POLYCAB INDIA LIMITED (POLYCAB) Q1 FY23 Earnings Concall Transcript

POLYCAB INDIA LIMITED (NSE:POLYCAB) Q1 FY23 Earnings Concall dated July 20, 2022

Corporate Participants:

Gandharv Tongia — Chief Financial Officer

Inder T. Jaisinghani — Chairman and Managing Director

Analysts:

Atul Tiwari — Citigroup — Analyst

Naval Seth — Emkay Global Financial Services Ltd — Analyst

Achal Lohade — JM Financial Limited — Analyst

Uttham Kumar — Spark Capital Advisors (India) Private Limited — Analyst

Nikunj Gala — Sundaram Asset Management Company Limited — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Kunal Sheth — B&K Securities — Analyst

Gopal Nawandhar — SBI Life Insurance Co. Ltd. — Analyst

Abhijit Akella — Kotak Securities — Analyst

Ankit Babel — Subhkam Ventures — Analyst

Viraj Mehta — Equirus PMS — Analyst

Varun Basrur — Julius Baer Wealth Advisors — Analyst

Deepak Lalwani — Unifi Capital — Analyst

Shrinidhi Karlekar — HSBC — Analyst

Rahul Agarwal — InCred Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Polycab India Limited Q1 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Gandharv Tongia, Chief Financial Officer, Polycab India Limited. Thank you, and over to you, sir.

Gandharv Tongia — Chief Financial Officer

Thank you, operator; and very good noon everyone. I hope you all are doing well. It’s a pleasure to have you on the call. As operator mentioned, my name is Gandharv Tongia and I’m the CFO at Polycab India Limited. Thanks for joining us today to discuss our Q1 FY ’23 earnings.

During the call, we will be referring to the presentation, financial results and financial statements, which are available on the stock exchanges, as well as Investor Relations webpage of our website. It can also be downloaded through QR code on slide number eight of earnings presentation.

From our management team, we have with us our Chairman and Managing Director Mr. Inder T. Jaisinghani.

Let me now hand it over to him for his opening comments.

Inder T. Jaisinghani — Chairman and Managing Director

Good afternoon, everyone. We have started the fiscal year 2023 on a solid footing with topline growth of 48% fueled by a strong performance across B2B and B2Cs, which underline our strategy to be agile, focus on robotic execution and consistency, deliver the best quality of the product to our customer. Profitability was supported by the better operating leverage and various strategic initiative implemented over the past few quarters. We will strive to continue the path of profitable and sustainable growth and contribute to success of all our stakeholder.

I now request Gandharv to take your view through our earning presentation.

Gandharv Tongia — Chief Financial Officer

Thank you, Inder. Revenue growth of 48% marks the beginning of FY ’23 on a promising note, as most of our businesses are now performing above pre-pandemic levels. The numbers might look upbeat due to low base, but we are seeing sustainable improvement in our underlying businesses. More importantly, we are progressing well on our strategic agenda, which will drive transformation over mid-to-long term. The current quarter breaks the rhythm of back-to-back impacted Q1 results, turning it to be the best Q1 in the history of the Company in terms of revenue and margins.

Before I take you through the presentation, let me give you a flavor of macro environment. Overall macro environment has been a bit of mixed bag during the quarter. Global economy is going through an extremely uncertain period amidst the simultaneous interplay of various headwinds, lingering war and enduring COVID, a sharp volatility in energy and other commodity prices, strains in global supply chain and worsening food security. In several economies, inflation is ruling at levels not seen by the recent generations, for advanced countries, against an inflation target for 2% and emerging market against an average target of about 3% to 5%; two-third are witnessing inflation about 7%. The sharply tightening financial condition due to the ongoing monetary normalization on the one hand and the persisting geopolitical tensions on the other post significant downside risk to near-term global economic prospects. The global economy is projected to decelerate significantly during 2022 by all multilateral agencies. The outlook is scouted in high uncertainty. A sliver of hope has been visible in the recent moderation in global commodity prices and especially food prices.

Back home, the Indian economy has however shown some dynamism. Several indicators suggest that the Indian economy is making resilient progress in Q1 FY ’23, in spite of the drag from global spillover. Elevated inflation and some flattening of external demand as geopolitical development take their toll on world trade. The high frequency indicators for first quarter are mixed. However, amidst a sea of red and yellow, greens are making their appearance. For example, GST collections for the first quarter stood at over INR4.5 lakh crore, up 37% year-on-year, while other indicators such as services PMI, IIP core sector all showed meaningful improvement. India collection results are approximately close to nearly 10 months of imports projected for the current fiscal, thereby providing a sufficient buffer against external shocks. However, on the contrary, consumer sentiment still remain below pre-pandemic levels, which was emphasized by RBI’s consumer confidence survey. It is expected that the consumer demand in the urban market remains resilient while a pickup in monsoon will support the rural market, which have been showing consumption strength. Besides, most of the COVID costs have been corrected in the last couple of months, offering some respite to the adverse macros, though the glass seem half full, perfectly balancing ambiguity with some silver linings. Meanwhile on our business, we remain agile through our portfolio and go-to-market strategy, which gives us confidence in industry-leading growth.

Moving on to the presentation, slide number four. For the quarter ended June 30, 2022, our consolidated revenue grew by 48% year-on-year. EBITDA more than doubled in the first quarter, while EBITDA margins improved by almost 420 bps year-on-year to 11.3%, led by better operating leverages and calibrated price hikes. During the quarter, we launched several brand campaigns across TV, digital and social media platforms. Seminars and influencers helped us to improve awareness amongst B2B customers, electrician and contractors amongst others. Moving on, other expenses were broadly in line. Overall finance costs stood at INR84 million and other income at INR443 million. A detailed breakup of our other income and finance costs have been provided on slide 12 of our earnings presentation. PAT also tripled on a year-on-year basis to INR2.23 billion. On segmental results, the current quarter is yet another example of how the diversity of our growth levers come into play.

