 crores YoY.

EPC & Diversification Stance

• EPC sales (other than cable) grew ~42% in Q4 to ₹192 crores and ~38% for the full year to ₹4,062 crores, but management will maintain EPC at 5-6% of total business and not enter as a significant EPC player.
• No diversification planned: Management is sticking to the cable product range and adding new geographies, citing the heavy capital expenditure already underway.

Rajeev Gupta: "EPC project, we have already reduced to the level of 5%, 6% of our total business, that we will be maintaining actually."

Guidance & Commitments

Key Metrics