KEI Industries Limited (KEI) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the KEI Industries Q2 FY27 Earnings Conference Call, hosted by Nuwama Institutional Equities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Archul Nohade, the Nuwama Institutional Equities. Thank you, and over to you, sir.

Yes, thank you. Good afternoon, everyone. On behalf of Nuwama Institutional Equity, we are glad to host the Senior Management of KEI Industries Limited to discuss the Q2 earnings. We have with us Mr. Anil Gupta, Chairman, Cummanaging Director of the company, Mr. Rajiv Gupta, Executive Director of Finance and CFO. We'll start the call with the opening remarks from the management and then move to Q&A session. Thank you, and over to you, sir.

Thank you very much. I'm Anil Gupta, CMD AEI Industries Limited. Thank you for attending this conference call. I'll give a brief of quarter two of 26-27 financial year. So, net sales in Q2 of FY27 is 3,776 crore. So, we have achieved a growth 38.52%. However, the total wire and cable sale in Q2 has grown by 39.5% against previous years same period. During Q2 FY26-27, operating margin is almost at par at 9.97% against 9.88% previous year, same period. EBITDA in this quarter is 401 crore against 311 crore last year. EBITDA margin over net sales was 10.62%. The growth in EBITDA is 28.69%. Profit after tax this quarter is 262.45 crore, against 203.51 crore in last year. Growth in the past is 28.96%. Profit after tax oblique net sales margin is 6.95% versus 7.46% previous year same period. The domestic wire and cable sale 3,184 crore with a growth of 46%. Export sale in this quarter is 493 crore against 472 crore last year. We have very good order book position from overseas market, particularly United States. We are quite hopeful that in coming quarters, export will grow substantially. Total EHB sale this quarter is 217 crore against 172 crore in the previous period last year. EPC sale is 46 crore against 47 crore. Wire sale is 61 crore against 53 crore previous year same period. Domestic institutional wire and cable contribution is 2B sale is 26% contribution in the overall sale. Sales through B2C sales means distribution network is 59% and contribution of export is 13%. And balance to percent is domestic EPC and domestic. They achieved 6,960-09% in the same period previous year. Growth in EBITDA in first half is 34%. Profit after tax is 536.59 crore. Growth in the pet is 34.4%. Domestic wire and cable sale, both in domestic wire and cable growth is 38%. Export sale is 834 crore as against 846 crore last year. Total sale of extra high voltage cable is 403 crore as against 298 crore last year. The total active working dealers of the company as on 30th September is 2,146. At the moment, fire and cable segment is 4,927 crores, EPC 258 crores, and out of this order book, around 991 crores are exported. Long-term rating from CARE India Ratings and ICRA is AA+, and that of short-term is A1+. Book value of the company per equity share is 753 as against 697 as on March 31, 2026. Cash and bank balances on 30th September is 698 crore, which includes QIP balance of Rs. 169 crore. H1 FY2627, company has incurred a capital expenditure payment of Rs. 402 crore, out of which Sanand CAPEX is 330. 30 September 26, total CAPEX payment incurred for Sanand is 1,876 crore. Another Rs. 200 crore approximately will be spent in balance six months of FY2626. It's expected to incur capital expenditure of approximately 600 crore annually for next three to four years. The company is having a total metal consuming capacity of approximately 183,000 metric ton per annum, including both copper and aluminium boats. Planned commercial production of phase two of the extra high voltage cable and HD cable in Sanand will commence by end of March 20th. Capacity utilized during H1-27 is approximately 77% in cable division, 64% in house wire division, 91% in stainless steel wire division, and 43% in the communication cable capacity. Sanand Capacity Edition is taking time to ramp up, and in coming months, capacity utilization will increase month after month. Also, we have sufficient capacity to grow housewives, production and sales for next to market. We are hopeful to grow in the current year by more than 25% and in next three to four years by 20% TAGR. There is a good demand in cables in data centers, renewable energy like solar and wind, and also even the thermal power projects now coming up in a big way. Electric vehicles infrastructure, railway electrification, metros, urban infrastructure as well. Manufacturing projects in domestic as well as in global markets is strong in housing and commercial. Thank you, sir.

We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use hand tips while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to all the participants, you may press star and 1 to ask a question. We have the first question from the line of Natasha Chan from Phillip Capital. Please go ahead.

