Finolex Cables : Q1 FY 23 Analyst Conference Call Transcript – 17th August 2023

"Finolex Cables Limited

Q1 FY '24 Analyst Conference Call"

August 17, 2023

MANAGEMENT: MR. DEEPAK CHHABRIA - EXECUTIVE CHAIRMAN -

FINOLEX CABLES LIMITED

MR. MAHESH VISWANATHAN - CHIEF FINANCIAL

OFFICER - FINOLEX CABLES LIMITED

MODERATOR: MS. MAMTA SAMAT - PERFECT RELATIONS

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Moderator:	Ladies and gentlemen, good day and welcome to the Finolex Cables Limited Q1 FY24 Analyst
	Conference Call. 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 phone. 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, Zico. Good evening, everyone, and thank you for joining us on the Finolex Cable
	Limited Q1 FY24 Analyst Conference call. Today we have with us the senior management
	represented by Mr. Deepak 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 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 will now request the management for the opening remarks.
	Thank you and over to you, sir.
Mahesh Vishwanathan:	Good afternoon and welcome to this call of the first quarter results of Finolex Cables Limited.
	I am Mahesh Vishwanathan speaking on behalf of the company. A quick recap on the quarter
	that went by. Revenue, we posted fairly strong results. Revenue was up by about 19% on a
	comparable basis and almost similar to what was what was done in quarter 4 last year. At the
	EBIT level the numbers improved substantially from close to 14% PBT as against 12% in the
	corresponding quarter of last year and post-tax results were about 11% compared to 9.3%
	earlier.
	In absolute terms the post-tax results were actually 38% higher than the corresponding quarter
	of last year. Within these segments electrical segment the revenue was up by about 22%
	compared to the corresponding quarter of last year, almost similar to what was achieved in
	quarter four last year as well. Communication cables was flat, whereas there was growth in the
	copper segment from INR300 crores to about INR383 crores. At segment level, the electrical
	cables line stabilized at about 13.1%.
	We have traditionally been around 13%, 13.5% in the past, except for one or two quarters last
	year where because of commodity price movements we had to take a cut in the margins. But
	now we are back on track there. In volume terms the electrical wires which is one of the,
	which is our largest selling product required a volume increase of about 29%. Power cables
	grew by about 3% and communications cables, the segment grew about 17 percent. There was
	price erosion in the communication cables side, mainly on the fiber prices.
	Globally fiber prices declined substantially over the last six months and the effect was felt in
	the - on the top line. We have, together with other industry members, participated -- made a
	representation to the government on the quantity of fiber that was being dumped into the
	country from overseas. The government has taken note of it and last week issued a corrective
	mechanism whereby there is an imposition of anti-dumping duty on imports from those
	countries. So we hope that going forward the correction to the realization will take place.
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It will not happen immediately but over a period of time that should steady. The last part that I would like to touch upon is that on the communication cable side, two weeks ago the cabinet approved a spend of approximately 1.4 lakh crores on the last month collectivity on broadband under the BharatNet program. I think this will, over the next couple of years, add more to the top line of the company, and it fits in line with our expansion programs on those areas. So with this brief background, I now open it up for questions.

Moderator:Thank you very much. We will now begin the question and answer session. Our first question is from the line of Rahul Agarwal from Incred Capital. Please go ahead.

Rahul Agarwal: Hi, good evening. Thanks for having this call. You know, one clarification and then three questions. Firstly, on volume growth, the press release mentions electrical wires as 29% volume growth and power cables separately. So if I understand it correctly, electrical wires is excluding all cables, right? The auto, agriculture and power, is that correct?

Mahesh Vishwanathan: I know power cable is separate, electrical wires when I say that includes auto as well as agricultural applications.

Rahul Agarwal: Okay, get it. So now getting into questions, firstly on revenue growth, you know obviously we're all seeing that cable and wire is getting disproportionate growth right now into up cycle of the industry. For full year fiscal 24, across your three segments, what kind of revenue growth would you expect? So electrical cables, I understand copper is down, Y-o-Y, but still you're managing 20% plus. So I would imagine that should continue. So in case just your thoughts on electrical cable segment and FMEG and communication cable, both have been flat this quarter, but what's the way out ahead, please?

Mahesh Vishwanathan: On the electrical segment, a lot of it is driven by growth in the infra segment. So that could be reality, that could be housing, I mean, that could be housing, that could be infrastructure, that could be other government spends. So as long as those spends continue on the same trend as we have seen over the last six months, then you're right, a similar growth is possible. On the communication cable side, while the volume growth was there, the value growth was kind of flat, like I mentioned earlier, primarily due to the depressed prices of fiber.

First quarter, I think the average price of fiber was about $3.2. So I think once, now that this anti-dumping duty has come into place effective last week, we should see realizations getting back to some sense of normalcy going forward. The demand is still there and with the additional announcements from the cabinet, those should translate into demand. Maybe not in the immediate term, but in the medium and long term it should bounce back strongly.

On the appliances and FMEG part, the rains in summer kind of disrupted the whole scene. I think this has been a common theme across many participants in the industry. So that has had an impact on the volumes. Secondly, while inflation has come down from its high, I think there is still a lot of hesitancy in terms of discretionary spends. But if the housing momentum keeps going on, I think those should also bounce back in the short and medium term.

