POLYCABNSEQ2 FY2023October 19, 2022

Polycab India Limited

8,978words
136turns
17analyst exchanges
1executives
Management on call
Gandharv Tongia
Chief Financial
Key numbers — 40 extracted
rs,
ment. The macro has been a bit of a mixed bag during the quarter. Global economy is in choppy waters, facing twin shocks of a slowdown in economic growth accompanied by high levels of inflation. The t
73%
ogressed at a relatively healthy pace. Capacity utilisation of manufacturing sector improved from 73% in Q4 FY22 to 74.3% in Q1 FY23 and is at the highest level it has been over the past three years.
74.3%
tively healthy pace. Capacity utilisation of manufacturing sector improved from 73% in Q4 FY22 to 74.3% in Q1 FY23 and is at the highest level it has been over the past three years. We believe that the
11%
e refer to slide number 4. For the quarter ended September 2022, our consolidated revenue grew by 11% YoY. Please note here, that this growth has been achieved on a high base of last year, whereby, h
307 bps
k of strong volume growth in the Cable & Wire business. EBITDA margin for the Company improved by 307 bps year-on-year and 149 bps quarter-on-quarter to 12.8% on account of strong growth in exports and j
149 bps
in the Cable & Wire business. EBITDA margin for the Company improved by 307 bps year-on-year and 149 bps quarter-on-quarter to 12.8% on account of strong growth in exports and judicious pass through of
12.8%
BITDA margin for the Company improved by 307 bps year-on-year and 149 bps quarter-on-quarter to 12.8% on account of strong growth in exports and judicious pass through of the benefit of decrease in c
37%
ts have been provided on slide 14 of our earning presentation. PAT for the quarter increased by 37% year-on-year with PAT margin improving by 154 bps year-on-year to 8.1%. On slide #5, we have pres
154 bps
ning presentation. PAT for the quarter increased by 37% year-on-year with PAT margin improving by 154 bps year-on-year to 8.1%. On slide #5, we have presented the key numbers for the first half of the ye
8.1%
or the quarter increased by 37% year-on-year with PAT margin improving by 154 bps year-on-year to 8.1%. On slide #5, we have presented the key numbers for the first half of the year. Our revenue in
25%
presented the key numbers for the first half of the year. Our revenue in H1FY23 grew strongly by 25% YoY; EBITDA was up by 73% with 12.1% margin and PAT grew by 82% YoY. The growth percentages are s
12.1%
first half of the year. Our revenue in H1FY23 grew strongly by 25% YoY; EBITDA was up by 73% with 12.1% margin and PAT grew by 82% YoY. The growth percentages are seemingly higher on account of a wea
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Guidance — 20 items
Inder T. Jaisinghani
opening
“- market opportunity and grow steadily to achieve our FY26 LEAP goals.”
Gandharv Tongia
opening
“Our focus on achieving consistent double-digit contribution target over the medium-term for this business remains intact.”
Gandharv Tongia
opening
“So, one should consider FY23 as a base year for FMEG business and expect the business to post decent growth from FY24 onwards.”
Gandharv Tongia
opening
“We expect strong sales momentum to continue in H2FY23 as well.”
Gandharv Tongia
opening
“Now, let us delve deep into the key updates of transformational To recap for everyone, under Project LEAP, we are working on four key strategic themes, namely Customer Centricity; Go-to-Market Excellence; Winning with new products; and Setup of organization and digital enablers.”
Gandharv Tongia
opening
“Most of these new products will be in the Fans and Lights verticals, which will leverage the merged operational efficiencies of common distribution network to increase cross-sell.”
Gandharv Tongia
opening
“And second, we have now created a separate Digital vertical, which will be focused on advancing our business initiatives by focusing on: 1) end- to-end digitization of front-end sales; 2) enhancing customer experience; and 3) enabling access to relevant data to perform deep analytics to better understand customer demand.”
Gandharv Tongia
opening
“So that was the update on Project Leap for the first half of the year.”
