KEI – Fastest growing Wires and Cables player

KEI Industries Ltd is Wire and Cable Manufacturing Company. It offers an extensive range of products like Cabling and wires Solutions from retail customers to institutional and Exports.

(A) About KEI Industries – Company

KEI Industries manufactures and markets Extra-High Voltage (EHV), Medium Voltage (MV), and Low Voltage (LV) power cables. Now Company is enabling and infusing its Inner strength into the EHV cable segment and Power Sector Projects while strategically scaling down our EPC business. This is because it is highly capital intensive, low margin and slow payment recovery business. In the medium term, the Company wants to aggressively grow its retail business to generate 40-50% of the overall sales. KEI owns 6-7% of the Market share in the wire and cable industry.

(B) History, Ownership and Family details

KEI established as a partnership firm under the name Krishna Electrical Industries with three Partners named Shri. B L Gupta, Shri. D.N Gupta and Shri. S.S Agarwal in 1968.

Later, In 1972 B L Gupta died which left only two Partners in the firm. In 1980, new partners inducted Mr Anil Gupta, Sunil Gupta, Shri. Sanjay Agarwal and Shri Sandeep Agarwal. In the 3rd Quarter of 1985, All Agarwals retired and the firm continued with Guptas.

Then, in 1992, the firm recognized as a Joint Stock company between the partners and registered as a public limited company with effect from December 31, 1992, under the name KEI Industries Ltd. Sh. D.N. Gupta, Sh. Anil Gupta and Sh. Sunil Gupta appointed as the first Director of the company.

(C) Journey of KEI

KEI stock research with details of history of the company
Journey of KEI Industries Ltd.

(D) Shareholding Pattern

KEI stock research with details of shareholding pattern Sept 2021
KEI stock research with details of key promoter holding
KEI stock research with details of key public holding

Shareholding Pattern of Promoters and Mutual funds

KEI stock research with details of shareholding of promoters and Mutual Funds

In FY16 Promotors holding stood at 49.39%, as compared to 40.31% in FY21. Moreover in Qtr1 of FY22 promotors again decreased their holding to 38.02% as on 30 Sept ’21

Whereas, Mutual Funds consistently increased their holdings from 15.78 % to nearly 22% during the FY16 to FY21.

(E) Executive Management of KEI Industries

(i) MR ANIL GUPTA

The promoter, Chairman-cum-Managing Director

Mr. Anil Gupta is a renowned expert in the Indian cables and wires industry and a strong believer in modern technology. He is 62 years old and holds a Bachelor of Commerce degree (B.Com). Mr Gupta also spearheaded some path-breaking innovations in the industry and has been the guiding force behind KEI’s vision to become the undisputed leader in its category and build a robust corporate identity. Mr. Gupta commenced his journey with KEI in 1979 as a partner in the erstwhile Krishna Electrical Industries and soon rose to become its Chairman-cum-Managing Director. With over four decades of experience at the help, he plays a strategic role in guiding the Company to scale new heights of success. He has also initiated various policies on marketing, production, quality control, and product development.

Mr. Anil Gupta’s Total remuneration in FY21 is Rs 9.37 Cr. which is 0.22% of net sales and 3.43% of PAT.

(ii) MR AKSHIT DIVIAJ GUPTA

Executive Director

Mr. Akshit Diviaj Gupta is a young and dynamic professional with a strong entrepreneurial background. He has experience in handling EPC projects and marketing functions of the Company. He holds a BBA degree in Management, an Honorary Graduate Fellowship, and has an acute interest and knowledge of diverse business activities.

Mr. Akshit Diviaj Gupta’s Total remuneration in FY21 was nearly 70 Lakhs which is 0.01% of net sales and 0.25% of Profit

(iii) MR. RAJEEV GUPTA

Executive Director (Finance) & CFO

Mr. Rajeev Gupta has around 28 years of experience in Corporate Finance and is presently heading the Finance & Accounts Department of KEI.

Mr. Gupta holds a B.Com. degree and is a Chartered Accountant.

