Finolex Cables : Transcript – Finolex Cables Ltd Earnings call – Jun 04 2022

"Finolex Cables Limited Q4 & FY-22 Earnings

Conference Call"

June 04, 2022

MANAGEMENT: MR. DEEPAK CHHABRIA - EXECUTIVE CHAIRMAN.

MR. MAHESH VISWANATHAN - CHIEF FINANCIAL

OFFICER.

MODERATOR: MR. ARYAN RANA - VERITAS REPUTATION

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Moderator:Good evening ladies and gentlemen. Welcome to the Finolex Cables LimitedEarnings Conference Call arranged by VeritasReputation. 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 the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aryan Rana from Veritas Reputation. Thank you and over to you Mr. Rana.

Aryan Rana:Thanks, Neerav.Good afternoon to all of you and thanks for joining this conference of Finolex Cables Limited to present and discuss the Financial Results for the Quarter and Full Year Ended March 31st, 2022. Established in 1958,Finolex Cables is India's leading manufacturer of electrical and telecommunication cables. It has recently diversified into the fast-moving electrical goods segment to become a complete electrical products company.Company's over a five-decade long journey is anchored on the pillars of manufacturing excellence, innovation, focus and technology based.We have sent you the results I hope we have received the same results and investor PPT is also available on company's website and the stock exchanges.

Before we proceed to the call, let me remind you that this discussion may contain forward- looking statements that may involve unknown risk and uncertainty and other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievements from what is expressed or implied by such forward-looking statements.

To discuss the results and address the queries of the investors, we have with us the management represented by Mr. Deepak Chhabria -Executive Chairman and Mr. Mahesh Viswanathan - Chief Financial Officer of the company. We will start the call with a brief overview of the financial quarter and the year gone past and then we'll open the floor over to the Q&A session.

With that said, I will now hand over the call Mr.Viswanathan. Over to you sir,thank you.

Mahesh Viswanathan: Thank you Mr. Rana. Good evening everyone. And welcome to this call from Finolex CablesLimited. As Mr. Rana mentioned, the financials are already available on the website of the company, as well as on BSE. Also, you must have seen the presentation that we hosted on the website this morning. But before we go to the questions, just a brief outline on how the year panned out for us.

The year started in the background of the second wave hitting the country. The first quarter was difficult as both manufacturing activity was hit to some extent. So, was the marketing activities. Things started picking up from around July as the second wave started waning. And with the vaccination improving across the country, we started seeing buildup of volumes of various products. As we neared quarter three, we felt that we were on the way back to pre- COVID levels. But then there was a fear of the Omicron variant sweeping through the country.

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And that had a slight impact on the volumes in the month of January and February. Further, the invasion of Ukraine by Russia also created issues in terms of galloping commodity prices. And while we did take pricing action, the margins were under pressure in the last few months.

Having said this, for the full year, our revenue went up on comparable terms by 36%. So, we clocked a revenue of Rs.3768 crores against Rs.2768 crores in the previous year. In the quarter, we hit a revenue of Rs.1186 crores it's the highest that we've ever done in the quarter so far, against Rs.921 of the comparable quarter and Rs.972 of the previous immediately preceding quarter, both recording a jump of 29% and 22% respectively. So, while revenues were up, volumes were also up in the fourth quarter wires volume were up by about 22% on a comparable basis, so quarter four of 2020-21 versus quarter four of 21-22. But margins like I mentioned earlier were under severe pressure.

Overall, we registered a gross margin of about 21.5% this year as against 25% last year. The profit for the quarter was at Rs.126 crores slightly lower than the profit for March 2021. Like I mentioned that was primarily due to the price pressure that we were facing,rather the cost pressure that we were facing.For the full year,however,profits were at Rs.526 crores up 34% as against Rs.392 crores in the earlier year.Post-tax profits for the year were Rs.404 crores against Rs.282 crores in the previous year up 43%.We had during the year spend considerable time and effort on controlling the working capital we reduced our inventories,we reduced our, we maintained our debtors position in spite of the increase in revenue and overall, we were able to contract working capital by almost 150 crores. So, that cash flow in that sense definitely did improve.

Segmentally electrical cables we close the year with Rs.3193 crores against Rs.2310 crores of the previous year about 38% higher. Communication cables was about Rs.380 versus Rs.321, 18% higher and the others which comprise of the appliances as well as the conduit pipescame in with Rs.176 crores against Rs.113 crores about 55% higher than the previous year. Like we've been saying over the past few quarters, the efforts that we put on distribution seem to be taking us in the right direction. We are still hopeful for a higher rate of growth there, but we are moving along in the right direction. EBIT levels on electrical cables were about 13% for the full year as compared to 15%. And here the result is primarily because of the cost pressures that I was talking about. In communication cables, you will see a negative number there that is primarily due to provisioning that we've taken towards a government debt that has been outstanding for a very long time. While we do hope, and we have enough evidence to ensure to be sure of collecting the money. The standards require us to make provisions basis the time that has elapsed #A for the interest loss that that has occurred, and #B also for the time delay. So, therefore, we've taken a provision as a precautionary measure. However, we are hopeful of recovering this money over a period of time. But that has resulted in a negative EBIT for communication cables. The only other point that I would like to talk about here is in terms of we talked about the electrical cables volume being higher, communication cables, optic fiber for the full year has definitely been higher at about 30% higher than previous year. But in the quarter was lower than the fourth quarter of March 21 primarily owing to lack of investment

