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My notes on Conference call Q1-2021

  1. [Financials] Sales down due to lockdown. Throughout April, there were no sales. Margins are stable. Domestic Institutional sales down, but exports up.
  2. Order book at 2900 crores.
  3. [Capex] The ongoing CapEx at Silvassa in our – in new Chinchpada plant was INR 90 crore to INR 100 crore. The first phase was already operational last year. The second phase was to be operational in the first quarter of 2020/'21, but will now be operational in the second quarter – in this quarter, which is coming in. We have spent approximately INR 71.5 crore on this total project till July 31, 2020.
  4. [Finance cost] During this year, Q1, finance cost has decreased to INR 16.79 crore as against INR 32.96 crore previous year’s same period. The percent of financial charges on net sales has decreased in this period to 2.25% from 3.05%
  5. [Guidance for sales for FY21] the company should be able to maintain close to 85% of the sales of the pre-COVID level in the full financial year.
  6. [On Working capital]: Current working capital requirement of stock, which was held in the March, has been reduced by approximately INR 200 crores. But the debtors which we were having close to INR 1,350 crore, that is remaining as on this June '20 is also the same level, close to INR 1,368 crore as of now. So now the institutional payments are coming because it was held up because of the lockdown. So slowly, slowly now the old payments, which were due, so now they are coming up. So we are quite hopeful that by October, everything will be normalized in terms of working capital.
  7. [On private capex which drives sales]: it will be better if we give that guidance in our next conference call in October or because then we will have more clarity over how the private CapEx will be there. However, we see that there is a pickup in the CapEx from the government. And we have seen a number of tenders from transmission and distribution utilities in last 1 month. We are quite bullish on our exports: the markets where we are operating, we are getting very good new orders even now.
  8. [Visibility of exports]: And we are getting now a good set of numbers from our export – of new orders from our export markets, mainly Middle East, Australia and Africa. we will be able to maintain the export level at the last year level.
  9. [On reduction in interest cost]: interest was close to INR 7.5 crore to INR 8 crore, was reduced in the working capital interest. And balance INR 8 crore reduced in terms of the LC interest and the bank charges on bank guarantees. Because the sale is low, so that’s why the LC interest is low and the bank guarantee charge is low.
  10. [Breakup of interest cost and comparison YoY]: Term loan interest was INR 1.4 crore in this quarter, last year was INR 3.74 crore. And working capital interest was close to INR 8.5 crore, which was earlier the INR 14 crore. And LC interest is INR 3.64 crore as compared to last year INR 7.18 crore and bank charges on LC is INR 0.98 crore, last year was INR 2.75 crore. Bank charges on bank guarantee is INR 1.67 crore, last year INR 3.35 crore. And other bank charges were INR 0.6 crore, last year was INR 1.81 crore.
  11. [Level of debt]: you see as it was in the last year, by March, hopefully, we will end up with this kind of situation of debt. But as we earlier said, at the time of the QIP also because whatever we will spend on the CapEx, the same will be, again, debt will rise for – to that extent. Because our working capital will remain same. So whatever we will accrue in this financial year, we will deploy in the capital assets for next financial year. Because since this year, we are not going to do much CapEx, only in the fourth quarter, we will look how we will be doing the CapEx. And major CapEx will be only in the next financial year. So the debt level will be remaining as it was in the March '20.
  12. [On trade receivables]: by October, it will be normalized because it will take another 3 months to get normalized because all the payments of the EPC, which is from government, they are now coming, like one large payments we have received in this month only by end of July. And we are quite hopeful that all these payments, which were delayed, it will be on time by October.
  13. [Health of retail channel]: Channel health is good because all the collection from the dealer-distributor, that is now coming and it is up to the mark. Whatever we are selling, we are getting collected also. And in the month of July, if we are talking almost – dealer-distributor sale is almost, we can say 95% as compared to the year.
  14. [Level of sales in July]: almost July sale is good and as good as close to last year’s sale.
