KEI Industries Ltd:Annual Report 2023-24 Analysis

KEI Industries Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

KEI Industries Ltd. was established in 1968 as Krishna Electrical Industries.

Headquarters Location and Global Presence:

The company’s headquarters is located in New Delhi, India. While primarily focused on the Indian market, KEI Industries has a growing international presence with exports to various countries.

Company Vision and Mission:

• Vision: To be a globally respected and trusted leader in the wires and cables industry, providing innovative and sustainable solutions for a better future.
• Mission: To manufacture and deliver high-quality wires and cables that meet the evolving needs of our customers, while ensuring environmental responsibility and ethical business practices.

Key Milestones in their Growth Journey:

• 1968: Incorporated as Krishna Electrical Industries, manufacturing winding wires.
• 1992: Diversified into the production of LT Cables.
• 1995: Received ISO 9002 Certification
• 2005: Forayed into Extra High Voltage (EHV) cable manufacturing.
• 2016: Crossed INR 3000 crore turnover.
• The company has expanded its manufacturing capabilities and product portfolio significantly over the years, becoming a prominent player in the Indian wires and cables industry.

Stock Exchange Listing Details and Market Capitalization:

KEI Industries Ltd. is listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE). As of October 26, 2023, the company’s market capitalization is approximately INR 33,204 Crore.

Recent Financial Performance Highlights:

• KEI Industries has demonstrated consistent revenue growth and profitability in recent years.
• The company has reported healthy order books, indicating strong demand for its products.
• (Provide specific recent figures for revenue, profit, and order book if available)

Management Team and Leadership Structure:

• Chairman & Managing Director: Anil Gupta

Notable Awards or Recognitions:

• KEI Industries has received awards and recognitions for its quality, performance, and contribution to the industry. (Provide specific awards if known)

Their Products #

Complete Product Portfolio with Categories:

• Power Cables:
  • EHV Cables (Extra High Voltage)
  • HV Cables (High Voltage)
  • MV Cables (Medium Voltage)
  • LV Cables (Low Voltage)
• Control & Instrumentation Cables
• House Wires:
  • Single Core Cables
  • Multi Core Cables
• Communication Cables:
  • Coaxial Cables
  • LAN Cables
  • Telephone Cables
• Stainless Steel Wires

Flagship or Signature Product Lines:

• EHV Cables

Manufacturing Facilities and Production Capacity:

KEI Industries has multiple manufacturing facilities in India. (Provide details regarding location and production capacity if available)

Quality Certifications and Standards:

KEI Industries holds various quality certifications, including:

• ISO 9001 (Quality Management System)
• ISO 14001 (Environmental Management System)
• OHSAS 18001 (Occupational Health and Safety Assessment Series)

Unique Selling Propositions or Technological Advantages:

• Wide range of products catering to diverse applications.
• Stringent quality control measures.
• Technological collaborations and innovation in cable design.

Recent Product Launches or R&D Initiatives:

• (Provide details on recent product launches or ongoing R&D efforts if available)

Primary Customers #

Target Industries and Sectors:

• Power Generation, Transmission, and Distribution
• Infrastructure
• Oil & Gas
• Cement
• Steel
• Automotive
• Real Estate
• Renewable Energy

Geographic Markets (Domestic vs. International):

The company has a strong presence in the domestic Indian market and is expanding its export footprint globally.

Major Client Segments:

• Utilities (Government and Private)
• EPC (Engineering, Procurement, and Construction) Contractors
• Industrial Clients
• Residential Developers
• Infrastructure Companies

Distribution Network and Sales Channels:

KEI Industries utilizes a wide distribution network comprising dealers, distributors, and retailers across India. They also have a direct sales team for large projects and key accounts.

Major Competitors #

Direct Competitors in India and Globally:

• Polycab India Ltd.
• Havells India Ltd.
• RR Kabel
• Crompton Greaves Consumer Electricals Ltd.
• Finolex Cables Ltd.

How they differentiate from competitors:

• Focus on specific product segments such as EHV cables.
• Strong relationships with key customers in the infrastructure and power sectors.

Industry Challenges and Opportunities:

• Challenges: Fluctuations in raw material prices (copper, aluminum, etc.), increasing competition, regulatory changes.
• Opportunities: Growing infrastructure development in India, increasing demand for renewable energy, rising urbanization and electrification, government initiatives promoting domestic manufacturing.

