Polycab India Limited Q3 FY24 Earnings Conference Call Insights

Key highlights from Polycab India Limited (POLYCAB) Q3 FY24 Earnings Concall

• Recent IT Raid Updates
  • The incumbent authority conducted search operations POLYCAB’s manufacturing plants, facilities, and offices in the last fortnight of the previous calendar year.
  • The company has fully cooperated in the investigation.
  • POLYCAB has not received any written communication about the outcome of the search.
  • Operations are running smoothly and the management team continues to work to ensure growth.
• Financial Performance
  • Achieved highest ever quarterly and 9-month revenues and PAT in its history.
  • PAT grew 15% year-on-year.
  • Revenue grew 17% YonY, driven by volume growth in domestic wires and cables business.
  • EBITDA grew 13% with lower margins due to higher advertising spends.
  • 9-month revenue up 27%, EBITDA up 40%, PAT up 46% with margin expansions.
• Industry Outlook
  • Demand for residential properties at 10-year high in 2023.
  • New project launches outpacing sales over past 2 years.
  • Recent years’ new launches will drive heightened wire demand in coming years.
  • Favorable momentum in infrastructure, construction and power sectors to drive cables and wires sector.
• Advertising and Promotion Spends
  • Advertising and promotion spends doubled QonQ to 2.1% of sales.
  • 9-month advertising spend at 4.2% of B2C sales, meeting annual guidance of 3-5%.
  • Q3 and Q4 are significant growth quarters, so expect strong Q4 based on high Q3 growth.
• International Business Performance
  • International business grew 22% year-on-year in Q3, contributing 6.2% to total revenue.
  • Muted growth in past quarters due to US distribution transition and Middle East trade route impact.
  • Expects strong Q4 and future performance from international business.
  • Good demand across geographies besides Europe.
• Wires and Cables Business Update
  • Revenue grew 18% year-on-year driven by volume growth.
  • Profitability remains strong with 14% EBIT margins.
  • Supplied cables for various national projects in renewables, railways, power etc.
  • Demand environment expected to remain strong driven by infrastructure investment.
  • Investing significant capex to expand capacity amid strong demand.
• FMEG Business Growth
  • Execution has not met expectations.
  • Will take 3-4 quarters to stabilize after implementing changes.
  • Segregated business into B2B and B2C verticals with separate leadership.
  • Focusing on switches and switchgears product categories.
  • Have in-house manufacturing and expanded capacities.
  • Working on distribution reach and presence across price points.
  • Doing cross-selling with wires business.
  • Expect higher contribution from these categories in future.
• Outlook
  • Guidance of 11-13% EBITDA margins in Cables and Wires continues.
  • Able to achieve 14% margins currently due to operational leverage.
  • No change in cost structure assumed.
  • Evaluating inorganic opportunities if available at good valuations for FMEG business.
  • Considering all options to scale up FMEG and grow faster than market.
  • No major inorganic moves yet unlike some competitors.
  • EHV facility on track to be operational by late FY26 as guided earlier.
  • Company believes second half of 2024 will be better than first half.
• Volume Growth
  • Domestic Cables and Wires grew around 20% in volumes.
  • Cables volume growth higher at around 30%.
  • Wires volume growth single digits around 9-10%.
• Capacity Expansion
  • Combined cables and wires utilization around 70-75% for Q3.
  • Can scale up to 95% utilization.
  • 800-900 crores capex this fiscal and 600-700 crores next fiscal.
  • Willing to revise capex if more opportunities arise.