Moving now on to slide number five, Wires & Cables, which is our largest business saw a strong topline growth of 48% year-on-year, led by healthy channel sales, while institutional business also witnessed growth traction. On the geographical front, the growth was broad-based with the highest contribution from West, followed by North and East regions. During the quarter, Wire business was slightly impacted by high volatility in metal prices. Consequently, the inventory levels in trade was slightly below normal and overall cash cycle also slowed. Despite these challenges, it is pleasing to note that the blended Wire & Cable volume grew on a year-on-year basis and is also higher than pre-pandemic levels. Export business contributed 6.7% to consol revenue and reported a healthy revenue growth of 62%. We have put in considerate effort over the last few years in terms of new product development, getting approvals and penetrating new geographies. This is now materializing as we are seeing many repeat orders from large customers globally. Our focus on achieving double-digit contribution target over the medium-term for this business remains intact.

On slide number six, our FMEG business grew by 59% year-on-year to INR305 crores. April month saw robust momentum. However, June was impacted by weaker trade and consumer sentiment arising out of inflation. The growth is quite structural, supported by strategic interventions and distribution expansion. Segmental operating profit increased to INR62 million with a 2% margin largely on account of pricing action, cost saving initiative and premiumization, which have been partly offset by input cost pressure. While lighting, switch gear and pumps continued their strong growth momentum, fans, conduit pipes and solar businesses posted healthy growth. However, switches are declined due to supply challenges.

On slide seven, Other segments, which are largely comprised of our EPC business, witnessed a 31% year-on-year increase in revenue to INR75 crore. Our debt-to-equity ratio is strong at 0.02 times and we are at net cash of around INR590 crores. On the working capital side, there are couple of things to highlight. One, receivable days are at comfortable level. We will continue to optimize this progressively with the help of non-recourse channel financing. Second, inventory levels are higher than normal because we were anticipating better demand in the month of June. However, as I highlighted a while back, the credit sentiment was negative or went down a bit due to high volatility in metal prices and dealers and retailers reduced their stock levels in the month of June. On papers [Phonetic], due to change in the procurement pattern from international to local vendors, the payment terms underwent a change from advance to LCs and that has resulted into reduction of liability. We expect this to normalize in one or two quarters.

Now let’s talk about our key project, Project Leap. In the first quarter of the fiscal 2022-’23 we primarily focus on four key areas; one, customer centricity; second, go-to-market excellence; third, winning with new products; and last is setup of organization and digital enablers.

Starting with customer centricity, under this initiative, we have successfully integrated GTM or go-to-market for Cable & Wire B2B segment. This will materially improve our customer servicing capability, as well as create one single route for our B2B customers. We have improved our understanding of the customer and its preference by using various tools and appointment of dedicated KAM or key account managers, which helps us to better serve our customers. We are also implementing pilot projects focusing on deepening reach and engagement with IHB and other influencers.

Second area is go-to-market excellence. We are putting lot of efforts on enhancing our presence. During the quarter, our B2B Cable and Wire each expanded to additional 27 new districts. For FMEG, we have added around 100 new distributors, while also strengthened our presence in modern trade and e-commerce channel.

Next, we are building a winning portfolio of our products, which are innovative and resolve consumer needs. During the first quarter, we have already launched 52 [Phonetic] new products mainly focused on premium and underserved segments and [Indecipherable] respectively. Our premiumization journey is progressing well with premium products now contribute almost 12% to our consumer business, which was just 8% in fiscal ’22 and 4% in fiscal ’21.

Fourth area is setup of organization and digital enablers. Whether there is a major initiative or setting up the right organization structure and fill critical capability gap across the departments and businesses. Majority of talent acquisition for critical roles was completed across businesses and functions while performance measures and reward recognition were aligned to the growth strategy. We also successfully executed end-to-end digitalization of front-end sales across businesses.

So that was broadly on Q1 FY ’23. Going ahead, we have pinned down some key focus areas for the next few months. One is enabling customer centricity in B2B business through which we are driving our sales team to work better consumer and customer understanding and expanding our customer view to include all relevant information in customer lifecycle. Secondly, expanding our reach and distribution across businesses, which includes expanding service to 200-plus districts for B2B and scale up of emerging India in the identified priority state. Third, winning in the new product in B2C businesses. We have a strong NPD pipeline to strengthen and build differentiated portfolio in FMEG businesses. Fourth, driving a digital agenda and creating a digital-first organization, under which we are strengthening our digital infrastructure across sales force, distributors, retailer and influencers. Lastly, emphasis on governance, where we have bottom-up engrained to our target setting approach deployed with linkages to scorecard across levels of business and functional teams. So that’s about it on Leap. We will continue to share periodic updates and are excited to see how rest of the year pans out.

Thank you. And with that, I hand it over to operator for Q&A.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Atul Tiwari from Citigroup. Please go ahead.

Atul Tiwari — Citigroup — Analyst

Yeah. Hi, sir. Thanks a lot for the opportunity and congrats on good set of numbers. Just a couple of questions on Cables & Wire business. So we have seen very sharp commodity price crash over past 45 days or so. So have you passed all of that in your end product pricing or — and how it should impact your margins over next two to three quarters? So that is one question, first question.

And the second one is, now that there is a widespread expectation that prices of the Cables and Wire product will be reduced, are you seeing reduced demand from channel? And how long that is likely to continue?

