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00:00 stocks in focus, you're watching BQ Prime.
00:02 And this show is all about mid-cap and small-cap companies
00:06 that have been good growth drivers as well.
00:09 Joining us on the show and one company that is in focus
00:13 is a KEI Industries.
00:16 In fact, the long-term cable demand in India
00:19 is something that we are focusing on.
00:22 The aggressive buildup that we are seeing
00:24 in terms of a renewable energy goals,
00:26 that is something that could be one of the beneficiaries
00:29 as well, as well as the government-led interest
00:33 spending on non-power sectors, and the kind of pickup
00:37 that we're expecting in the private CAPEX led
00:40 by the Make in India push are going to be our focus topic
00:44 points as well.
00:45 One company that will be a key beneficiary is a KEI Industries.
00:49 And joining us on the show to discuss more
00:51 is Mr. Anil Gupta, Chairman and MD at KEI Industries.
00:56 Good morning and welcome to the show, Mr. Gupta.
00:59 Thank you.
01:00 Thank you for inviting me.
01:02 Always a pleasure to speak to you.
01:03 Mr. Gupta, my first question coming to you is overall,
01:07 we have seen good improvement in terms of the stock price
01:11 performance as well from the YTD basis for KEI Industries.
01:16 Clearly from here on, what is the strategy of the company
01:21 specifically from a demand perspective,
01:24 taking into consideration the renewable energy capacities
01:27 that we're looking at?
01:29 The government-led interest spends
01:30 on the non-power sectors, the Make in India push,
01:34 as well as the real estate growth story in India?
01:40 Yeah, thank you.
01:41 As I've been saying, we are very bullish on the long-term cable
01:49 demand in India.
01:52 Apart from meeting the demand in India,
01:55 there are substantial opportunities
01:57 for exports which are also coming up,
01:59 even from the developed countries.
02:04 As you said that there is a substantial uptake in demand
02:08 from India's power sector, especially
02:11 from solar developers, and power transmission and distribution
02:16 sector.
02:17 Apart from that, government push on non-power infra,
02:20 like metros, railways, highways, which
02:25 leads to undergrounding of cables,
02:27 and a lot of construction activities
02:30 in the hospitals and commercial space,
02:33 and real estate activities.
02:35 These are leading to sustained demand
02:40 of cables in the country.
02:44 We are also seeing a good amount of activity
02:47 in the industrial sector, like oil and gas, petrochemicals,
02:53 cement, steel, and also the private capex coming up
02:56 in the various other industries, which
02:59 also leads to improved and continued demand for cables.
03:04 Besides this, we are seeing a good fraction
03:07 of demand from many European countries, USA,
03:12 and other African and Middle East countries
03:15 for cables from India.
03:19 It definitely has something to do with the China plus one
03:24 policy, but also we are able to get quality certification
03:30 from different countries for enabling us
03:34 to export in that country.
03:36 So the certifications are very critical and important
03:40 to export to any country, be it US, be it Europe,
03:45 or even in Middle East.
03:47 Certification, as well as the prequalification,
03:49 and a successful track record in the similar industry.
03:53 Right.
03:54 So Mr. Gupta, a lot of growth drivers
03:57 that you as a company are looking out for as well.
04:00 Now, from a business perspective,
04:02 if we have to look at FY '13 to FY '23,
04:06 we have seen a KIA Industries, which
04:08 has seen a cargo growth of around 15%, right?
04:13 Now, taking the next, say, 5 to 10 years into consideration,
04:18 with all of these demand drivers in place,
04:21 and say execution goes on time and on track,
04:26 what's the kind of growth you're anticipating from the company?
04:29 In the last five to six years, our cargo growth
04:37 has been 17% to 18%, except the COVID year of 2021.
04:43 And then in '21, '22, we quickly recovered that
04:48 to a normal level.
04:50 We are estimating a growth of 17% to 18%
04:57 cargo for next seven to eight years.
04:59 And we don't see--
05:02 I mean, I may be on the conservative side.
05:05 Our strategy is to increase our product demand from India
05:13 as well as from other geographies.
05:16 And to do that, we are also building up
05:18 new capacities in the existing plants
05:20 as well as the new green fuel plants.
05:24 Right.
05:24 So when you talk about looking at growing business
05:29 in the domestic market as well as the export market,
05:32 if you have to look at it from a margin perspective,
05:36 between the domestic as well as the export business, which
05:40 is more margin-accurate number one,
05:42 and two, do you see that business increasing
05:47 as a percentage of revenues?
05:48 Yes, export business will continue
05:55 to increase as a percentage of total revenue.
05:59 And we could see a jump to 15% to 20% in the export
06:05 revenues of the total revenue.
06:08 Secondly, the margin, we see a margin of--
06:12 I mean, similar level of margins around 11% level
06:17 from the export markets.
06:19 Because we also have to spend a lot
06:22 in developing those markets in certifications.
06:25 And also, we have to pay marketing expenses
06:30 in those countries in terms of agent commissions, et cetera.
06:34 So that is one.
06:36 And you see, we also have to give some competitiveness
06:43 when we enter into a new market vis-a-vis the existing players.
06:48 So that is why I'm saying in a conservative way
06:52 that 11% margin on an overall basis is a--
06:57 and even going forward, bettering
07:01 this over a period of the next two, three, four years
07:04 will be our aim.