Atul Tiwari
qa
“So could you flesh out in a little bit of a more detail, what exactly is being changed in the distribution channel and why has it impacted the sales so much because one would have thought that pre-festive season, despite this kind of interruption, probably, FMEG revenues should have been a little higher and second question from that is that once you are done with all these changes this year, so in FY24 and FY25, what kind of revenue growth can one expect in FMEG business on this year?”
Gandharv Tongia
qa
“My sense is this will continue for at least till March of the next year and from next year onwards we should be able to get to a regular routine growth trajectory.”
Risks & concerns — 7 flagged
Global economy is in choppy waters, facing twin shocks of a slowdown in economic growth accompanied by high levels of inflation.
— Gandharv Tongia
The growth percentages are seemingly higher on account of a weak base.
— Gandharv Tongia
Why is it leading to this kind of a disruption is it that channel inventory is going down or we are taking away certain dealers without being able to appoint new dealers and distributors in the same area at the same time where exactly is the challenge?
— Aditya Bhartia
For example, fans, which contributes almost 35%-40% to our topline, this is slightly a non-season quarter for that particular business vertical and that is why it got impacted and as I was explaining to Atul a while back, that as part of our GTM revamp we have identified few dealers and distributors where we believe we need to either replace or support them and that exercise is taking some time and in such exercise you would expect some slowdown during the implementation phase.
— Gandharv Tongia
So if we remove the exports and look at like-to-like on a domestic it is almost like just about 6% value growth and I think you have highlighted that mid teen volume assuming 15%-16% copper price decline is this number sustainable in export because generally you talk about order books when export comes in, so which we saw let us say in case of Dangote and also can you highlight that this number looks sustainable you have that visibility in order book for the exports that is my first question?
— Nitin Arora
Other thing I just want to understand is that we have mentioned that FMEG business partly was affected also by the rural demand slowdown so how much is the contribution of rural in our FMEG business right now and apart from Etira what are the other plans to boost the rural presence?
— Amit Bhinde
Lastly on FMEG side this decline in commodity prices and all should one expect better margins in H2?
— Gopal Nawandhar
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Q&A — 17 exchanges
Q
Hi! Sir, congrats on a good set of numbers. My first question is with respect to the kind of volume growth that would have been seen in the wires and cables business given the fact that second quarter copper prices have dropped by 16%-17% year-on year was our volume growth more than 20%-25% kind of growth in wires and cables business?
Gandharv Tongia
Thank you Ravi for your kind words. You are right, whatever revenue growth we are seeing in value terms by and large has been driven by the volume growth and this mainly is coming from the cable and wire business. HDC and LDC vertical, it would defer from product-category to product-category, but generally, I would believe that the growth is between mid-to-high teems across the product categories. The second reason of the growth is exports which I was alluding to in the opening remarks. Exports, in the first half, was almost 10% of our topline and there also there is a broad-based recovery of
Q
Thanks a lot, and congratulations on a good set of numbers. Just one question on FMEG business. So could you flesh out in a little bit of a more detail, what exactly is being changed in the distribution channel and why has it impacted the sales so much because one would have thought that pre-festive season, despite this kind of interruption, probably, FMEG revenues should have been a little higher and second question from that is that once you are done with all these changes this year, so in FY24 and FY25, what kind of revenue growth can one expect in FMEG business on this year?
Gandharv Tongia
Let us pick up the first question first. We forayed into this FMEG business almost seven years back and we took several decisions which were relevant and apt for the first phase of FMEG growth. Today, we are at Rs. 1,250 Crores topline business with complete almost all in-house manufacturing facilities almost 2.000 dealers and distributors in our team, but if you want to further scale this business we have to make some changes. To give you an example, the few of the dealers and distributors who helped us in journey phase one of FMEG not necessarily would be able to help us in scaling this busi
Q
Thank you for the opportunity and congratulations on a great set of numbers especially the margin expansion given the copper volatility. My first question is regarding the current demand scenario any updates you would like to give on the current demand especially the feelers you are getting from the festive demand?