Gandharv Tongia — Chief Financial Officer

Thanks, Atul. Thanks a lot for your kind words. I think your first question was around margins and whether we have passed on all the benefits to the end consumer or customer. So you know this business, Atul. Historically, we have maintained EBITDA margins of 11% to 13% in Cable & Wire, and we believe in the quarters and years to come we should be able to maintain the same range. In the current quarter also, it was 11%. Almost 87% of our business comes from dealers and distributors, and where we revise our prices at least on monthly basis. And when we revise these prices, we consider two sectors predominantly; one is changes in copper and aluminum LME, and second is change in USD-INR exchange rate and this is what we have done even in the current quarters and we will continue to do that in the subsequent quarters as well. So to answer your question, we expect to maintain a margin of 11% to 13%.

Second, on demand. Generally, in the falling commodity prices, we have observed that dealers and distributors, they generally optimize the inventory at their end. And this is what we witnessed in the month of June. Expectation broadly is that we should have some stability in commodity prices in a month or so. And after that, I would not expect a significant correction in the inventory levels of our dealers and distributors. It is expected that the second half of the year would be better than the first half of the current fiscal.

Atul Tiwari — Citigroup — Analyst

Okay, sir. Thanks. Thanks a lot.

Gandharv Tongia — Chief Financial Officer

Thank you, Atul.

Operator

Thank you. The next question is from the line of Naval from Emkay Global. Please go ahead.

Naval Seth — Emkay Global Financial Services Ltd — Analyst

Yeah. Thank you for the opportunity. I have two, three questions, Gandharv. First, as you stated, volumes have seen growth over pre-pandemic levels also. Can you give out any number on that? That is first question.

Second, on Project Leap, because when we gave our Project Leap guidance of INR20,000 crores revenue by ’26, copper prices were kind of 20%, 22% higher than the current levels. So if copper prices or the other commodities are going to stay where they are right now, so will there be any change in timeline or number on this INR20,000 crores?

And third question is on the unorganized players, where last year we have seen unorganized players facing difficulties because of spike in commodity prices. So do you think that they will come back in this year as things are now falling in place with commodity cooling off?

Gandharv Tongia — Chief Financial Officer

Great. Thanks, Naval. So I’ll go in the same order. I think, your first question was around the volume growth. And you’ve rightly observed that we have registered a fair amount of volume plus value growth. If I were to give you a broad color on the current quarter growth of 48%, it is safe to assume that most of it, almost two-third is coming from volume and balance is because of the pricing action, which we have taken.

I think your second question was around the topline target of INR20,000 crore by fiscal 2026. So when we were working on this topline target as part of initial thoughts in the Project Leap around a year back, we considered last five years movement in copper and aluminum LME, as well as in USD-INR exchange rate. And of course, we factored-in some management estimate. At this stage, considering this a mid to long-term view, I don’t think we need to revise the topline of INR20,000 crore, but we will continue to keep you updated. At this stage, I, as well as the larger management team is confident of touching INR20,000 crore of topline by fiscal 2026.

Third is on the unorganized. My sense is, like other industries, this industry will continue to move towards more organized market player irrespective of what happens to the commodity prices. And I would be surprised if unorganized market share increases in the quarters to come or years to come.

Naval Seth — Emkay Global Financial Services Ltd — Analyst

Sure. Just a follow-up on the first question of volumes. Can you state number on pre-pandemic level on volume growth as you stated in the initial — your opening remarks that there was volume growth on pre-pandemic levels as well?

Gandharv Tongia — Chief Financial Officer

Yeah. This is true that we have been able to register a fair amount of growth, but it would be slightly incorrect on my part to give you that number, because in our business a kilometer length of copper cable would be different in terms of value and volume when I compare with the aluminum. So I think it’s safe to assume that we are ahead of the curve as far as the industry growth is concerned. But if I were to give you only specific response to this particular quarter with June ’21, I think most of it is coming because of volume and a part is because of value.

Naval Seth — Emkay Global Financial Services Ltd — Analyst

Sure. And if I may one last question on again, commodity prices. You stated that H2 will be better than H1. But do you think that last year volumes were impacted because of significant increase in commodity prices and have you started to see some green shoots where demand coming back or some demand, which might have got postponed last year will come back this year?

Gandharv Tongia — Chief Financial Officer

Theoretically yes, that’s possible. But as of now when we speak, I have not seen any significant or dramatic change in demand. As a matter of fact, June was slightly softer, and yet it appears that there would be some impact of the softer commodity prices even in the second quarter. But broadly, from third quarter onwards, we should see some uptick in demand and second half of the year should be significantly better than the first half of the year.

Naval Seth — Emkay Global Financial Services Ltd — Analyst

Sure. Thank you so much and all the best, Gandharv.

Gandharv Tongia — Chief Financial Officer

Thank you so much, Naval.

Operator

Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial Limited — Analyst

Yeah. Hi. Good afternoon. Thank you for the opportunity. My question was, if you could help us understand the FMEG part. First, in terms of the revenue mix, if you could break it into key products. And you did point out to a drop in switches. If you could give some sense as to what exactly is the issue out there and how do you see it going forward?

Gandharv Tongia — Chief Financial Officer

Sure. So we have broadly five or six sub-product categories within FMEG. One is fan, second is light and lum, switchgears, conduit pipe, bit of solar and bit of agro pumps. Fan contributes almost 30%, 35% to our topline of FMEG, and light and lum as well a number closer to the same range, and other businesses are slightly smaller. Fan got impacted in this quarter. As you remember, in the previous quarter, we had mentioned that we are doing the [Indecipherable] exercise in fan business, because we believe to achieve a significantly larger topline within fan business, we need to revisit our GTM dealer distributors and all that. So there is some impact on fan business. But on a consistent basis, we would expect fan and light and lum both put together should contribute almost 65% to 70% to our FMEG business followed by other smaller business.

As far as switches are concerned, any which way is a smaller business for us, but this is the only product where we were dependent on third-party supplies and we had some supply side issues on that. But parallelly, we have started our process of setting up our own factory for switches. It is expected to be up and running in the current fiscal as well. And once that factory is operational, we should not face any significant issues on supply side of switches.

