Demand potential in Extra High Voltage Cables
Demand potential in Extra High Voltage Cables
KEI has chalked out focused growth plans for entrenching itself in the fast growing(approx 30% CAGR annually) EHV cables segment. With EHV cables attracting high usage fortransmission & distribution projects in Class A &B cities, this segment is likelyto witness unprecedented surge and traction going forward, given the large budgetaryallocation for power projects & infrastructure.In addition, the Company's foray into the 220 kV segment will give a firm impetusto the turnkey EPC business, which consumes significant portion of EHV cables.It is estimated that the demand for EHV cables in the country for the year 2008-09 wasRs 400 crore and in year 2009-10 at Rs. 900 crore, which is expected to increase to Rs. 1400crore by 2010-11.Going forward, the focus on this premium cables segment will and positively impact thefortunes of the company as the average EHV contracts stand between Rs. 50-100 crore,significantly higher than orders from other segments, will help increase average ordersize and also improve profitability on the back of higher margins in this cable segment.
Foray into EPC space:KEI also commenced execution of EPC contracts. The main services offered by the companyin the EPC segment include execution of: Power transmission projects of 66kV to 400kVsubstations on turnkey basis EPC of EHV & HV Cables Systems Electrical balance ofplant system for power plant Electrical industrial projects A typical EPC - EHV project comprises: 70% of EHV cables in a turnkey project Supply of cable along with unit accessories, jointing arrangements, etc.Excavation of trenches, tunnel, etc. Cable laying Cable jointing, termination Testingand commissioning The company's key strengths in the EPC segment include in-house executioncapabilities, ability to manufacture own EHV cables/HT cables (which accounts for nearly70% of its EPC - EHV project value) and also offer the entire range of products -instrumentation cables, control cables and power cables. In addition, the strong marketinginfrastructure and regional offices across all major cities in India provide KEI adistinct edge over its competitors.
The company is better placed to bid at cost competitive rates due to the in-house cablemanufacturing capabilities, especially of EHV cables. KEI is well poised to garner a shareof the EHV cable turnkey projects due to its experience gained so far in the execution ofelectrical transmission (substation) projects, its proven technical competence andexecution capabilities.During the year, the company strengthened its capability and presence in the EPC spacethrough the set-up of a full-fledged team spearheaded by an experienced, professionalChief Executive Officer. The company successfully executed a 400 kV power substationproject on a construct-install-commission-test basis during the year and is now focusingon large tenders in this space. The company expects to register increased revenue in thisbusiness space.
Within the EPC segment, the company services both the government and the privatesectors. Through its recent strategic tie-ups, the company is better qualified to winprojects based on the key parameters of financial health, technical qualification, projectexecution capability, projects already in hand and ability to take on and execute moreprojects. The company is qualified to bid for projects up to a value of Rs. 800 crore-1000crore and further through JV Partnership. Depending on the size of the project, theaverage gestation period of such projects can range from 4 to 24 months.The company believes it is well placed to bid for electrical transmission (substation)projects where high technical competence and execution capability is required.Moving forward, the company will also look for opportune moments to foray into othersectors like transmission line, infrastructure projects in the area of SEZs,MRTs/Airports, EPC of cement plants, power plants and steel plants in the next 3-5 years.
2. Exports:The company exports products to over 30 countries across the globe, focusing primarilyon the oil & gas and utilities segment. Competitive pricing and ability to offercustomised solutions and speciality cables provides KEI a niche in the export market.With the complete meltdown witnessed in the company's key markets of presence inMiddle East and Africa, a sharp revenue erosion was witnessed. With the global recoveryunderway and a definite spurt in demand, the export market is expected to slowly andsteadily regain traction.The company utilised the downturn as an opportunity to strengthen and build onprequalification parameters, achieving approvals for large projects with local companiesin Middle East. The company also built on its channel partners and focused on appointingagents to further entrench into markets, an exercise which is bound to be fruitful as theclouds of recession lift.KEI is building its network of dealers in United Kingdom for general purpose projectsand for oil & gas sector projects.Due to high cost of production and closing down of plants in Europe, outsourcingopportunities from Asia will grow.Showcasing a strong commitment to grow its presence in the overseas market, KEIparticipated in various international exhibitions to establish new linkages across keytargeted markets.The company continued to bid in projects that were announced, and at the same timeexplored opportunities to foray into different promising sectors where opportunities areexpected to pick up in the future.
