Finolex Cables Limited (FINCABLES) Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q1 FY '27 Earnings Conference Call of Finolex Cables Limited. [Operator Instructions] I now hand the conference over to Mr. Pranay Premkumar from Dentsu One Investor Relations team. Thank you and over to you, sir.

Thank you, Pala. Good evening and thank you all for joining us on the Finolex Cables Q1 FY '27 Earnings Conference Call. Today, we have with us Mr. Mahesh Viswanathan, CEO from Finolex Cables Limited. 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 must remind you that the discussion in today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarter performance and to strategic questions only. I would now request Mr. Viswanathan for the opening remarks. Thank you and over to you, sir.

Thank you, Pranay. Good afternoon, ladies and gentlemen. Welcome to this first quarter earnings call of Finolex Cables Limited. Before I get into the explanation about the quarter, I would like to introduce Mr. Sachin Naik, who has joined us as the CFO effective 1st of June this year. Welcome, Sachin.

Good afternoon, everyone. Look forward.

So very quickly a recap on the quarter performance. As you must have all seen, we posted pretty good numbers both in terms of revenue rise as well as in terms of the bottom line improvements. While Sachin will come back to you with the specific numbers, I thought I would give you a brief on what has gone well this quarter. Overall, there were certain product lines, which did extremely well in terms of volumes. So on the electrical cable side; automotive cables, battery cables, flexible wires, solar and agricultural applications; all of them did extremely well posting fairly high double-digit growth numbers and this is just not a price growth, it is also volume-led growth. Building wire was more or less stable, very small low digit volume growth. All the products had been impacted by the commodity price changes, which has been happening for quite some time now. Added to this was also the fact that post March, there have been issues around supply chain, whether it relates to availability of fuel or it relates to availability of PVC. We've been able to handle all of those changes albeit at a higher cost and the good thing is we've been able to pass on most of the cost to the end consumer. At the end of the quarter, channel inventory especially on building wires was low. That also then is reflected in the low single-digit growth in volumes for building wires and we did see a reduction, a destocking of the inventory at the channel. Exports for this quarter has been one of the heroes. Our exports for the quarter was about INR 50 crores, almost the entire value that we did last year. Communication cables was one sector where the margin improvement was very, very, very visible. I had mentioned in my earlier call at the end of last financial year that fiber prices were hardening. And so to the extent that we had raw material from earlier on, we were able to get a higher margin on the sales that happened during the quarter and this has happened with most of the competition as well. And as this material gets consumed and new material, which will be at a higher cost comes in, the margin levels will come back to normal levels. They would still be in the double digits, but not as high as what you see today. So basically while the margins have expanded, I expect this to settle down in the coming quarters once the existing RM gets consumed. On the expansion side, I had mentioned in the last call that the preform production has commenced, it has. We are on the way to stability. Hopefully, in the next couple of months, that should happen. On the draw tower side, our original plan was to go from 4 million to 6 million and then to 8 million in a phased manner. But in the meanwhile, we have decided to go ahead with the complete expansion right from 4 million to 8 million in one go seeing that there is a shortage of fiber across the globe and that shortage is likely to continue for some time more. So overall CapEx for the year will still be what I mentioned in the May call, approximately INR 300 crores for the year. The additional information that I would like to share with you is that I had mentioned that the JV was doing well and had posted a profit of INR 24 crores last year. That trend continues. In the current quarter, they generated a revenue of about INR 87 crores with a profit of about INR 7 crores. So that's the basic intro from my side. Sachin, you take over with the numbers.