Achal Lohade — JM Financial Limited — Analyst

But you think you will have all the approvals with respect to, because I recall for another company it took lot of time to get the government approvals required to launch the switches and switchgears?

Gandharv Tongia — Chief Financial Officer

No, I think we have a very good handle on the approvals on switches, as well as on the other businesses approvals. I don’t expect any significant challenges in launching our own switches in the current fiscal itself.

Achal Lohade — JM Financial Limited — Analyst

Got it. If you could help us what is the capex you are incurring and what’s the capacity and the revenue potential of this.

Gandharv Tongia — Chief Financial Officer

Sure. So historically we have incurred between INR300 crore to INR350 crore every year. This year as well we are anticipating a number close to INR300 crore to INR400 crore. When you’re working on Project Leap, there were several priorities. So what we decided that in the year to a Project Leap, we will start exploring adjacent categories and see whether we have to enter into these categories either through M&A route or otherwise through our own facilities. So if we decide to get into adjacent product categories that number of INR300 crore, INR400 crore will probably undergo a change, but that’s a work which is in progress. I think during the course of the year I should be able to give you additional color on this. And against the INR300 crore to INR400 crore target of the current year capex, we have incurred almost INR100 crore in the first quarter.

Achal Lohade — JM Financial Limited — Analyst

And specifically on this facility, what is — for the switches facility, what is the capex and the volume and the revenue potential or the asset turn?

Gandharv Tongia — Chief Financial Officer

So FMEG business is generally a lighter business in terms of capital intensity. We should be able to get anywhere between 6 times to 8 times of the capex spend. Once the facility is up and running, we will come back to you with additional color and data on the switches business.

Achal Lohade — JM Financial Limited — Analyst

Got it. Just one more question I had, if I may ask. With respect to the distribution, you had talked about the overlap and you have pointed out in the slide it’s about 25% is a common distribution. What I wanted to check, this classification is based on the retail mix or the dealers to distributor mix? How have you worked out this mix?

Gandharv Tongia — Chief Financial Officer

Yeah. The data which we have talked about is dealers and distributors and the classification is on the basis of type of products they procure from our company. So if they’re procuring cable and wire, then they are cable and wire dealer distributor; if they are procuring FMEG products, then they are FMEG distributor, but almost 25% of dealers and distributors are procuring both the products and that is the number which you are referring.

Achal Lohade — JM Financial Limited — Analyst

Sorry, that number is 45% or 25%, because I saw it is 25%.

Gandharv Tongia — Chief Financial Officer

25% are the dealers who are procuring both the products Cable and Wire.

Achal Lohade — JM Financial Limited — Analyst

So in effect, you’re saying there is 75% of our dealer distributors of wires, they are not actually buying FMEG. Is that understanding right?

Gandharv Tongia — Chief Financial Officer

There are 75% dealers and distributor who are either doing only Cable and Wire or only doing FMEG.

Achal Lohade — JM Financial Limited — Analyst

Understood. And just one clarification on the slide. If I see the map of the location, manufacturing locations, I see three places. You have written 23 units of manufacturing. So just wanted to get that clarity.

Gandharv Tongia — Chief Financial Officer

Yes. So there are multiple manufacturing locations in these geographical location. If you go to Halol, there are manufacturing facilities for different type of cables and wires, and these numbers of locations are as per the regulatory approval.

Achal Lohade — JM Financial Limited — Analyst

Got it. This is very helpful. I’ll come back in the queue for follow-up questions. Thank you. Thank you so much.

Gandharv Tongia — Chief Financial Officer

You are welcome.

Operator

Thank you. The next question is from the line of Uttham Kumar from Spark Capital. Please go ahead.

Uttham Kumar — Spark Capital Advisors (India) Private Limited — Analyst

Good morning, sir. Thank you for the opportunity. I think all the questions have already been answered. I would like to [Technical Issues] on the demand front. So currently how do you see, I mean, the current demand panning out over the next one to two years considering that now we are witnessing a [Technical Issues] and are we really seeing business gaining traction or is there certain pockets kind of driving the volume growth for us currently?

Gandharv Tongia — Chief Financial Officer

Yeah. Your voice was cracking in between. I think you’re talking about the demand outlook. Is that correct?

Uttham Kumar — Spark Capital Advisors (India) Private Limited — Analyst

Yes sir.

Gandharv Tongia — Chief Financial Officer

Yeah. So, as I briefly mentioned in my opening remarks, the June month got impacted because of significant softening of commodity prices. The expectation is that the commodity prices will get stabilized in a month or so, and after that we should not have any significant challenge as far as demand is concerned. Our is a business which is a distribution play. Almost 87% of our topline comes from dealers and distributor and whenever there is a significant softening of prices, generally dealers and distributors they optimize their inventory levels. But as you could imagine, this is only a near-term or immediate term impact. It doesn’t impact us on a mid-term or long-term.

As far as demand environment is concerned, macros are positive. You know the country already, it is a consumption story, as well as manufacturing story. When I think of the China, I can think of only manufacturing; when I think of US, I can think of only consumption. Whereas in the case of our country, it has benefits of both; we can produce, as well as we can consume. And that is where I don’t see any challenge in terms of demand over mid-to-long term.

Uttham Kumar — Spark Capital Advisors (India) Private Limited — Analyst

Right sir. Sir, secondly, with regards to the raw materials, I mean, the Company have divested Ryker Base recently to Hindalco. So just wanted to understand in terms of the corporate procurement, right. So in this case, I mean, is there any kind of — you could just give us more clarity what kind of terms we have in terms of procurement of copper from them. Is there any kind of advantage that the company enjoys in terms of maybe receiving the raw materials at a lower price or at a discount or is there any other third-party also would be supplying copper to you or is it only from Hindalco through whom we’ll be continue sourcing the entire raw material?

