Polycab India Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Record PAT, volume-led quarter: PAT hit an all-time high of ₹360.8 crore (up 45% YoY) as domestic Cable & Wire volumes grew 18–20% on plain vanilla demand, with no channel stocking distortion.
• Wires are structurally re-rating the mix: Wires surged to ~40% of Cable & Wire revenue from ~30% last quarter, driven by a 9-year high in residential real estate sales, pulling up segment margins.
• FMEG is a margin-recovery story, not yet a growth one: Revenue was flat YoY and profitability was hit by a 4x QoQ jump in A&P spend; management is targeting 10% EBITDA margin by FY26 through mix shift and operating leverage.
• EHV entry fills the last whitespace: A technology tie-up with Brugg Cables (up to 550 KV) unlocks a ₹4,000–5,000 crore addressable market, with production targeted for 2025.
• What to watch next quarter: Whether the Q4 volume momentum sustains, the pace of FMEG’s recovery as distribution realignment completes, and any price hikes in fans as BEE-compliant inventory enters the market.

Cable & Wire: The Volume Engine

• Volume growth was broad-based and clean: Domestic channel volume grew 18–20% in Q3 and over 26% in 9M, driven entirely by end-demand with no element of channel stocking.
• Distribution outperformance was structural: The merger of HDC and LDC verticals, Project Leap initiatives targeting high-potential districts, activation of inactive distributors, and real estate key account management all contributed to distribution growth of 25% YoY in 9M on the back of strong volume growth of over 26%.
• Wire demand is riding a real estate upcycle: Calendar year 2022 residential sales hit a 9-year high, and launches exceeded sales for the first time since 2014, directly pulling wire volumes and shifting the Cable & Wire mix from around 70%-30% to about 60%-40% in favor of wires.
• Export business is quietly scaling: Export revenue grew 32% YoY in 9M on demand from oil & gas, renewables and infrastructure; the business has shifted from project-only to distribution, which management says is equally profitable as domestic distribution.
• Margin guidance is deliberately conservative: Management pegs Cable & Wire EBITDA margin at 11–13% for modeling, with gradual upside as the higher-margin wires contribution improves over time.

Gandharv Tongia: "I think it is safe to assume a number between 11% to 13% EBITDA margin for your model purposes. And if you do that, my sense is, we'll probably have chances of having positive surprises rather than negative surprises."

FMEG: The Margin-Recovery Bet

• Top line stalled but the base is being reset: FMEG revenue was almost flat YoY, enduring a challenging demand environment; management considers FY23 a base year and expects reasonable growth to resume from FY24 as distribution channel realignment completes by year-end.
• Profitability was sacrificed for brand building: A&P spend jumped from ~₹16 crore in Q2 to ~₹64 crore in Q3, spanning TV, digital, social, print and influencer programs, after years of being frugal during COVID.
• The margin roadmap has four levers: Reorienting the portfolio toward higher-margin switches and switchgear, offering products across price points including premium via Silvan R&D, extracting operating leverage as fixed costs stay flat, and sustaining elevated A&P to build pull.
• Fan restocking provided a one-time QoQ bump: The fan business grew 24% QoQ as distributors restocked to liquidate non-BEE-compliant inventory; price hikes are expected from Q4 when BEE-compliant stock enters the market.
• The 10% EBITDA target by FY26 is explicit: Management expects FMEG EBITDA margin to improve every year, reaching roughly 10% by fiscal 2026, driven by mix shift away from fans and lights toward switches and switchgear.

Gandharv Tongia: "But we realized that there are few things which we could have done better. One was the entire GTM and ensuring the right set of dealers and distributors have FMEG offerings of Polycab. Second was new product development... I don't think we did enough NPD in first five, seven years of FMEG foray."

EHV: The Next Growth Frontier

• The whitespace is now filled: Polycab entered a technology know-how agreement with Swiss firm Brugg Cables to transfer design, testing, production and installation technology for up to 550 KV voltage systems, enabling entry into the EHV segment previously accessible only via the EPC route.
• The addressable market is large: Management estimates the domestic HV and EHV market at ₹4,000–5,000 crore, with significant additional overseas business potential.
• The facility timeline is long but defined: The state-of-the-art EHV production facility in Halol, Gujarat will take approximately 2.5 years to construct, with production expected to start in 2025; part of the investment will be made in the current year and the balance in the following year.
• Asset turns are expected to be comparable: Management indicated EHV asset turns should generally match the existing Cable & Wire business, though better visibility will come closer to project commissioning.
• The transmission grid is upgrading: India is seeing 220 KV lines move to 400 KV, and management expects 550 KV transmission lines to appear soon, creating a structural demand tailwind for the EHV investment.

Gandharv Tongia: "The only whitespace we had was EHV. And generally, you know EHV business is done through EPC route and for that you need pre-qualification. So what we have done now is, we have got into an arrangement with a large international player who has almost 120 years of experience... And we have entered into a tech know-how agreement to transfer design, testing, production and installation technology. And this will be up to 550 KV."

Capital Allocation & Balance Sheet

• Net cash is building: Net cash position improved to ₹1,870 crore from ₹1,670 crore last quarter, supported by higher other income from deployment of excess cash in mutual funds and ~₹10 crore from asset monetization.
• Capex is accelerating meaningfully: Calendar year 2023 capex is guided at ₹600–700 crore, roughly three-fourths for wires and cables (including the EHV facility) and one-fourth for FMEG capacity expansion.
• Cash deployment priorities are explicit: Cash will be used for capex, M&A activities, a retained war chest, and the rest distributed to shareholders via dividends or buybacks.
• M&A remains an active growth lever: Management is looking for the right asset at the right place at the right valuation to accelerate top-line growth, but ruled out any foray into kitchen appliances, preferring to stay within the existing electrical ecosystem.
• Working capital edged up deliberately: Inventory was built up at quarter-end as raw materials were procured in anticipation of better demand in Q4.

Project Leap & The ₹20,000 Crore Ambition

• The target is reaffirmed with internal upside: Management is confident of achieving ₹20,000 crore top line by fiscal 2026, driven by better-than-industry-average growth in both Cable & Wire and FMEG; internal teams believe it can be done sooner.
• The B2B vs B2C mix is the framing metric: Management targets a 50:50 B2B-to-B2C mix by FY26, where B2C includes wires and FMEG, and B2B includes Cable and EPC, rather than disclosing a specific FMEG contribution to the ₹20,000 crore target.
• FMEG capacity is not a constraint: Management declined to aggregate peak FMEG revenue potential, stating that plants can be set up within 1–3 months in this industry; fan capacity is doubling via the Halol facility, and switchgear capacity is expanding to 1.5x next fiscal.
• A revamped brand architecture is coming: The brand architecture project is nearly complete, with a revamped brand launch expected by the end of the current calendar year, offering differentiation across product categories.

Gandharv Tongia: "I mean, if you were to ask us, we are a growth-hungry organization. Whenever I discuss this Project Leap, an ambition INR 20,000 crore, everyone internally is of the view that we can do it sooner. But when it comes to guidance, I think it is best to say that we would be able to achieve INR 20,000 crore of top line by fiscal '26..."

Guidance & Commitments

Key Metrics