Mr. Rajeev Gupta’s Total remuneration in FY21 was 2.75 Cr. which is 0.07% of net sales and 1% of Profit

(F) Products Categorization of the company

KEI offers a wide range of products generally used by almost every industry and Sector. It offers all products by its three segmental categories which comprise Retail (34%), Institutional (51%), and Exports (15%). KEI joined hands with M/s Brugg Kabel AG, a 110-year-old Swiss cable giant to upgrade its technology and to manufacture EHV cables up to 400 kV.

KEI stock research with details of products offered

(i) High and Extra High Voltage Cables

High and Extra High Voltage Cables are used widely in power transmission utilities, industries involved in water, renewable energy, nuclear-thermal power stations, airports, railways, steel and other manufacturing industries.

(ii) Low Voltage Cables

Low Voltage Cables come in a variety of sizes, materials, and types, each particularly adapted to its uses. Cables consist of three major components: conductors, insulation, and protective outer sheath. The makeup of individual cables varies according to application.

(iii) Control Cables

Control cables are mainly used in machinery and machine tools; appliances, measuring, control, heating, and air conditioning technologies for permanent connections in cable chains etc.

(iv) House Wire

House wire Comprises mainly three types of wire (i) HOMECAB–FR, (ii) BANFIRE-ZHFR, and (iii) CONFLAME-FRLS.

These cables have usage for wiring domestic and commercial buildings. A fine-drawn multi-strand conductor provides enhanced Flexibility & makes it ideal for concealed wiring. It is suitable for installation in lighting fittings and appliances up to 1100 v (A.C)

(v) Single Core and Multicore Wire

These wires/cables are used for wiring in control panels, machines and various electrical installations in dry/damp interiors, especially under typical industrial environmental conditions.

(vi) Instrumentation Cables

Instrumentation Cables have utilization in process plants to connect instruments for communicating with each other. Usually, it takes its place in industrial plants such as refinery or petrol deposits, steel plants or any manufacturing units. It can be screened, armoured, laid up in pairs, triads, quads, etc. It can be insulated in PVC, PE, XLPE, and HEPR and sheathed in PUR, LSF, PVC, and PE.

(vii) Thermocouple extension/compensating

These cables can also be termed as instrumentation cables, as these are used for process temperature measurement. The construction is similar to paired instrumentation cable but the conductor material is different. Thermocouples are used in processes to sense temperature. These are connected to the pyrometers for indication and control.

(viii) Solar Cables

KEI-PV Solar cables are designed for connecting photovoltaic power supply systems. It a dedicated to the photovoltaic system direct current (D.C.) side with a nominal D.C. voltage of 1.5kV. 

These cables are suitable for permanent outdoor long-term use, under variable and harsh climate conditions. it designed and tested to operate at a normal maximum conductor temperature of 90°C and for 20,000 hours up to 120°C. Therefore, the expected period of use is 30 years under normal usage conditions.

(ix) Rubber Cables

Elastomeric/rubber cable have usage across many industries. These range from industries involved in water, renewable energy, distribution and power networks, nuclear and thermal power stations, airports, marine, Defence, telecommunications, windmills, building, mining, onshore and offshore applications, ship wiring, railways, automation, audio-visual and manufacturing industries, these cables can be suitable for a huge amount of applications.

(x) Fire survival / Resistant cables

In all fire disasters, fire smoke, heat, and toxic fumes are the main obstacles to the safe evacuation of a building or area. A major contribution towards overcoming these hazards is the use of fire-resistant and non-halogenated cables.

(xi) Marine & offshore cables

KEI also offers a comprehensive range of Marine Cable which includes Power, control, signal, and instrumentation cables designed primarily for use in offshore & marine applications. KEI is proud to serve with such specialized Marine and offshore cables to the important projects of Indian defense shipyards and private shipyards around the world. Our marine and offshore cables have national and international acceptance.

(xii) Winding Wires

These Wires have usage for Winding Submersible Pumps Motors of all sizes. Flat Cables are mainly used in pump connections. It is used for both Domestic & Industrial applications.

(xiii) Stainless Steels

Stainless Steel Comprises with (a) Hard Stainless Steel Wire, (b) Cold Heading Wires, (c) Fine Stainless Steel Wires (d) Wires for General Purpose, and (e) Welding Wire.

