Polycab India Limited (A Q1FY24 Result Analysis)

Summary

Polycab is India’s leading manufacturers of cables and wires and allied products such as uPVC conduits and lugs and glands. We have a range of cables and wires for practically every application. More recently Polycab has also launched a wide range of consumer electrical products like Fans, Switches, Switchgear, LED lights and Luminaries, Solar Inverters, and Pumps.

About Polycab

Polycab India Limited (PIL) is India’s largest manufacturer of Wires and Cables and one of the fastest growing FMEG companies with a consolidated turnover of INR 141+ Bn in FY23. PIL is at the forefront of providing innovative, safe and energy efficient products to a diverse set of customers via a strong distribution network of 4,300+ authorized dealers and 205,000+ retail outlets. PIL’s business operations span across India through 25 manufacturing facilities, 14 offices and 23 warehouses. PIL has also served customers in 72 countries globally. PIL’s 4,400+ employees are dedicated to upholding robust governance practices, preserving a customer centric culture, having a purpose to serve the communities, and imbibing a genuine sense of ecological consciousness.

Business Segment

Business Performance During Q1FY24

Wires and Cables (W&C) Segment Performance

• W&C business revenue grew 46% YoY basis to ₹ 34,874 Mn on the back of strong volume growth both domestically and internationally.
• Geographically, growth was broad based, with highest growth coming from North region.
• Segmental margins improved by ~330 bps YoY led by judicious price revisions, better operating leverage and strong growth in international business.

Growth drivers in W&C

Polycab is the largest Wires and Cables manufacturer in India, with a strong suite of products…

Dominant position in W&C category

FMEG Segment:

• FMEG business was muted during the quarter 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.
• Fans has delivered healthy growth QoQ as older non-BEE compliant inventory with channel partners was sold off, leading to fresh sales of newer BEE compliant inventory during the quarter.
• Switchgears and Conduit Pipes & Fittings businesses too showed sequential growth, tapping on the continued strong momentum in the real estate sector. Switches business continued with its impressive growth, with sales growing 3.8x 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.

High Growth Opportunity in the Indian FMEG Industry

International

• 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.

Coference Call Highlights

Growth Front

• Polycab has delivered its first ever highest quarterly growth during Q1FY24 and the growth was led by both domestic and international businesses.
• W&C value and volume growth stands strong during the quarter; whereas value grew by 40%+ and volume grew by 50-60%. However, this growth was led by wires, as its growing faster than cables.
• FMEG business was muted during the quarter due to high base of inflation last year and hence, demand was muted due to lower purchasing power on high ticket size of the products. The management is expecting that the growth will be on path soon to be end of FY24.
• International business (contributes ~10% of the sales) grew by 88% during the quarter. The company continues to focus on international business and aspiration to reach at 14-15% of the same in the next 2-3 years.

Margin Front

• Gross margin and operating margin has expanded during the quarter led by strong growth in topline and better operating leverage.
• For W&C margin, management has guided to be in the range of 12-14% in the longer run; however, it is in the upper end range as it was 13% earlier.
• For FMEG margin, company will maintain 10% going forward.

Financial Highlights

Q1FY24

Full Year FY23 Performance

Management Of The Company

Mr. Inder T. Jaisinghani, Chairman and Managing Director of the Company, has been working with the Company since its inception. He was appointed as a Chairman and Director of the Company on December 20, 1997 and was subsequently reappointed as Chairman and Managing Director of the Company with effect from August 28, 2019. He has played a vital role in different areas of Strategy & Planning, Administration & Management, Sales & Marketing, Governance, Operations, Finance and overall support services and under his leadership and guidance the Company has completed over 25 glorious years of success.

Mr. Gandharv Tongia, the Executive Director and Chief Financial Officer of Polycab India Limited, is associated with the company since 2018. In his current role as the CFO, he is responsible for all aspects of the company’s financial as well as information technology functions.

He has played a pivotal role in getting the company listed in 2019 and is instrumental in spearheading the Company in its ongoing transformational journey. He has taken number of strategic initiatives to prep up Polycab India, for its next big leap in the highly competitive and fast paced digital age; and this includes the flagship ‘Project Leap’.

Under his leadership, Polycab India has been recognised for ‘Excellence in Financial Reporting: 20-21’ in the Plaque category by The Institute of Chartered Accountants of India (ICAI). The company’s Annual Report has won Asia’s Best Integrated Report 2021 [Bronze] and Asia’s Best Integrated
Report (Design) 2021 [Gold] awards.

Shareholding Pattern

Risk Factors

• Competition from other organised players in wires and cables
• Fluctuation in raw material prices
• Forex volatility

Valuation and Outlook

A higher pricing revision, operating leverage, and significant growth in the international market helped Polycab post its first-ever highest quarterly growth in terms of both sales and margin. Best ever volume growth in the W&C sector, however, increased by 50–60% throughout the quarter, led by a significant uptick in institutional business. The management predicted that W&C's growth would continue to be strong in the ensuing quarters and that they would stick to their long-term forecast of 20k cr in revenue by FY26. While exports, product innovation in the FMEG sector, project LEAP, and the ascent of organised players will be the primary sources of growth. As a result, management reduced the operating margin's upper range from 13% to 12-14%. The stock is currently trading at 33x FY25 EPS.