APARINDSNSEQ2FY23November 10, 2022

Apar Industries Limited

10,410words
146turns
11analyst exchanges
4executives
Management on call
Kushal Desai
CHAIRMAN AND MANAGING
Chaitanya Desai
MANAGING DIRECTOR – APAR INDUSTRIES LIMITED
Ramesh Iyer
CHIEF FINANCIAL OFFICER – APAR INDUSTRIES LIMITED
Nihar From S
Ancial Technologies.
Key numbers — 40 extracted
INR 3,235 crore
t, we can open up the floor to questions. During Q2 FY '23, the consolidated revenue came in at INR 3,235 crores up 43% year-on-year. This was largely driven by volume growth, there was a certain amount of inc
43%
e floor to questions. During Q2 FY '23, the consolidated revenue came in at INR 3,235 crores up 43% year-on-year. This was largely driven by volume growth, there was a certain amount of increase th
85%
l-related products and we have substantial growth in the export business. Export revenues grew by 85% year-on-year, contributing to 47% of the overall company's revenues compared to 36% a year ago.
47%
stantial growth in the export business. Export revenues grew by 85% year-on-year, contributing to 47% of the overall company's revenues compared to 36% a year ago. EBITDA is also up 82% year-on-yea
36%
enues grew by 85% year-on-year, contributing to 47% of the overall company's revenues compared to 36% a year ago. EBITDA is also up 82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in
82%
ributing to 47% of the overall company's revenues compared to 36% a year ago. EBITDA is also up 82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in at INR 103 crores. So that is 80%
INR 237 crore
he overall company's revenues compared to 36% a year ago. EBITDA is also up 82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in at INR 103 crores. So that is 80% higher than the previous year
7.3%
s compared to 36% a year ago. EBITDA is also up 82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in at INR 103 crores. So that is 80% higher than the previous year. It is at 3.2% versu
INR 103 crore
r ago. EBITDA is also up 82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in at INR 103 crores. So that is 80% higher than the previous year. It is at 3.2% versus 2.5% in the year ago period.
80%
82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in at INR 103 crores. So that is 80% higher than the previous year. It is at 3.2% versus 2.5% in the year ago period. So in short, Q2
3.2%
in of 7.3%. PAT came in at INR 103 crores. So that is 80% higher than the previous year. It is at 3.2% versus 2.5% in the year ago period. So in short, Q2 witnessed a very strong performance. And if y
2.5%
PAT came in at INR 103 crores. So that is 80% higher than the previous year. It is at 3.2% versus 2.5% in the year ago period. So in short, Q2 witnessed a very strong performance. And if you look at t
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Guidance — 20 items
Kushal Desai
opening
“So we expect over the next few years, India's power sector to be one of the key beneficiaries of a significant amount of capex as well as reforms, whereas electricity has now reached to even the remotest of villages, there is still an issue in terms of the quality of power that is being delivered there.”
Kushal Desai
opening
“So this is a delta of nearly 37%, because we are at 13% today with a target of going up to 50%.”
Kushal Desai
opening
“The business is set to hit a target of approximately INR 3,000 crores in revenues for the year.”
Maulik Patel
qa
“In the past con call, you mentioned that TSO segment which is did a very heavy lifting for overall company in the previous couple of years will be a muted one.”
Kushal Desai
qa
“So there is one phase of Q3 where I expect a major drop in the profitability of the oil division.”
Kushal Desai
qa
“So we -- at once upon a time, INR 12,500 of the guidance, we looked at INR 17,500.”
Kushal Desai
qa
“So there have been a few tailwinds, but our expectation is that the Conductor business is going to be on a very solid wicket over the next for the second half as well as for the next year or two to come.”
Kushal Desai
qa
“So that's why I think we expect that demand will continue to remain strong.”
Kushal Desai
qa
“We expect to hit our light-duty cable revenues this year between INR 180 crores and INR 200 crores.”
Kushal Desai
qa
“So this is the space where I think we will grow considerably over the next 24 to 36 months.”
Risks & concerns — 8 flagged
So actually, the real impact of the inventory costs versus market prices is going to actually hit in Q3.
— Kushal Desai
Where you see that profitability is declining, and so you stay away from some of the business, which is actually a drag.
— Kushal Desai
So I think my concern would not be on volumes as much as on ensuring that the margins -- the unit margins are restored.
— Kushal Desai
The current quarter still does not factor the full impact of this increase, especially from SOFR rate point of view because we have LC that keeps on building over a month-on-month basis.
— Ramesh Iyer
Fortunately, the commodity costs are on the lower side, especially the aluminum and copper that is helping us to reduce the impact of the increase in SOFR and foreign exchange rates.
— Ramesh Iyer
Q3 is quite clear that there is a challenge.
— Kushal Desai
But then as we see, after going through a difficult period, sometimes the rebounds are the surprise on the positive side.
