Polycab
Witness strong demand
for W&C
Polycab
hosted a conference call on July 19, 2023. In the conference call the company
was represented by Inder T Jaisinghani, CMD and Gandharv Tongia, ED & CFO.
Key
takeaways of the call
Strong
growth in revenue of Wires and Cables business at around 46% YoY came on the
back of strong volume growth both domestically and internationally.
Robust
domestic demand for W&C business was supported by government measures,
improving private capex and strong real-estate off-take. Strong growth momentum
to continue for W&C business for the rest of the year.
On
combined basis (both domestic and international and across product category) the
volume growth for W&C was in the range of about 50-62% in Q1FY24. Growth in Q1FY24 should be viewed against soft
June 2022 where sales were impacted due to sudden decline in commodity prices.
Domestic
distribution driven business sustained its strong growth momentum, while
institutional business exhibited remarkable growth acceleration.
Geographically, growth was broad based, with highest growth coming from North
region.
Both
Cables and Wires grew in Q1FY24 but cables growth continued to outperform wires
growth. In Q1FY24 the mix was 72-73% for cables and balance wires of the total
W&C revenue.
During
the quarter the commodity prices were largely stable so the price revision was
in low single digit reduction for Q1FY24.
Capacity
utilization for W&C was around 60-70% in Q1FY24.
Of
the domestic W&C sales in Q1FY24 about 9% was institutional sales and
balance was through distribution.
Revenue
from international business grew by 88% YoY, contributing to 8.9% of the
consolidated revenue. The Company expanded its global footprint to 72 countries.
In
international wires is a competitive market and thus the company has to focus
on cables business.
FMEG
business in Q1FY24 was muted as weak
consumer sentiment weighed down on sales. However, the segment showed 3%
year-on-year and sequential growth as benefits of channel realignment started
to play-out.
FMEG
consumer demand is muted. Going forward by H2FY24 the demand is expected to
come back. Gradually the sales and profits are expected
to grow for FMEG business with increased market penetration and cross selling. EBITDA
margin of 10% is targeted by FY26 for FMEG business.
Fans
business exhibited healthy growth sequentially as older non-BEE compliant
inventory with channel partners was sold off, leading to fresh sales of newer
BEE compliant inventory during Q1FY24.
Switchgears
and Conduit Pipes & Fittings businesses showed sequential growth, tapping
on the continued strong momentum in the real estate sector.
Switches
business continued with its impressive growth, with sales growing 3.8 times
over the same quarter last year, albeit on a lower base.
Lights
& luminaires business de-grew marginally, on a sequential basis, on account
of the continued pricing corrections in the LED segment. Prices of LED corrected
by about 10-11% and expected to continue down trend going forward.
Active
demand in renewable which are margin accretive.
Segmental
margins of W&C in Q1FY24 improved by 330 bps YoY led by judicious price
revisions, better operating leverage and strong growth in international
business.
As
per project LEAP a topline of Rs 20000 crore by FY26 was targeted. But given
past few quarter performance and robust demand for W&C the company has to
re-calibrate that target.
Typically
the C&W volume growth will be 1.5 times of the GDP growth.
Expect
to increase penetration to another about 140 centres during current fiscal.
Annual
sustainable operating margin of EPC business is expected to be in high single
digit over mid to long term.
Historically
the company was operating at a margin of 11-13% for W&C and now with strong
demand growth it is getting operating leverage and this will give additional
100 bps advantage.
In
the process of setting up a facility for EHV and tied up partner for technology.
Significant
part of free cash flow will be used for capex requirement i.e. EHV plant, FMEG
capacity wherever it required, capacity for international business etc.
The
company continues to build brand in B2C business. Advertisement and brand
building spend will be around 3-5% of the B2C revenue.
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