Finolex Cables : Earnings Call Transcript of Analyst Meet dated 11th November, 2022

"Finolex Cables Limited Q2 FY-23 Earnings

Conference Call"

November 11, 2022

MANAGEMENT: MR. DEEPAK K CHHABRIA - EXECUTIVE CHAIRMAN.

MR. MAHESH VISWANATHAN - CHIEF FINANCIAL

OFFICER.

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	Finolex Cables Limited
	November 11, 2022
Moderator:	Ladies and gentlemen, good day and welcome to the Finolex Cables Limited Q2 FY23 Analyst
	Conference Call. As a reminder, all participants lines will be in 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. I now hand the conference over to Mamta Samat. Please go ahead.
Mamta Samat:	Thank you, Eli. Good evening everyone and thank you for joining us on Finolex Cables Limited
	Q2 FY23 Analyst Conference Call. Today we have with us the Senior Management represented
	by Mr. Deepak K Chhabria - Executive Chairman and Mr. Mahesh Viswanathan - Chief
	Financial Officer. Before we begin, I would like to say that some of the statements that will be
	made in today's discussion, maybe forward looking in nature. We will begin to call with the
	opening remarks from the management after which we will have the forum open for the
	interactive Q&A session. I will now request the management for opening remarks. Thank you
	and over to you sir.
Mahesh Viswanathan:	Thanks Mamta. Good afternoon ladies and gentlemen. I am Mahesh Viswanathan - Chief
	Financial Officer at Finolex Cables Limited.
	On behalf of the company, I extend a very warm welcome to all the participants this afternoon.
	You must have by now had a look at the presentation that is uploaded in our website as well as
	the results that were posted two days ago. As far as the top line goes, we've had a good quarter,
	the top line went up by about 17% on a comparable basis, the electrical cables business grew
	about 12% and communication cables business grew approximately 54% during the quarter. In
	volume terms, we witnessed 10% growth in electrical cables and within the communication
	cable segment, we have multiple product lines. So, those product lines that are metal based there
	the volume growth was about 24%, while the fiber-based products almost doubled. The FMEG
	the products that we have there the growth was kind of flat overall, partially because in the fan
	segment there was quite a bit of destocking because of the upcoming changes to the BE norms,
	as well as some effect of the continued inflation on the retail markets.
	Profit after taxes was about 136 crores lower than last comparable quarter by about 8%. This is
	primarily an account of the higher cost inventory that we had at the beginning of the quarter,
	which was liquidated during the quarter. Also, we took a price reduction in July following the
	decrease in copper prices. And over this quarter, we also started spending a little more on market
	related activities. During the COVID period, our spend on ads and related market activities was
	somewhat less so we're now bringing it, ramping it up as the volumes start to climb.
	Overall on a revenue basis, we saw decent growth although inflation continues to be something
	that is on our radar, and we will have a close watch on that. We do expect the demand momentum
	to start picking up now. And hope that the rest of the year progresses at least in revenue terms
	on the same basis and margin terms we should we expect to catch up because at the moment as
	we speak now. Commodity prices seem to have stabilized at a certain level. So, as long as there
	are no more undue blips, one should see the margins climb back. That's, about it for the opening

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Finolex Cables Limited

November 11, 2022

remarks from my side. So, I will open it up for questions now and we are happy to take questions as they come by.

Moderator:Thank you very much. We will now begin the question-and-answer session. Our first question is from Sonali Salgaonkar of Jefferies. Please go ahead.

Sonali Salgaonkar: I'm sorry, I joined in a bit late so, seem to have missed your opening remarks. So, sir firstly, my question is you did mention that there was a change in the product mix in cables and wires, especially electrical cables during the quarter, which impacted margin. So, could you update us a little bit more on that and secondly, there seems to be a good revival in communication cables, especially the volumes on optic fiber cables. So, what is leading to such a good volume?

Mahesh Viswanathan: Okay. Yes, in our press note, we had talked about slightly different product mix which had also impacted the margins. While all the product baskets grew, there was a fairly high growth on the automobile sector and cables which go into the automobile sector that growth was fairly significant. And as you know these are products which are geared towards the auto companies and while you get volumes the margins there are fairly thin. And likewise, we'd also seen growth in the industrial products and there again the margins are not as healthy as you would see on the retail products. So, these two product lines the volumes were significantly higher. And that pulled down the margins by about 80 to 100 basis points.

Sonali Salgaonkar: Got it. And sir about communication?

Mahesh Viswanathan: On the communication side, we are seeing growth like I mentioned we are seeing growth across all the product lines, except one. The metal base products have a volume growth of about 245, 25%. Optic fiber has, like I said double in this quarter. In this year we are one of the primary suppliers to Bharti. And again, both Bharti and Reliance have started investing in fiber over the last few months. And that is kicking in. The 5G rollout is imminent, and they are planning for that. So, we do expect volumes to continue to be at these levels going forward. And as the 5G rollout accelerates with other players coming in, one should see a healthy trend there. Also today, you must have read in the newspapers, that BSNL has signed a contract with TCS for their 4G rollout across the country. So, they are and that over a period of time, I'm sure would include fiber as well. And they're also planning their 5G rollout sometime next year. So, as we go into the future, there will be a continued demand for fiber and that's good for us.