Gandharv Tongia — Chief Financial Officer

Sure. So the transaction which you’re referring to was consummated in December of last year. Ryker was a subsidiary, which was supplying or converting one form of copper into another form. We used to procure and even now also procure copper in cathode form from overseas supplier, as well as few of the local suppliers and Ryker used to convert those cathodes into rods, and that is where the rods were being used by our manufacturing facilities to manufacture Cables and Wires. So this transaction doesn’t impact the procurement philosophy or procurement trends which company enjoys, it was only a convergence. And as you would probably be able to recollect, when we did this transaction, simultaneously we entered into a multi-year job conversion or a sub-contract arrangement with Ryker, which is now part of Hindalco. So we continue to get the same benefit, which we were enjoying earlier. Why we decided to divest Ryker, because Ryker was not being utilized at 100% capacity. Our utilization was barely 30%, 50% and it was not making sense from ROCE perspective to continue with that particular legal entity within our Group. And this arrangement helps us both in topline, as well as the bottom line.

Now, your question on the these trends which we have or the benefits which we have on copper procurement. Before I specifically deal with that, let me [Indecipherable] the copper procurement for you. Most of the commodities worldwide generally are catered with embedded derivative, which means that on the date of procurement you need not to decide the final price which you need to pay to your vendors, you can decide it a month or two months or three month down the line. And generally, in that time frame, you are were able to convert the raw material into finished goods and you have visibility on the selling price and that is where you decide and sum up the procurement price. And this is how the changes in raw material prices becomes a pass-through for us. And that is where it doesn’t impact the profitability of our company. There could be some few chances or changes on month-on-month or quarter-on-quarter basis. But if you were to take an annualized view, it won’t have significant impact on the profitability of the company. And you know we are the largest consumer of copper in India, and we have those benefits available both from international suppliers as well as from the domestic suppliers.

Uttham Kumar — Spark Capital Advisors (India) Private Limited — Analyst

Got it, sir. Sir, lastly on the gross — is it a fair understanding that the current gross margins of almost 1000 [Phonetic] level. It would be sustainable or there can be some kind of improvement going ahead from here, maybe 100 bps, 200 bps, because of either — can be either because of the export mix which is coming in or current inventory being of the lower priced raw material, is there any scope it can be there in terms of improvement or can the current level sustain?

Gandharv Tongia — Chief Financial Officer

So over the past few years we have maintained EBITDA margins of 11% to 13% in our Cable & Wire business on an annualized basis. I think for your modeling purposes, it is best to assume a range between 11% to 13%. And I think probably even if we are able to better the margins in terms of actual numbers, it will only give you only positive surprises and no negative shock.

Uttham Kumar — Spark Capital Advisors (India) Private Limited — Analyst

Got it, sir. Thank you, sir. That’s all from my side.

Operator

Thank you. [Operator Instructions] Next question is from the line of Nikunj Gala from Sundaram AMC. Please go ahead.

Nikunj Gala — Sundaram Asset Management Company Limited — Analyst

Yeah. Good afternoon, team. Sir, I just have one question with respect to your Cable & Wire division. When you were mentioning that you will be maintaining your EBITDA margin in the range of 11% to 13%, but just want to understand during the deflationary scenario, is that understanding correct that during this period your absolute gross profit, I’m just focusing on the contribution margin perspective, that absolute gross profit in a deflationary scenario would be lower in that case?

Gandharv Tongia — Chief Financial Officer

Yeah, let me share with you my experience of this industry in last 15 years or so. What I have observed in this industry is whenever there is reduction in commodity prices, generally the contribution margin and EBITDA margin would improve for Cable and Wire manufacturers. And it is other way around whenever there is increase in commodity prices. So I would expect something similar to happen if there is significant reduction in copper, aluminum prices. If that doesn’t happen, I would probably then expect significant competitive intensity in the industry and significant market share gain. But generally speaking, I would expect improvement in contribution and EBITDA margin if the commodity prices are falling.

Nikunj Gala — Sundaram Asset Management Company Limited — Analyst

Okay. Understood from that point, sir. But why I’m seeking clarity on the absolute contribution. If you look at our number from FY ’19 to FY ’22, FY ’19’s commodities were approximately just to give you example of copper from FY ’19 to FY ’22 the basket of commodity has increased by 60%. So for example, your procurement was at INR75, you were selling at INR100, hence your contribution margin was at INR25. When I look at your FY ’22 number, the commodity basket moved from INR75 to INR120 purely on account of 60% inflation. At the same time, your realization also increased from INR100 to INR160, and during this period, your contribution remain INR25 to INR25. However, at a gross profit level, your gross profit which was INR25 in FY ’19 have become INR40. So that was scenario we have seen in the FY ’19-’22. In the next, for the example purpose, going forward, let’s take a similar example when you are procuring goods today at INR75, but this INR75 reduce this by 20%, which has come down to INR60. So I just want to understand the INR100 which you are selling will come down to INR85 or INR80. If it comes down by INR85, then you try to maintain your — increase your margin, but your absolute profit comes down.

Gandharv Tongia — Chief Financial Officer

Yeah. I think I probably lost you when you were changing number from 75% to 60%. But I think I’ll probably oversimplify for you as well as for others. We work on EBITDA margin targets, we don’t work on per ton target. And that is where I gave you guidance of 11% to 13%. At the same time what I highlighted to you in my experience in this Cable and Wire industry, in falling commodity prices, you should be able to get better margins both at contribution level and EBITDA level. And that is where I would suggest that for your modeling purposes, you can consider EBITDA margin in the range of 11% to 13% as far as Cable and Wire business is concerned. But if I were to give you color on FMEG business, which is almost 10%, 12% of our topline now and expected to grow over the period, there the current EBITDA margin or current EBIT margin is around 2% and we would expect to be in the range of 10% to 12% of EBITDA margin by fiscal ’26 and that is where there is a fair amount of upside which is possible as per that particular business OpEx entity is concerned.