Future Outlook #

Expansion Plans or Growth Strategy:

• KEI Industries is focused on expanding its manufacturing capacity to meet growing demand.
• The company is investing in technology and innovation to develop new products and improve existing ones.
• Expansion into new geographic markets and customer segments is also a key focus.

Sustainability Initiatives or ESG Commitments:

(Provide details on KEI Industries’ sustainability initiatives and ESG commitments if available.)

Industry Trends Affecting their Business:

• Increasing demand for energy-efficient cables.
• Shift towards renewable energy sources.
• Growing adoption of smart grid technologies.

Long-Term Vision and Strategic Goals:

• To further strengthen its position as a leading player in the Indian wires and cables industry.
• To expand its global footprint and increase export revenue.
• To become a preferred supplier of high-quality, innovative, and sustainable cable solutions.

KEI Industries Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Net Sales Growth: KEI Industries’ net sales exhibited a fluctuating trend, with a significant increase of 36.95% in FY 2022-23, followed by a 17.31% increase in FY 2023-24, reaching ₹8,104 crore.
• EBITDA Growth: EBITDA consistently grew, with a 26.93% increase in FY 2022-23 and a 20.81% increase in FY 2023-24, reaching ₹887 crore.
• EBITDA Margin: The EBITDA margin slightly decreased from 10.54% in 2022 to 10.62% in 2023. In 2024 there was an improvement and margin stood at 10.94%
• PAT Growth: Profit After Tax (PAT) showed strong growth, with a 39.57% increase in FY 2022-23 and a 21.72% increase in FY 2023-24, reaching ₹581 crore.
• PAT Margin: The PAT margin improved consistently, from 6.57% in FY 2021-22 to 6.91% in FY 2022-23 and further to 7.17% in FY 2023-24.
• ROE: ROE has been maintained at a near of 20% in last 3 years, with ROE of 20.26% for FY 2023-24.
• Debt Reduction: The debt-to-equity ratio improved and now stands at 0.04. The retail contribution to revenue increased to 47% in FY 2023-24 from 29% in FY 2019-20, shortening the receivable period.
• Capex: Company has been consistently investing in Capex. In FY 2023-24 Company has made a capex of 400 Cr.

Business Segment Performance #

• Retail Segment: Contributed 47% to net sales in FY 2023-24, up from 46% in FY 2022-23. Sales through the dealer network reached ₹3,770 crore, a 19% growth, with 1,990 active dealers.
• Institutional Business: Contributed 40% to overall sales in FY 2023-24, with increasing demand from diverse industries.
• EPC segment: There is an increase of 39.7% in the sale as compare to last year. The order book as on April 30,2024 stood at ₹3531 Cr.
• Exports: Contributed 13% to overall sales in FY 2023-24, up from 10% in FY 2022-23. Export revenue was ₹1,097 crore, with a 58% year-on-year growth.
• EHV Cable Sales: Increased by 80%, reaching ₹659 crore in FY 2023-24 from ₹366 crore in the previous year.

Major Strategic Initiatives and Their Progress #

• Brownfield Expansion at Pathredi, Rajasthan: Project cost of ₹125 crore, enhancing LT power cables capacity by around ₹800-900 crore per annum. Expected growth rate of 16% to 17% in the current and next financial year.
• Brownfield Expansion at Chinchpada, Silvassa: Project cost of ₹110-115 crore, enhancing LT and House Wire capacity by ₹900-1,000 crore per annum. Expected growth rate of 16% to 17% in the current and next financial year.
• Greenfield Project in Sanand, Ahmedabad: Estimated investment of ₹1,700-1,800 crore, focusing on expanding capabilities in LT, HT, and Extra-High Voltage Cables (EHV). Aims to maintain a CAGR of 15% to 16% over the next 3 to 4 years.
• Future Capex Program: Around ₹900-1,000 crore expected to be spent in FY 2024-25, with an additional ₹500-600 crore planned for FY 2025-26. Plans to invest ₹50-60 crore in existing brownfield capex at Pathredi and Chinchpada for further capacity additions during Q2 FY 2024-25.
• New Products Launched: 3 new products (EV Charging Cable, Medium Voltage Covered Conductor Cable, Conflame Green+ wires).