KEI industries limited is an established player in the Stainless Steel Wires segment and among the largest Stainless Steel Wires manufacturing companies in India. The company manufactures stainless steel wires in various ranges for a wide range of applications. These kinds of wires can be further used as raw material for Industrial Corporation which is into manufacturing of industrial tools and equipment.

(G) Global Presence of KEI

KEI stock research with details of global presence

The company has its presence in more than 50+ countries; including Subsidiary in Australia and Associate in South Africa, overseas marketing/project offices in Dubai, Nigeria, Gambia, Nepal, and South Africa

(H) Revenue Breakup of KEI- Segment wise and Products wise

(i) Segment wise-Revenue Breakup of KEI

KEI stock research with details of revenue segmentation

a) Retail Segment

KEI’s Retail segment comprises house wires, winding, and flexible wires, LT power cables, and HT cables. In FY21, the Retail segment to overall sales increased to 34% from 29% in FY20. While total retail sales dipped only marginally from the previous year.

b) Institutional segment

The company’s Institutional segment comprises EHV cables, HT and LT power cables, stainless steel wires, and EPC solutions. In India, it’s serving more than 1,450 institutional customers and holds around a 12% market share. KEI is one of the few Indian players having the capability to manufacture EHV cables above 220kV and also amongst the select players globally to manufacture EHV 400kV cables.

c) Exports segment

KEI Exports segment has a wide range of cables, including EHV cables, HT cables and LT power cables, stainless steel wires. These wires are exported to over 50 countries all over the world. In FY 2020-21, revenue from the Export segment declined by 38.69% due to the execution of one large export order in the previous year and COVID-19 travel restrictions.

(ii) Product wise-Revenue Breakup in %

KEI stock research with details of revenue segmentation

In FY21, KEI has recorded strong sales in LT Products which is about 37%. whereas in SSW that is Spring steel Wire it has recorded lowest sales of 3% only.

During FY21, KEI voluntarily reduced business from the EPC segment owing to the long working capital cycle and low margins. As a result, the contribution of revenues from EPC business in the overall sales mix stood at 11.15% in FY21 compared to 15.64% in FY20

Despite several disruptions caused by the COVID-19 pandemic during 2020-21, the Company sustained its revenues from the EHV business

(iii) Region wise Retail Sales (FY21)

KEI stock research with details of region wise retails sales

Retail Sales were Rs. 1408 Cr in FY21, which is ~34% of total revenue for FY21. The total active working dealer of KEI Industries as on 31.03.2021 stands at ~1655 Nos.

(I) Manufacturing facilities and Capacity Utilization of KEI Industries

Manufacturing capabilities of KEI are backward integrated through in-house PVC production. Backward integration enables the Company to exercise greater control over the manufacturing process and quality, thus resulting in improved efficiencies. It also enables cost-competitive solutions and meet the customers’ needs on time.

(i) Total installed capacity – Product wise

KEI stock research with details of its product wise installed capacity

The Company has five state-of-the-art facilities at Bhiwadi (Rajasthan); Chopanki (Rajasthan); Pathredi (Rajasthan); and at Rakholi and Chinchpada (Silvassa, Dadra and Nagar Haveli).

During FY21, the Company’s capacity utilization for Cables, Housing/Winding wires and Stainless Steel wires stood at 59%, 61%, and 85% respectively. EHV facility at 90% capacity utilization for FY21.

(ii) Plant-Wise Capabilities

KEI stock research with details of plant wise production capacities

(J) Cost Structure of the Company

KEI stock research with details of cost structure

Raw Material comprises 75% of the total cost of manufacturing. Other key raw materials used are copper, aluminum, steel and nickel.

(K) Market Share of the Company

KEI stock research with details of market share and its competitors

Currently, KEI has a market Share of ~7% in the Retail segment. In retail segment, the company offers various types of wires and cable comprised of all LT, HT, Housing, Winding and flexible Wires with the help of their wide network of Distributors and dealers. The Company is Focusing more on the Retail Segment to acquire more market share.

Whereas, In Institutional Segment KEI Industries Ltd has 12% of the market share. in which it offers HV, EHV cables, Stainless Steel Wire, and EPC projects.