Nikunj Gala — Sundaram Asset Management Company Limited — Analyst

Okay. Got your point, just clarifying that, in that case, you are saying if the Cable and Wire business INR100 you are making INR11 to INR13 and if tomorrow this INR100 becomes INR80 on account of passing on the prices to the consumer, you will make INR11 to INR13 on INR80, that understanding is right, sir?

Gandharv Tongia — Chief Financial Officer

That is partially right. What I highlighted is in my experience in the last 15 years in the falling commodity prices, the margin should improve. And if that happens, then you should have a positive surprise on to the range of 11% to 13%.

Nikunj Gala — Sundaram Asset Management Company Limited — Analyst

Okay. Sure, sir. Thank you. Thanks for your time.

Gandharv Tongia — Chief Financial Officer

You are welcome.

Operator

Thank you. Next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Thanks for the opportunity. Sir, on the new brand, Etira, can you share more light, means, basically where it is launched and which are the products that we have entered right now? What is the pricing difference versus Polycab brand and where it is exactly positioning? I agree it is at low-end of the market, but compared to unorganized products or the premium products like Polycab, where it is basically positioned? And is there any three to five-year target that the Company is working on? Yeah.

Gandharv Tongia — Chief Financial Officer

Okay. As part of our rural, as well as low-cost product offering, if we have initiated our work on penetration of rural market, we have a vertical called emerging India, which is being headed by Deepak, who joined us around a year back, and he has significant experience on the rural market. Etira was launched in the fourth quarter of the fiscal 2022. And if I’m not wrong, we have instead of 100% growth on sequential basis, of course numbers are small, but numbers are not significant, but the fact is the growth of 100% show that’s very promising. [Indecipherable] has been launched only in the wire product portfolio. As we go forward in the current fiscal, we will introduce Etira brand for other businesses as well in FMEG, for example, fan.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. And is there any target that the Company is working with three-year, five-year kind of a target or [Technical Issues]

Gandharv Tongia — Chief Financial Officer

[Technical Issues] and Etira would help us in achieving that over the period. And on a quarterly basis, we’ll continue to provide you updates on the actuals for the quarters come by.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Sure sir. Thank you. Thanks a lot.

Gandharv Tongia — Chief Financial Officer

You are welcome.

Operator

Next question is from the line of Kunal from B&K Securities. Please go ahead.

Kunal Sheth — B&K Securities — Analyst

Sure. Thank you for the opportunity. Most of my questions have been answered. Just one question sir. You mentioned that strengthening of the leadership team was one of the focus area. If you can, talk little bit about how has that moved and what has been the key additions of late, especially on the FMEG side, it could be really useful.

Gandharv Tongia — Chief Financial Officer

Sure. So when we were thinking about Project Leap almost 15 months back and we were in active discussions with our partner, Boston Consulting Group, we realized that the work streams which we are depend upon was 24 work stream as part of Project Leap. If you want to successfully implement those 24 work streams, we need probably more experience and more leaders at the top management level. And you know this business and company, Kunal, already, we don’t have any capital risk. We are sitting on cash in our balance sheet, we are only leader. The only risk we have, if we were to critically challenge is execution. What does that mean, that even if you plan for something, you are not able to implement in a most effective manner. And the way to mitigate that is have better quality of the leader, have more leaders to support the journey of INR20,000 crore topline by fiscal ’26. So we have hired leaders for various businesses and functions in last year or so. If I were to talk about top leaders, probably we would have hired almost 18, 20 leaders, but at the same time, there are significant augmentation of middle level managers as well.

Let me start with the functions first, we hired Rajesh from Tata Motors as our CHRO. He was with Tata for 28 years and all of us know Tatas are known for their [Indecipherable] and practices and we believe that Rajesh would be able to support us in transforming HR practices of Polycab. We hired Vivek Sharma as Deputy Managing Director. As you know, Vivek [Indecipherable] from Panasonic in India, and he is looking after the B2C businesses. We hired Head of Fan business from another large company. We hired Deepak Mitra for Emerging India, Deepak Himan for TMO, I probably would go on, but just to give you a broad color, we have mend almost all the businesses and functions now and it’s also slightly getting reflected in the employee cost of the company. But we have all the ticks in the checklist in place. Now it’s a matter of implementation and execution. And in the quarters to come, we should be able to get better results with the help of these leaders who have joined us very recently over the period of last 10 to 12 months.

Operator

Thank you, Mr. Kunal. May we request that you return to the question queue for follow-up questions. The next question is from the line of Gopal Nawandhar from SBI Life. Please go ahead.

Gopal Nawandhar — SBI Life Insurance Co. Ltd. — Analyst

Yeah. Hi. Thanks for the opportunity. Sir, if you can just highlight because of this decline in the commodity prices in the June, what kind of revenue loss would have been there for Cable & Wire business? And because of this GTM implementation —

Operator

Sorry to interrupt you, Mr. Nawandhar. Please increase the volume of your device.

Gopal Nawandhar — SBI Life Insurance Co. Ltd. — Analyst

Am I audible?

Operator

Yes, now you’re audible sir. Thank you.

Gopal Nawandhar — SBI Life Insurance Co. Ltd. — Analyst

Yeah. Thank you. Yeah. So if you can just highlight the revenue deferment because of decline in the commodity prices for the Cable & Wire business and impact on the fan business because of GTM and whether that GTM is through or it will further have impact on the remaining quarters?

Gandharv Tongia — Chief Financial Officer

So in our business, Gopal, generally speaking, you would not necessarily witness a demand loss or loss of opportunity. As mentioned, we’re deferment from one month to another month, one quarter to another quarter and this is a generalized statement. My expectation is that the second half of the year should be significantly better than the first half of the year. And that is where I would not necessarily would like to quantify the impact on the first quarter, but I would like to give you this comfort that in the history of the company this was the best quarterly performance as far as the first quarter of the fiscal is concerned.