3. Retail domestic house wires:KEI has developed a strong reputation as "the power behind the power"company, and has established a clear positioning of a "specialist cablemanufacturer". The three pillars of trust & quality, brand awareness &customer service have enabled the company to grow the retail domestic business in a shortspan of less than 5 years.The company's product and quality offering, specialist positioning and brandenhancing activities and strengthening of the distribution & dealership network haspaid off well, with the domestic house wires business clocking strong revenue growth inthe fiscal year 2009-10. The business segment witnessed strong demand for house wires, andthus retail business largely remained insulated from the adverse impact of the recession.Besides establishing a strong brand recall with ongoing marketing activities, thecompany continued to maintain excellent relations with realty developers, buildingcontractors, large dealers and architects.The company used practical, cost-effective yet impactful advertising and marketingavenues tapping various outdoor advertising mediums across the country.With the realty sector opening up and the economy in strong growth momentum, furtherdemand pick-up is foreseen in the sector. The company has a pan-India presence, backedwith adequate supply chain management ability to reach products to distributors on time.The company continued to focus on augmenting its distribution network in unrepresentedareas and continued with its brand building activities. The business segment also sawrecruitment of additional marketing staff to strengthen presence and servicingcapabilities.The ability to provide EPC services will also be beneficial to the retail segment.more details on kei-ind.com Looking at the opportunities opening up in this segment, the company looks for enhancedsales contribution in the coming fiscal.
Outlook:The demand for cables has already picked up and is expected to get a positive impetuswith expansion projects reaching mid-way. The overall macro-economic indicators andindices also augur well and KEI, on the back of its enhanced capacities, turnkey solutionofferings, amongst the widest range of power & instrumentation cables, focusedapproach in its domestic house wires and EHV segment, is poised to deliver phenomenalgrowth and success going forward.
RISK MANAGEMENT:The company's risk management strategy encompasses the proper and in-depthidentification, assessment and prioritisation of risks, followed by speedy mobilisation ofresources to minimise, monitor and control the probability of unfortunate events. Thecompany's hands-on approach, along with the prudent leverage of technology to bringall processes under the MIS, has greatly helped its 360 degree mitigation efforts.
Business Risk:The company's products are used primarily by the power utilities, infrastructure,real estate and industrial segment. Any slowdown in these sectors can largely impact thedemand for the company's products.In India, optimism is growing about the prospect of an economic recovery following aslowdown triggered by the global financial crisis. Sectors such as infrastructure, steel,automobiles and cement - a key gauge of economic health - are already faring better thanexpected.
Raw material price fluctuation risk:Excessive volatility in the Company's key raw materials copper andaluminium can have severe impact on its profitability.The company has adopted stringent strategies for raw material price increase. Tomitigate the risk of increasing raw material prices, the company inculcates priceescalation clauses for large orders and offers price validity of three months in the caseof smaller projects, helping it reduce inventory of both raw materials and finished goods.The company's ERP BAAN system also provides it with real-time data facilitatingfaster decision making and mitigation strategy execution.
Currency fluctuations risk:As the company derives a portion of its revenues from exports, excessive volatility incurrency rates can significantly impact profitability. Similarly, the company also importsraw material wherein excessive volatility in currency rates can impact raw materials costsand finally profitability.The company constantly monitors currency movements and resorts to forward booking as ahedge to curtail forex losses.
INTERNAL CONTROLS & SYSTEMS:The Company's system of internal controls provides for maintenance of properaccounting records, reliability of financial information, and assures safeguarding ofassets against unauthorised use or disruption.
HUMAN RESOURCES:The company places due importance on its human capital assets and invests in buildingand nurturing a strong talented pool to gain strategic edge and achieve operationalexcellence in all its goals. As a part of ongoing HR initiatives, skill mapping andmatching is carried out; assessment of training and development is also carried out at thetime of performance appraisals. Adequate training, mentoring programmes are designed tobridge gaps, if any. Clear objectives and goals are determined to bring objectivity toperformance and overall goal achievement. During the year, industrial relations continuedto be cordial, with a strong spirit of bonhomie and camaraderie prevailing among the rankand file of employees.
CAUTIONARY STATEMENT:Statement in the Management Discussion & Analysis describing the Company'sobjectives, projections, estimate, expectations are "forward-looking statements"within the meaning of applicable securities laws and regulations. Actual results coulddiffer materially from those expressed or implied. Important factors that could make adifference to the Company's operations and include economic conditions affectingdemand/supply and price conditions in the domestic and overseas markets in which theCompany operates, changes in the government regulations, tax, corporate and other laws andother incidental factor.
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