KEI Industries Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Margin hurdle cleared, now in 11–12% band: Operating margin reached 12.43%, crossing the sub-11% floor that had weighed on the stock, driven by product mix, retail shift, and operating leverage.
• Export miss is a timing issue, not a demand reset: Exports fell to ₹341 cr from ₹375 cr YoY because Middle East shipments were blocked by the Iran war and US orders faced customs friction; shipments have now resumed, and full-year export guidance is maintained.
• Sanand ramp-up is on but the revenue bar was reset: Management walked back a media comment, now guiding ₹1,500–2,000 cr from Sanand in FY27, not ~₹3,000 cr, calling the higher figure a "slip of tongue." Phase 1 is at 50% utilization and climbing month by month.
• A new ₹700 cr greenfield was announced at Salarpur: The Bhiwadi plant will add LV and MV cable capacity over two years, keeping annual capex at ₹600–700 cr for the next 3–4 years while the company remains debt-free.
• What to watch next quarter: Whether the resumed export shipments convert to revenue at acceptable margins given elevated shipping costs, the pace of Sanand's month-on-month ramp, and whether gross margin holds near its four-year high.

Margin Recovery: The 11% Hurdle Is History

• Product mix lifted margins: Higher EHV power cable contribution, which grew 47% YoY to ₹186 cr, combined with a declining EPC mix to improve blended profitability.
• Retail shift reduced working capital intensity: Dealer and distributor sales moved from 51% to 59% of the mix, carrying lower working capital needs and better realizations.
• Operating leverage kicked in: Fixed expenditure did not rise proportionally with the top line, so the expenditure-to-sales ratio declined and dropped more profit to the bottom line.
• Gross margin at a multi-year high: Gross margin has improved sharply over the last two to three quarters and now sits at levels last seen in FY22, around 25%. Management expects it to stay in this range with only 0.5% quarterly volatility.
• Three levers, not one: Management stressed that the margin improvement came from product mix, market mix, and the expenditure-to-sales ratio working together, not from any single factor.

Rajeev Gupta: "We have already crossed now hurdle which was earlier that less than 11% operating margin we were operating. So now that hurdle we have crossed and we hope that now we will be in the range of 11% to 12% operating margin for the coming year."

Exports: Q1 Stumble, Full-Year Confidence Intact

• Middle East crisis blocked dispatches: The Iran war and resulting shipment unavailability prevented execution of several orders in Q1, pulling export sales down to ₹341 cr from ₹375 cr YoY.
• US friction added to the drag: Custom duties issues in the United States further delayed order execution, though management says the US market has now opened up after being stalled.
• Shipments have resumed, but at a cost: Goods are now moving to the Middle East, though shipping costs remain high, which could pressure export margins in the near term.
• Full-year export guidance stands: Management expects exports to grow substantially and finish in line with earlier guidance, targeting a 17–18% export share for FY27.
• Geographic diversification is the hedge: The company works across the US (oil & gas, data centers, distribution), Australia (solar, wind, industrial), the Middle East (oil & gas refineries, upstream), and Africa (utilities, refineries), so weakness in one region can be offset by others.

Sanand: Ramp-Up Reality Check

• Revenue guidance was corrected downward: Anil Gupta clarified that an earlier media comment of ~₹3,000 cr from Sanand in FY27 was a "slip of tongue"; the actual expectation is ₹1,500–2,000 cr.
• Phase 1 already at 50% utilization: Production is ramping month by month as manpower and machinery stabilize, with greenfield projects inherently taking time to reach steady state.
• EHV tower is the long pole: A 152-meter tall tower for EHV power cable is under execution and expected to commission by March 2027, after which full capacity becomes available. Electron beam cable machinery is already operational in the second quarter.
• Utilization path laid out: 70–75% utilization expected by next financial year, with total Sanand capacity reaching ~₹7,000 cr within two years after a balancing equipment investment of ₹100–200 cr.
• Inventory build is structural, not a red flag: The sharp inventory increase is largely from Sanand ramp-up, which requires a full build-up of raw material, WIP, and finished goods at a new factory, plus ~₹60–100 cr in finished goods from delayed dispatches or export sale reversals.

Anil Gupta: "No, actually in media interaction. Actually it was a little bit of a slip of tongue. We expect around 1500-2000 crore revenue from Sanand in this financial year which will come in the contribution in FY27."

Capacity Expansion: Salarpur and the ₹600–700 cr Annual Runway

• New greenfield announced at Salarpur: A ₹700 cr investment over the next two years for low voltage and medium voltage power cable at Bhiwadi, with construction, machinery, trial runs, and production expected to take two years.
• FY27 capex split: ~₹300 cr remaining for Sanand plus ₹300–350 cr for Salarpur; next year the balance of Salarpur spend plus potential new land acquisition, possibly at Baroda or existing locations.
• Annual capex run-rate holds at ₹600–700 cr: Management expects to sustain this level for the next 3–4 years, funding it from internal accruals while remaining debt-free.
• EHV expansion will stay at Sanand: Further EHV capacity will be added at the same site by adding more lines when needed, rather than at a new location.
• Capacity is built for multi-year absorption: Management stressed that new capacity is not meant to be utilized in a single year; greenfield projects take two to two-and-a-half years to construct and another year to ramp, with full utilization taking three to four years.

Rajeev Gupta: "It is not the case that whatever we put we will use the capacity only in one year. So that's how we are again guiding for the discipline growth that 20% plus CAGR growth we will maintain. So we are never targeting for a growth of a 35% or 40%."

Demand Environment: Domestic Strength Offsets Export Noise

• Domestic demand is broad and deep: Strength spans power generation, transmission, distribution, data centers, manufacturing plants, urban infrastructure, railway infrastructure, housing, commercial spaces, and thermal power projects now in strong construction phase.
• Demand rotates across sectors annually: Capital expenditure cycles shift from transmission to distribution to generation to refineries to fertilizers each year, so no single vertical dominates indefinitely.
• Wire growth is outpacing cable growth: The ongoing construction phase in the country is pulling wire demand faster, and management calls the overall domestic wire and cable business "very, very strong."
• Management declined to name weak verticals: When asked which domestic demand segments are soft, management said, "No. I have no comments on that," suggesting either no material weakness or a preference not to disclose.
• Data centers and renewables are structural tailwinds: Cited alongside EV infrastructure, railway electrification, and urban infrastructure as multi-year demand drivers.

Capital Allocation & Growth Philosophy

• Debt-free with disciplined reinvestment: The company has become debt-free and splits capital between working capital and capex, targeting 20%+ CAGR sustainably.
• ROCE is optically suppressed by metal purchasing terms: ROCE sits at 23–24% because the company buys metal on cash, keeping creditors below 1.5 months versus an earlier 3.5 months. If metal were bought against LCs, ROCE would already be 28%.
• Asset turnover can reach 4x: Management indicated this as an achievable level as capacity utilization rises.
• Guidance conservatism is deliberate: Management repeatedly stated it will grow more than guidance and to industry standard but will not give very high numbers as a matter of policy, citing a track record of under-promising and over-delivering.
• QIP funds nearly fully deployed: ₹1,785 cr of the ₹2,088 cr QIP proceeds utilized up to 30 June, with only ₹303 cr unutilized.
• Other income base effect: FY26 other income was elevated because QIP proceeds were parked in FDRs earning interest; that benefit is not repeating, so other income will normalize.

Rajeev Gupta: "We are very conservative people. Whatever we say, we try to deliver more than that."

Guidance & Commitments

Key Metrics