Thank you, Mahesh, and good afternoon, everyone, and thank you for joining us. I will briefly take you through the key financial highlights for the first quarter of FY '27. We've had a strong start to the financial year with a healthy growth in both revenue and profitability. Our revenue from operations for Q1 of FY '27 stood at INR 2,013 crore as compared to INR 1,396 crores in the corresponding quarter of last year. This represents a growth of approximately 44% in revenue. Profit before tax stood at INR 277 crores as against INR 171 crores in Q1 of last year registering a growth of approximately 62%. And profit after tax stood at INR 221 crores compared to INR 139 crores in the corresponding quarter of last year reflecting a growth of approximately 59%. And as a result, the PBT margin has improved from 11.8% in quarter 1 of FY '26 to 13.4% in the current quarter while the PAT margin has improved from 9.6% to 10.7% during the quarter. Coming to segmental performance. Electrical cables continues to be our largest business segment and we reported a revenue of INR 1,767 crores compared to INR 1,206 crores in the corresponding quarter of last year. This represents a growth of approximately 47%. And as Mahesh explained, there has been a change in the mix where segments like auto cable, solar cable, the agricultural cables have done very well. Communication cable delivered a particularly strong performance during the quarter with a revenue increase from INR 109 crores to INR 176 crores, it is a growth of approximately 62% with margins close to 30%. Now the business has seen a significant improvement in profitability due to certain market factors, which we will continue to evaluate the sustainability of these margins as the year progresses. And therefore, we would refrain from annualizing the quarter 1 communication cables margin. Copper rods reported a revenue of only INR 8 crores during the quarter as compared to INR 403 crores in the corresponding quarter last year. Copper rods were impacted by a continued restriction on the LPG availability resulting in the rod plant being shut during the quarter. Overall, we are encouraged by the performance in quarter 1. Our focus for the balance of the year will be on profitable growth in our key segments building on the communication cables opportunity while maintaining a lot of financial discipline. With this, I would request the moderator to open the floor for questions.

[Operator Instructions] The first question is from the line of Vidit Trivedi from Asian Market Securities.

Congratulations on great set of numbers. I have 2 questions. First is on the EBITDA front. So the margins you've delivered are close to 12.5% versus the 10.5% last quarter and 9.4% in Q1 last year. So I just wanted to know how should we think about the underlying sustainable margins from here? And how much of the Q1 expansion is coming from operating leverage, product mix and copper pass-through versus one-off? And if you could speak a bit more on the margin profile on the exports front and the products that we are exporting. That's my first question.

Okay. So I'll take the export part first. On the exports this time, there were opportunities on the optic fiber side so those provided a fairly large margin. Now those opportunities may not happen every month or every quarter so in terms of sustainability, I would be a little conservative on that. But in terms of the opportunities for exporting, we are now more aggressive than we had been in the past. So we have been exporting in the last 4 months, 5 months; we've exported power cables, we've exported optic fiber cables and also the traditional products that we used to export like the submersible cables and so on. So that part is continuing while the new opportunities around power cables and optic fiber cables are what we are exploring now. There are potential leads there. I don't want to run the horse before the cart or rather cart before the horse. So let's see as every quarter goes by. On the other side, on the domestic front, the margins at electrical cable side should be sustainable. We are at about 10.5% I think and those should be sustainable. On the communication cable side, as I mentioned in my opening remarks, so long as the old raw material is available for use, the margins will be high double digits. But as that consumption gets -- I mean as that stock gets depleted, you will see a correction in the margins. I still believe that at the end of the year provided the demand situation remains similar to what it is today, I still believe that you should have a double-digit margin number. It will probably be in the low double-digit numbers.

Got it, sir. And sir, if you can call out the volume growth during the quarter across product different categories?

So all those items that we talked about, whether it is agriculture or automobile or flexibles, all of them were in the high double digits. Wires were around in the low single-digit number.

My second question is on the communication cable segment. So it has been an outperformer during the quarter. Sir, could you please speak a little bit more on the outlook? And if you can quantify the contribution from volume and value, I mean price passthrough?

Okay. Volumes have also gone up. Volumes are up by about I think close to 30%. The opportunity here was that if you went through my call of last quarter, there has been an explosion of demand from data centers and usage which is riding on AI, which has resulted in a huge demand for fiber cables and this is a global phenomenon. So that is, therefore, throwing up opportunities for us not just domestically, but also overseas. So part out of the INR 176 crores that has been reported as revenue, I think about INR 30 crores to INR 40 crores is around exports. So there were opportunities to sell, which we cashed in on. But I see as the time goes by, there will be a similar demand explosion around data centers in India as well. And here what we are seeing, we are seeing a phenomenon where the fiber count is not just 144 or 288 fibers in a cable, that is expanding to thousands of fibers in a single cable. So the opportunity size can be substantial as large hyperscalers expand into India. So we see that trend, which is currently happening in the U.S. and in Europe to show up in India as well.

Got it. And sir, just incremental to this, any update on the BharatNet project?

