Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Consolidated revenue for Q1 FY25 increased by 6.5% year-on-year to INR4,011 crores.
- Domestic business grew significantly by 43.4% compared to last year.
- EBITDA increased by 6.8% year-on-year to INR394 crores with a 9.8% margin.
- Profit after tax rose by 2.6% year-on-year to INR203 crores.
- The conductor business saw a revenue growth of 9.1% year-on-year, with a volume growth of 6.7%.
Negative Points
- Export revenue declined by 25.9% due to high base of US revenues in Q1 FY24 and logistical issues.
- Export shipments were affected from June 10 onwards due to container and freight issues.
- The cable business saw a decline in export revenue by 30.5%, contributing to a lower EBITDA margin.
- Demand from the US and Europe has been affected due to delays in regulatory clearances.
- Chinese competition has increased, especially in areas with no barriers to entry for Chinese products.
Q & A Highlights
Highlights from Apar Industries Ltd (BOM:532259, Financial) Q1 FY25 Earnings Call
Q: Kushal-bhai, a couple of questions. One on the conductor side. We are hearing that some of this player like KEC and the Diamond Power, they have started also the conductor manufacturing capability or about to start the manufacturing capability. Are we going to see a significant market? And if they're coming up with the new capacity, how long it generally takes for the new entity to take an approval from the relevant authorities, like PGCIL or if they're trying to get an export in US, how many months it generally takes to get an approval?
A: So companies like KEC, who are EPC companies, they will be more catering to the internal requirements because there will be a conflict of interest with other EPC companies. So it's not likely that they will be actually upsetting the marketplace. With regard to Diamond Cable, also, they are somewhat connected to Adani in some ways. So there also, it may be more gearing up for the Adani-type requirements, which is a developer. So here again, there will be a conflict of interest with other developers. This is our perspective. In terms of the barriers to entry, the product, which is now being used in India, which is AL-59, is not an easy product to manufacture for a new entrant. So it is possible that some of these companies may actually start off with the conventional ACSR conductors and it may take some time for them to actually qualify and make the product as per the requirement of PGCIL and other customers. And in the export market, it's not just a question of price, which wins the business, it is also a combination of reliability, past records of how much business has been successfully done in that geography. So to make this kind of inroads, we had to take several decades. So I believe it may be equally difficult for new entrants and especially when the existing entrants are well sort of in the -- entrenched. So it's difficult for a new party to get space to enter into that market. But a lot of these foreign utilities and foreign customers, they are not just looking for the lowest initial cost. They look at the total cost of ownership and they are ensuring that their project is not getting delayed or there is no problem on the quality as they execute the contract. So their philosophy is quite different from our Indian utilities.
Q: Your order inflow was one of the lowest. Is that because of the election that's been a decline in the new order inflow?
A: Part of it was on account of the code of conduct, especially where we are directly dealing with the utilities. There is also previous quarter where we had a good inflow of orders, and we have certain commitments for supply. So although we could have taken on more business, but some of the clients are looking for deliveries which are clashing with our existing commitments. So we have not overcommitted by taking on those orders and then not being able to supply those volumes. But Maulik, on a half year basis, you're looking at almost INR5,000 crores. Since there was more finalization that took place in the Q4 and then because of the elections and the state electricity boards are actually been running a little bit behind us, it was mentioned in the opening remarks. Our sense is that the domestic market otherwise is fairly strong. There has been some impact on the export as was explained in our opening comments that because of the logistics disruption, the inflow of business from the export markets has been somewhat disturbed. Besides our actual dispatches, which got affected also inflow of new orders in certain export markets has got somewhat impacted because clients are hoping that once this September 1 starts, then the situation should start normalizing and container availability should start coming back into the stream because the extra duties will start kicking in of Chinese goods to the US market from September 1. So currently, there is a rush to supply all the goods to the US market before 31st August. So it's a combination of these factors also.
Q: You mentioned that the duty has been increased from what percent to what percentage?
A: Chinese products into the US from 35% close to 60%-plus.
Q: Applicable to both conductor and cable or only conductor?
A: So it's conductor -- aluminum-based products are included in that, but the total range of products is going into many categories, including a whole lot of gears it goes into your photovoltaic cells, et cetera, et cetera. And the increases have been between 20 and 25 percentage points.
Q: Kushal-bhai, you've been highlighting about this slowdown in the US market from a cable perspective, there has been an inventory rationalization, which I think was taking place since last couple of quarters, have we seen the bottom of that?
A: I think so because our inquiry rates have substantially increased. And even the order inflow has started increasing. So when you are looking at this first quarter versus first quarter of last year, first quarter of last year was still at a fairly high level. But the shipments to the US in spite of this problem which having happened is still higher compared to the previous quarter. So I think it has already bottomed out, very clearly bottomed out, and shipments and inquiry levels have started increasing.
Q: First question on the volumes. So you did highlight it on the export front the contribution this time was about 30% and last year and from recent past, the contribution was, especially in conductor used to be 40% to 50%. So underlying the challenges which you highlighted now, what are the volume expectations? And second thing, I wanted to understand on the regulatory delays, which you have highlighted, if you could elaborate more? Is it because of the elections or any other factor which is there in exports, US exports?
A: So on the regulatory front, the foreign regulatory bodies are more demanding, and there are a lot of more procedure for their various permissions compared to our Indian counterparts. So to get the project clearances itself takes many years. So these are some of the things which have affected some of the projects. And in addition to that, the higher interest rates also have sort of forced some of these projects to get little postponed in terms of the implementation in these foreign countries, that is what we were meaning when we said about the regulatory delays. And with regard to the future quarters, this Q2, which we are currently in, that is also obviously somewhat impacted because of the logistics disruption. And we are hoping that from Q3 onwards, things should normalize.
Q: Right. So are we expecting that the contribution will again come back to a higher level of 40% from exports?
A: Yeah. The mix will be better. What we are also doing is that our product peaks
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
