KEI Industries: Q2-25 Earnings Call Highlights
Robust growth in Q2 FY25, driven by demand across segments. Capex on track to support future growth. Management committed to a debt-free balance sheet. Working capital management remains a focus
kei-ind.com | NSE: KEI
1. Key Takeaways
1.1 TLDR
KEI Industries delivered robust revenue and profit growth in Q2 FY25, driven by strong demand across segments.
Capacity expansions are on track to support future growth and meet the robust demand outlook.
Management's commitment to maintaining a debt-free balance sheet through equity financing is a key takeaway.
Working capital management remains a focus area, with initiatives in place to optimize receivables and inventory levels.
Investors will be keenly watching the execution of the Sanand project and the company's ability to maintain its growth momentum in the coming quarters.
1.2 Financial Performance:
Q2 FY25 net sales up 17.21% YoY to ₹2,279.64 crore.
H1 FY25 net sales up 16.5% YoY to ₹4,340 crore.
Profit After Tax (PAT) for Q2 FY25 grew 10.42% YoY to ₹154.81 crore.
PAT margin for Q2 FY25 at 6.79% compared to 7.21% in the same period last year.
H1 FY25 PAT grew 16.62% YoY to ₹305 crore.
1.3 Segmental Performance:
Domestic institutional cable sales grew 20% YoY in Q2.
Extra High Voltage (EHV) cable sales were lower due to capacity being utilized for High Tension (HT) and Medium Voltage (MV) cables.
Export sales were slightly lower YoY at ₹241 crore.
Dealer network sales (B2C) saw significant growth of 36% YoY, contributing 55% of total sales in Q2.
EPC sales continue to decline as per the company's strategy.
1.4 Operational Updates
Capacity & Expansion: Brownfield capex at various plants completed and fully commissioned, contributing to volume growth of around 14%.
The Sanand greenfield expansion project for EHV and HT cables is on track, with commercial production expected by Q1 FY26.
Total capex for FY25 estimated at ₹1,100 crore, including ₹900 crore for the Sanand project.
Capex for FY26 estimated at ₹600-700 crore.
Capital Raise: KEI Industries successfully raised ₹2,000 crore via QIP.
Funds primarily allocated to the Sanand project and future working capital requirements.
The decision driven by the management's commitment to maintain a debt-free balance sheet.
Working Capital: Receivables expected to decrease to 2.1 months in FY25.
Inventory levels currently higher due to capacity expansion but expected to normalize to 2.25 months by Q3 FY25.
Demand Outlook: Strong demand witnessed across sectors, including renewables, transmission, data centers, and infrastructure projects.
Order book stands at ₹3,847 crore with an additional ₹186 crore where KEI Industries is L1.
KEI Industries Q2 FY25 Earnings Call FAQ
1. Why did KEI Industries decide to raise funds through a QIP instead of taking on debt?
KEI Industries aims to operate as a debt-free company. While debt could have been used for the current expansion projects, it would have hindered future capital expenditures and increased interest costs. The QIP allows for funding expansion while preserving cash flow for future growth and working capital needs, maintaining their debt-free status.
2. What is the rationale behind the significant capital expenditure plan?
KEI Industries has outlined a robust capital expenditure plan to fuel its ambitious growth targets. This plan includes:
Brownfield expansion: This focuses on immediate capacity augmentation to meet the current fiscal year's 17% growth target.
Greenfield expansion at Sanand: This project, requiring a total investment of ₹1800-₹1900 crore, will create a facility with a ₹5000 crore production capacity by FY27, focusing on EHV, HT, and LT cables.
Future greenfield projects: Plans are in place for additional greenfield capacity additions after the Sanand facility is operational, ensuring sustained growth beyond FY27.
This approach reflects the company's commitment to maintaining a 17% CAGR over the next five to seven years.
3. How is the current market demand shaping KEI Industries' growth strategy?
KI Industries is experiencing strong demand across several sectors, particularly in:
Renewable energy: Solar and wind energy projects are driving significant demand.
Power transmission and distribution: Government initiatives and upcoming projects are fuelling growth in this sector.
Data centers: This rapidly expanding sector presents a substantial opportunity for KI Industries.
The company's order book, exceeding ₹3800 crore, reflects this strong demand. The capital expenditure plan is a strategic response to capitalize on these market opportunities and ensure the company has the capacity to meet future demand.
4. What led to the decline in EHV sales in Q2, and what is the outlook for this segment?
The decline in EHV sales is attributed to external factors impacting project execution:
Right-of-way (ROW) issues: Delays in obtaining permissions for road cutting and site access have hampered project timelines.
Heavy rains: Unfavorable weather conditions have further hindered project execution, leading to lower sales.
While these challenges are temporary, they highlight the inherent volatility in the EHV segment. Despite the recent dip, the company expects EHV sales to normalize over the full fiscal year as projects progress. The robust order book for EHV cables supports this positive outlook.
5. How will the company manage its working capital requirements with the increased production capacity?
KEI Industries is proactive in managing its working capital:
Receivables: The company expects its receivable cycle to reduce to 2.1 months in FY25, improving cash flow.
Inventory: While inventory levels have temporarily increased due to capacity expansion, they are expected to stabilize at 2.25 months by the third quarter.
The funds raised through the QIP will be strategically allocated to support the increased working capital needs arising from the expanded production capacity, ensuring smooth operations and mitigating any potential strain on cash flow.
6. What is the company's long-term strategy for its EPC business?
KEI Industries is gradually reducing its reliance on the EPC business:
Reduced sales: EPC sales are projected to contribute only 5-6% of total sales in the current year.
Controlled order intake: The company is intentionally limiting new EPC orders to manage existing projects and outstanding receivables.
This strategic shift reflects a move towards higher-margin and less volatile segments, with the EPC business expected to decline further in the future.
7. What is the current status of the Sanand project, and when is commercial production expected?
The Sanand project is progressing as planned:
Construction status: The project is at the halfway point of completion.
Commercial production: Production is expected to commence by the first quarter of FY26.
Once fully operational, the Sanand facility will significantly enhance KEI Industries' capacity to meet growing demand across various segments.
8. What are the key drivers behind KEI Industries' sustained growth and profitability?
Several factors contribute to KEI Industries' sustained growth and profitability:
Strong market demand: The company is well-positioned to benefit from robust demand in key sectors such as renewable energy, power transmission, and data centers.
Strategic capacity expansion: The proactive approach to capacity building ensures the company is equipped to meet future demand and capitalize on growth opportunities.
Focus on operational efficiency: Effective working capital management and a strategic shift away from the volatile EPC segment contribute to improved profitability.
Commitment to debt-free operations: The decision to raise funds through QIP rather than debt preserves financial flexibility and safeguards future profitability.
These factors, combined with a robust order book and a proven track record of delivering consistent growth, position KEI Industries favorably for continued success in the long term.
Source: Link to Earning Call Recording
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