  15. [Segment wise performance in July]: Institution sales and export sales have done better. Although dealer sales has also gone up significantly, reaching around 95% level of the pre-COVID level. But I’m not giving the guidance that it will be – it will remain at that well because uncertain conditions are there in most towns about lockdowns. So July has been good. [ What will happen in ] August, I don’t know.
  16. [Order book reduction from 4500cr in Q3’20 to 3000cr in Q1’21]: if we see orders whenever it comes, it comes in bulk, close to INR 1500-1600 crores. So a few orders are in the quotational stage. Will let you know when they materialize.
  17. [On debt level not reducing despite capital raise]: The debt is basically because of the debtors. Because I think – and we have paid to our creditors around INR 400 crores. That’s why you see the acceptances level has decreased from INR 770 crores to INR 342 crores. Because these are the creditors for copper, aluminum and other materials. debtor collection was slow because of the lockdowns, and it is improving now. And we hope that working capital cycle should be regularized by October.
  18. [Client profile for exports projects]: - the customers export profile in the export market is mainly in the Middle East, it is oil and gas companies and petrochemical companies. And other markets in Australia, it is mostly solar and wind projects. And also, we have bidded for metro projects in Sydney and some other cities. We are also supplying – we are also approved in Australia by many transmission and distribution utilities. So now we are doing a good amount of sales – we will be eyeing good amount of sales in other parts because in Australia, manufacturing is not there. So there is no internal manufacturing of wires and cables. In Africa, it is a combination of transmission and distribution projects, mostly distribution jobs, which contractors are carrying out and buying our cables. We are approved in many distribution utilities in Nigeria, Ghana, South Africa, and similarly many other states – countries of Africa. We are approved – we are supplying to many UNDP projects, United Nations Development Projects in Africa through EPC contractors operating there. This is our customer profile for the front end. And in surrounding countries, we are selling our cables to Bangladesh, to Nepal, to Srilanka and there the customer profile is mostly the distribution – power distribution utilities.
  19. [EHV sales compared to last year]: See, last year itself, we had said that we had a very strong order book position in extra high-voltage cable. And even now also the order book in extra high-voltage cable is INR 627 crore. So in this – actually, the cable portion itself is around 65% to 70%. The value of the cable itself in these projects is – because it is major cables and joints. And then 10%, 15% is the execution portion. So it is – that is the reason that the cable sales in this segment is very strong and will continue – it will remain strong in the rest of the year. These orders are mainly from the power transmission utility
  20. [On Competitors and Bid conversion Rate]: Normally in cables, our competition from India is very limited. Major competition we face from European companies. From India, only in Dangote, Polycab was there, which was – which took a good amount of share. But otherwise in our other export markets, we are competing with only international players. whatever we are bidding, we are almost getting around 35% to 40% of the orders.
  21. [On the strength of demand]: In last 3 months, from May or probably June and July, we have seen very strong sales coming from B class and C class cities – and that too from the segment, where the smaller residential projects are there or where the people who are making their own independent houses. The demand from big developers is definitely very, very weak. And we feel that it will remain weak in the – throughout the year because of the obvious problems of labor and execution and maybe low demand. But the demand from B and C class cities and then 2 C class cities, the goods are going to rural areas, that demand is very strong. And that we have witnessed. And that has brought us very strong sale in June and July.
  22. [Chinchpada CapEx]: We have already done a CapEx of INR 71.5 crore, around another close to INR 18 crore to INR 20 crore CapEx is pending, which will be done in next 2 to 3 months because we had slowed down on this CapEx because of these lockdowns. And since the markets were also closed, so we delayed the completion. But I think by September, the second phase will also be completed, and the investment will be over
  23. [What proportion of demand is from tier 2-3 cities]: Pre-COVID, the C class cities was close to 41%. And again, it is also – it has improved by 3%, 4%. So it has gone to 44% now.

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