No, not really. I think with the prices as high as they are, the winners are waiting and watching.

The next question is from the line of Sonali from Jefferies.

Congratulations on a great set of numbers. Sir, my first question is on the fiber prices. Sir, any indication as to what are the prices right now globally versus December '25 and your thoughts on where they will be heading from here on?

Okay. I'm not able to predict where they will head from now on, but I can tell you where they are today. The standard fiber, which is the technical term there is G.652.D, was somewhere around about $5 to $6 back in December last year, had climbed up to $17, $18 over the last 6, 7 months. I think currently is settling at about between $12 and $13 per kilometer. That's where it is today. That's the standard fiber. But more premium fibers are selling at much higher rates so some of them have even been sold at $50 a kilometer. So some of the exports that we did were of the premium variety when the prices were around I think $25 a kilometer. So there's a mix of multiple types of fiber that have been used this quarter. And so that's where the range has been. I think it is now settling to around between $11 and $13 depending on who's got what available and what the demand is at that moment in time. So that probably gives you a picture of what it is. What it will likely to be, I'm not so sure. I'm not able to predict that. But so long as the demand continues to be where it is today, I guess the price will remain in this range.

Understood, sir. Sir, my second question is regarding your exports. You did mention some numbers which I missed out. Of your communication revenue, how much is contributed from export and which geographies have you exported to?

So out of the communication cable revenue, about I think between 35% to 40% was exports. We have exported to the U.S. We have exported to Europe. These were the 2 main places that we exported.

Understood. Sir, on the preform, the backward integration, you did mention in your earlier call that you are expecting the additional support to margin from the end of September quarter as the facility becomes fully functional. Sir, how much would be used captively and how much would likely be exported from this 100 metric ton facility?

The intention is to use all of it for making cables to draw the -- our intention is not to sell the preform. Our intention is to draw fiber from the preform and cable that fiber.

Understood. So almost 100% captive. And how much would be the margin improvement? Any ballpark? Because right now this quarter your margin is already double digit.

Yes. I mean I don't see it improving from here. But also the current price levels of raw materials is kind of fluid. If you see -- if you look at the inputs that go into it, let's say fuel, helium for instance was selling at approximately INR 1,600 per cubic meter. It had gone up to INR 5,000 per cubic meter when the disturbances started in the Middle East. It is now around INR 3,400, INR 3,500 levels. So there is a little bit of fluctuation. Stability is still not -- I'm just giving you one example. There are multiple inputs that go into it and all of them have seen the input costs fluctuating wildly. So to look at the price today and make an estimation is probably not going to give you the right results. I would rather wait for some time before things stabilize and you have a period of time where the Middle East stabilizes. Right now it is a case of 1 day nice and 2 days just the opposite of nice. So I think we need to wait a little while before we predict those numbers.

Got it, sir. Sir, would it be fair to assume that because of the preform and once it's completely functional, almost 100 bps of margin improvement can come from that because it's actually very good backward integration?

It is. But then today, the situation is that demand has far outstripped supply and so that has pushed up the prices to certain levels, which may not sustain all along. Right now data center requirements have boomed, AI-driven requirements have boomed. At some point in time they will reach if not a saturation level, they will reach a steady-state period. Now when that will happen, whether that will happen in 6 months, 1 year, 2 years is anybody's guess. So at that point in time, then the selling prices will have to cool down. And so to say that I will get 100 bps over and above what I'm doing today I think is stretching things a little too much.

Sir, actually, it was not over and above maybe the delta, which I was expecting from a normalized margin to backward integration margin.

Maybe, that might be possible.

[Operator Instructions] The next question is from the line of Achal Lohade from Nuvama.

My first question is in the electrical cables, if you could -- probably for FY '26, if you could help us with the mix in terms of the wires and the various types of cables, if you could help us with that mix, a broad sense?

So typically, our numbers have been like this. Approximately 2/3 is construction related and the balance has been more or less equal between automobile, agriculture and industrials. So last year, we introduced solar cables so that's changed the profile little bit. And so the split would probably now be 60% construction and the balance will be -- I mean the older 3 would still have about 10%, 12% each while solar would be a smaller number at this moment in time. In this quarter of course, auto cables has grown to more than 14%, but then we'll have to see it over a longer period of time. One quarter is probably not the right time period to define how the split would be. But I still think that going forwards, construction wire would still constitute a major portion of our revenue followed by these 4 applications.