Gandharv Tongia
You know this already India is a consumption powerhouse and from one or the other pocket you will always have good traction on demand side. As of now we are seeing fair amount of traction on the private capex and that is where our institutional business has also registered growth in the second quarter. Having said that, generally speaking, second half of the year for our industry as well as for our company is better than the first half and I would expect in the third quarter and fourth quarter to have better performance on what we have already achieved in the first and second quarter. Could yo
Q
Hi good afternoon Gandharv. My first question is on the changes that you had made on the FMEG business, just want to understand it a little better are these changes being made largely at the dealer end or at the end of the sales team?
Gandharv Tongia
It is across and the idea is to get closer to the customer. So if you think from the Polycab end, the sales teams are being merged. Earlier we used to have separate teams right from the BU head to the TSI and we are now trying to merge that at our end. So if you visualize a particular geography you will have a particular person who is getting the requirement of both the businesses lighting as well as fan and similarly is true for retail wires, switches and switchgears. On the distribution side the way we have started doing cross-selling of HDC and LDC dealers we will continue to do something s
Q
Hi Gandharv, thanks for taking my question. Just want your commentary on the export side because this quarter also exports have been very strong. So if we remove the exports and look at like-to-like on a domestic it is almost like just about 6% value growth and I think you have highlighted that mid teen volume assuming 15%-16% copper price decline is this number sustainable in export because generally you talk about order books when export comes in, so which we saw let us say in case of Dangote and also can you highlight that this number looks sustainable you have that visibility in order book
Gandharv Tongia
Even if we exclude exports, the domestic business would have almost like a double digit growth existing for volume and value. As far as exports is concerned, I was alluding to this in the last call, we are not looking for one off orders, what we are trying to do is have sustainable distribution presence in identified geography and this is what we did in India between 2011 to 2016. Our focus was to have distribution-led business rather than institutional led business. Today, almost 85% of our business is coming through distributors and something similar is what we are trying to do in overseas m
Q
Hi thank you for the opportunity. Just couple of questions from my end. So when there was a very impressive ramp up of Etira brand with almost double digit contribution of retail wire business just wondering in your view large part of this business that comes under this brand is an incremental business or it could be cannibalizing some of Polycab brand s revenue as well?
Gandharv Tongia
There is some amount of cannibalization which is there but by and large is incremental. Just one more question here is export business some of the competition does talk about export business being a much lesser profitable business given the lot of trade costs involved in the distribution and all so just wondering in case of Polycab is this an incremental export opportunity that companies are targeting is it broadly a similar margin business that you have in domestic market? Yes similar margin business but with slightly better working capital. Okay great. Thank you. Those were my questions.
Q
Good afternoon, thank you for taking my question. Just two of them one is can you help us understand what is the capacity utilization for both the segments?
Gandharv Tongia
In cable and wire, it is between 65% and 70%. As far as FMEG is concerned, because this quarter was soft, there is slightly lower utilization, but if I were to give you a historic view, Fan s Roorkee facility is optimally being utilized and the new facility like switches and switchgears is being ramped up to meet the current requirement. You are saying you plan to incur 400 to 500 Cr of capex towards the cable and wire business. Is it in a particular sub segment or it is across the board? Out of the Rs 400 Cr, around two third will go to cable and wire and one third for to FMEG. Within cable a
Q
I had two questions, first is that I wanted to understand that the FPTPL adjustment in other income is that related to the commodity hedges that we do on the copper purchase side or is it something else?
Gandharv Tongia
I think you are trying to understand on FPTPL accounting. This is not hedging, this is for the ineffective portion and which is required to be done end-to-end and which is what we have done, this has no cash implication, this is only an accounting entry which is required to be recorded as of the quarter end. It is not related to the commodity hedges that we are doing in the wires for copper purchases right? It is not related to copper purchases it is an element of ineffectiveness which is required to be accounted and that is what did. Other thing I just want to understand is that we have menti
Q
Thank you for taking my question. Sir my question is on the FMEG margin - so if you look at your revenue, it is broadly flat quarter-on-quarter, but the segment margin is negative and your A&P spend has also come off sequentially which coupled with whatever changes you are doing for merging the team, if anything, that should reduce the slack which is there in terms of opex so what explains the reduction in margin, is it only the additional cost for the new switchgear, switches facility or there is something else as well which is impacting the margin?