Risk Landscape Changes #

• Business Risk: Fluctuations in market demand, economic downturns, and operational disruptions impact production efficiency and revenue.
• Reputation Risk: Product quality issues and adverse media coverage can affect customer trust.
• Competition Risk: Domestic and international competition impacts pricing and market share.
• Raw Material Risks: Supply disruptions and price volatility impact production costs.
• Financial Risk : Subject to liquidity issue, Forex Fluctuation, commodity price changes
• Non-Compliance Risk: Risk of Non-Compliance with any regulatory requirements.
• Technological and Cyber Security Risk: Risk related to technology failure.

ESG Initiatives and Metrics #

• Environmental Conservation: Initiatives to reduce carbon footprint, minimize waste, and conserve natural resources. 3.07% of energy is sourced from renewable sources.
• Sustainable Products: Launch of Conflame Green+ wires, designed with a focus on environmental conservation and reduced carbon footprint.
• CSR Initiatives: Focus areas include eradicating hunger, promoting healthcare and education, ensuring environmental sustainability, protecting national heritage, art and culture, and animal welfare. Total CSR expenditure was ₹10.09 crore, impacting 13,92,813 beneficiaries.
• Renewable Energy: Generated 3.905 MW of renewable energy; total waste recycled: 1.45%; total water recycled: 14,300 KL.
• Social Intitiatives: KEI Swasthya Utsav program launch

Management Outlook #

• Optimistic Growth Potential: India is on track to become the third-largest economy, driven by favorable policies, technology, and infrastructure investments.
• Infrastructure Development: Government focus on affordable housing, urban planning, and private capital expenditure will drive expansion.
• Budget Allocations: ₹11.11 lakh crore for FY 2024-25 and ₹80,671 crore for PMAY will boost domestic demand for cables and wires.
• Key Programs: Smart Cities Mission, PMAY (Urban), AMRUT, Make in India, and PLI schemes provide growth opportunities.
• Renewable Energy Goals: Rising demand for renewable energy sources and large-scale projects bode well for the industry.
• Aggressive Investment: Continuous investment in manufacturing capabilities, innovation, and brand positioning to meet rising customer demand.

Industry Averages Comparison #

• Industry Growth Backdrop: 12%-13%
• KEI Revenue Growth (FY 2023-24): 17.31%, exceeding the industry average.
• 15-Year CAGR: ~15%
• Projected CAGR (Next 5 Years): 15-16%

Detailed Analysis #

Financial Position Analysis of KEI Industries Limited #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated, in ₹ Million) #

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets: Increased by 57.52% (FY24) vs FY23, primarily due to an increase in Property, Plant and Equipment, Capital work in progress, and Right of use assets.
• Current Assets: Increased by 16.96% (FY24) vs FY23, due to increase in Inventories, Cash and Cash Equivalents and trade receivables.
• Equity: Increased by 21.59% (FY24)vs FY23, primarily due to an increase in Retained Earnings.
• Non-Current Liabilities: Increased by 21.15% (FY24) vs FY23, due to Increase in lease liabilities.
• Current Liabilities: Increased by 28.08% (FY24) vs FY23, mainly due to increase in Trade Payables.

Working Capital Trends #

• The increase in working capital from FY23 to FY24 indicates a growing investment in operational assets.
• Current Ratio has decreased to 2.58 in FY24 against 2.83 in FY23.
• Quick Ratio has decreased to 1.65 in FY24 against 1.84 in FY23.

Asset Quality Metrics #

• The Impairment Allowance on Trade Receivables has increased, indicating a potential minor increase in credit risk.

Debt Structure and Maturity Profile #

• KEI Industries Limited relies on a mix of short-term and long-term debt.

Off-Balance Sheet Items #

• Contingent liabilities, including claims and unutilized letters of credit, represent potential future obligations.

KEI Industries Limited Financial Analysis - FY24 #

Revenue Breakdown by Segment #

• Cables & Wires: FY24 Revenue: ₹73,206.99 million; FY23: ₹62,514.70 million. Growth: 17.10%.
• Stainless Steel Wires: FY24 Revenue: ₹2,206.37 million; FY23: ₹2,533.75 million. Decline: 12.92%.
• EPC Projects (excluding cables): FY24 Revenue: ₹5,627.44 million; FY23: ₹4,033.29 million. Growth: 39.50%.
• Retail Segment: FY24 Revenue: ₹37,700 million, FY23 Revenue: ₹31,660 million, growth of 19%.
• Institutional segment: FY24 Revenue: ₹32,970 million, FY23: ₹30,640 million, Growth: 7.6%
• Export: FY24: 13% of total revenue, FY23: 10% of total revenue, Growth: 58%
• Overall, Total revenue increased 17.31%, and export contributes 13% of the total sales.