Rahul Agarwal: On communication cables, largely assuming the price remains flat, let's say in a base case, what should be the growth for fiscal 24?

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Mahesh Vishwanathan: We should see tenders coming up now. It depends on when those tenders are you know opened up and that will drive volume so that's something that I'm not able to really comment with a degree of certainty there.

Rahul Agarwal: But in terms of existing order book what kind of visibility will we have?

Mahesh Vishwanathan: We will have visibility for about 6 months. So from the private sector you have got Bharati and Reliance investing in 5G and they are doing a lot of good rollouts. So they, I mean while the rate contracts are fixed for a year, the quantity is placed every month and so but we do expect that because of the 5G rollouts the demand should be robust. They would still go on purchasing. Everyone knows about the rollout. Other than that the company has taken steps to do some EPC business. So we started in Gujarat, where we are installing and laying the fiber optic cables also and giving to them. So this activity we are going to try and replicate and grow in more states. So we see the demand for cable will also pick up a little bit from the EPC contracts as well.

Rahul Agarwal: Got it, sir. And FMEG, just to summarize what you said, obviously I understand demand is weaker because of rains, but we are pretty small. I thought we are focused on increasing market share and new product launches. Shouldn't that help you to, on a smaller base, to at least grow on this base?

Mahesh Viswanathan: Well, yes and no. When the overall market spend itself is depressed, it will have an impact on smaller players as well, right?

Rahul Agarwal: Okay, okay, got it. Next question was on communication cables again. In terms of capacity, I just wanted to know what is it right now and based on the current price, what could be the peak revenue we could achieve, both for metal-based and OSEs?

Deepak Chhabria: One second. Fiber attention. Fiber will go to your commissioner. So, on the communication on the fiber optic if you want to know capacity, we have a capacity on the cabling side of 8 million fiber kilometer and we draw the fiber is about 4 million fiber kilometer at present. So that is the present capacity.

In the expansion plan what the company is doing where we are adding additional capacity on the cabling side, we will go from 8 to 10 million fiber kilometer and we are going to increase on the towers from 4 to 8 million and we are also adding preforms as a backward integration, which in the first phase would be 4 million. And then later on, the second phase will take place of 4 million. It will be in two branches.

Rahul Agarwal: Get it. So to understand this correctly, let's say if we're doing like 150 crores a quarter of communication cable business right now, that number can go up to at current pricing can go up about 8 to 10 million, 8 million goes to 10 million, so that's about 25% increase. Is that correct?

Deepak Chhabria: That's on the cabling side. But instead of buying fiber from outside, we'd be growing our own fiber, so you will add more value addition and profit in the company and as time goes we would be adding preforms the project is underway right now so in a year's time we would have

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	4 million of preforms so it the end cable product may not be going up but the value addition in
	the organization would be going up. The profits will go up.
Rahul Agarwal:	Understand, sir. The margins will go up, basically.
Deepak Chhabria:	The margins will go up, Yes.
Rahul Agarwal:	Yes, Yes. And lastly, sir, and pardon me for this question, we've seen stock exchange piling on
	the pending legal matters. I think no decision was made there. It was more of a disclosure.
	There's been a lot of discussion last one know, last one year on amicable settlement, and stock
	is almost more than double based on rumors on an insider information on WhatsApp and a lot
	more other sources. You know, whatever legitimate update you can provide, you know, based
	under the law, it's a good help shareholders to understand, you know, whatever you can
	provide, what is really happening on the family settlement lease? That's my last question,
	thanks.
Deepak Chhabria:	See, the problem is that since there's so many cases like you mentioned the matters are sub
	judice so I am not allowed to comment on the same I'm restricted but you have to excuse me.
Rahul Agarwal:	I understand, sir, but it's still very material for shareholders, isn't it?
Deepak Chhabria:	You know but I do follow the law and I cannot break the law. Because it's all in court, I can't
	comment one way or the other on that. I can say it's not over, it still continues, but other than
	that I can't say anything about the case.
Rahul Agarwal:	Got it, sir. So no decision has been made, is that correct? Is that understanding correct?
Deepak Chhabria:	Yes, the status is still the same as it was earlier.
Moderator:	Thank you. Our next question is from the line of Shivam Mittal from Purnartha Investment
	Advisors Private Limited. Please go ahead.
Shivam Mittal:	Thank you so much for the opportunity. So a lot of peers is talking about China plus one
	strategy that is going in US market. So US customer actually don't want to dependent on
	Chinese suppliers itself. So they are looking for India. So how are we looking like export
	opportunities?
Mahesh Viswanathan:	We haven't looked at US at the moment. We are, we have some exports, not very large, but we
	have some exports to the Middle East and parts of Africa. And so that's where our focus has
	been so far. We have not looked at the U.S. at this point in time.
Shivam Mittal:	All right. Thank you so much. So what is the current capacity utilization as a whole and in
	wires, electric wires specifically?
Mahesh Viswanathan:	Wires at the moment we should be somewhere around 70%.
Shivam Mittal:	Right, and company as a whole?

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