Thank you. Good afternoon, team. I have two questions. First on gross margin, could you explain the why why gross margin decline? Now, what I understand is EPC losses, if I take that even as a percentage of gross profit, that explains 80 basis point decline, leaving another 100 basis point. Your commentary on export is bullish. EHB has grown very strongly. B2C growth has been strong. And today morning interview on CNBC also, I mean, the ND said that ultra-force entry will not trigger pricing walls. And in one queue, you had said that we'll maintain the gross margin guidance with a further 50 basis point improvement. So could you please categorically explain the 100 basis point decline? And second question is on the wires and cables outlook. So, if you see copper has been oscillating close to almost 14,800, so how do you see this wire and cable market evolving if copper crosses the 15,000 mark? Could there be a dent in demand itself? And what are the key risks that you see standing today in the wire and cable market? Thank you.

Thank you, Natasha. I'm Rajiv Gupta. So, first of all, in the earlier call of the first quarter, we maintained that the overall EBITDA margin will be 11%, mainly because the quarter one was not the representative of the margin because of the certain valuation of inventory. So, if the valuation increase in the first quarter, because of some reason, it has to affect in the subsequent quarter. So, because of that, it looked like that. But if we compare the whole half-year position, you will find the same thing which we have said earlier also. And in the past, if you compare our five-year number, our operating margin was close to 10.27% to 11% in H1. So slowly, slowly it is increasing, and it has reached to 11% now in H1. So we should not compare as we already requested for Q1 or Q2. It is an annualized basis. We always guided in the past that annualized basis the margin will be there. Because the growth is also an annualized basis because in Q1 or Q2 or Q3 growth may here and there because of certain dispatches or certain inspection get delayed. So because of that, year after year and quarter after quarter, we always guided that the growth rate will be for the full year and the margin will also be for the full year basis because of the valuation impact and everything else. With respect to the wire and cable market demand, since last 15-17 years, in spite of so many new computers came in in last 15-20 years, company has grown almost 17%. If we talk of the last three years, we have our growth, we have grown more than 80-19%. So that kind of history we are maintaining and we are communicating and we are guiding. So, whatever we are guiding in terms of the growth or in terms of the margin, keeping in mind the new competition, keeping in mind the geopolitical situation, everything we keep in mind, that's why we give you the guidance. So, whatever guidance, this year we have upgraded to grow by 25%. So, we are still maintaining that we will grow more than 25% because nobody knows that in future copper price will go up or copper price will go down. So whatever conditions at present are available, whether it's a pricing or it's a geopolitical situation or some other environmental or some other political situation, we need to consider each and everything into the aspects. That's how we are guiding. So our guidance is still maintaining that we will be growing at a 25% plus growth rate, and our EBITDA margin will be close to 11%. In our EBITDA, mainly income part is very small. It is not more than, it is basically the interest on our FB, or some exchange gain or loss, it depends on a quarter to quarter, it is not very high amount. If we exclude the interest or exchange gain or loss, then another 0.3 or 0.4 percent we may exclude. So, whatever analogy is saying that we will be maintaining 11 percent EBITDA margin. In the past also, we were saying in the last quarter, we maintained that 11 to 12 percent guidance. So that was the range-bound guidance. Because of the Sanand, once the Sanand is fixed and the capacity is ramping up and we are going to utilize to 60 to 70 percent, our EBITDA margin will definitely cross to 11 percent. So that's how we are, we have guided and still we are firm on our guidance, whether the competition was there or the competition in future will be there. The export is increasing in a robust way, and in the coming quarters, the export will also grow, but our growth rate will be depending on the geopolitical situation, competition, as we are repeatedly saying, that will be 25% plus, and the EBITDA margin will be 11%, where we will grow from export, or we will grow from the dealer distributor, or we will grow from the domestic institution side. As of now, the pending order position is very, very strong. Export order is also very, very strong. So, demand has very, very strong, and the visibility of the demand is also very strong. Yes, Natasha, from my side is over. If you have any query, please let me know.

Thank you, sir. That's comprehensive. Thank you very much, and all the best.

Thank you. We have the next question from the line of Aditya Bhartya from InvestCheck. Please go ahead.

Hi, good afternoon, sir. So my first question is on the revenue growth that we saw this quarter. Historically, you've always kind of maintained a very tight range of, let's say, 20-25% revenue growth. And in first quarter, also, you had kind of spoken about keeping revenue in a similar range, irrespective of whatever happens to RM prices. This time around, we have seen a stronger revenue growth. So should we start thinking that the focus would be on getting volume growth as opposed to anchoring ourselves to a revenue number?

