"Finolex Cables Limited
Q3 FY '23 Analyst Conference Call"
February 13, 2023
MANAGEMENT: MR. MAHESH VISWANATHAN - CHIEF FINANCIAL OFFICER - FINOLEX CABLES LIMITED
MS. MAMTA SAMAT - PERFECT RELATIONS
Page 1 of 16
Finolex Cables Limited
February 13, 2023
Moderator:Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Analyst Conference Call of Finolex Cables Limited. 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 star, then zero on your touchtone telephone.
I now hand the conference over to Ms. Mamta Samat from Perfect Relations. Thank you, and over to you, ma'am.
Mamta Samat:Thank you, Melissa. Good evening everyone and thank you for joining us on Finolex Cable Limited Q3 Analyst Conference Call. Today, we have with us the senior management represented by Mr. Mahesh Viswanathan, CFO. Before we begin, I would like to say that some of the statements that will be made in today's discussion may be forward-looking in nature. We will begin the call with the opening remarks from the management, after which we will have the forum open for the interactive Q&A session.
I would now request Mr. Mahesh Viswanathan for the opening remarks. Thank you, and over to you, sir.
Mahesh Viswanathan: Thank you, Mamta. Good evening, and a very warm welcome to everyone participating in this conference. Very briefly -- I'm sure you must have also seen the results announcement as well as the presentation that we have posted on our website.
To recapitulate, quarter 3 was a good quarter for us. Revenue was up atabout INR 1,150 crores, about 18% higher than corresponding quarter in the previous year and about 6% higher than the preceding quarter. For the 9 months ended December, our revenue was up at INR 3,256 crores, up from INR 2,582 crores.
Electrical cables had a fairly good quarter again, INR 947 crores versus INR 826 crores in the corresponding period of the previous year, andINR 878 crores in the immediately preceding quarter. Likewise, the 9 months ended December also saw a good increase, INR 2,651 crores versus INR 2,167 crores.
We saw volume increase across the product chain, whilst the volume increase was about 24% in the quarter. And in the communication cable segment, the metal-based cables were up by about 30% -- sorry, 40%, whereas optic fiber cables grew even higher. The last quarter was somewhat of an aberration where we had to take a hit on the margins, especially in the light of higher opening inventories, which were at a higher cost. That has, I think, been fully absorbed. And I think we are seeing a return to normalcy in terms of margins. EBIT numbers were at about 14%.
I think overall, the business scenario seems to be getting back to normalcy. For the first time, most of our product lines are showing growth rates, which we saw last in 2019 pre-COVID. So in that sense, I think we are seeing a return to normalcy. The economy seems to show signs of getting back on its feet. And I would say that largely, the fears of COVID are behind us.
Page 2 of 16
Finolex Cables Limited
February 13, 2023 | |||||||
Profits for the quarter were at about INR 135 crores up from INR 95 crores 1 year ago. And for | |||||||
the 9 months ended December was about INR 367 crores up again from INR 300 crores 1 year | |||||||
ago. | |||||||
So with these brief remarks, I'm happy to answer any questions that you may have. | |||||||
Moderator: | We have the first question from the line of Rahul Agarwal: from Incred Capital. | ||||||
Rahul Agarwal: | I had three questions. Firstly, to start with on communication cables, could you help us | ||||||
understand which products are actually driving this segment revenue growth? We're almost | |||||||
back to highest ever revenues, but margins are obviously lower. Last time, you explained that | |||||||
they are lower because of some new orders, which are very thin margins, but if could elaborate | |||||||
in terms of what the sustainable revenue trend and margin trend here over the next 1 to 2 years | |||||||
will really help. That's the first question. | |||||||
Mahesh Viswanathan: | Okay. I think across the product chain on the segment, we have seen increases. Fiber and fiber- | ||||||
based cables almost doubled in volume. But like I mentioned earlier on, the contracts with the | |||||||
telcos, now | are | annual contracts. So while we try to factor in whatever possible changes there | |||||
could be in your input price, you will have to absorb any variations that may come to us. And | |||||||
secondly, all telcos now resort to | reverse auctions | . So the margins are fairly thin. | |||||
