Polycab India Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Polycab India Ltd (POLYCAB) Q3 FY22 Earnings Concall

Management Update:

• POLYCAB recorded the highest quarterly topline in the history of the company for the second consecutive quarter.

Q&A Highlights:

• Ravi Swaminathan from Spark Capital asked about the volume/value mix. Gandharv Tongia CFO said that there is significant amount of growth in value. On the volume side, there was a slight increase, mainly from businesses like HDC and LDC. On FMEG also, the company added that the growth was across all product categories, barring fans.

• Ravi Swaminathan from Spark Capital also queried if volume growth might have been mid-single or high single digit. Gandharv Tongia CFO commented that most of the growth is due to value and only part of it is due to volume. Gandharv added that within this, HDC is leading the pack followed by cable and wire.

• On a question asked by Ravi Swaminathan from Spark Capital about EBITDA margins, and what kind of range can be seen in FY23,  Gandharv Tongia CFO answered that historically in cable and wire POLYCAB has hovered between 11-13% margins on a sustainable basis. In 3Q, the EBITDA margin improved compared to 2Q. The company added that the company expects FY23 to be better than the current quarter.

• Atul Tiwari of Citigroup asked if commodity price hikes have already been passed on to customers and going forward any price hike would trickle down to the margin number with a normal 11-12% kind of margin. Gandharv Tongia CFO answered that in company’s business the input cost is not constant and undergoes changes many times in a year. Therefore, the company would be passing on the price increases to customer as well as improving margins.

• Atul Tiwari of Citigroup also enquired about the numbers of dealers and distributors currently on the cable and wire side and FMEG side.  Gandharv Tongia CFO answered that the company has around 4,100 dealers and distributors and 50% of them are on FMEG side. In cable and wire, POLYCAB would be around 70% of its topline. In FMEG, this year it has improved well and the company is just shy of 50%.

• Aditya Bagul with Tata Mutual Fund asked about the outlook of B2B business and what’s driving its sharp recovery. Gandharv Tongia CFO commented that predominantly the improvement is in demand, emanating from private capex. Institutional business recorded a 150% growth, while on the dealer side, the growth is broad based and is coming from most of the geographies.

• Charanjit Singh DSP Mutual Fund asked about the quantum of price hike in cables and wires and on a nine-month perspective, volume growth in cables and wires. Gandharv Tongia CFO said that most of the increase is coming from value and some from increased volume. On price hike, in 3Q there was improvement of 70 bps; raw material cost and product basket increased by mid-single digit. POLYCAB added that it will continue to take pricing action to offset the increase in input cost going forward.

• Satwik Jain of Generational Capital  asked about the FMEG business being in the investment mode and what’s the internal return on capital employed targets. Gandharv Tongia CFO answered that the objective is to improve profitability for all business and have better capital allocation for FMEG or B2C businesses. For better profitability, the company is targeting to get to around 12% of margin by FY26. And on capital allocation, POLYCAB is gradually increasing its utilization of factories in FMEG and cable and wires.

• Anirudh Joshi from ICICI securities enquired that in FMEG, apart from fans and geysers what products the company is focusing on. Gandharv Tongia CFO commented that the company is also focusing on light and luminaires, switches and switchgear, conduits pipes, agro and some adjacencies also are being explored. However Gandharv added that there is nothing on the kitchen side right now.

• Anirudh Joshi from ICICI Securities also asked about the KRAs of the newly joined professionals in the company and on what brands they would be working on. Gandharv Tongia CFO answered that the new professionals as well as the current leadership team is totally focused on only one agenda which is Project Leap. The objective is to achieve INR20,000 crore of topline and improvement in profitability.