Retail to contribute 40-45% in revenues by FY18: KEI Ind

KEI Industries is planning to expand its retail client base as it will fetch better margins, says Anil Gupta, CMD of the company. The company was catering only to businesses till now.

Speaking to CNBC-TV18, he said that KEI will get 40-45 percent of its revenue from retail by FY18 and aims to increase the number of dealers to 1500 from current 1000.

He further expects revenue to grow around 20 percent in FY16 and hopes the orderbook to cross Rs 1500 crore by mid next year.Below is the verbatim transcript of Anil Gupta’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Latha: I understand that you are now looking to become more a retail play, until now you were selling to businesses, to wholesalers, now you are planning to sell more to retail shops. What is the progress, when do you expect to become 50-50 retail and institutional in terms of your clients? A: I feel that the way we are progressing in our brand building and retail activities, maybe by FY17-FY18 we will be able to reach around 40-45 percent of our business to be done through retail activities. Presently we are having around 900 dealers across the country and we plan to grow it by around 25 percent every year so as to take it to around 1,500 dealers by FY17-18. Latha: What does it do to your margins, going retail improves your margins or would it even take away from margins because you have to do a lot of brand building, advertising? A: I think that it will improve our margins because in retail activity, we are mostly operating on just-in-time delivery preposition. We are maintaining stocks at different locations in the country and that fetches us better margins because smaller sales we never have any pressure on pricing of our products. It is mostly dependent on the availability and the capability of our dealers to convince the end customers. Sonia: You said that from 900 dealers currently, you plan to grow it by 25 percent every year and are looking to have 1,500 dealers by FY18 so just try and tell us for this expansion plan what would the kind of costs be, the selling and distribution cost, overall marketing cost and how much could it go up by over the next one year or so? A: Our total brand spend is expected to be around Rs 8 crore this year which we will ramp it up and expectedly we need to spend around Rs 15-20 crore by FY17-18. So far as cost of operation is concerned, that will not grow because we are also increasing our sales through that network. So the percentage cost of operation of brand building may remain same. At the moment our cost of sales through retail network is close to around 3-3.5 percent and we will be able to maintain the similar cost going forward. Latha: When you last spoke with us, you said you expect a 20 percent volume growth in FY17. Do you want to change that figure now and what will it mean in terms of revenues, you gave us a volume number, what kind of revenue growth in FY17 and what kind of margins because your margins have also been improving? A: I still maintain the growth what I projected in the beginning of this year and we will be growing in FY16, plus 20 percent in our total revenues. So far as margin guidelines, it will also remain same. We will be plus 10 percent or maybe 10.5 percent in that range in EBITDA level. Sonia: The recent up move that we have seen in copper prices, will that any kind of adverse impact on your input cost? A: No, we were neither impacted by downward cost nor upward cost because we are maintaining inventories and we are also keeping little bit hedge with the inventory and even long-term positions, whatever orders we are holding. One more thing I would like to stress that export has been outstanding this year and it will continue to grow in the next financial year. Sonia: Until Q3 your EPC order book stood at around Rs 860 crore, what is the expectation for the next say 6-12 months? A: I expect that next financial year, by middle of next year, our order book should cross around Rs 1,500 crore because lot of new bidding has been done especially in Integrated Power Development Scheme (IPDS) and DDU projects which are likely to start opening from April. We are also bidding for some of the other overhead to underground cabling projects and we expect some good orders in the next quarter. Latha: You said you have a 20 percent forecast for revenue growth, is it also an EBITDA growth of 20 percent that you expect? A: EBITDA growth will be there because compared to last year we expect to improve our EBITDA by around 1 percent.(Copy edited by Sidhartha Shukla, interview transcribed by Priyanka Deshpande)