New plant's 400KV cables to raise margins by 1%: KEC Intl

"Once we have this factory running, it will give us higher margins even on the 220KV and 400KV that will manufacture out of this plant," he said.

He believes that going forward growth in the non-transmission business will outpace the transmission business, and that revenues from transmission will fall to 65% this year.

Presently, the company's order book stands more or less the same at Rs 8,400 crore, but Chandak says there may be a few deals in the pipeline.

Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: Can take us through the commissioning of the new facility - how much will it add in terms of revenues and also what’s the order book situation looking like?

A: This is a brand new facility for which we started commercial production this week. It will cost us about Rs 175 crore, and will give us a turnover of about more than Rs 350 crore. It is giving us a capacity to manufacture right up to 400KV; phase I will manufacture up to 35KV and phase II, which will be in a couple of months time, will be able to manufacture up to 400KV.

In this particular plant we also tried a new concept, which is basically HPT, where all our workers are trained to supervise also. We hired them almost a one year ago, took them through the entire training, so now they are well equipped to handle the machines as well as supervision. So it’s like the factory is completely without supervision, they are supervising themselves.

Before the start of the plant itself we had an ISO-9000 certificate, so in a way this plant is starting on day one with a very good facility. We hired international managers to run this plant, this will be one of the best plant as of now I would say.

Q: Will the ability to make 400KV cables improve your margins as well? Do these higher KVs come with a better price advantage for you?

A: What happens is that margins over 600KV are far better than the margins below 66KV. Currently we are manufacturing up to 132KV, that gives us a better margin at least on those two products of 66KV and 132 kv. Once we have this factory running, it will give us higher margins even on the 220KV and 400KV that will manufacture out of this plant. So there will be a larger portion of the market on which the margins will be better.

Q: How much therefore on an average can margins go up to?

A: When you look at the portion which will be sold on the EHV, margin may go up about a percent or so.

Q: Off late there have been a lot of reports that the rupee depreciation is actually helping a lot of the Indian players. But then there were reports that a substantial part of power grids orders were still going to Chinese companies. Are Chinese companies still very aggressive? Has there been any advantage to the Indian companies because of the rupee depreciation?

A: We have not seen Chinese cables coming into the country in a large quantity. When you are talking about Chinese equipments, it is largely in terms of the transformers which are coming in large quantities and certain other equipments which are coming required for substation and the generating stations.

Also there is a perception that because the rupee is devalued, India is more competitive. What happens today that all the raw material, which is steel, zinc, aluminum, etc, are all at international price. So it does not help if the rupee is depreciated or appreciated because the rates will get adjusted as per the rate of exchange. Only whatever value addition we are doing in the country will get some benefit. So it is not that the entire benefit of the rupee depreciation can come and we become more competitive.

Q: Obviously the entire thing will not come because your imports are priced higher, but net-net at the end of the rupee depreciation are you a little more competitive?

A: We are not talking of imports; the exchange rate is not applicable only on imports. Even the aluminum and steel sold within the country is on parity with the international price. The aluminum cost goes up in line with the international price, so whether we are importing or not importing does not matter. 15-20% valuation what we are doing only on that it will benefit.

The benefit is very marginal whereas the perception is that there will be a large amount of benefit because of that. Unless the raw materials used are totally Indian and they are not exported and the international price is not impacting them, then only the benefit will come. For example, take cotton textiles or certain other industries which will benefit when really looking at the aluminum, steel, zinc which is the raw material of ours then it will not affect very materially.

Q: How much of your business will come from non-transmission products? Also, now that you have said finished with this new facility in Vadodara, what will be your next expansion?

A: Last year actually our ratio was about 72% transmission and 28% non-transmission. This year I expect that the transmission will be about 65% and 35% should be the non-transmission. Gradually, the non-transmission business is picking up, water has picked up, railway has picked up, and now the cable will pick up. So naturally the share of the non-transmission business will go up.

It is not that the transmission will come down, but because the base is very small for our industries, definitely the growth will be more in the non-transmission business.

Q: What’s the current order book position and are you looking for any acquisition? There were reports that you are looking at some players in North America is there any truth to that?

A: I think when it comes to the order book, the orders are always flowing and we are expecting some orders shortly and once we get the order the order book will improve. Currently order book is more or less at the same level, slightly improved, but I think maybe some of the orders are in the pipeline, so when they come we will come back to you again and tell you that how the order is coming.

So far as acquisition is concerned, we are continuously on the look out, but only at a proper valuation. I think as of today anything is on the cards, evaluation can always go in any case, but as of today there is not a single project which is getting closer or anything.