Polycab India held a conference call on 20 January 2022 to discuss the results for the quarter ended December 2022 and way forward. Mr. Inder T Jaisinghani- Chairman and Managing Director and Mr. Gandharv Tongia - CFO of the company addressed the call.

Highlights of the Concall

• Revenue grew 10% YoY to Rs 3715.2 crore in spite of high base, lower commodity prices and higher inflation on the back of healthy volume growth in cables & wires business. Revenue grew by 19% YoY in 9MFY23 in spite of high base, lower commodity prices and higher inflation on the back of healthy volume growth in cables and wires business.

• EBITDA margin continued to improve, increasing by 73 bps QoQ to 13.5% on the back of better operating leverage despite input cost pressures and almost 4 times increase in A&P (advertisement and promotion) spends. EBITDA grew 58% YoY with margin improvement of 312 bps in 9MFY23. Lower commodity prices, better operating leverage and strong growth in exports contributed to margin improvement.

• During the quarter, the company ran a number of branding campaigns across TV, digital, social and print media platform, which increased its A&P expenses roughly 4 times as compared to the last quarter. It also actively engaged with influencers, including electricians, architects and contractors, as well as the dealers and distributors through various engagement programs to improve awareness among B2B customers.

• Other income came in higher on the back of income related to deployment of its excess cash in mutual funds and other interest-earning assets, as well as around Rs 10 crore realized through monetization of certain assets.

• Wires and Cables business revenue grew 11% on YoY basis to Rs 3287.8 crore, which was largely driven by domestic distribution business. The outperformance was primarily on account of benefits realized through the merger of HDC and LDC verticals last year. The company also registered highest ever quarterly production volume in Q3FY23.

• FMEG business was almost flat YoY and grew 12% QoQ despite challenging business environment. While October and November were stronger compared to the months of Q2FY23, demand picked up considerable pace in December. On a 9M basis, the business grew by 8% YoY.

• Fans business saw good growth as distributors started restocking ahead of transition to the new BEE norms. Switchgears business witnessed healthy growth driven by our influencer incentive program. Pipes & Fittings and Switches businesses too posted decent growth

• FMEG business profitability de-grew largely on account of higher A&P spends.

• Work on realignment of distribution channel of FMEG business, brand building, new product development, premiumization of offerings and influencer management program are progressing well which will help drive revenue growth and margin expansion for the FMEG business

• The company has strengthened its board through the induction of 2 more directors. The new board is more diverse with a 20% representation of women directors, in line with globally followed best-in-class corporate governance practices

• The global economy continues to reel under recessionary pressure from burgeoning interest rate, high commodity prices and supply chain disruption due to Russia-Ukraine war while India's economy has held up strongly, drawing strength from its macroeconomic fundamentals and largely domestic consumption-driven economy. Festive demand has supported activity in both manufacturing, as well as other sectors, driving the composite PMI to an 11-year high, underpinning the economic outlook and positive sentiment.

• Net Cash position improved to Rs 1870 crore as of December 2022 end as against Rs 670 crore as of December 2021 end. This cash will be utilized in 4 ways - towards capex, for M&A activities, some retained as war chest and rest would be distributed to shareholders either through dividends or buybacks.

• The company intends to enter the high-voltage/extra-high-voltage space with power demand multiplying across all tier 1 and 2 cities, as well as with smart cities coming up, entire overhead high-voltage transmission line conductors will have to go underground. And thus, the demand for high-voltage/extra-high-voltage cables would grow exponentially. Also, due to ever increasing load transmission system, it see 220 KV transmission lines moving to 400 KV and soon expect to even see the 550 KV transmission lines in India. Being a market leader in the cable industry and looking to capitalize on this opportunity, the company is kicking off investment for a state-of-the-art EHV production facility in Halol, Gujarat. The company will be putting in capex this year towards setting up this facility and expect the project to be completed and production to get started in 2025. Since EHV is high technology product, so it has tied up with a leading Swiss company, Brugg Cables, for the technology procurement. Brugg Cables was founded more than 120 years ago and has grown to be one of the world's leading cable manufacturers. Brugg has signed a technology know-how agreement with Polycab to transfer design, testing, production and installation technology to Polycab for up to 550 KV voltage system. The investment will open up Rs 4,000 crore to Rs 5,000 crore of potential HV/EHV domestic market and also a significant amount of overseas business for Polycab. Taking this investment into consideration, capex for CY2013 will be roughly Rs 600-700 crore of which three fourth of this will be utilized for wires and cables and one fourth for the FMEG business.

• Revenue from exports business grew 32% year-on-year in 9MFY23 on the back of good demand from sectors like oil and gas, renewable and infrastructure. Overall, export business contributed to 5.9% of consolidated revenue in Q3FY'23 and 8.6% in 9MFY23. The company has a strong export order book and expects exports to contribute roughly 8-10% to FY'23 consolidated revenue.

• The company expect reasonable growth in the FMEG business to resume from FY '24 onwards as it get done with the realignment of its distribution channel by the end of this financial year. Further, it is taking various initiatives, such as brand marketing, new product development, premiumization of offerings, influencer management program, more focus on higher margin business such as switchgear and switches, which will aid in scaling up the FMEG business growth and margins going ahead.

• The company expects Ebitda margin for cable and wire to be around 11-13% and for FMEG it expects it be improving every year and reach around 10% by FY26.

• The company expects topline of Rs 20000 crore by FY26.