KEI Industries is one of the few Indian players having the capability to manufacture EHV cables above 220kV and also
amongst the select players globally to manufacture EHV 400kV cables. The Company’s entry into the EHV cables segment was powered by its technological collaboration with Switzerland based “Brugg Kabel AG”, which has over
100 years of experience in manufacturing EHV cables up to 550kV.

In Exports segment, the Company is still trying to grab the best opportunities from overseas.

(i) Competitors of the company

These are the top competitors of KEI:

  • Havells
  • Polycab
  • Apar industries
  • V Guard
  • RR Kabel
  • Finolex
  • Universal Cables Ltd

All the above Companies are already Involved in the Retail and FMEG sectors which helps them in capturing tight market Shares in the industry. Moreover, these companies have spent a heavy amount of money on their promotion and advertisement for Building a valuable Brand.

KEI stock research with details of competitors of KEI

KEI is the fastest growing Wires & Cables player in India enjoying a market share of 7%-7.5% in Rs400-500 bn market. It is also amongst the few companies with EHV capabilities above 220+ kV.

Polycab is the largest player in Wires & Cables industry enjoying 13-14% market share (20-22% organized). Finolex, RR Kable and Havells are the other large players in the industry

(ii) The competitive advantage of the company- Superbrand, and fortune500

KEI is amongst few players globally with embedded manufacturing capabilities for EHV 400kV cables.

Whereas other Players Like Havells, Polycab, and UNIVERSAL Cables Ltd have the capabilities of only manufacturing till 220Kv.

KEI has a technological tie-up with Brugg Kabel AG which has over 100 years of experience in manufacturing EHV cables up to 550kV.

The company has maintained the utmost standards of product integrity and brand development in several years and has worked actively taking part in developing the resilient country. The company has won both Consumer and Industry awards year after year. Such as Superbrand for the Year 2011, 2012, 2014, 2015, and 2021 and Fortune500 (2015, 2016, and 2017 Edition).

(L) Distribution Network of KEI

KEI stock research with details of distribution network

KEI has a Nationwide and Strong Distribution Network with having more than 1655 Dealers, 21 Depots, 36 marketing Office and 580 sales and marketing personnel for the proper and smooth functioning of distribution.

To ensure the retail team’s effectiveness, The Company is consistently mapping out every geography by population and accordingly positioning their people. It’s mapping the activity of the salesperson, their dealer coverage, and their performance to improve market penetration.

(M) Key Costs of KEI

i) Material Consumed

KEI stock research with details of raw material consumed in last 10 years as a percentage

Copper, aluminum, steel and nickel are the key raw materials used by KEI Industries. In large supply orders the Company carefully monitors raw material prices and aligns final product prices with commodity price fluctuations by inserting a price fluctuation clause. Whereas, 3 months price validity clause is there for small scale projects. List price of wires/cables, in retail segment is revised on bi-monthly/monthly basis to pass on the price fluctuation risk to customers. Further, it also carries adequate inventory of raw materials to ensure uninterrupted production at the manufacturing facilities.

(ii) Promotion and Advertisement Expenses

KEI stock research with details of advertisement expense as a % of net sales

In FY21, which was a condition of difficult times for the many companies. Due To Complete Stoppage on operational work. In FY21, KEI spent nearly 13 Crores which is 0.31% of net Sales of FY21 to safeguard and enhance the brand image.

To ensure the Proper Brand endorsement, KEI company Collaborated with popular personalities like late Irfan Khan.

KEI has associated with IPL – India’s biggest sporting extravaganza since FY17 which has also boosted brand visibility across the country. KEI is a principal partner of the IPL Team- Rajasthan Royals. IPL is one of the most watching event in India which enhances the visibility of brand all over the globe.

(N) Financial Parameters

KEI stock research with details of financial performance highlights

KEI Recorded Negative Net Sales in the FY21 of -14%. This decline in net sales was largely due to the lockdown, business restrictions in the Q1 FY21 and the execution of one large export order in the FY20. Further, export orders were also under pressure due to lockdowns and a slowdown in economic activity in many of the key markets.