Gandharv Tongia
I want to clarify this merger which I had mentioned a while back is effective October so this September numbers are any which ways after considering the actual expenses which were incurred on these two separate verticals. Broadly the loss or slight negative EBIT number is because of reduction in topline. The gross margin is by and large comparable between first and second quarter and at the organization level the expenses have not gone up so it is just because we are not getting leverage because reduction in topline by 10% to 15% which is why the EBIT is negative. If comparing quarter-on-quart
Q
Good afternoon, thanks for taking my questions and congratulations on a good quarter. Just two from my side. One was, I just wanted to clarify the mid to high teens volume growth number that you shared was that for the second quarter or for the first half and if it is for the quarter if you could please share the comparable number for the first half as well?
Gandharv Tongia
This was for the second quarter. I would not have that first half numbers handy, but to the extent even the first quarter was not comparable because in the base first quarter there was a COVID impact. Sure, understood thank you. And the other thing I just had was on the A&P spending line. Once we start to see some pickup in the FMEG topline starting fiscal 2024, should we expect significantly higher investment in the A&P next year and if so is there a ball park number you could guide us to? Absolutely, in fact we have already started working in that direction. We believe as a B2C company we ne
Q
Thanks for the opportunity. I have two questions, one can you just explain this MTM element which you have referred in the other income, what kind of hedges we are taking here?
Gandharv Tongia
This is in compliance with Ind-AS accounting requirement as far as hedging framework is concerned. This is being done in a particular structured manner. When we procure our commodity, we get an option to price it at a date subsequent to the procurement date and that is how we manage commodity. In few cases when we get back-to-back orders, we have an option to also go to bank and take back to that position. On the sales side, we revise our list price on a monthly basis for cable and wire and that is how it becomes a pass through. Whatever accounting you are seeing is on because of end-to-end ac
Q
Sir, my question is linked to your initial comments where bulk of the growth has actually come from exports for our company in the quarter and the domestic growth it is very low. I do not know how your calculation shows 6% but it is lower than that it does not coincide with then your commentary for domestic outlook if you could just shed some more light there and does this export growth have any impact extra or positive impact on the margin side?
Gandharv Tongia
Yes, of course we can do the math and happy to have an offline chat with you, but broadly, just to give you a specific, Copper LME and USD INR, exchange rate was significantly higher, blend of all of these things were similarly higher in the base quarter vis-à-vis what is there in the current quarter and that is where whatever growth you are seeing is by and large coming only from volume. As far as exports is concerned, exports the margins are generally comparable at times because of a mix and at times because of the realization we are able to get better profitability but I would not like to s
Q
Sir any update on Etira brand, apart from wires, have we introduced the product or the brand in any other segment and what would be total distribution reach of Etira that is one question and secondly in case of cables and wires do we have any different pricing as far as B2B and B2C is concerned most of the portfolio goes to the same distribution channel so is there any difference in the pricing policy as well as the margins of those products? Thanks.
Gandharv Tongia
Quarter after quarter it is getting more traction. It would have generated almost 100% revenue CAGR between Q4 of last year to Q1 or Q2 of this year. In fact, Q2 is slightly better than Q1 there from Etira. This is a focused effort and as I was explaining earlier this will help us in further penetrating the rural market or the cost conscious category of our customers and sorry I forgot what was the second part of your question? Is Etira launched in other segments too apart from wires? So it is in wires and switches being done now which was a very recent development. In terms of the pricing in
Q
Thank you. Sir congratulations on a good set of numbers. My question is with respect to Etira, just wanted to understand how is it placed versus the unorganized brands in terms of pricing, what kind of premium are you charging?
Gandharv Tongia
The difference is not very significant, it would be at max mid to high single digit, but it is comparatively better quality or specification products and another important thing which is helping us is availability. Our products are available wherever we want them to be available and that is also helping us in getting some traction from the customers and market. Thank you. That is it from my end.