Sir, earlier in the past also, we are repeatedly saying that value growth will be there because government makes the budget in value, corporate makes the budget in value, and individual makes the budget in value. So, ultimately, the value will prevail. Whatever capital we will be having, to that extent, we will be growing because at present, we don't have the concern for the capacity because of the Sanand Phase 1 started. So, capacity is not concerned as long as we have the working capital availability because at present, we are running a debt-free company. We will be running a debt-free company. So, we will be maintaining and we will be increasing our top line.

Sure. Given that we still have a net cash position, will it be fair to assume that revenue growth can be far stronger than what we have seen in the next few quarters as well? We have capacity, we have net cash position, and realization benefit is likely to persist at least for another one, one and a half more quarters. So can we assume a much stronger revenue growth than what we've become habitual of seeing?

You see, at one side, everybody is concerning about the new competition. At the other side, everybody is also expecting to grow. If we can grow faster and you are expecting we can grow faster, then why there is a concern for that? So, basically, because all the things we need to balance, because of the balancing, we are guiding for a 25% growth, but whatever we can add, we will be definitely adding. As I said, in the past 15-17 years, our history is available. In past 15-17 years, so many new companies have come, but we will be able to maintain because of our large customer-based position and our large export-based position.

Sir, the reason why I'm asking, a 25% kind of a revenue growth essentially implies a significantly slower revenue momentum in second half versus the first half. That's why I'm kind of trying to get better clarity.

Sir, for the guidance purpose, it will be 25% plus, but whatever it will be, it will be available in the balance sheet, because as you have already seen in the first half, we have grown almost 30%, 31% plus. Sure, I understand. Because whenever we guide more and if something is loose, then we have to answer. So, we need to be cautious about guiding.

Sure, that's a fair point, sir. Completely understand. My second question is on margins. Garen, only in the last quarter, we have spoken about 11% to 12% margins. This time around, you're speaking about 11% margins. I know it's not a big deal. It's a small kind of a change that we've made. Should we read anything more into this? Is it that margins are likely to be lower than what you were envisaging earlier? And what is really leading to this change?

The margin was, our guidance was close to 11% for the current financial year, because in the same call we were referring in the month of May, we were, at that time also we have said that first we will go to 11 to 11.5%, then we will go from 11.5 to 12%, because as the Sanand capacity will ramp up, the margin will get improved. Because of the export market, because of the EHV increase, because of the economy of scale. So, our guidance is intact. As I said, that 11%, as we said, we are maintaining. And as the final capacity ramp up, we will be moving towards 11 to 12.

Understood. Thank you so much.

Thank you. A reminder to all the participants, you may press star and one to ask a question. We have the next question from the line of Kunal from 361 Capital. Please go ahead.

Yeah, hi. Thank you for the opportunity. Sir, my question was similar to what was asked by previous participants. So, essentially, what we are seeing is that this year's margin will be around 11% and margin will slowly move towards 12% because of the various factors that we mentioned, right?

Yes, Kunalji, you are right. Because the Sanam capacity as it is ramping up, the margin definitely will improve towards the more than 11% side. So, because of the current year environment and completion in mind, the 11% EBITDA margin will be there.

Sure, sure. Thank you so much.

Thank you. We have the next question from the line of Swamil Mehta from Kotak AMC. Please go ahead.

Yeah, hi. Good morning. So, one question from my side, Ajithi. Now, as rightly highlighted that no one really knows how copper prices will play out. Assuming copper prices stay stable and not believing in either going up or going down meaningful, are you still confident of maintaining a 20% revenue momentum into S&P 28 for the full year?

Definitely the CAGR which we highlighted on the basis of the working capital available and the cash flow available, we will grow at a 20% CAGR in future.

Even if the copper price is remain stable?

Essentially, next year we are looking at a more volume growth and less thriving growth, even we will have incremental capacity from Simon. Is that the way how we should look at it?

Sir, volume, every time we all discuss about volume, but I always keep reminding you that everything sold is different.

I'm just looking at the mathematic, assuming copper price don't really move, essentially 20 percent.

Sir, if copper price don't move from here, then definitely 18-20 percent volume growth will be there, automatically. And if copper price goes down from here, then the volume growth will be higher than that. It is implied, sir. Because in the past 15 years, sir, in past 15 years, when I was saying that 17% CEDR, so few of the events were where the copper price was going down and down and down, but still we were growing at a 15-17%, even in the downward trend.

Sir, and my second question is with respect to working capital. Obviously, first half we saw a decrease, which was in industry-wide, not particularly to us. Do we believe from here on, working capital, number of days have decreased, and we should gradually see that number going down into second half and going into 28th?