On fan, I think we have completed almost all the alignment. By September, we should be able to complete everything, but fan is a slightly seasonal business. So the benefits of the alignment would get reflected in the next season, which will start some time November onwards and more meaningfully in the fourth quarter this year as well in the first quarter of the next year we should have some benefit in the P&L because of the realignment of GTM in the fan business.

Gopal Nawandhar — SBI Life Insurance Co. Ltd. — Analyst

Sure sir. And if you can just highlight the gap between the increase in the commodity prices for FMEG portfolio and the kind of price increases we have taken. And are you seeing any kind of price correction post this decline in the commodities in the last 1.5 month?

Gandharv Tongia — Chief Financial Officer

Maybe revised our prices in Cable and Wires business on monthly rate, same in FMEG also, we take corrective action as and when required, of course, after considering the actions taken by other participant at the industry level. We have done that, and we will continue to do that. Wherever there is an opportunity to pass on the benefits to end consumers or increase the prices because of increase in commodity prices, we are doing that very promptly and we’ll continue to do that in the quarter and periods to come.

Gopal Nawandhar — SBI Life Insurance Co. Ltd. — Analyst

Okay. And lastly, what should be the long-term —

Operator

Sorry to interrupt you, Mr. Nawandhar. May we request that you return to the question queue for follow-up questions. Next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yeah. Good afternoon and thank you so much for taking my questions. Just a couple. First one was on the gross margins which have improved quite a bit this quarter to about 25%. Just to check whether there is any one-off item in there that might have boosted these and should we expect these to come back down in coming quarters? That was one.

Second, if you could just give us some sense of your market share trends in both the segments, say, over the past year or so, if you have any data points with you.

And last one to clarify. When you mentioned this 87% of revenue coming from the distribution-driven business, does that include some element of institutional sales also within that or is that only the remaining 13%? Thanks a lot.

Gandharv Tongia — Chief Financial Officer

Sure, Abhijit. So I think your first question was on the gross margin and EBITDA margin. There is no one-off in the first quarter. As I have mentioned to another participant, we have maintained EBITDA margin of 11% to 13% in Cable & Wire business. And in the periods to come, we should be able to maintain the same.

As far as market share is concerned, in Cable & Wire business of the organized market, we have almost 24% of market share. In FMEG, we are comparably small, actually ranges between 1% to 1.5% in terms of packing order, we would be anywhere between six player, ninth or tenth player. So we are competitively that way in FMEG business we are small.

And on the last one on the distribution, you’re right, 87% of the total revenue comes from distribution, institutional and export, over and above 87%.

Operator

Thank you, Mr. Akella. May we request that you return to the question queue for follow-up questions. The next question is from the line of Ankit Babel from Subhkam Ventures. Please go ahead.

Ankit Babel — Subhkam Ventures — Analyst

Sir sorry, I missed the initial comments. Just wanted to confirm, was there any inventory loss in Q1.

Gandharv Tongia — Chief Financial Officer

Ankit, you know this business. You have been tracking our Company since long. We have a very robust hedging syllabus [Phonetic] in play and when you procure inventory it comes with embedded derivative. And when we decide the selling price of our finished goods, that is when we have the ability to decide the procurement price and that is where it becomes a pass-through. And that is a reason. Generally speaking, I would not expect any inventory loss to incur to the P&L of our Company. And to directly answer your question, there is no inventory loss.

Ankit Babel — Subhkam Ventures — Analyst

Okay. That’s it, sir. Thank you so much.

Gandharv Tongia — Chief Financial Officer

You are welcome.

Operator

The next question is from the line of Viraj Mehta from Equirus PMS. Please go ahead.

Viraj Mehta — Equirus PMS — Analyst

Yeah. Hi. Thanks a lot, sir. Just one thing in terms of FMEG, if we look at our growth —

Operator

Sorry to interrupt you, Mr. Mehta. Please use the handset mode.

Viraj Mehta — Equirus PMS — Analyst

Hi, Gandharv. If we look at our growth in FMEG segment, has significantly slowed down to our vis-a-vis the market compared to our growth in earlier years. What do you think that is hampering it and what are we doing to kind of address that situation?

Gandharv Tongia — Chief Financial Officer

So I would partially agree with you. When you’re talking about slow down, it slowed down because of the base effect. When the business is small, the CAGR would be slightly higher; when the business is larger or sizable the CAGR will go down. So to that extent I would disagree. But at the same time, if your question is on the aspiration whether it can be better, you know we are an aggressive company as far as growth is concerned and we believe that we can always do better than what we have achieved.

Only one element which I would like to add here is slight realignment which we have done in last couple of quarters in the fan business, GTM, which has impacted the growth of fan business. But other than that, almost all the large businesses have registered a fair amount of growth. And by 2026, when we are talking about achieving INR20,000 crore of topline FMEG, as well as Cable & Wires will have a significant share of the INR20,000 crore of topline.

Operator

Thank you. Mr. Mehta may we request that you return to the question queue for follow-up questions. The next question is from the line of Varun Basrur from Julius Baer Wealth Advisors. Please go ahead.

Varun Basrur — Julius Baer Wealth Advisors — Analyst

Hello. Good afternoon. I hope I’m audible.

Gandharv Tongia — Chief Financial Officer

Yes Varun, you are. Please go ahead.

Varun Basrur — Julius Baer Wealth Advisors — Analyst

Yeah, sure. Thanks for taking my question. Just wanted to understand, are we seeing any improvement in rural market demand offtake.

Gandharv Tongia — Chief Financial Officer

It’s a mixed bag, Varun. There are two pockets where we have noticed that is — there is slight uptick in demand, but in few pockets slight sluggishness, but our reading from the ground suggests that this onset of this monsoon should help in reviving and improving the rural market demand.

