In an interaction with Rajesh Jain, Chief Financial Officer at RR Kabel
In terms of capacity and capabilities, we have positioned ourselves well ahead of industry benchmarks, indicating a promising outlook for at least the next 8 to 10 years, states Rajesh Jain, Chief Financial Officer at RR Kabel.
In Q2FY24, the company posted remarkable results with a 17 per cent Y-oY growth in revenue, accompanied by an exceptional 111 per cent rise in net profit. What were the key factors driving this impressive growth?
When assessing our Q2 performance for this year, it's evident that we have achieved commendable results in both volume and value. Our strategic changes in product offerings have notably enhanced export revenue and facilitated growth in new sectors, contributing to our overall profitability. It's crucial to consider that when comparing these figures with Q2 of the previous year, the context is important. The figures from that period were impacted by abnormal conditions, particularly the significant drop in copper prices, which fell by nearly 20 per cent in just 25 days, influencing our profits for that year.
In a normalized comparison, our growth is not considered abnormal, and we have made significant improvements. Currently, our EBIT level stands at around 9 per cent, aligning with normal levels that we anticipated and aim to sustain.
The overseas market is dependent on a few distributors. With significant changes to this agreement, how will the distributors impact the operations?
In our scenario, given that our exports reach over 60 countries, we've strategically avoided dependence on a single customer. Notably, around 90 per cent of our exports are proudly conducted independently, distinguishing us from the common practice of white labelling or engaging in one-time project-based transactions. Unlike other products that may involve sporadic large projects, our distribution LED model thrives on repeat orders.
Our export journey commenced in 2001, marking us as the pioneering wire exporter from India during a time when such ventures were rare. Despite the lack of initial recognition for our brand and the country, we persevered, emphasizing good quality and building our own brand. The key advantage of our export strategy lies in the consistent nature of our business, characterized by regular and repeat orders, eliminating reliance on a single distributor or project-based model.
How does RR Kabel mitigate the risk of foreign currency fluctuations, especially concerning the import of raw materials, product exports, and borrowings that may impact operations adversely?
In addressing this concern, we have implemented a proactive strategy to enhance our security. For every export transaction, we adopt a back-to-back approach, ensuring that we cover metal copper prices simultaneously. This risk-mitigation practice extends beyond material costs; we also hedge against forex fluctuations. Therefore, our export business operates with a 100 per cent risk-free assurance, minimizing any potential adverse effects from foreign currency volatility.
What is your take on the FMEG industry, especially the cable segment that is been recently growing?
If we take a closer look, India is currently experiencing a robust demand scenario driven by infrastructure development, real estate projects, and a rising middle-class population. This positive environment bodes well for the wire and cable industry, which traditionally tends to grow at twice the rate of GDP. With India's economic growth at 6.57 per cent, the industry is anticipated to expand by 13-14 per cent. Notably, in terms of capacity and capabilities, we have positioned ourselves well ahead of industry benchmarks, indicating a promising outlook for at least the next 8 to 10 years.
This growth story is not limited to India alone; there's also a strong international demand, particularly from the USA. The global market is witnessing significant demand, driven by factors such as the growth of renewable energy and the electric vehicle (EV) segment. Thus, the overall demand appears secure, both domestically and internationally, promising a positive trajectory for the industry in the coming years.
Are you planning to get into smart meters or something like that which probably goes hand in hand with their business?
No, no, it's been quite a journey for us, beginning with wire and later expanding into cables. What sets us apart is the sequence – most of our peers began with cables and then moved to wire. We, on the other hand, started with wire and progressed to cables. Currently, within FMEG, we have a robust presence, encompassing approximately 77 per cent of that segment. This includes a range of products such as fans, lights, switches, switch gears, and appliances. At present, our focus is on consolidating our position within this segment itself.
Is there any acquisition on the horizon?
In the past three years, significant business acquisitions have shaped our trajectory. In FY20, we acquired a restaurant, expanding our portfolio into the commercial lighting division in Bangalore. More recently, in May '22, we made a strategic move by acquiring the luminous home electrical business, which included their life and friend business. Currently, our focus is on consolidating and strengthening these acquired businesses. As of now, we do not have any immediate plans for additional acquisitions.
So what are your top three strategies that you look forward to?
Currently, 90 per cent of our revenue is derived from the Wire and Cable segment, with wire contributing 70 per cent, cable 30 per cent, and FMEG accounting for the remaining 10 per cent. We maintain an equal and robust focus on both domestic and export markets for both wire and cable. With a broad reach, we already have over 25,000 registered electricians in our network, providing substantial opportunities for growth. I am optimistic that growth will be sustained across all segments. However, I intend to emphasize continuous performance improvement.
Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.