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.