The number, sir, already, if you see the debtor's number, it is already down. Only the inventory portion, because of the new salon capacity is ramping up, so there the whole inventory will get started, because at one time we need to fill the full factory, you know, so because of that the inventory has gone up, but at the same time the creditor level has not gone up, because our cash was available, so we save the interest cost, and we use the cash. So, working capital is the factor of inventory plus data minus creditors. So, we have not increased creditors because we are having the cash. So, that is not the case about working capital has increased actually.

Sir, I understand. I am looking from here on. Do you believe inventory days are stabilized? Sir, inventory days from here, it will go down. Okay. Okay, Rajiv. Thank you so much and all the best for such a good product. Thank you, sir.

We have the next question from the line of Anupam Goswami from FUD Life. Please go ahead.

Hi, good afternoon, sir. The next question is on how we have passed on the prices for cables, and what's our strategy now, how frequent we can pass through it?

Sir, as I said, in the last 15-17 years, price trend was increasing or decreasing trend. We have the mechanism under the natural hedge because we are carrying three to four months institutional order book, and we are carrying three to three and a half month inventory in factory and in transit. So our inventory and order book is under natural hedge. So old order gets served with old inventory. That's how we are passing on. Whenever we are quoting a new contract, we are quoting on a prevailing market price. That's how we are passing on month after month, quarter after quarter, these prices to institutions. In the case of retail, twice in a month, price gets revised, either upside or downside, depending on the movement of the matter. So, practically, prices are passed on.

Got it, sir. Sir, and next question, if you can throw some light, how the consumer behavior, let's say, if the copper prices stay stable from here, or even slightly goes down, do we see higher traction in the volume stocking or so? How do we see from here, both in cables and wires?

Sir, one thing is very, very simple. When the prices of the copper will go down, the volume will get increased. Prices will go up, the volume will get decreased, but the overall sale value will increase. Okay, sir. Got it. In the history, like financial year 16, 17, 17, 18, 18, 19, the copper price trend was going down and down and down, but our industry was growing at 16 to 17 percent C area.

Got it, sir.

Thank you.

Thank you, sir. Thank you. We will take the next question from the line of Achal Lohade from Nuwama Institutional Equities. Please go ahead.

Yes, sir. Thank you. Just a couple of quick clarifications. First, the EBITDA margin, what you are saying, is including the other income, right? Just to clarify.

Achal ji, in our case, in the past also, we have discussed so many times in EBITDA versus operating profit is not much difference. It is hardly in a quarter, 15 to 20 crore difference is there because of interest on FD or the exchange gain. Sometimes exchange loss also, sometimes exchange gain also. So, it is not much difference actually. It is hardly 0.2 percent.

Right, right. No, for the second quarter, sir, the difference was 60 basis points and given, you know...

So many times in the past, we have discussed that whenever we are guiding or always be guiding a EBITDA margin, so EBITDA margin is 11%, operating margin, it may be 0.2% slightly less. Because in the last year only, in last two years, when the QIP money was there, every income was higher actually. But now it is not the case. So interest income will be very, very less actually.

Got it. Got it. And in terms of the institutional, you know, the momentum, how has been the offtake? Is there any weakness, slowdown, or how was the demand scenario in various pockets of the electrical cables?

Yeah, I tell you since the last seven, eight years, whenever we are discussing, we are discussing, you say you are not seeing the demand, you are not seeing the uptake. But every year we say that we are seeing so many uptakes because so many projects in the private sector or government sector is on the ground. At present, you see the energy sector is very, very strong, whether it's the renewable, wind, solar, even the thermal, even the nuclear. And if you go for the infrastructure project, whether it's a road, rail, metro, airport, seaport, everything is in the traction. The government is investing 11 lakh to 12 lakh crore rupees. But everything will remain in the value, not will be in the volume terms. That we need to keep in our mind, that government makes the budget only in the value terms. You see the expansion in the refinery, expansion in the steel, fertilizer, pharma, even the real estate, whether it's a commercial or it's a residential project. Each and every city, there is a construction going on, sir. Because of that, if the GDP is able to grow by more than 7 percent and there is no estimation that the GDP will not grow, unless or until the GDP is growing and there is no indication of GDP will not grow 7 percent, how we can say that demand will not be there?

No, no, fair point. I was just trying to check the current trends as to if there is any weakness given the increase in the price of the raw materials.

