Polycab India reported highest ever quarterly revenues and net profit in June Quarter 2023. The stock price jumped nearly 4% post Q1FY24 result announcement. Polycab India made a new 52-week high as its revenues and profit after tax (PAT) jumped 42% YoY and 81% YoY respectively in June Quarter 2023. Polycab India Limited is one of the largest manufacturers of wires and cables, and a prominent player in the fast-moving electrical goods (FMEG) industry in India. The company’s strong distribution network constitutes nearly 4,300 authorized dealers and more than 205,000 retail outlets with 25 manufacturing facilities, 14 offices and 23 warehouses. The company’s international presence is spread across 72 countries.
Quick Bites
- EBITDA margin improved 270 basis points YoY to 16.4% driven by judicious price revisions, better operating leverage and favourable business mix
- Polycab India plans to set up a EHV factory by collaborating with a foreign partner
- Cables growth outperformed wires in June Quarter 2023
- Strong revenue growth was driven by wire & cables segment which constitutes 89% of product mix
Stellar June Quarter 2023
Supported by lower base of June Quarter 2022 (sales were affected by lower commodity prices), revenue from operations rose strongly by 42% YoY to Rs 3,889 crore in Q1FY24. Strong revenue growth was driven by wire & cables segment which constitutes 89% of total revenue mix. Wires & cables segment’s revenues was up 46% YoY in June Quarter 2023.
Operating margins stood at 14.1% in June Quarter 2023 compared to 11.4% in June Quarter 2022 expanding 270 basis points (bps) YoY. According to the management, lower raw material cost (down 39% YoY), economies of scale and higher contribution from exports supported margins in Q1FY24.
Net profit rose to Rs 403 crore in Q1FY24 up 81% YoY aided by strong revenue growth and margin improvement.
Wires and cables strong performance supported by public and private capex
Wires & cables business grew 46% YoY to Rs 3,534 crore aided by strong volume growth both in domestic market and internationally. According to the management, the government’s infrastructure focus, improving private capex and strong momentum in real estate supported strong wires and cables revenue growth in Q1FY24.
Cable growth was better than wires in June Quarter FY24. Speaking on Wire & Cable mix, Chirayu Upadhyaya, Head of Investor relations, Polycab India said, “In FY23, our mix between cables and wires was at about 70%–30%. This quarter, cables would have gained about 100–200 bps on that.” Volume growth in the wires & cables business has been phenomenal, nearly 50-60% YoY in June Quarter 2023. According to the management, cable growth was contributed by the infrastructure sector (mainly roadways, railways and highways), electricity transmission and distribution, and real estate.
FMEG growth to be supported by new product launch
FMEG business revenue growth was muted during the quarter as weak consumer sentiment weighed down on sales. FMEG revenue grew 2% YoY to Rs 315 crore in Q1FY24. Upadhyaya said that though inflation is in control, customers are making small ticket purchases more than discretionary or higher ticket spending. The management is confident that consumer spending will pick up in the next two quarters. Polycab India is also making efforts by improving channel distribution and plans to launch 50-60 new SKUs in Q2-Q3FY24. Gandharv Tongia, CFO & Executive Director, Polycab India said, “We will be able to get to a 10% EBITDA margin in the FMEG space by FY26.”
Will the growth momentum continue for Polycab India
Capacity utilization of the manufacturing sector was around 74% in 2022. This has spurred corporates to move from maintenance capital expenditure (capex) to ‘discretionary capex’. Government’s capex plan of Rs 10 trillion investment in FY24 for infrastructure growth is in full swing. The Central public sector enterprises (CPSEs) have already spent 32% of their allocated capex in the first three months of FY24, said Tongia. The Ministry of Road Transport & Highways and Railways have already spent 38% and 33% respectively of their budgetary allocation. The state governments have also joined the capex space and real estate sustained its impressive growth momentum. This has led to strong domestic demand for the wires & cables industry and is expected to sustain as both government and private sector contribute to India’s strong economic growth. Volume growth in the wires and cable business ranges between 1.5x and 2x of real GDP growth. Wires and cables constitute 89% of Polycab India’s revenue mix. Global wires and cables industry is nearly $ 250 billion and Polycab India aims to be in the top five players in the world. Exports contribute nearly 8-9% of consolidated revenue and are expected to touch 10% revenue contribution by FY26. With domestic economy and exports on the upswing, Polycab India is on a strong growth footing for the future.