— Kushal Desai
So this quarter is the one where there is a hangover the irrational behavior coming from players -- difficult to tell.
— Kushal Desai
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Q&A — 11 exchanges
Q
A good set of numbers. A few questions. In the past con call, you mentioned that TSO segment which is did a very heavy lifting for overall company in the previous couple of years will be a muted one. And it seems that it's going to be or more like in the consideration phase? And also the margin, which you said that it will come down, because there was some abnormal event in the previous quarter? So margin has come down, is there going to be more pain in margin? Or is it like more steady margin when we have reached on the TSO segment?
Kushal Desai
So actually, the real impact of the inventory costs versus market prices is going to actually hit in Q3. That's why I mentioned in my opening remarks that Q3 is where we will see a big impact in this. And I had sort of entailed a few of the key reasons for the same where there has been a demand compression. There's an expectation in the market that prices are going to fall and actually that is not happening. So customers are being vectorized and in many cases, instead of finalizing longer-term contracts even for a month or three months. The negotiation is happening almost by every lower contai
Q
Congratulations on a good set of numbers. Sir, lastly, I wanted to understand the profitability on the conductor side and the profitability has been quite strong. I mean INR 32,000 per metric ton. Sir we just wanted to guess are we choosing – we understand the percentage of premium products are going up. But I just wanted to understand from a business angle, I mean, are we start catering to -- how should we consider the normal profitability when the raw material prices will pull off? And is there a permanent nature change of business -- that is what I wanted to understand. And second question
Ramesh Iyer
To answer the -- so on the conductors thing, two reasons that is happening from the market point of view. One is that as we talked about, the share of premium products has been going up. And even in this quarter, we saw higher premium products as compared to the conventional conductors, which is now leading to higher margins. In addition to that, even within the conventional conductors, the export mix is going up. We have seen that the proportion of exports in the conventional conductor has been much higher in quarter two. These two factors have actually led to an increase in the EBITDA number
Q
And congratulations for a great set of numbers. So I also had a question on our order book on the conductor side. So if you could just help us understand the -- like you mentioned, the 55% of the order book now is premium products. So what geographies or if you could just help us, is it largely export led or domestic led what will be the breakup on that front? And which geography specifically you are seeing the demand coming from?
Chaitanya Desai
Yes, it is primarily a domestic market. And also, there is some component of export. And the export is spread out to various countries. The concentration in the Americas, North South. The premium products as Chaitanya mentioned are mostly domestic. It's in South Asia. So India, Bangladesh in South Asia. The export is concentrated in the Americas, as I mentioned earlier. And just to understand a bit further. So the order books are -- is it largely new capex driven? Or is it -- what are the type of orders like. Is it new investments in the infrastructure side? Or is it replacement of conductors
Q
Congratulations on a good set of number. So just trying to get a little bit further into the previous participant question. What are the basically if you can give a little bit more insight into how sustainable this new order inflow? How do you see that? Is there any way to track that? And how basically from the competitive landscape, what are the competition when you do exports, how it gets driven. Do they have tariffs on the imports from other countries compared to India? If yes, what are the tariffs? Some maybe bit more detail on that would be useful.
Kushal Desai
Yes. So the competitive intensity -- see, I mentioned about this geopolitical considerations. So in many of these countries, there is a clear move to look at suppliers ex-China. And so that is helping. The sustainability of the infrastructure spend it looks quite solid. The US has just passed a major set of bills around infrastructure. And all countries, including India, have all made certain commitments in COP26 in terms of taking forward renewable energy and reducing the carbon footprint. So our expectation is that demand will remain strong over the next several years as this unfolds. So we
Q
Congratulations a good set of numbers. I just want to know, we have done around in conductor division. Yes, we've done around 66,000 volume and then 66,000 metric ton for the first half. Can we expect still to do around like 1.3 lakh, 1.4 lakh tons for the entire year?
Kushal Desai
Yes. The target is to do about 140,000 tons. So second half volume will be higher than in the first half. We're still on track as we have thought about it in the first quarter one, right? Year online... 140,000 tons for the year. So 66,000 tons is what we've done in the in the first half. So second half, we expect to do closer to 70,000 -- 75,000 tons. Something that may happen is that you may have, in some cases, the volume going up, the EBITDA per ton may be a bit lower. But that's the reason why the steady pace 21,000, because a little bit of it moves up and down to the mix of the product a
Q
My first question would be, as we have talked in the previous quarter that we have been in defense, we are focusing INR 80, INR 100 crores of the revenue, so currently, are we trajectoring any better revenue conversation from defense? And could you just give us the split between the railway division, how much order has been from railway specifically mixing of conductors and cables, if you can give that split?