And in terms of whether it is wires or cables, bulk of this will be effectively wires, right, the lowest voltage?

All of them are wires. I have not included cables.

Okay. And what about cables, how much would that be LV cables?

LV HV put together will be maybe another -- if you add that, will probably be around 7% to 8%.

Got it. My second question was with respect to the OSV. If you could help us with assuming the current price, what would be the potential revenue at peak capacity of the preform plus drawing capacity, sir?

So I think a similar question was asked last time around as well. So we will have a draw capacity of 8 million kilometers. So at 8 million kilometers and assuming average price of $11 per kilometer of fiber so then we are looking at about $88 million of revenue if I only sell fiber and if I sell all of it.

Sorry, if you sell only fiber, it is $88 million. Is that right?

Yes. If I sell only fiber and if I sell all of it, it will be around $88 million.

And if you were to use 100% -- and is this 100 metric tons sufficient for 8 million fiber kilometers?

No, that's about 4 million.

Okay. So you will still have to procure from outside.

We still have to buy it, yes. So if you recall our earlier calls, we said that in Phase 1, we are putting up a plant which can manufacture 100 tons. And depending on how the market is, we would expand that to -- we would double that in the subsequent expansion. That is what we had said 2 years ago. At that point in time, the boom in data center was not visible. So this has happened in the last 6 months. So we will go back to our drawing boards to see what we need to do in terms of Phase 2. We have taken one action on the fiber side that we didn't want to wait for some time before we came up with that expenditure. We are doing it together. As far as Phase 2 of the preform is concerned, we will study the situation and then as required, decide on whether we should spend for the expansion now or at a little later time.

Got it. Just to clarify, sir, you said $88 million if you sell fiber, but what if we sell entirely the cable?

There will be a value addition, which will depend upon the cable design, how complicated the cable is. I mean if I'm only selling small count fiber cables, then the value addition may not be very high. Whereas if I'm selling complicated designs where the fiber count is higher; 96, 144, 288; or for data center applications where, like I said, it runs into thousands of fiber in one cable, then the numbers can be substantially different. Then the value addition can be 20%, 30%. So it depends on what kind of designs we get.

The next question is from the line of Balasubramanian from Arihant Capital.

Sir, I want to understand about our capability in data centers. I think we have a capability up to 1,728 fibers per cable. But if we look at data center applications, it would start from thousands of fibers as you mentioned. But if you look at some of the players are into like 7,000 range kind of fibers, they already achieved and they already started supplying to hyperscalers and they are in the progress of making 14,000 to 16,000 range. So I just want to understand what is our capability as of now and whether we are doing any specific CapEx and R&D for data center cable side.? Also you could mention what are the current product portfolio, which is suitable for data centers and what are the products are under pipeline?

So some of these are in developmental stage so I would rather not comment about them. But I understand the question that you asked. And all I can say in return is yes, all those designs like you mentioned, whether it is 1,700 fibers or 7,000 fibers or even 14,000 fibers, we should be capable of making those and supplying those. Let me say it differently. We should be capable of supplying those in the not too distant future.

Are we making any steps in terms of R&D and CapEx, sir?

Yes to both.

Okay, sir. Sir, my second question. The margin side, you mentioned about 30% for communication cables. But I just want to understand this kind of margins are because of higher spot contracts where the realizations are higher. I just want to understand like the mix.

Okay. Let me give you an example. So the inventory that I had at the beginning of the quarter were all sourced sometime in November, December last year. So those would have been sourced at, let us say, x dollars. But when I'm selling it, I am selling it at an equivalent of the current market price. So to the extent that I have an opening inventory, I'm benefited and therefore, my margins are where they are at this point in time, which is why we gave that cautionary statement to say this quarter was 30%, but at some point it will normalize. As and when I complete consumption of the existing inventory, my new cost will be what I'm buying it at today, whatever is my cost today. So the delta there will definitely not be 30%, but it would definitely be in the double digits. That's the example that I can give you.

Okay. Sir, and a follow-up on that. What is the mix of spot and long-term contracts for communication cables? And also you can mention about the products supplied for data centers in-house product portfolio?