If the raw material price increase or decrease, it always passes on. It has nothing to do with our margin. In last, if you see the latest five-year result, you will not find much volatility in the EBITDA margin. EBITDA margin is always was 10 to 10.5%. So, now it is moving towards 11% because the new capacity and the new sale is increasing. So, economy of scale.

Got it. Just a quick clarification. Is there any, you know, exchange loss or anything in this quarter? And also in 1Q?

At present, there is an exchange gain.

There is no loss. Okay, can you quantify, sir, exchange gain for 2Q?

Let me just hold down.

What is it for 1Q also, sir, if you have it handy? Q1? First up, yeah.

Q1 also is what close to... Hello?

Yes, yes, Q1 also similar, sir?

No, Q1 was very less, actually. Less than 1 crore.

Less than 1 crore. Got it, got it.

Actually, interest cost was higher earlier. Because of the QIP money. Now that's what it has cost me interest.

Interest income. Got it. Thank you.

Thank you. We will take the next question from the line of Umang Mehta from Kotec Securities. Please go ahead.

Yes, sir. Thanks for the opportunity. Sir, on exports, you were targeting 17-18% salience this year. The first half, we have flat because of the war. But you mentioned about a very strong order book. Two questions there. One is, how much is U.S. in your order book of 1000 crores? And second is, how do you see exports growth for the full year as of now?

Most it is applied because 493 crore versus 472 crore in this quarter. But the export order, which is 991 crore, it is from the Middle East, from Australia, from America. America order is almost 50% of the order book.

50%. Okay, got it.

At the current timing, America is very, very strong demand, whether it's industry or it is from energy side. From both sides, the demand is very strong from USA.

Understood. So, from a full year perspective, any guidance you can share in terms of absolute export revenues or growth?

First of all, everything, if the export increase so much, then little bit decrease in that domestic institution because if the overall growth will remain the same, no, sir? Because we need to be subpart of the export, retail or institution, no? Overall growth either from here or from there.

Okay. Sure, sir. Thank you so much and all the best.

Thank you. We will take the next question from the line of Medit Trevedi from Asian Market Securities. Please go ahead.

Hi, sir. Thank you for the opportunity. Just a quick question on the CAPEX-related side. So, our CWIP has increased to almost 1,300 odd crores as of September. So, could you please provide an update on the key projects driving this increase and the commissioning timeline?

Basically, the Sanand project is only driving. By March 2027, our phase 2 of EHB and HD cable will commence. So, then almost all the CWIP will go towards capitalized.

Got it, sir. Just wanted some clarification on the inventory side. So, you know, we have seen an almost 1200 crores of increase in the inventory in the first half, significantly impacting our operating cash flows. Could you please elaborate on the key drivers of this build-up, and additionally, when can we expect the inventory to?

Sir, the main inventory increase in the Sanan because it's a new plant, so as the capacity is increasing, so at one time we need to fill the full factory, almost more than 600-700 crude inventory increase only in the Sanan, and balance because of the valuation from the existing factory. The copper and coal price have because of that only.

Sir, and when can we expect it to normalize post H2?

So, by the end of the year, it will get normalized to the earlier level. The holding level will remain same by the March 27th.

Got it, sir. Can you please call out the volume growth for this quarter?

The volume growth, as I said repeatedly, is that everything we sold in the value, the government budget is always in the value. And we have the capital constraint, so we can sell only in the value terms, sir. So, that's why the value growth is always prevailed because balance sheet we make only in the value terms.

Got it, sir. Thanks a lot.

Thank you. We will take the next question from the line of Rahul Agarwal from Ikigai Asset. Please go ahead.

Good afternoon, sir. There's a few clarification. You said balance sheet inventory should go back to 90 days of COGS by March 27. Is that correct?

Yes, is it? Yes, is it correct?

Okay.

Sir, I joined the call a bit. By the time the sale will also increase, no? Rahulji, by the time the sale will also increase, no? So, again, the holding level will remain same.

Yes, sir, I understand that. I joined the call a bit late. I just wanted to understand the reason for the EPC segment, you know, whatever small EBIT loss we have reported. What is the reason for that?

Sir, EPC, since we are closing down, So, now whatever left out job is there because the new job in EPC is not there. So, small, small closer issues will be there. So, it will be like in the first quarter also there was a 5 crore loss. In second quarter, 8 crore. So, next one or two quarter, the 5 to 7 crore loss will be there because we are almost closing down the EPC.

Okay. So, full year, we should budget like about a 20 crore kind of a bit loss for the full year. And then from next year, there is no EPC. Is that correct?