KEI Industries Ltd has Delivered 14% CAGR of Net Sales and 38% CAGR of Profit after tax (PAT) over the last 10 years.

Whereas CAGR of Free Cash Flow stood at 13% over the last 10 years.

KEI has been able to reduce its total debt levels to Rs. 333 crore as on March 31,2021 (Rs. 384 crore as on March 31, 2020 and Rs. 600 crore as on March 31, 2019), post QIP issuance of Rs. 500 crore in January. This has resulted in an improved Debt to Equity Ratio to 0.17 in FY21 (PY 0.25 times). Further, reduced debt levels translated in lower interest cost.

(O) CAPEX

KEI stock research with details of capital expenditure in last 6 years

To keep in pace with demand, KEI continued to increase its capacities at regular intervals. During FY18, KEI incurred capex of Rs 50 Cr at Pathredi, Rajasthan to add capacity in LT cables. In FY19 the company further enhanced its LT and MHV capacity at Pathredi, Rajasthan.

After augmenting housing wires capacities, KEI is now looking to enhance capacities for LT/HT/EHV cables in the next 4-5 years and is likely to incur a total capex of Rs 600-700 Cr

(P) Management Discussion and Concall Highlights

i) Stepping into Retail Segment

Management is going to foray into Retail Segment with 600 Crores of CAPEX. The capex will be undertaken over the coming five years. As the Retail Segment needs less working capital as compared to the EPC and by utilizing the working capital it would be able to turn Good profits.

ii) New Plant in Gujarat

In FY21, 34% of the total sales of the Company were contributed by the Retail Segment. KEI has a target to achieve 40-50% of the revenues from Retail in the coming years. So, ultimately it is aggressively focusing on the Retail Segment. For Retail Segment It is going to initiate a new plant in Gujarat to increase the manufacturing of LT, HT, winding, Flexible, Solar wires and cables so that it can expand its business broader.

Concall Highlights as of Qtr1, FY22

  • The net profit after tax of the company for the quarter was about Rs.67.11 cr. Versus Rs. 39.23 Cr (increased by 71%) in Q4 FY21.
  • Sales through dealer network have grown by almost 108%. Well this time Distributor contributed 38% in Q1 against last year same period 25%. It’s happened Just because most of the distributors were Fully functional and operational.
  • In terms of exports, the management shared that it has obtained UL approval which enables them to export to USA for certain category of cables and certain more category of cables UL approval are under way. So, it will take this whole year again to finalize the UL approvals for a broad amount of categories of cables, which will help them in exporting to US. (UL is a safety organization that sets industry-wide standards on new products)
  • Receivable payments of KEI are still pending, which were to be settled in last year; but due to Covid Situation it was not settled. But it has shared, the Retention Payment of Rs 160 – 165 Cr would have to receive during this year.
  • Management is Constructing Strategies to formulate More brand Value in the market by giving Schemes to retailers and Connected Electricians. So that it will able To capture more market and would able to turn good numbers of sales.
  • Rs 600 Crore of CAPEX (to be undertaken over five years) will be spent mainly to enhance the capacity of high tension, low tension cables as well as the extra high voltage cables.
  • KEI’s management remains confident of growing FY22 sales by minimum 20% (LT CAGR of 17%-18%) while maintaining 11%+ margins.
  • Capacity utilization: Cables 66%; Housing Wires 43%; Stainless Steel Wires 100% for Q1 FY22

(Q) Opportunities and Strengths

(i) Quality standards & increased brand visibility

When it comes to quality standard of KEI’s products, it remains at par with most of its peers. Complaints over quality standards have been negligible. KEI’s thrust on brand strengthening has resulted into increased demand for its products at the counter. Earlier people remained unware of the brand KEI, which made sales difficult

(ii) Amongst few Indian players with 220kV+ EHV capabilities

KEI commenced manufacturing of EHV cables up to 220kV in 2010, intechnical collaboration with Switzerland based Brugg Kabel AG who has 100+ years of experience in manufacture of EHV cables up to 550kV.

In 2016, with technical collaboration being extended up to 440 kV, KEI became one of the few Indian players having capability to manufacture EHV cables above 220 kV, others being Universal Cables & Finolex Cables.