Geographical Revenue (FY24) #

• India: ₹70,034.68 million.
• Outside India: ₹11,006.12 million.

Cost Structure Analysis #

• Cost of Materials Consumed: Constituted a significant portion of total expenses.

  • FY24: ₹61,613.71 million
  • FY23: ₹51,634.14 million

• Employee Benefits Expenses: FY24: ₹2,671.45 million, indicating a sizable workforce cost.

• Sub Contractor Expense: FY24: ₹1068.80 million

• Other Expenses: Include a variety of costs such as packing expenses, job work charges, power, fuel & lighting, repairs & maintenance, freight, handling, octroi, selling expenses, and administrative expenses.

Margin Analysis #

• Operating Profit Margin: FY24: 10.33%; FY23: 10.16%.
• Net Profit Margin: FY24: 7.17%; FY23: 6.91%.
• EBITDA Margin: FY24: 10.94%; FY23: 10.62%.

Non-Recurring Items #

• Exceptional item recorded of (₹2.05) million.

EPS Analysis (Basic/Diluted) #

• Basic EPS (Continuing Operations): FY24: ₹64.38; FY23: ₹52.94.
• Diluted EPS (Continuing Operations): FY24: ₹64.26; FY23: ₹52.86.
• Basic EPS (Including discontinued operations): FY24: ₹64.37 ; FY23 :₹52.94.
• Diluted EPS (Including discontinued operations): FY24: ₹64.25; FY23: ₹52.86.

Cash Management Analysis of KEI Industries Limited #

Working Capital Management Efficiency #

• Debtor Turnover Ratio: Increased to 5.58 in FY 2023-24 from 4.96 in FY 2022-23.
• Inventory Turnover Ratio: Increased to 6.63 in FY2024 from 6.33 in FY2023.
• Retail segment’s contribution to revenue increased to 47% in FY 2023-24 (from 29% in FY 2019-20), shortening the receivable period.

Capex Analysis #

• FY 2023-24: ₹ 400 crore.
• FY 2024-25 (Expected): ₹ 900-1,000 crore.
• FY 2025-26 (Planned): Additional ₹ 500-600 crore.
• Greenfield project in Sanand, Ahmedabad: Estimated investment of ₹1,700-1,800 crore (focusing on LT, HT, and EHV cables).
• Brownfield project at Chinchpada, Silvassa.
• Brownfield project at Pathredi.

Dividend and Share Buyback Trends #

• Dividend: An interim dividend of ₹ 3.50 per share (175%) was declared and paid in FY 2023-24. This interim dividend is to be treated as the final.
• No share buyback program was executed during FY2024.

Debt Service Coverage #

• The Debt Service Coverage Ratio (DSCR) improved significantly to 107.41 in FY 2023-24 from 21.67 in FY 2022-23, driven by increased earnings and a lack of reported long-term borrowing.

Liquidity Position #

• Current Ratio: Decreased to 2.58 in FY 2023-24 from 2.83 in FY 2022-23.

Business Segment Performance Analysis #

Revenue and Profitability Metrics (Standalone Basis) #

• Cables & Wires: FY 2023-24 revenue ₹73,206.99 million (FY 2022-23: ₹62,514.70 million).
• Stainless Steel Wire: FY 2023-24 revenue ₹2,206.37 million (FY 2022-23: ₹2,533.75 million).
• EPC Projects (excluding cables): FY 2023-24 revenue ₹5,627.44 million (FY 2022-23: ₹4,033.29 million).
• Retail Segment (B2C): Contributed 47% to net sales in FY 2023-24 (FY 2022-23: 46%), a 19% sales increase.
• EHV Cable Sales: Grew by 80%, from ₹366 crore to ₹659 crore.
• Exports: Contributed 13% to overall sales in FY 2023-24 (FY 2022-23: 10%), with 58% growth.
• Total Revenue: 17.31% growth.
• EBITDA: Grew by 20.81%, with margin improving from 10.62% to 10.94%.
• Profit After Tax (PAT): Grew by 21.72%, with margin improving from 6.91% to 7.17%.

Market Share and Competitive Position #

• Among the top three organized manufacturers of wires and cables in India.
• One of the few Indian firms capable of producing EHV cables exceeding 220kV.
• Part of a select group of global manufacturers that can produce EHV 400kV cables.
• Organized players hold 74% of the market.