07:05 Right.
07:06 So taking this growth into consideration now,
07:10 overall, which are the segments of business
07:13 that will be growth drivers?
07:15 And specifically from a CAPEX perspective,
07:19 where are you spending?
07:20 The growth drivers will be, as I said,
07:22 that the power and infrastructure
07:24 and the private CAPEX and the industrial units which
07:29 are coming up, which will be needing
07:30 a substantial amount of cables.
07:33 Secondly, we are doing a CAPEX of close to 100 crore rupees
07:39 in our existing plants in this financial year.
07:42 And also launched a greenfield project
07:47 at Sanand near Ahmedabad, which will
07:52 entail an investment of close to 1,000 crore over next two
07:57 to three years period.
07:59 So we will be able to build up a capacity which
08:03 is almost 60% to 70% more from the current level, which
08:10 I see that close to 14,000 to 15,000 crore over next three
08:14 to four years from current level of around 8,500 to 9,000 crore.
08:21 Right.
08:21 And in terms of the new facility,
08:24 how do you see the asset turn?
08:28 Initially, the asset turn will be around four times.
08:32 But gradually, it will go up to five to six times
08:35 over next two years period after commencing the production.
08:40 Because after commencing, we'll have
08:43 to see what are the bottleneck points
08:45 and where the rebalancing is required,
08:49 which is done quickly to get better asset turn.
08:54 Right.
08:55 From a marketing and sales perspective,
09:00 you have been increasing your dealers and distribution
09:03 network on a yearly basis, right?
09:05 You have added electricians as well now to your royalty
09:09 program.
09:10 With that, usually when it comes to export markets,
09:14 clearly the cables are exported directly to suppliers.
09:18 However, you did have plans with regards
09:20 to getting distributors in the US.
09:24 What is the strategy looking like?
09:26 And is that something which will actually
09:28 eat into the margins then?
09:30 Normally, in many cases, business in the United States
09:38 is done through distributors.
09:39 So that is the way that market works.
09:44 So it does not mean that it will eat into our margins.
09:47 Because either we are selling to the end customer
09:51 or to the distributor.
09:52 In case of end customers, we have
09:53 to shell out some commission to the agents who
09:56 are working for us.
09:57 And in case of distributors, we have
09:59 to pay some margin to the distributors.
10:02 So our margin percentage, I said,
10:06 it is irrespective of whether we are selling directly
10:09 or through the distributors.
10:12 From distributors standpoint of view,
10:16 we can get a better price from the customer
10:19 because they get just-in-time delivery.
10:22 And also, they have to pay after getting the goods which
10:27 are received there.
10:28 In case of direct supplies, sometimes they
10:30 will have to pay even before the goods reaches there.
10:33 So that is the differential in dealing in both these manners.
10:39 Right.
10:40 And I'll just come back to the CAPEX plan of it.
10:45 Last, I think, when we had spoken
10:47 was that in FY24 with regards to Sylvasa,
10:51 it was a brownfield CAPEX of 45 crores.
10:54 And another one in terms of Bivandi,
10:57 which was 100, 110 crores, right?
10:59 What is the status of the same?
11:02 In Sylvasa, this CAPEX should be over by December.
11:07 And in Bivandi, it should be over by March or April, 2024.
11:14 OK, and what's the kind of revenue generation opportunity
11:19 you see on the back of this CAPEX?
11:23 We expect the revenue generation of close to 1,000 crores
11:26 from this CAPEX.
11:28 Right.
11:29 And very lastly, if you see in terms of overall opportunities
11:35 as well that the company is looking at,
11:38 how long do you think will this cable demand continue
11:42 to benefit specifically from real estate as a space?
11:45 Because almost 20%, 23% of your revenues
11:48 do come in from that space.
11:50 How are you seeing that trajectory?
11:56 See, we can see that in India, at the moment,
12:02 the penetration of real estate among large population is low.
12:08 People need houses.
12:09 And the people who have smaller houses,
12:12 they are moving to the bigger houses.
12:14 So in a growing economy like India,
12:19 I think this demand should continue
12:22 to grow for the next 25 years.
12:25 I mean, always in an economy, sometimes one or two years
12:30 bad patches comes.
12:32 We do not know when it comes.
12:33 But on a long-term perspective, I
12:36 don't think it will stop because there
12:39 are aspirations of the people in getting and living
12:42 in the good houses, their own houses,
12:44 and with the banks extending good amount of home loans
12:48 with very low rate of interest.
12:51 Every person in the middle income group or low income
12:55 group, they want to go to their own houses.
12:59 And definitely, even the people are building up
13:03 even for the rentals also.
13:05 But demand for their own houses as a concept is growing in India.
13:11 Right, so I think that will continue
13:13 to be a growth driver as well.
13:15 Thank you, Mr. Gupta, so much for joining us on the show
13:18 and speaking to us with regards to what the industry is looking
13:22 like as well and what could be growth drivers, what investors
13:26 could expect from a KEI Industries.
13:28 So that's the management of KEI Industries.
13:31 And clearly, if you see from a stock price perspective
13:34 as well, a 60-plus percent returns
13:36 is what investors have seen in the last on the YTD basis.
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