KEI sees Rs 250 cr annual revenue from agreement with Swiss co

KEI Industries has signed an agreement with one of the Switzerland's leading cable producing company, Brugg Kabel AG to manufacture extra high voltage (EHV) cables which are used for power evacuation from hydro plants.

Anil gupta, Chairman and MD of KEI Industries told CNBC-TV18 that this agreement will help the company acquire orders up to 400 kV from various public utilities, private players.

He further said that the new line is expected to contribute Rs 200-250 crore worth revenue annually and margins on EHV cables will be over 15 percent.Below is the transcript of Anil Gupta’s interview to Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: In terms of this technical collaboration agreement that you have signed with a Swiss company, could you tell us in terms of revenues, what does this mean? Also in terms of market share, give us a sense on that front.A: We had signed a technical collaboration with Brugg Kable, Switzerland in 2009 for manufacturing cables upto 220 kV. The company is well established in that space now and now we have set up a new production line in our Chopanki plant which will be capable of producing cables up to 400 kV. And these cables are basically used for underground transmission networks in the city and also evacuation of power from hydel power plants, etc.Nigel: What we are trying to understand is you were doing up to 220 kV, now you are saying you are going to be doing somewhere around 220 kV to 400 kV. So, what is that market size, what kind of market share are you looking at and in terms of revenue, what could this mean?A: The market size so far is denominated by imports because there are no manufacturers of this voltage grade of cables in India. I believe that the market size will be to the extent of Rs 500 crore in a year and gradually we will be looking for a market share of around 22-25 percent. But besides this, our new production line is capable of producing all voltage grades from 132 kV to 400 kV.Reema: You said Rs 500 crore is the market opportunity in the cables, which are between 220 kV and 400 kV, which is denominated largely in imports. Will you be pricing it cheaper than imports? What will be the margins you will enjoy to gain that market share?A: We will be gaining the market share gradually, because we have to initially develop pre-qualification requirements with utilities to reach that space. So, it will be a gradual process over a period of one year. The margins will be definitely in line with what we have said in 220 kV cables, which will be in excess of around 15 percent.Reema: What is your market share in the up to 220 kV segment?A: Our market share is around 25 percent at the moment in 220 kV segment.Reema: And is there any financial contribution from this Swiss company or is it only going to be an exchange of, will they be providing you with technical information?A: It is only a technical collaboration and there is no financial contribution from them.Reema: In that case, will you require any kind of additional capital expenditure (capex)? Could you tell us your current capacity utilisations at your Chopanki unit currently? Could you give some details on that front? Will you be putting in some more money?A: We have already completed the capex. Last year and this year, we have done a total capex of Rs 120 crore out of which around Rs 75 crore is done in extra high voltage line, which is set up in Chopanki and we do not need to do any more capex so far as this area is concerned.Nigel: Your utilisation levels currently and what are you looking to take it to?A: We expect this new production line to contribute Rs 200-250 crore annually, which should start from Q4 of this financial year.Reema: You are saying the incremental revenues will be Rs 200-250 crore?A: Annually, yes.Reema: Because we did the math of 20-25 percent market share on a Rs 500 crore market opportunity and we arrived at a number of close to about Rs 100-120 crore. So, could you tell us how this Rs 200-250 crore expectation in terms of increased revenues, what is it predicated on?A: We will be producing the other voltage grades also on this new line which will be 132 kV, 150 kV and 220 kV. So, the new production line is just not dedicated to only 400 kV. 400kV will be an additional revenue.Nigel: Since this is extra high voltage cables, will you be getting higher margins? Currently you are doing around 10 percent. So, these will give you higher margins. Also, have you seen any kind of impact of demonetisation on your business?A: So far as margins are concerned, I said that in extra high voltage cables, we expect a margin of around 15 percent. So far as demonetisation is concerned, all our business is, mostly, projects. And in retail side, we have house wire business and I have not seen much impact of demonetisation so far. And maybe we have to watch out next month.