On the metal side, metal-based communication products, we have LAN cable, you have | |||||||
coaxial cables, you have telephone cables, you have a few other product lines. All of them | |||||||
have improved volumes by between 30% and 40%. But there, if it is metal based, then I think | |||||||
there is a slight bit of commodity risks that we carry, but the contracts are not as long as one | |||||||
has with the telcos. So margins are slightly better at this stage on those products. But I think | |||||||
going forward, volumes are going to come from the optic fiber side. | |||||||
As you know that in the recent budget also, the Finance Minister has announced quite a hefty | |||||||
capex around BSNL, around 5G and so on. So all that -- while it will not happen in 1 year, I | |||||||
think that momentum will continue for the next few years. The 5G rollout, again, it will | |||||||
continue for a few years and then added applications that might need more fiber will drive the | |||||||
business forward. Also, we are seeing in the past quarter, a lot of interest in companies wanting | |||||||
to set up fairly large data centers in the country. And that, again, might -- will consume not just | |||||||
optic fiber, but also other products that the company produces. | |||||||
Rahul Agarwal: | So in terms of revenue, I mean, we are hitting like INR 150 crores a quarter on an average. | ||||||
Could you give us a sense in terms of what should we assume over the next 1 to 2 years in | |||||||
terms of annualized revenue run rate and margins, please? | |||||||
Mahesh Viswanathan: | Well, if the government spends actualize in terms of what they have committed, then it can be | ||||||
at least INR 200 crores per quarter. So like I've been saying in the past also, a large contributor | |||||||
to this sector is going to be spends from the government. So while announcements keep | |||||||
happening, that also needs to follow -- that also needs to be followed by actual spends on the | |||||||
ground. And sometimes that is where the | delays | take place. And that is one reason why you do | |||||
see variations between year-on-year and the growth is not -- it's not linear. So you do have | |||||||
Page 3 of 16 |
Finolex Cables Limited | |
February 13, 2023 | |
bumps in between. But barring that, if that spend happens as promised, where I think INR 200 | |
crores is not a difficult number to achieve. | |
Rahul Agarwal: | And margins? |
Mahesh Viswanathan: | Margins, I think at the moment is going to be single digits. We will have to see when value- |
added propositions come out there. | |
Rahul Agarwal: | Got that. My second question was on FMEG segment. Could you elaborate like how many |
products do we have here? My understanding is fan switches, irons and users are largely the | |
products. And breakeven, I think, is almost done at INR 200 crores of sales. I think you've | |
already achieved that. What should we expect there in terms of growth and margins over the | |
next 1 to 2 years? | |
Mahesh Viswanathan: | Well, currently I mean, this quarter, actually, irons were introduced in January, so it is a |
current-quarter introduction. But so far, therefore, it has been light, fans and water heater | |
products, around those appliances. Like I said, we have introduced irons now. There would be | |
more coming, but we've not made an announcement, so I'm not talking about it right now. | |
There would be more coming. | |
And I think our immediate goal of INR 200 crores for the current year is not very far away, | |
that should be reasonable. And going forward, our intention is to hit this INR 500 crores | |
number in the next 1 to 2 years and then take it up significantly. Margins, I think, like I | |
mentioned earlier, breakeven would be around INR 200 crores. We should see incremental | |
numbers coming in afterwards. It also would depend on what new additions we have to the | |
product profile. So if -- and that's a choice that we have to make to see that those products are | |
incremental in margins and not the only one. | |
Rahul Agarwal: | So INR 500 crores in 2 years, is that all organic? Because I think demand is not as... |
Mahesh Viswanathan: | That's the ask that I have. How we get there could be organic and to some extent inorganic. We |
have a cash pile that we are willing to use providing the valuations are right. So far, we haven't | |
found anything where the valuations have been acceptable to us. The ask has been a way | |
beyond what we are prepared to pay, and so we are growing very slow on that. | |