Q
Sir, I wanted to know about the civil ageing schedule which you have given in your annual report the other projects what are they pertaining to?
Gandharv Tongia
These are backend civil projects where some delays were there, but I expect all of them to be completed in the next 9 to 12 months. Can you touch upon the backward integration project. So how are they expected to give us benefit synergies if you can touch upon it? Philosophically, we believe that if we have a complete control of the entire value chain we can get better quality and which is what is getting reflected in customer s confidence in our products over the period and that is also one of the reasons why we have achieved number one position in cable and wire business. We practically have
Q
Hi! Good afternoon everyone. I have just two questions firstly in the wires and cables revenue if I just look at Y-o-Y there is 11% growth and I think as you mentioned the pricing revision is to the tune of mid teens then in the volume growth also is in a tune of mid teens then 11% growth I am not able to reconcile can you just help me with that?
Gandharv Tongia
When I was talking about mid teens, I was talking about Q1 to Q2 and I think what you are trying to consider volume growth is from base quarter to this quarter and this is where there is disconnect. Between first quarter to second quarter, the changes in the prices have been passed on to the end customer while retaining a part of it and that is where you can see improvement in contribution margin by a few basis points. As far as volume growth is concerned, between last base quarter to this quarter, in cable and wire, it has been just between mid teens to high teens. But even on a Y-o-Y basis t
Q
Thank you so much for your time. In case if you have any followup questions please feel free to get in touch with us. You can write to investor.relations@polycab.com and we would be happy to assist you. I do not know whether I will get another opportunity to interact with you before Diwali and here I am wishing all of you, your team members and everyone at home a very Happy Diwali from me as well as everyone from Polycab. Have a great time ahead. Thank you so much.
Management
Speaking time
Gandharv Tongia
52
Moderator
19
Gopal Nawandhar
7
Nikunj Gala
7
Sonali Salgonkar
5
Achal Lohade
5
Akhilesh Bhandari
5
Amit Bhinde
4
Pritesh Chheda
4
Aniruddha Joshi
4
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Opening remarks
Gandharv Tongia
Thank you operator and good afternoon everyone. I hope all of you are doing well. It is a pleasure to have you on the call. As operator mentioned my name is Gandharv Tongia and I am the CFO at Polycab India Limited. Thank you for joining us today to discuss our second quarter earnings. During the call we will be referring to the presentation, financial results and condensed financial statements, which are available on the stock exchanges as well as investor relations web page of our website. It can also be downloaded through QR code on slide #10 of Earnings Presentation. From our management team, we have with us our Chairman & Managing Director - Inder Jaisinghani. Let me now hand it over to him for his opening remarks.
Inder T. Jaisinghani
Good afternoon, everyone. We continued with our strong business performance in Q2, posting highest ever 2nd quarter revenue in the current year. More importantly, we are also progressing well on our long-term strategic agenda of focusing on sustainable value creation across B2B and B2C businesses. Strong domestic economy with structural reforms focused on infrastructure development augurs well for most of our product categories. - market opportunity and grow steadily to achieve our FY26 LEAP goals. I now request Gandharv to take you through our earning presentation.
Gandharv Tongia
Thank you Inder bhai. Before I take you through the financial numbers for the quarter, let me give you a flavour of the macro environment. The macro has been a bit of a mixed bag during the quarter. Global economy is in choppy waters, facing twin shocks of a slowdown in economic growth accompanied by high levels of inflation. The three major world economies US, China, and the Euro Zone are facing growth decapitation, while emerging market economies (EMEs) are impacted by currency depreciation, reserve losses and foreign fund outflows besides the ripple effects of global and domestic inflation. Over the past 1 year, the global economy has gone through a fundamental shift from one of relatively predictable economic environment with low interest rates and low inflation to a world with more fragility, greater uncertainty and geopolitical confrontations. Despite these global challenges, Indian economy is relatively stable with improvement in capacity utilisation, buoyant formal job creation
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