Sorry. What was your first point?

The long-term and spot market mix for communications and cables and the product portfolio of data centers?

I think long term still would be more than half the revenue. And as far as data center products are concerned, technically I'm not able to share that with you, but there are cable designs which have been supplied to people.

[Operator Instructions] The next question is from the line of Pathanjali from Sundaram Mutual.

Congrats on a very good set of numbers. Just following up on a couple of things you mentioned in the previous quarter. I think you mentioned that our 8 million capacity of the additional expansion will come by Q2. But you also mentioned today that we're planning for it to go from 4 million to 8 million directly instead of 4 million to 6 million and then 6 million to 8 million. So is this for the entire 8 million? Is that the correct way to understand it?

Yes, the entire 8 million will be ready by end of quarter 2. Earlier on what I said was we would first complete the 4 million to 6 million and that would happen by Q2 and then we would wait and see how the market reacts before we go to the next level. But seeing the current market conditions, we thought it was ideal for us to invest in the additional draw capacity right away.

Got it, sir. Sir, and just one more thing. So you mentioned that there will be a bit of repricing in terms of customers and all, right? So is this happening in Q2 beginning or when is this happening?

You're talking about the long-term one, that's happened already. That's happened in -- I think it happened in June.

So is it there in this quarter's numbers in terms of revenue, sir? That's what I'm trying to.

Some of it is. Whatever was sold in the month of June is.

Okay. Got it, sir. Just last related question is that your revenue should be much higher given that fiber prices are, right? Is that correct for this thing because whatever we are doing as revenue this quarter is on 4 million and I think we've done around INR 176 crores. So theoretically, should it be like closer to INR 300 crores per quarter?

Yes. So again to take you back to the earlier question that somebody else had. If I was to sell only fiber and at $11 a kilometer, my annual sale of this product would be $88 million per year. So that would be $22 million. So $22 million times 100 if it was only fiber would be around INR 250 crores, INR 260 crores if it is only fiber. Then you add the cable value addition, yes, somewhere around. If I'm selling out everything that I have, INR 300 crores is not a difficult number.

And we also have some other cables in this other than fiber in our communication, right? So shouldn't the segment be much bigger? That's the part I'm trying to get.

Okay. So there are other metal-based cables there. But if you see, many of the metal-based cables are transitioning -- many of those applications are transitioning from metal to fiber. So whether it is coaxial, which was used in your dish TV applications, those are all transitioning to fiber. So while this would grow, something else would go down.

The next question is from the line of Vidit Trivedi from Asian Market Securities.

My next question is on the FMEG segment. It has continued to be a weak link. I remember you have previously mentioned that we have set a target of INR 5 billion FMEG revenues by FY '28. So given the current trajectory, just wanted to check is this target still realistic and what needs to change over the period of 12 to 18 months to achieve it? I'm just curious to know why this business is holding us back? Is it some lack in the distribution pace or maybe product portfolio, pricing or competition? Where are we lacking in this segment, sir?

This particular quarter, we had a different issue. I don't know if you've seen this from other competitors. Fuel was an issue this quarter for many of PE manufacturers. Commercial LPG was just not available and therefore, a lot of people -- lot of the device manufacturers especially fans, they were not able to supply the kind of quantities that were required. We had quite a hot summer, but in terms of being able to supply to the market, there was an issue. So I think that was a reason why you don't see too much of growth in that sector. The second part of that group is also the conduit pipes where again availability of PVC and the price of PVC that was available was a hindrance there. Those are changing now. Unfortunately, fans, it has changed now, but then the season is more or less gone. So we will have to see how to catch up on those numbers. But the target of INR 5 billion by '28 still remains and we are sure that we can get over there.

Got it, sir. Sir, just lastly on the copper front. Copper is again at 14,000-odd levels. So I just wanted to check with you how is the channel inventory and any pricing action during the quarter?

During the quarter, we changed prices once. We revised it upwards once. That was I think in May, we took it up by about 3% or so. But like I mentioned in my opening remarks, the closing inventory at the channel was lower than the opening inventory. So there has been a certain amount of destocking, which should allow them to restock over a period of time now. But the copper levels are high. I'm not sure if you will be able to see the likes of $8,000 anymore.

The next question is from the line of Veenit from Investec.