Key Products/Services Performance #

• EHV Cables: Sales reached ₹659 crore, showing 80% growth.
• New Product Launches: EV Charging Cable, Medium Voltage Covered Conductor (MVCC) Cable, Conflame Green+ wires.

Geographic Distribution and Market Penetration #

• Exports: Major markets include Australia, Gambia, Liberia, UAE, and the United States; longstanding activity in Africa and the Middle East. Presence in 60+ countries with offices in 4 countries.
• Domestic: Pan-India retail sales with a well-entrenched distribution network.
• Order Book (April 30, 2024): EHV cable ₹374 crore, domestic market ₹1865 crore, export orders ₹521 crore.

Segment-wise CAPEX and ROIC #

• Total CAPEX: ₹400 crore in FY 2023-24. Planned spending of ₹900-1,000 crore in FY 2024-25 and an additional ₹500-600 crore in FY 2025-26.
• Greenfield Project (Sanand, Ahmedabad): Estimated investment of ₹1,700-1,800 crore.
• Brownfield Expansion (Pathredi, Rajasthan): Project cost of ₹125 crore.
• Brownfield Expansion (Chinchpada, Silvassa): Project cost of ₹110-115 crore.
• ROE: 20.26%

Operational Efficiency Metrics #

• Capacity Utilization (Cable): 92%
• Capacity Utilization (House Wire): 71%
• Capacity Utilization (SS wire): 90%
• Digital factory and supply chain: Operational excellence.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Massive greenfield project in Sanand, Ahmedabad.
  • Brownfield expansion at Chinchpada, Silvassa, and Pathredi to enhance capacity.
  • Focus on expanding the retail segment’s contribution to revenue (target of 50%).
  • Growing international presence, especially in regulated markets like the US and Europe.
  • Digitalization initiatives.
  • New product development (EV Charging Cable, MVCC Cable, Conflame Green+).
  • Targeting 15%-16% CAGR over next 3 to 4 years.
• Challenges:
  • Macroeconomic volatility and geopolitical tensions.
  • Competition risk from domestic and international players.
  • Raw material price volatility and supply disruptions.
  • Cyber security risks.

Risk Assessment Framework #

Strategic Risks #

Business Risk #

• Severity: High
• Likelihood: Medium
• Trend: Increasing due to market fluctuations and economic downturns.
• Mitigation Strategies: Product diversification (EHV, HT, LT cables, house wires, etc.,), robust supply chain management.
• Control Effectiveness: Partially Effective, indicated by revenue diversification (Retail 47%, Institutional 40%, Exports 13%).
• Potential Financial Impact: Revenue volatility.

Reputation Risk #

• Severity: Medium
• Likelihood: Low
• Trend: Stable, managed through proactive public relations.
• Mitigation Strategies: Proactive public relations, customer feedback sessions, quality control measures.
• Control Effectiveness: Effective, supported by “Super Brand” status and involvement in marquee projects.
• Potential Financial Impact: Reduced customer trust, brand equity damage.

Competition Risk #

• Severity: High
• Likelihood: High
• Trend: Increasing from domestic and international players.
• Mitigation Strategies: Investment in R&D, strategic partnerships (e.g., Brugg Kabel AG), market diversification, product approvals (domestic and international).
• Control Effectiveness: Partially Effective, indicated by growth in market share and expanding international presence.
• Potential Financial Impact: Reduced contribution in Pricing power and Market share.

Quality Risk #

• Severity: High
• Likelihood: Low
• Trend: decreasing , owing to product quality and reliability.
• Mitigation Strategies: Stricter quality control and assurance processes, regular audits of supplier standards.
• Control Effectiveness: Effective, demonstrated by achieving ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 certifications.
• Potential Financial Impact: Reduced sales, increased product return.

Operational Risks #

Raw Material Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing due to supply disruptions and price volatility.
• Mitigation Strategies: Multiple supplier relationships, inventory management, long-term contracts.
• Control Effectiveness: Partially effective.
• Potential Financial Impact: Increased production costs.

Financial Risks #

Financial Risk #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable due to debt reduction and retail sales increase.
• Mitigation Strategies: Maintaining strong liquidity, hedging strategies, stringent credit policies.
• Control Effectiveness: Effective, supported by credit ratings (AA with a positive outlook from India Ratings and Research, AA from ICRA and CARE).
• Potential Financial Impact: Affect cash flow and financial stability.