Almost EPC has, EPC revenue is close to one, one and a half percent as of now.

Okay, got it, sir. Got it. And just one clarification on exports to the previous participants' question. So, first of all, I understand full year will grow 25%. It doesn't matter whether it's domestic export. But this 990 crore order book will have a finite timeline, right?

Yeah, it will be sold within 3-4 months. Sir, whatever pending order book is almost 3-4 months, not more than that.

Achha. So, you are saying this entire 1000 crores of export order book will get fulfilled in next 4 months.

Sir, the order book will be there, but it will be sold within 3-4 months.

Okay. Okay. Got it. And, sir, last question on EHV. After the plant commissions for Tannins, you know, by March, the peak revenue for EHV would be how much? What should be the capacity?

New capacity additional will be more than 1500 to 1700 crore in terms of value or maybe more depending on the metal valuation. But it will take some time to reach peak. But quarter after quarter, from the September quarter of next year, the EHV sales will get increased. Because March, we will start the commercial production. Three months' time, it will take to settle down and for the approval process. So then from the second quarter, the sales will be heading of EHV from the farm plant.

And this is over and above the existing 700 crores of capacity. Yeah, yeah, definitely.

Existing is now 700 crores, sir.

And, sir, full year capex, you said 600 crores every year for the next three years. That is what we should call it.

Yeah, sir, because we need to increase the capacity to grow by 20% CAGR. So, now we have just started the Salarpur. So, it will take another two years' time. So, their investment will be going. That's how we are targeting and allocating the budget for capital expenditure.

And this includes the maintenance capex for existing factories?

Yeah, maintenance capex is 100 to 150 crore, not more than that. Got it. In all the plants.

Got it, sir. Thank you, sir. Thank you so much. And festive meetings to... Thank you. Thank you so much.

Thank you.

We will take the next question from the line of Kevin Shaw from Aditya Birla Capital Institutional Liquities. Please go ahead.

Yeah, hi sir, thank you for the opportunity. So, my first question is on the volume front. In the interview today morning, you mentioned that volume 25.27 will be somewhere around 10%. So, and which is more conservative than your earlier guidance of 16 to 17%. So, can you show some light why is that conservative and how much?

Sir, if you see if the volume growth 16% to 17% and price has increased by 50%, this means you are talking of a 67% to 70% sale value growth. Is it right or wrong?

Yes.

Hello? Yes, yes, I get it.

So, 70% growth is not possible at all, sir, because for growing any company, it needs the working capital, and working capital does not support more than 25 to 30% growth rate. So, it is very, very clear, sir. So, whatever we will grow, we will grow in a value terms. That's why we are again and again emphasizing on the value terms because of the capital requirement to grow.

Right. And how much of this will be coming from TANAN contribution and what is the current utilization at TANAN?

As of now, until last month, it's reached to 100 crore per month level. Within this quarter, we are targeting 150 to 200 crore per month. And third quarter will be close to 250 crore to 300 crore on this type of thing in the monthly basis.

Secondly, on the margins, if we compare the QOQ margin decline, so in Q1, you mentioned that the operating efficiency, DHV, and the retail contribution was the key levers for the solid margin trajectory, and if we see even in this quarter, those three levers are intact. So, could you help understand the key reasons for the sharp decline in QOQ margin?

Actually, there is no decline. When there was a last quarter call, at that time also, I clarified because of the valuation, inventory is high. Because of that, the margin was looking like improving. But if the closing stop somewhere, the high value, again, it has to adjust it in the subsequent quarter. So that it has adjusted. So, if you combine for two quarters, it will average out. It always happens because of the current price fluctuation. So, there is no decline. Practically, annualized basis, if you see, there will not be decline, rather it will be increased. Operating profit, which we are talking.

And lastly, to get a sense on your strategy in the retail channel, the dealer channel, so if we are seeing an increased additional capacity in the new engines coming in the retail channel, so are you looking at a strategy to lower channelize your mix between the retail and SP, and can we see the retail mix going down from here due to that, or is there a deliberate approach to that, or will you be thinking as it goes?

Sir, dealer-distributor contribution is already 55% to 60% range, and we will be operating in this range. Because those dealer-distributors are working for us, they will be working for us.

And have you seen any pricing changes or any dealer intent of change in the dealer channel?