Stringent requirements for meeting compliances and securing product approvals in EHV cables further make it difficult for new players to enter the market (generally takes at least 8-9 years to enter market).

KEI has technological tie up with Brugg Kabel AG which has over 100 years of experience in manufacturing EHV cables up to 550kV

(ii) Government Specialized Projects

The National Infrastructure Pipeline (NIP) announced by the Government outlines an initial sanctioned amount
of Rs 111 Lakh Crore (USD 1.5 trillion) in the infrastructure sector over FY 2019-25.

The demand for EHV cables is being driven by the Government’s thrust on converting overhead lines to underground cabling. The same is being promoted as underground power supply grid is more reliable and safer than overhead networks. Also, smart cities, metro rail, and high-end hospitals, hotels, and shopping malls are increasingly going for underground cable networks as against overhead transmission lines for public safety reasons.

(iii) Extensive distribution network

KEI has been expanding its distribution network by adding dealers to capture retail sales. As on June 30, 2021, the total dealer base stood at around 1,650 (similar to June 2020 levels). Moreover, the company is currently focusing on further increasing its retail presence, as dealer sales provide twin benefits of better margins and relatively low working capital cycle. Its retail network is spread across India with 39% of revenues contributed by north followed by 29% from west, 18% from south and the balance 14% from east in Q1 FY2022.

Apart from dealer sales, around 31% of the total sales were through domestic institutional clients (including EHV segment), while exports comprised 15% of the total sales in FY2021. The EPC segment contributed 21% (including cable sale) of the total sales in FY2021, thereby providing a diversification to the sales channels.

(iv) Focus on Retail segment

KEI Industries is focused on aggressively growing its retail business with the aim to generate 40-50% of the overall sales from this segment in the medium term.

The market opportunities for growing our Retail segment are significant. The retail demand for housing wires is
being fueled by flagship government schemes for urban and rural electrification such as Deen Dayal Upadhyaya
Gram Jyoti Yojana (DDUGJY) and 24×7 Power for All.

Increased urbanization and housing due to improved affordability is also boosting the demand for housing wires.

(v) Diversified product mix

KEI has developed capabilities to manufacture a wide range of cables (low tension (LT), high tension (HT) and extra high voltage (EHV)), along with house wires, instrumentation and control cables. Besides, the company is involved in EPC work in the power distribution space. Cables accounted for around 64% of the total sales in FY2021, followed by a contribution of 22% from house wires, 11% from the EPC segment (excluding cable sale), and the balance 3% from stainless steel wires. The growth prospects remain healthy in each of these segments. However, KEI has taken a strategic decision to scale down the EPC business, given the low margin profile of new orders, stiff competition, and elongated working capital cycle.

(R) Threats for KEI

(i) Fluctuation in metals prices

The main raw materials used are copper, stainless steel strips and rods, G.I. wires, PVC & DOP and aluminum with the
purchases mostly backed by LC/BG. The orders generally have a mix of both variable as well as fixed-price contracts, which limit the ability of the company to entirely pass on any increase in the raw material costs for orders under execution. KEI has limited forex exposure on account of import of raw material and ECB which have natural hedge from sizeable export revenues

(ii) Macroeconomic Factors

KEI Company majorly impacts by the macroeconomics factors. Macroeconomic factors like Unemployment, interest rates, inflation, GDP. If the Condition of the economy is misbalanced then there would be high chances of decreasing in Demands of their products.

(iii) Delay In Payments

Earlier, KEI Industries Ltd was focusing on their EPC business, But Later on KEI find out that it’s a low profitable segment. EPC business requires heavy capital to execute the projects and has a problem of delay in payment which increases the problem of required cash Flow of company for other activities. So now it is descaling Their EPC Business and shifting their Capex into other segments of their products portfolio.

(iv) Competition from large as well as unorganized players

The cable industry is inherently competitive with presence of multiple large established players such as Havells India Limited, Polycab India Limited, Finolex Cables Limited, V Guard Industries Limited, RR Kable Limited, etc, in addition to some competition from the unorganised sector. This limits KEI’s pricing power, to an extent, especially in the retail segment, which is expected to drive its revenue growth over the medium term.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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