Operator

Thank you. Next question is from the line of Deepak from Unifi Capital. Please go ahead.

Deepak Lalwani — Unifi Capital — Analyst

Hi sir, thank you for the opportunity. Sir, as we expect a better H2 this year, but we had a healthy base in the previous year supported by the higher prices. In this deflationary environment, how we’ll be able to defend the strong base of last year in H2?

Gandharv Tongia — Chief Financial Officer

So Deepak, you know this business, you are an investor in our Company since long. As far as B2B business is concerned, we are taking steps to deliver industry-leading growth. And as far as B2C business is concerned, as part of Project Leap, we are targeting to get to a breakout growth. And irrespective of softening of commodity prices, we believe that we would be able to beat the industry growth in Cable & Wire business over mid-to-long term and in FMEG we should have a significant growth in competitive industry growth.

Operator

Thank you, Mr. Deepak. May we request that you return to the question queue for follow-up questions. The next question is from the line of Shrinidhi from HSBC. Please go ahead.

Shrinidhi Karlekar — HSBC — Analyst

Yeah. Hi. Thanks for the opportunity. My first question would be on FMEG segment margin where you have reiterated that your ambition of 12% margin by FY ’26. Would it be possible to guide us what is going to drive this sharp margin improvement and price increases are going to drive substantial part of this margin. So that’s my first question.

Gandharv Tongia — Chief Financial Officer

Sure. Do you want to give me your second. And then I can take both.

Shrinidhi Karlekar — HSBC — Analyst

Yeah. And the second one, Gandharv, is that you alluded to some change in the payment methodology during Q1. Can you please elaborate that? These are my two questions.

Gandharv Tongia — Chief Financial Officer

Sure. So Shrinidhi, first question was on FMEG profitability. One is with larger site, we will get operating leverage and that is where the EBIT and EBITDA margins should improve. Second is new product development and premiumization of our offerings. As I mentioned a while back, premium contribution to FMEG topline was around 4% in fiscal ’21, almost 8% in fiscal ’22, and in the quarter gone by it was almost 12%. And this is expected to go up in the quarters and years to come and that is that contribution margin will improve. And third is a fair bit of cost optimization wherever possible. So all of these factors should help us in improving our EBITDA margin. Having said that, at the same time, I would expect some increase in expenses, for example, advertisement and publicity. In the COVID years, we were following a bit of a softer approach on A&P spend, but I would expect this to go up in the quarters and years to come. That was on the FMEG profitability between now and 2026.

Second was in the payment terms. When we procure copper and we used to procure copper frequently from the overseas suppliers, we used to have the LC arrangement, which roughly means or broadly means that we need not to discharge the liability on day one, we kept [Indecipherable] discharge liability two months or three months down the line. Because of global supply chain issues, we decided to source some copper from local market in India and there since these were domestic suppliers, we opted to make payment on advance basis or on the date of the delivery basis as against availing the LC, and which has impacted the working capital adversely, which is what is visible in number of days in payables.

Having said that, in a quarter or two we should be able to go back to our regular import vendors and we should be able to avail LCs, and that is where the working capital cycle as such payables are concerned should get normalized. Since we are on working capital, let me also highlight that the channel financing percentage has improved over the period. We are hoping around 75% or thereabout of channel financing and almost all of it is without any recourse to the company and that is where the number of days of receivables have improved significantly in last few quarters.

Operator

Thank you. The next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.

Rahul Agarwal — InCred Capital — Analyst

Hi. Good afternoon and thanks for the opportunity. Just one question I think is left with me now. On FMEG, Gandharv, we’re looking at 60%, 70% coming from lighting, fans, the sector has a lot of large competitors, incumbents. Going forward, FMEG has to play a very large role in achieving the Project Leap targets. [Indecipherable] is essentially coming from how does this — what does Polycab do different in terms of product offerings and getting to that growth number, because growing this category now at INR1,200 crore base at more than 20% is going to be tough. Market share gains in this category is going to be tough, because we have very large competition here. Any thoughts you could help us understand what would Polycab do different in terms of either go-to-market or in terms of new product launches or if you’re thinking of new categories, because fans and lights are two categories that are highly competitive and it’s very tough to grow at 20% given the category growth itself is like 7%, 8%. So could you help me understand that? That’s my only question. Thank you so much.

Gandharv Tongia — Chief Financial Officer

It’s a great question, Rahul. And believe me, we have invested lot of time in the Board room in the Leap meeting, strategy meeting, discussing deliberately. We have a complete [Indecipherable] place and the topic that you are touched upon, these are the areas we are making considerable investment of time and making lot of effort whether the GT and dealer distribution expansion adding more geographies into our network, whether working on brand architecture and so on and so forth. But let me give you a broader perspective to FMEG. When we started this business 50 years back, we got into cable and today we are market leader in cable. Then in 1996 we got into wires, we are a market leader in wires. When we got into FMEG business in 2015, there were many who were believing — or who were of the view that we would not be able to get to the type of growth which we have experienced in last five to seven years. So any business is difficult, any business is complicated, but I think the quality of the management team which we have, we are absolutely comfortable with the topline target of INR20,000 crores by fiscal 2026. And whatever steps are required to be taken are being taken and we should be able to achieve our aspiration of INR20,000 crore of topline by fiscal ’26.

Operator

Thank you very much. We will take that as a last question. I would now like to hand the conference over to Mr. Gandharv Tongia for closing comments.

Gandharv Tongia — Chief Financial Officer

Thank you so much for joining us this afternoon. In case if you have any follow-up questions, please write to us at investor.relations@polycab.com and we would be pleased to attend your question. Thank you and have a great day ahead. Bye-bye.

Operator

[Operator Closing Remarks]