Pricing, it is a continuous process, it is increasing or decreasing, because depending on the metal price, as I said, That twice a month price gets revised for the retail. Twice a month. So, it's a continuous, regular, normal process. Nothing new, nothing abnormal.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address all the questions from the participants in the question queue, we request you to kindly limit your questions to two per participant. If you have a follow-up question, please rejoin the queue again. We will take the next question from the line of Rahul Maheshwari from Ambit Investment Advisors. Please go ahead.

Yeah. Good afternoon, sir. I have two questions. First, if we see from past two, three years, your dealer, active dealer count, if you look at this time, you have disclosed that 2146. And last year, same period, it was at 2,340 something. Why the active dealer count has remained steady state? Have we reached to our full potential in terms of distributor count or the penetration, etc.?

The potential dealer distributor count is normally in the range of 2100, and our existing dealer distributor are few of them, those who are not working, we are closing down, and few of the new potential dealer distributor we are increasing. That's how the number is in the range, and our existing dealer-distributors are working hard for the company. That's how our overall retail dealer-distributor sale in the last five years has grown from 40% contribution to now 59% contribution. So, we are quite satisfied with our existing dealer-distributor, and they are also very loyal to the company, those who are selling that.

Sir, I got that, that dealer distribution mix is improving. I'm just asking from a penetration perspective that if in India, XYZ is the number of dealer count, have you reached to that potential? That is why on a net basis, it's not on an increasing trend is my question.

Slowly, slowly, it is increasing also, but few of the dealers, those who are not selling our product, they are also decreasing also. So, because of that, the net number is not increasing, but ultimately, the valuable dealer distributor is increasing.

And, sir, these would be your exclusive dealers, 2146?

Normally, 15-20% of the total dealer count are the exclusive, but balance are the multi-brand dealer distributors. They must be selling towards three brands. That's the normal practice of the industry. Right, right.

And in terms of serviceability, can we say that how many PIN codes are we able to have through these dealer retail touchpoints? How many we have been able to clock?

Almost in each and every city we are available, sir. Each and every city of the country we are here. Sir, sir, just a second question. We are the second largest company of the country for the value.

No, no, no. That's known, sir. We've been tracking for more than 12, 13 years. So, just from a perspective from the peer or the new entrant who has been able to start a business, so just wanted from a reach for the perspective. Sir, second question from Simon.

More than 25,000 retailers are working all across the country, and more than 2 lakh electricians, we have been connected so far. Yes, sir, you are asking something.

Yeah, but this, you have reached, can you give on an industry basis, sir? That will be really helpful. How much more potential is there for a career to grow?

So, it may be double also, sir, in the next 5 to 10 years, because the potential is used in the country is so big.

Sir, just last question on Sanand, as you, in your initial remarks, you said that ramping up is taking time, but last year you mentioned that it may take 2 to 3 years for full ramp up. Can you give at what year we can see the peak utilization for Sanand? 28, 29.

Sir, that guidance is still intact. So, in 28, 29, you will see the peak revenue from there.

And how much is that done? In the range of 2 to 3 or better? More than 3. More than 3 means, should we take 4x or what kind of, because yes, we will also...

As of now, more than 3, sir. Less than 4. Thank you, sir.

It's about 20% plus over next four to five years. So, should I assume that our operating profit pool growth would be ahead of that top line number?

Sir, that was always in the past also. Sir, if you compare past 15 years, our CER growth was 16 to 17 percent, but our profit growth was close to 24 percent in the past also, sir. Right.

So, for the 20% value growth in turnover for next 4-5 years, what kind of operating profit pull growth one should probably be able to pursue?

At least 3-4% higher than the profit.

All right. And profit after tax, will it be fair to assume, will be little higher than the operating profit growth?

Overall, the profit after tax will be higher, 3 to 4 percent, because of the interest, and the above operating margin will also be higher, little bit, because of some operational efficiency and economy of scale. So overall, overall profit after tax, you can count that 3-4% will be higher than the top-line growth.

Than the top-line?

Yeah.

So 20% top-line growth will mean 23-24% operating profit growth, and profit after tax would mean probably about 25%.

Because there is a tax limit also. So the growth below the line, I am talking of the below the line growth basically. I am not talking of the operating growth. I am talking of the final profit. Because in the past history, when even the interest was there, we were growing 17% and our profit after tax was growing 24%. So there the difference was higher because of interest. But now the interest cost is less. So if we grow by 20%, at least profit after tax will grow by 24 to 25%.

Operating profit, I

cannot comment, sir, as of now, because I have not calculated, because in the history, I have calculated on the top line and the bottom line. So, accordingly, I have given you the answer.

Okay. And what should happen to return on capital employee, which was last year, obviously, reduced?