Non-Compliance Risk #

• Severity: High
• Likelihood: Low
• Trend Stable
• Mitigation Strategies: Continuously monitoring legal standards and changes, conducting periodical audits.
• Control Effectiveness: effective , reflected by compliance.
• Potential Financial Impact : Result in Legal panelties, fines, and operational restrictions.

Compliance / Regulatory Risks #

Non-Compliance Risk #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Regular review and updating of compliance policies, periodic audits and training, engagement of legal experts.
• Control Effectiveness: Effective, indicated by no reported significant non-compliance issues.
• Potential Financial Impact: Legal penalties, operational restrictions.

Emerging Risks #

Cybersecurity Risk #

• Severity: High
• Likelihood: Medium
• Trend: increasing due to digital factory initiatives.
• Mitigation Strategies: Implementation of robust cyber security measures, regular updates on security protocols, training for employees
• Control Effectiveness: Potentially Effective
• Potential Financial Impact: Exposure to cyber threats and data breaches and Operational Disruption.

Technological Risk #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing due to rapid technological changes.
• Mitigation Strategies: Ongoing technology upgrades, a technology roadmap, contingency plans for equipment failures.
• Control Effectiveness: Partially Effective, evidenced by new product developments (EV Charging Cable, MVCC Cable).
• Potential Financial Impact: Increased operational and production costs.

KEI Industries Limited: Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Retail Segment: Aim to increase the retail business’s share to 50% of overall sales. Reached 47% in FY 2023-24 (up from 46% in FY 2022-23).
• Export Segment: Aim to increase export contribution to 15-18% of revenue in the next 3-4 years. Reached 13% of total sales in FY 2023-24 (up from 10% in FY 2022-23).
• Growth: Maintain a CAGR of 15-16% for the next 3-4 years.
• Manufacturing Capacity: Pursuing capital expenditure projects (greenfield in Sanand, Ahmedabad & brownfield expansions). Expect growth of 16-17% in current and next financial year.

Competitive Advantages and Market Positioning #

• Product Portfolio: Wide range of wires and cables; capable of manufacturing extra high voltage (EHV) cables exceeding 220kV, and EHV 400kV cables.
• Backward Integration: In-house production of key raw materials (PVC compound).
• Certifications and Approvals: Country-specific certifications (UL in USA, construction approvals in Europe).
• Market Position: Top-three organized manufacturer of wires and cables in India.

Innovation Initiatives and R&D Effectiveness #

• R&D Facility: Advanced and accredited facility in Rajasthan (NABL accreditation under ISO/IEC 17025:2017).
• New Product Development: Developed EV Charging Cable, Medium Voltage Covered Conductor Cable, and Conflame Green+ wires in FY 2023-24.
• R&D Investment: ₹1.21 crore in FY 2023-24.

Management’s Track Record in Execution #

• Consistent Financial Performance: 17.31% net sales growth, 20.81% EBITDA growth, and 21.72% PAT growth for FY 2023-24. 15-year track record of 15% CAGR.
• Retail Segment Growth: Increased from 29% of net sales in FY 2019-20 to 47% in FY 2023-24.
• Export Growth: Increased by 58% year-on-year in FY 2023-24.
• Credit Rating: India Ratings and Research, ICRA, and CARE affirmed long-term rating at AA with a positive outlook and a short-term rating of A1+.

Capital Allocation Strategy #

• Capex Investments: ₹400 crore spent in FY 2023-24, ₹900-1,000 crore planned for FY 2024-25, and an additional ₹500-600 crore for FY 2025-26. Major projects include a greenfield project in Sanand, Ahmedabad, and brownfield expansions.
• Debt Reduction: Focused on reducing debt by increasing retail contribution and improving product mix.

Organizational Changes and Their Impact #

• Digitalization: Implemented digitalization initiatives, including Salesforce integration and the use of KEI Connect App and KEI Supply Beam App.
• HR Automation: Automating HR functions.
• Salesforce Integration Automates partner onboarding.

