Key takeaways of the call

Delighted with Q2FY21 performance given the context of current challenging business environment.

Improving overall business environment with staggered unlocking led to better performance sequentially. Revenue declined by 6% YoY in Q2FY21 as against 50% YoY decline seen in Q1FY21. PAT was up by 14% YoY with PAT margin improved to 10.5%. Q2FY20 had a tax write back of Rs24.3 crore due to reduction in statutory tax rate. Adjusting for that, PAT would have grown by 31% YoY in Q2 FY21 reflecting overall improved profitability.

EBITDA margin rose to about 14.8% in Q2FY21 is largely due to several cost cutting steps taken in last couple quarters; premiumization in FMEG segment as well favourable product mix including increased contribution from B2C (B2C grew in double digit and B2B declines in Q2FY21).

Covid Impact has reached its peak, worst is now behind as the firm is witnessing healthy growth in all the segments.

Overall demand trends are encouraging and many of consumer facing businesses of the company have started seeing growth compared to last year.

Wires and Cables business: Improving momentum with resumption of economic activities. B2C and exports sustained the strong traction. While total income in Q 2 declined by 7 % YoY, demand trends are encouraging and bodes well going ahead. Domestic distribution channel sales performed better than institutional business with T1 & below towns posting YoY growth. There healthy double digit growth in T1 & below towns. Metros continue to remain affected by localised lock-downs. On Sequential basis there is recovery in metro cities with relaxations.

Wires and Cables business: Within domestic distribution channel sales, housing wires business continued its momentum posting a double -digit growth in Q2FY21. Profitability improved with higher contribution.

Overall exports revenue grew by 47 % YoY and contributed 10.7 % to overall top -line in Q2FY21. Sales to Dangote amounted to Rs 440mn in Q2FY21. Normalising it, exports grew strongly by about 400%YoY led by US, Australia, Asia, and Middle East.

FMEG saw a strong bounce back with total income growing by 25%YoY in Q2FY21 led by pricing, better product mix, distribution augmentation and reviving consumer demand. Resilient growth across most categories and regions. Fans grew strongly despite higher competitive intensity. About 14 new products and over 40 new SKUs were launched in past six months. Relatively stable price environment in Lighting business aided value growth. Pumps sales more than doubled on YoY basis. Switchgears saw a revival however switches remained muted due to operational issues.

Profitability of FMEG in Q2FY21 improved sharply despite rising input costs on account of calibrated pricing actions, premiumisation and working capital interventions.

Other segment which largely comprises of our EPC business was down on account of a stronger base. Annual sustainable operating margin in this business is expected to be in high single digit over mid to long term

Launching new products with IoT capabilities and voice command on products. This portfolio will cut across FMEG categories and function among Polycab IoT platform. FMEG key value driver over the long term.

The company is not a predominant B2C player with about 80% of revenue coming from B2C compared to 2012 when it is largely a B2B player.

Institutional business that was down 70-80% in June 2020 is now down by 30-40%. Private capex has improved from Q1 to Q2FY21. So for B2B business to get back to desired level will take one or two quarters. However H2FY21 will be better than H1FY21 for B2B business.

The company forayed into FMEG 5 years back and now its one of the fastest growing FMEG company in the country. And within FMEG the strategy of the company is to improve both topline and profitability of slightly large business. In case of smaller business in FMEG the focus is on improving profitability. The next generation products will be pitched in premiumization.

Expect IPL related expense to be charged in Q3FY20 due to delay in IPL schedule. About 1/5^th of the IPL expenses ae expected to be charged in Q3FY21. Thus EBIDTA margin of Q2FY21 is not sustainable in the upcoming quarter. However expects the margin for FY21 to be better than last year.

Overall EBITDA margin of 11-13% is sustainable for FY21. The company has guided 100-150 bps growth in margin for FMEG every year, but will review it by Q4FY21 for next fiscal.

The company had export target of 10% of revenue and this was achieved in Q2FY21.

Sales to Dangote amounted to Rs 44 crore in Q2FY21. Dangote given follow up order of almost USD 10 million which is in addition to last quarter.

Receivables have improved due to cash collection however inventory levels remain high due to purchase of raw material last month due to anticipation of improving demand environment and goods in transit. Current quarter Inventory will be used as goods in transit and will see improvement in the inventory cycle in subsequent quarters.

Expect government initiatives and reviving consumer sentiment should support demand in months to come. As the worst is behind, expect H2FY21 performance will be better than H1FY21. The company is also tightening its belts with cost cutting initiatives, to improve profitability without bargaining on long term brand development and innovation initiatives. The company remain focussed on augmenting our brand positioning in the Electricals space and creating long term shareholder value.