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	Finolex Cables Limited
	June 04, 2022
	from either the telecoms or the government during this particular period. We are hopeful that,
	that business should pick up from now on.
	So, with these brief statements, I open the floor for questions
Moderator:	Thank you very much. We now begin the question-and-answer session. The first question is
	from line of Avinash from Profit Mart Securities.Please go ahead.
Avinash:	Good afternoon sir and a very good performance in the light of significant headwinds, which
	all of you have faced during the year, I have two questions,first is if you could give us some
	color on what is the outlook on your main raw material that is copper, because copper
	constitutes a major cost component for you. So, if you could give us some color as to what is
	the outlook as of now on the commodity copper. How long do you think prices could stay
	elevated? And how is the company facing this challenge in the very near term. And secondly, I
	wanted to understand, that typically now since working capital has significantly reduced, will
	this be sustained in the current year or can we expect some further improvement on that front
	in the coming financial year?
Mahesh Viswanathan:	Okay, on copper, on commodities generally. The ability of most people to forecast which way
	that will swing is, it's going to be hit and miss. Because the prices there, the cost there are
	impacted by things happening all around the world. So, nobody can forecast with any
	predictable accuracy as to what might happen three months from now, or six months from
	now. What we do therefore is, we don't take a long call on the metal pricing at all, we buy the
	metal on the month average. So, for cash flow purposes to make a settlement with the supplier,
	we agree on a pro forma price. And that is what he bills it to us at and we settle those invoices
	immediately. But when we have, since we have booked the metal on average, at the end of the
	month when the average is really known there is a settlement between the supplier and us,
	depending on which way the metal prices have moved. How it helps us is, we therefore
	moving our cost in-line with what is happening on the market. And secondly, as we buy and
	convert the metal, we still have an opportunity to change our selling prices if required. Now, if
	there are continuous price pressures, like it happened in the last year, while we make take
	pricing actions to change our selling prices, sometimes the change cannot always be elastic, the
	market absorbs a certain amount. But beyond that, that might come and hit back,hit your
	volumes negatively. So, at some point in time we might have to take a call as to whether we
	sacrifice the margin for a temporary period, or do we continue to increase our selling prices.
	So, that's a call that has to be taken at any given moment in time and that is what we do. So,
	that's broadly on the metal. And this holds good also for other commodities that largely affect
	our costs, like polymer, or steel, wherever it is required. The second question that you had I'm
	sorry, can you repeat the second question again?
Avinash:	No, I was wanting to know that on the working capital management side, you all have done a
	very commendable job by cutting down your collection period getting down the net working
	capital period almost by half. So, can we assume that this will be sustained going forward

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because this definitely is going to help you generate more cash flow generation.So, I was wanting to know can it generally be sustained at these levels so that cash flows are generated at a healthy level even in the coming two years?

Mahesh Viswanathan: Yes, the business that goes through the channel. These numbers are definitely sustainable. When it comes, however to businesses, which have a longer gestation period, like let us say an optic fiber business with the likes of Bharti or Reliance, then there are set credit periods and those credit periods may be 60 or 90 days depending on which company it is. And again, if there is exposure to government, then that number can climb more although the tender says whatever it says, the government is not the best paymaster in terms of times.

Deepak Chhabria: Can I add, let me add something more for a thought. Copper, pre COVID used to be around $5,000 roughly, and then it rolls all the way up to $10,500 at the LME. It slightly pullback in the last one month average about $9,500 now.So, if going forward copper keeps dropping back to original levels, then you will see that impact on the inventories and cash flow. And that's most likely scenario as things stabilizes, the commodities may come down to what they should be at. So, I hope that helps.

Avinash:That's really nice of you sir. Sir one more question, now post COVID what is the kind of demand scenarios if you can give us some color on how is business shaping up in the first few months of FY22-23. Some broadly on the demand trends considering that now COVID cases, have significantly reduced, business normalcy has come in. So, do you assume that the growth in the current year wouldbe definitely,be significantly better than last year and what kind of growth could you expect in all the businesses apart from the wire and cable telecom business, even in the fast-moving electrical goods segment where Finolex is a very large player in the market?

Deepak Chhabria: So, sure.I think that the worst is over and things are coming back to normal. In the last two years, we've seen pricing going up but volumes not going up. And we would see, people who assumed that we are doing well, because you have a higher sale number. But in reality, the volume wasn't actually up it could have been in a negative position also. But now things are quite more stable we see volumes which are climbing.Major issues normally we foresee and we are reacting on a daily basis are, because of supply chain sometimes certain raw materials are not available on time. But the market is quite good at the moment,it's not bad. I just hope it keeps improving in this way, and it should be good year.

Mahesh Viswanathan: And then we don't have a fourth wave. So, those are things which we are not able to predict right now. In fact, just about five minutes ago, I got a message saying that Maharashtra has reimposed the mask rule across the state, so things keep changing like this. But if let's say if that threat is no longer there, then we should see generally improved economy and obviously that would mean more construction, more opportunities for improving volumes for us.

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