Key takeaways of the call

Strategic initiatives of past many years such as strengthening of distribution channels, diversification of portfolio and revenue streams, backward integration and improving brand awareness have helped the company to come up with strong performance in challenging market conditions.

Wires & Cables – Strong 20%yoy growth in total income in Q2FY20 was led by healthy growth across categories as well as channels. However the EBIT margin of W&C business were lower at 10.5% (from 11% in Q2FY19) due to unrealized mark to market foreign exchange loss and higher ad spends in Q2FY20. Within W&C the wires segment witnessed healthy double digit growth during Q2FY20. Growth in cables was driven by institutional sales & exports. Exports grew strongly led by a large order for which supply started during the Q2FY20. Moreover the higher optical fiber cable (OFC) sale in Q2FY20 compared to corresponding period of previous year has given further flip to revenue and margin. The EBIT margin of cables & Wires business typically to hover in the range of 11-13% on annual basis.

FMEG – Sharp 42%yoy growth in revenue was primarily driven by fans and lighting & luminaries. Fans accounts for about 40-45% of the revenue of this segment followed by lights & luminaries. The EBIT margin stood at 3.3% in Q2FY20 against loss in Q2FY19 led by better portfolio mix, higher contribution and scale benefits. Portfolio augmentation and distribution channel expansion drove growth in H1FY20. Healthy growth traction of this business to continue on the back of strong product innovation.

Other segment - This segment largely comprises of EPC business of the company. Sharp 57% growth in revenue and jump in EBIT to Rs 23.1 crore (from Rs 11.9 crore in Q1FY19) was largely due to 440 bps expansion in EBIT margin to 14.1%. Margins boost was largely due to execution of profitable projects.

FMEG - Not getting into any new product category but will be launching new innovative products in the product categories in which the company is currently present.

Export business is largely the Dangote order – Export revenue in H1FY20 was about Rs 200 crore and Rs 100 crore in Q2FY20. Excluding the revenue from large export order, for which the supply commenced in Q2FY20, the growth of C&W segment was normal at 13-14%.

The company is not an EPC company, but takes up EPC projects to supplement cables business. The company has a healthy order book. Thus EPC business was strategic in nature and the contracts/orders usually have cable supply component.

While the supply of cables is accounted as part of cables business the remaining works associated with the EPC work gets booked under ‘Others' segment. EBIT margin at around 14.1% in Q2FY20 is largely due to execution of profitable orders and more sustainable EBIT margin will be in the range of high single digit. Others will account about 3-5% of the total sales on annual basis.

Exports currently accounts around 3-5% of the topline but expect to improve it to high single digit progressively.

Operating profitability of the company has to be analyzed on annual basis.

The company has invested about Rs 1200 crore in the last 5 years and of which about Rs 130 crore is for FMEG business and the rest were for increasing capacity for C&W business as well as product innovation.

Capex planned for FY20 at the start of the year was Rs 250 crore and with savings coming on account of corporate tax cut the company could invest more. But the plans are not finalized yet.

The company has recently commissioned a new water heater manufacturing facility during Q2FY20.

The company continues to strengthen its distribution backbone. Currently the company has presence in 120000 outlets and has 3400 dealers.

Dangote order, which is an USD denominated order is worth about Rs 950 crore. And the supply against this order has to be completed by this fiscal. Though the company has the capability to supply and complete the order this fiscal, whether that actually happen within this fiscal or part slip to next fiscal depend on various factors related to client.

Forex loss in Q2FY20 was Rs 15 crore against a gain in corresponding previous quarter.

Environment is a challenge in near term but the company is confident of clocking good growth in medium to long term.

FMEG is the natural extension for the company as it gets leverage in FMEG business given raw material similarity, distribution channel, and brand leverage with W&C business. The aggregate FMEG market size of the products that the company have presence is Rs 50000 crore and the company's FY19 sales of Rs 640 crore is roughly about just 1%. So the growth rate is impressive on low base.

Wires growth rate is higher than that of cables growth rate.