Kushal Desai
So. We don't want to get into too much of detail in terms of each of the subsegments. But on -- the two are going in different trajectories. The cable side is going into locomotives as well as coaches. And this is whole Vande Bharat, you will see increasing requirements happening on the cable side. We have two channels. One is, direct supply to the coach factories. The other one is through the harness manufacturers, of which one we are also a harness manufacturer, but that are like 20-odd. So the volume is growing there as the locomotives and coaches are being added. On the other hand, if you
Q
My question is sir, with respect to the recent parliamentary committee, which announced that there are plans of setting up a renewable energy zones for 66 gigawatts and I think additional 185 gigawatts by 2030. So any thoughts sir, what kind of market it can create for us? What kind of products and assessment if you would have that?
Kushal Desai
So fundamentally, the products of us which go into this is when solar grows then there are two sets of cables which go in. One is for the solar panel wire and the other one is from the electric panel into the network. So it linearly will grow with the addition of solar capacity. Similarly, in the case of windmill, you have a certain amount of cabling that goes inside the windmill. So that also is linear to the kind of wind mills that are getting executed. And then you have evacuation from the windmill installation into the grid. So in both cases, a grid portion will determine or the conductor
Q
Just two questions, how do we see this new lines that we are commissioning in Q3? What would be the ramp-up plan for this year and what kind of ramp can we expect to the full of next year?
Kushal Desai
So our sense is that actually, the line should get loaded within a span of 12 to 18 months and if the initial shipments to some of the customers, especially in Europe, go through well, then it could even get accelerated sooner than that because there is a serious at least at the moment in energy as well as our manpower crises in Europe. I can tell you that the line is coming in at the right time. And if the initial product that goes on the line is well accepted, then its ramp-up can be pretty fast. But otherwise, our plan was to get it fully loaded in a 12-month to 18-month time frame. And wha
Q
Sir, what is overall renewable energy contribution in overall business of the company?
Ramesh Iyer
We have put this part of our slide in the corporate presentation about 4 to 5 percentage for the company as a whole. And sir, one you mentioned about the busbar product, so what is it and what is the opportunity size in this product? So actually, busbar going to a whole lot of electrical installation. So the market size is fairly large runs it to several thousands of crores, there are a number of players in this, it's a product which can go complementary with some of the cables that we have in some of the other products, which we are going to sell. And fundamentally, as the railway business co
Q
Thank you, gentlemen, once again, congratulations. I want to for simplification, say, I want to focus on EBITDA after the interest right? Last time we have discussed that is the better way to communicate. And before I get there, I just -- we've done INR 55 EPS in the first half. There are positives for two segments. One segment will have impact, basically inventory effect, which I would imagine is not generally more than one month, am I right?
Kushal Desai
No, I think it is probably it will affect the quarter. So you have an overall effect in the quarter. So Kushal, my simple question first to start with the H1, INR 55 EPS -- H2, can it be similar, higher, lower as things stand today, and of course, things can change. It should be in the similar range. It could be a little bit lower depending on what the impact is on the oil side. But on the cable and conductor side will actually be a bit higher. So it's a question of how much the other two will be able to offset whatever Q3 problem we have. But if you look at it broadly, it should be in the sam
Q
Thank you, everyone, for patiently hearing us through the opening remarks and the Q&A on this earnings call. And just in terms of closing remarks, even though we see a short-term issue in our oil business, overall, we are quite optimistic in terms of the way business will unfold. -- not only in the second half but also in FY '24 and some of the years to come. The fundamental drivers to the business remain intact and are actually accelerating which is, i.e., the infrastructure that's going into the electrical space. So with that, I'd like to close the call, and thank you very much for your time
Management
Speaking time
Kushal Desai
45
Ramesh Iyer
20
Pawan Nahar
16
Moderator
13
Rajesh Kothari
8
Vignesh Iyer
8
Pratik Shah
8
Maulik Patel
7
Amit Anwani
5
Sujan Shah
4
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Opening remarks
Nihar Mehta
Good afternoon, ladies and gentlemen. I welcome you to the second quarter FY '23 earnings call for APAR Industries Limited. From the management side, we have Mr. Kushal Desai, Chairman and Managing Director; Mr. Chaitanya Desai, Managing Director; and the CFO, Mr. Ramesh Iyer. I would now pass on the mike to Mr. Kushal Desai.
Kushal Desai
Thank you, Nihar. Good afternoon, everyone and I'd like to take this opportunity to wish all of you happy Diwali and good wishes for the rest of the year. Let me start off with an overview of our performance and follow that up with a short industry update. Then we can get into details on the segmental performance of the three major businesses. And post that, we can open up the floor to questions. During Q2 FY '23, the consolidated revenue came in at INR 3,235 crores up 43% year-on-year. This was largely driven by volume growth, there was a certain amount of increase that happened in commodity prices, especially oil-related products and we have substantial growth in the export business. Export revenues grew by 85% year-on-year, contributing to 47% of the overall company's revenues compared to 36% a year ago. EBITDA is also up 82% year-on-year to INR 237 crores at a margin of 7.3%. PAT came in at INR 103 crores. So that is 80% higher than the previous year. It is at 3.2% versus 2.5% in t
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