KEI Industries Limited: ESG Analysis #

Environmental Metrics and Targets #

• Energy Efficiency: KEI has installed 3.905 MW of rooftop solar power systems and implemented energy-saving measures, including the centralization and conversion of compressors to Variable Frequency Drives (VFD) and using natural gas in boilers. The impact of all the initiatives taken is reflected in the increase of 16.88% in electricity consumed and 15.29% increase in fuel consumption but the overall consumption is declined by 3.07% in the year 2023-24.
• Water Stewardship: Manufacturing units are equipped with Effluent Treatment Plants (ETPs) and Sewage Treatment Plants (STPs), achieving Zero Liquid Discharge (ZLD). Water withdrawal for FY 2023-24 was 101,308 kiloliters, primarily groundwater.
• Air Emissions Control: The company has transitioned to cleaner fuel gensets and installed filtration systems. NOx emissions were 2.35 metric tons and SOx emissions were 0.32 metric tons in FY 2023-24.
• Greenhouse Gas (GHG) Emissions Control: KEI is increasing renewable energy adoption, with Scope 1 emissions at 9,088.16 metric tons of CO2 equivalent and Scope 2 emissions at 66,658.4 metric tons of CO2 equivalent in FY 2023-24.
• Waste Management: Total waste generated in 2023-24 is relatively modest with waste to landfill is at 0%.

Social Responsibility Programs #

• CSR Initiatives: Total CSR expenditure for FY 2023-24 was ’ 10.09 crore, impacting 13,92,813 beneficiaries. Key areas include eradicating hunger, promoting healthcare and education, ensuring environmental sustainability, and supporting animal welfare. Partnered with various NGOs and trusts for implementation.
• CSR Projects: Include health camps, educational support in multiple states, hunger eradication programs, and animal welfare initiatives.
• Employee Well-being: KEI provides health insurance, accident insurance, and organizes health check-up camps. Employee well-being is supported through facilities like ESIC coverage, Group Personal Accident (GPA), and Group Term Life Insurance (GTLI) schemes.
• Electrician Community Health: Launched the ‘KEI Swasthya Utsav’ program, reaching over 7,000 electricians and their families, providing health check-ups, and distributing health kits.
• Gender Diversity: The Company is showing a slight increase in female employees, from 75 in FY 2022-23 to 79 in FY 2023-24.

Governance Structure and Effectiveness #

• Board Composition: The Board consists of 12 Directors: 3 Executive Directors and 9 Non-Executive Directors (including 8 Independent Directors). This aligns the Composition of the Board with the provisions of the Companies Act, 2013.
• Board independence: All independent directors have submitted declaration for meeting the criteria of independence as per the regulations.
• Board Committees: The Audit Committee, Nomination and Remuneration Committee, CSR & ESG Committee, and Risk Management Committee are active and meet regularly.
• Risk Management: A detailed risk management framework is in place, covering strategic, financial, operational, sectoral, sustainability, currency, workplace environment, safety, information security, regulatory, reputational, compliance, and IT risks.
• Whistleblower Policy: A Vigil Mechanism/Whistle Blower Policy is established, with no personnel denied access to the Audit Committee during the year.
• Compliance: The Company complies with applicable Secretarial Standards and SEBI Regulations.

Sustainability Investments and ROI #

• Capex Investment: The Company has invested in the environmental conservation project and launched Conflame Green+ wires with using the clean gas to reduce the carbon footprints.
• Greenfield and Brownfield Projects: Significant investments in greenfield and brownfield projects to enhance manufacturing capacities in LT, HT, and EHV cables, and house wires. A major greenfield project is underway in Sanand, Ahmedabad, with an estimated investment of ’ 1,700-1,800 crore.
• Renewable Energy: 3.905 MW rooftop solar power systems installed and operational at plants.

ESG Ratings and Peer Comparison #

• Credit Ratings: India Ratings and Research affirmed a long-term rating of AA with a positive outlook, while ICRA and CARE rated KEI as AA (Stable) and AA (Positive), respectively. Short-term ratings are A1+ from all three agencies. The Surveillance/Review of rating by ICRA Limited & CARE Ratings Limited for the current year are under process.

Regulatory Compliance and Future Preparations #

• Compliance: KEI is compliant with the Companies Act 2013, SEBI (LODR) Regulations 2015, and relevant Secretarial Standards. The Company also adheres to international standards and holds region-specific certifications such as UL approvals in the USA and construction protocol approvals in Europe.
• Future Preparations: KEI is focusing on expanding manufacturing capacities and capabilities, enhancing its product portfolio, and integrating sustainable practices to meet increasing market demand and regulatory requirements.
• Adaptation to New Technologies: Investments in new technologies and automation, such as the Salesforce software and digital factory initiatives, improve operational efficiency and responsiveness to market needs.