Sonali Salgaonkar: Got it. Sir on the demand side, the retail wires or the construction wires, which are about 60%, 65% of our electrical cables mix. Are you witnessing any softening in construction off take in Q2?

Mahesh Viswanathan: No, the volumes went up there also, the volumes went specifically in those construction wire products. The volumes went up by about 10% or so.

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November 11, 2022

Sonali Salgaonkar: Got it, but overall you think demand in the housing industry is normal right now, both in the rural as well as the urban?

Mahesh Viswanathan: It is normalizing, probably a little shy away from where we were pre-COVID levels but we're catching up sooner.

Sonali Salgaonkar: Got it. Sir and on the margins, we used to be very strong in the electrical cables of course this quarter had the impact of softening copper. But where do you foresee the margins normalizing also, we do remember that a few quarters back you had mentioned that during COVID you had increased the discounting which led to impact on the gross margins. Have we stopped at discounting and where do you think the gross margin should stabilize in the coming quarter?

Mahesh Viswanathan: No, we have not stopped it although we have moderated that slightly. A steady state level should be around 13%, 14%. Like I mentioned earlier this quarter there has been an impact on account of the softening copper prices. But as long as stability is maintained, we should get back to those numbers.

Sonali Salgaonkar: Got it. Sir just one last question from my side, about the optic fiber prices globally, how are they trending right now and lastly, our CAPEX expectation.

Mahesh Viswanathan: CAPEX, like we've been mentioning over the last few quarters those projects are on ongoing. And we should be completing them by the end of this financial year, except probably the EB might slip into next year. But the rest of the projects that we talked about should be done by the end of this financial year. As far as, what is your other question sorry?

Sonali Salgaonkar: Sir optic fiber prices and sorry, one last question on your appliances side when do you expect to breakeven?

Mahesh Viswanathan: Sorry, I lost your question again. I'm sorry.

Sonali Salgaonkar: Sir optic fiber prices globally, how are they trending right now and lastly when do you expect to break even on the appliances segment?

Mahesh Viswanathan: Okay. We should as far as appliances segment are concerned, we had spoken about this earlier also, when our turnover on the segment hits about 180 to 200 crores we should be breaking even at that point in time. And last year, we just missed it by about 10 or 15 odd crores. So, as we grow and hit those numbers we should be breaking even. It also depends on how much we finally decide to spend on ads on those product lines. So, if our ad spends are somewhat similar to what our current run rate is, then I think that 200 number is still valid. If we want to take it up for whatever reason, then that could impact a little bit but it is in that ballpark. As far as the optic fiber prices are concerned, there is a trend towards firming up. We see locally prices firing at around Rs.360 to Rs.380 per kilometer. And it is holding at that level. So, the demand is climbing up again as major countries overseas start their 5G rollouts. The fear of the pandemic is kind of

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	Finolex Cables Limited
	November 11, 2022
	not there anymore. So, you do see announcements around rollouts happening across multiple
	geographies. So, the demand is starting to come back.
Sonali Salgaonkar:	Sir what were the prices of optic fiber at the start of this year, which you said is about Rs.360,
	Rs.380 per kilometer right now?
Mahesh Viswanathan:	It's around 340, 330 somewhere around there.
Moderator:	The next question is from Anand Jadhav of PhillipCapital. Please go ahead.
Anand Jadhav:	Most of my questions are actually answered, just one thing sir. And that is actually directed to
	Deepak sir. There's one concern on lot of investors mind and which is keeping people at they
	and I, I'm going to just ask so that let's be some clarity on that. So, is the family dispute behind
	us for good, any clarity would be really helpful?
Deepak K Chhabria:	I'm actually sorry, I'm not able to respond to you on that because the matters are sub judice. So,
	until that clears, I am unable to talk on that particular subject.
Moderator:	Our next question is from Chintan Sheth of Sameeksha Capital. Please go ahead.
Chintan Sheth:	So, sir on the growth front, so given the festive was slightly early this year, does this volume
	growth is what we were expecting or it slightly lower than our expectation and how do we see
	Q3 panning out in terms of growth given the festive around us, and there were some level of
	optimism in terms of consumption trend, being on the upper end side?
Mahesh Viswanathan:	On the appliances part the issue is still around the fan segment, because the change in norms is
	imminent over the next, from 1st of January. And that leads to a situation where the trade doesn't
	want to stop they don't want to increase their stocks. And at the same time, the newer versions
	would be slightly more expensive so they're not very sure about what volumes they would like
	to keep. So, that's a bottleneck that we have to sort out. But the demand for lamps are the other
	product lines are continuing.
Chintan Sheth:	And any update on how our distribution strategies are progressing, any further update around
	that, any learning and what more we need to do to reach out to more number of geographies and
	improve presence in the market if you can?
Mahesh Viswanathan:	You are talking about the distribution part?
Chintan Sheth:	Yes, distribution strategy.
Mahesh Viswanathan:	Those activities continue, the last one and a half, two years the results are bearing out are move
	into distribution, we are refining it as we go by because each day you learn something new. And
	we are improving the digital platform that we have. So, that gives us access to more data. Now,
	no one needs to mine the data and see trends and what we can learn from that. So, it's not a

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