Rahul Agarwal: | So that includes inorganic as well, right? |
Mahesh Viswanathan: | Yes, absolutely. |
Rahul Agarwal: | Okay. And lastly, on capex, I think first half, as per cash flow statement, I think it was pretty |
low INR 15 crores. What's the budget for '23 and '24? And if you could help us with the | |
current utilization across products and where do you add capacity? | |
Mahesh Viswanathan: | So capacity additions are happening at our cable plants in Goa and at Urse. In fact, that is more |
or less completed. There is expansion happening on the optic fiber of the clearing plant, | |
additional line is being put there. The -- finally, I think we should see the end of light for the | |
electron beam project soon. That should be -- that money should be spent in the next 8 to 12 | |
Page 4 of 16 |
Finolex Cables Limited | |||||
February 13, 2023 | |||||
months. So the program that we announced of INR 200 crores over 2 years, that should get | |||||
completed next year. | |||||
Rahul Agarwal: | And utilization, where are we across products? | ||||
Mahesh Viswanathan: | I think we are close to 70% now. Some plants are fully booked, but overall, if I take the | ||||
company average, it would be around 70%. | |||||
Moderator: | We have the next question from the line of Sonali Salgaonkar from Jefferies India. | ||||
Sonali Salgaonkar: | My first question is, we have seen a very notable increase and expansion in gross margin on a | ||||
Q-o-Q basis. Sir, what could be the reason for that? Is it only because of copper prices? Or | |||||
have we changed the business mix to a higher yielding product? | |||||
Mahesh Viswanathan: | The large part of it is actually what happened in the last quarter. We have not changed our | ||||
procurement policies, those continue. It so happened last quarter that there was a very sharp | |||||
dip between -- with later stages of quarter 1 and the early stages of quarter 2 in terms of the | |||||
copper price. And that left us holding high-priced inventory at the beginning of the quarter last | |||||
year -- last quarter. And therefore, we had to take the price returns on these items. That is | |||||
normalized now. So traditionally, if you see -- if you've noticed our EBIT margins have been | |||||
around the 14%, 15% on the electrical cable side. And we've gotten like this. I think that's | |||||
about all that has happened. | |||||
Sonali Salgaonkar: | And secondly, we did mention most of the quarters last year that we were resorting to some | ||||
sort of discounting post the COVID to incentivize the dealers, etcetera. Is that behind us? Or | |||||
are we still discounting? | |||||
Mahesh Viswanathan: | No. We didn't say we were resorting to different kind of discounting, no. What we mentioned | ||||
was pre-COVID, there were multiple schemes that were running. And those schemes could | |||||
have been around festival or around the season and so on. And those were quantitative -- I | |||||
mean the | schemes | were | quantity | based. So if in a base period, somebody has purchased X and | |
during the scheme period purchased X-plus, then they were entitled to a certain incentive. | |||||
Now we used to cost for the maximum amount of incentive that could be paid off, but the | |||||
actual payout was less. Whereas then COVID hit us, the entire amount that we would budget | |||||
for such a scheme or a discount was passed on the invoice directly. That was the only | |||||
difference. I think we are slowly getting back to schemes. We're not fully transitioned yet. | |||||
There are a couple of schemes running, and there are some discounts which are given on the | |||||
invoice. So at the moment, these are still transitioning back to normalcy there. | |||||
Sonali Salgaonkar: | Sir, and secondly, on the demand scenario and this is more from the industry perspective, are | ||||
you not at all seeing any slowdown or softer offtake in construction? And what are the kind of | |||||
inventory levels in the channels? | |||||
Mahesh Viswanathan: | See, the last 6 months have been characterized by two things happening. One, on one side, | ||||
construction activity has picked up. And therefore, there is a certain level of demand, which | |||||
Page 5 of 16 |
This is an excerpt of the original content. To continue reading it, access the original document here.
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Finolex Cables Ltd. published this content on 17 February 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 February 2023 07:15:04 UTC.