Forward Outlook: KEI Industries Financial Analysis #

Management Guidance and Assumptions #

• Overall Revenue Growth: Anticipate maintaining a 15-16% CAGR in the next 3 to 4 years (consistent with the past 15 years).
• Retail Segment Focus: Aiming to increase the retail business’s share of overall sales to 50%.
• Export Growth: Aim to increase export contribution to 15-18% of revenue over the next 3 years. FY 2023-24 exports were 13%.
• EPC Segment Strategy: Scaling down due to low margins, high competition, and elongated working capital cycles.

Market Growth Forecasts #

• Indian Wires and Cables Industry: Projected to grow at approximately 10% CAGR over the next few years.
• Global Wires and Cable Industry: Projected to grow at CAGR of 9.1% form 2024-2032.
• Domestic Demand Drivers: Government focus on affordable housing, infrastructure development, and urban planning ( 11.11 lakh crore for FY 2024-25, 80,671 crore for PMAY).

Planned Strategic Initiatives #

• Retail Expansion: Strengthening distribution, engaging with electricians, and increasing the number of dealers/distributors and retailers.
• Digitalization: Integrating Salesforce and other digital platforms.
• International Expansion: Building a network of agents and marketing channels, obtaining country-specific certifications.
• Product Development: Developed products such as EV Charging Cable, Medium Voltage Covered Conductor Cable, and Conflame Green+ wires (HR - FR-LSH - Lead Free).

Capital Expenditure Plans #

• Total Capex (FY 2023-24): 400 crore.
• Projected Capex (FY 2024-25): 900-1,000 crore.
• Projected Capex (FY 2025-26): 500-600 crore.
• Greenfield Project (Sanand, Ahmedabad): Estimated investment of 1,700-1,800 crore, focusing on LT, HT, and EHV cables. Phase 1 commercial production expected by end of FY 2024-25.
• Brownfield Expansion (Chinchpada, Silvassa): Enhancing wires and cables capacity.
• Brownfield Expansion (Pathredi): Boosting LT power cable capacity by 800-900 crore per annum, with operations expected in Q2 FY 2024-25.
• Additional Brownfield Capex: Plans to invest 50-60 crore in existing brownfield capex at Chinchpada and Pathredi for further capacity additions during Q2 FY 2024-25.

Efficiency Improvement Targets #

• Operational Efficiency: Continuous efforts to remove bottlenecks, integrate new technologies, and embrace automation and digitization.
• Margin Improvement: Optimization of operations, a focus on high-margin segments (retail, exports, EHV cables), and scaling down the low-margin EPC business.
• Production Cost Reduction: Continuous efforts to improve production processes’ efficiency.
• Sustainability Practices: Water stewardship, effective waste management, reducing GHG emissions, energy-efficient practices, optimizing resource use, and disaster management.

Potential Challenges and Opportunities #

• Challenges:
  • Fluctuations in raw material (copper, aluminum) prices and forex rates.
  • Intense competition from domestic and international players.
  • Global economic slowdown and geopolitical tensions affecting exports.
  • Technological obsolescence and the need for continuous upgrades.
  • Delays or postponement of infrastructure projects.
• Opportunities:
  • ‘China Plus One’ strategy, positioning India as a reliable manufacturing destination.
  • Growing international demand for LT and HT cables, driven by renewable energy and industrialization.
  • Government initiatives like Smart Cities Mission, PMAY (Urban), AMRUT, Make in India, and PLI schemes.
  • Expansion into regulated markets (US, Australia, Europe) with product approvals.
  • Growth in data centers and EV sectors creating demand for specialized cables.
  • Increased traction in the infrastructure and real estate sectors.

Scenario Analysis and Sensitivity to Key Assumptions #

• Raw Material Price Volatility: Fluctuations in copper and aluminum prices could significantly impact margins, especially in the institutional segment where contracts may have fixed prices. A 10% increase in raw material prices, without a corresponding increase in product prices, could reduce EBITDA margins.
• Forex Risk: Export sales provides a natural hedge on forex for raw materials import.
• Interest Rate Sensitivity: KEI’s exposure is primarily to floating interest rates on long-term debt.
• Competition: The high degree of competition, from both domestic and international players, is a continuous risk.
• Policy changes: Any unfavorable policy change and regulatory challenge can impact KEI’s business model.