Sir, return on capital and return on equity, as it was in the history, ROE was 19 to 20 percent and ROC was close to 23 to 24 percent. From the next year onward, you will see that kind of ROC and ROE.

Okay, thank you.

Then the summons will get completed and the top line will be from there.

But I couldn't really get that number. Regular maintenance, CAPEX will be 100 to 250, and what is the growth CAPEX?

100 to 150, and another 450 to 500 will be for the new CAPEX, in-field CAPEX.

Growth CAPEX, over next 4-5 years.

Yes, because we need to continue growth, then we need to continue CAPEX also, because we need to invest 2 and a half year advance.

And one last thing, since we conceive our business plan in terms of the top line, and as you have many times articulated, that there may be underlying raw material price fluctuations, volume growth also may reflect synergistic effect. But the best way to conceive overall business model is in terms of the top line. And if that be the case, should we really focus on operating margins that we talk about, that it is likely to be 11% current year and over time it will improve to maybe say 12% because that operating profit is really an outcome of this model. Therefore, will it not be better to focus on top line is one number and operating profit growth is a percentage, growth is another number, rather than focusing unduly on margin percentage?

You are right. As we said, even in the current year, earlier guidance was 20% because of the capacity available and capital available. We reached to the line where we have set the target of 25% plus. And in first half, we have already grown by 30%. And in the margin, we have guided that because of the economy of scale, because of the current scenario, and the mix of the retail has increased. And export has increased, our EBITDA margin earlier was close to 10.5%, which we have graded for 11%. So both these things are intact. In future also, 11% margin will go towards the higher range. And ultimately for us as a company, the availability of the cash profit, profit after tax plus depreciation. So profit after tax will be close in the range of 7% to 7.5%. So, that will be available for our future growth. That's how we measure our growth, actually, sir.

My simple question is, for value creation in a business, what is important on a long term is how the overall business is growing, how our profits are growing, and how our cash flows are growing, and along with that, whether return on capital efficiency is improving or not. Margin is just an outcome in that number.

Margin is improving, sir. Earlier margin was 10.5%. It has improved to 11%. And we are guiding also for future, once the Sanandis get commissioned fully. So in the next year, another 0.5% margin will get improved.

Sorry to interrupt in between, Mr. Bharat.

No, I need to complete this question, please. One minute, one minute, I'm asking you.

Yes, Baraj, please.

Yes, sir, you are right. You are right.

Most of the analysts, they are always talking of the margin, that increased margin or decreased margin, but they are, so that's why we need to focus and because they are focusing on the margin, but otherwise you are right because as a company, we finally need the cash flow and the efficiency of the capital. That's why we always focus whenever we make our business plan, we always make that how much cash is available with us. That is profit after tax plus depreciation. After paying dividend, that cash is available to us. So we as a company always focus on that only, sir, which you are guiding us.

Okay. Thank you, Rajeejji. Thank you, Aniljiji. Thank you, Raja.

Thank you. Sir, there is no confusion. The guidance is 11 to 12 percent. 11 to 12 percent was also for the next financial year. In the law school also, if you read our call, we said that first we will go from 11 to 11.5, then we will move to 11.5 to 12 percent. Guidance is intact. Sometimes there is a little bit of confusion with the understanding or whatever we want to communicate. It is a little bit difficult. Again, I am saying that our guidance for growth will be 25% in value terms. For the margin, our guidance will be EBITDA level margin will be 11%, 11 to 11.5% because when the SANA is going to complete by March 27, it will move first from 11 to 11.5%, then 11.5%. In 2024-25, our margin was 10 to 10.5%. 25-26 even, the margin was close to 10.5% operating margin. So now this margin is improving and it will improve. So guidance is intact. So please make note that the guidance of EBITDA margin will be completing in 27 and 28 to financial year.

Got it, sir. Got it. Thank you.

It will not be, sir, quarter to quarter. Whatever we are saying, it is an analyzed basis. Once again, I am requesting to all of you, sir.

Got it, sir. Thank you. Thank you so much for the clarification. There is no guidance, sir. Got it.

Thank you very much. Ladies and gentlemen, with that, we conclude the question and answer session. I now hand the conference over to the management for the closing comment. Over to you, sir.

Thank you very much, friends, for this interactive conference call. If you still have any further questions, please reach out to us.

Thank you very much to all.

Thank you, members of the management. On behalf of Novama Institutional Equity, we conclude this conference. Thank you, everyone, for joining with us today, and you may now disconnect your eyes.