Polycab India Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record quarter, broad-based volume: Consolidated revenue grew 27% YoY, the highest-ever Q2 revenue and quarterly profit, driven by 30%+ volume growth in domestic Wires & Cables.
• Margins expanded on mix and scale: EBITDA margin reached 14.4%, up ~160 bps YoY, helped by operating leverage and a favourable shift toward higher-margin cables and special purpose cables.
• FMEG is turning the corner, slowly: The segment grew only 8% YoY and segmental EBIT stayed negative, but product-mix improvement and in-house manufacturing are pulling profitability toward breakeven, with management calling a gradual move into the black.
• The structural capex story is intact: Management framed government infrastructure spending as a multi-year structural cycle, not a pre-election blip, and expects private capex to crowd in, supporting cable demand well beyond the current year.
• What to watch next quarter: Whether the festival season delivers the expected FMEG pickup, the pace of the margin mix shift between cables and wires, and any quantified update on the Project Leap recalibration.

Wires & Cables: The Volume Engine

• Volume growth exceeded 30%: Domestic distribution-driven business sustained strong momentum, while the institutional business accelerated sharply, buoyed by the on-ground sales team.
• Cables outpaced wires: Cable growth was north of 30% YoY, wire growth near 20%, shifting the mix a few hundred basis points toward the cable side.
• Special purpose cables surged: Contribution soared north of 21% in H1, driven by increasing defense-sector demand; these domestically manufactured cables carry better margins than other cable types.
• North region led geographically: Uttar Pradesh, Delhi and Haryana posted the highest growth, though the expansion was broad-based across regions.
• Real estate is in a multi-year upcycle: Management pegs the Indian real estate cycle at six to eight years and believes the market is only in year two or three, implying three to four more good years of demand.
• Commodity pass-through is structural: Embedded derivatives in raw-material contracts give roughly three months to firm up pricing; from order placement to end-customer sale, commodity price changes are completely passed through, negating volatility.

Chirayu Upadhyaya: "I can definitely say that based on the demand that we are seeing on the ground, the volume growth in the industry has been better than what it has ever been. And we believe that this case will continue in the future as well."

FMEG: Slow Turn, Three Levers

• Topline grew only 8% YoY: Channel realignment, new product development and in-house capacity are beginning to materialize, but the segment remains sub-scale.
• Segmental EBIT stayed negative: Fixed costs in the absence of scale kept the bottom line in the red, though a product-mix shift toward higher-margin categories contained the decline despite higher A&P spends.
• Three improvement levers are in motion: Management is shifting the product mix toward switches and switchgears (lower competitive intensity, better margins than fans and lights), building scale benefits from in-house manufacturing, and premiumizing across categories.
• Switches nearly doubled sales YoY: In-house manufacturing enhanced product availability; the low-cost Etira series and premium Levanna series both contributed significantly.
• Lighting faced a pricing reset: LED prices corrected roughly 24–25% over the past 12–15 months due to Driver-on-Board technology, with 10–12% of that correction hitting in Q2; management believes pricing has now bottomed out.
• Fans are waiting on seasonality: Three new fan ranges launched in Q2, including the Silencio Mini BLDC in select cities, but a real pickup is expected only from October/November, the first season post energy-norm changes.
• Profitability is inching toward breakeven: Excluding A&P spends, FMEG profitability improved and the combination might have been in a bit of profit; management expects the trend to continue in the black with gradual improvement.

Margins: Above Guidance, But Guided Conservatively

• EBITDA margin reached 14.4%: The 160 bps YoY expansion came from enhanced operating leverage and a favourable product mix within cables, including higher export contribution and a greater share of special purpose cables.
• Management wants models at 11–13%: Despite delivering above that range, the company insists analysts use 11–13% EBITDA margin guidance to avoid negative surprises, because sustainability depends on maintaining the current scale, international contribution and cable mix.
• Channel finance does not dilute gross margins: Cash discounts offered through channel finance are already factored into the pricing revisions for cables and wires, so they do not translate into lower reported gross margins.
• A&P spend is rising structurally: The Polycab brand relaunch and World Cup sponsorship drove a sharp H1 increase in advertisement expenses; management guided that incremental A&P will run at 3–5% of B2C topline going ahead, accounted as period costs when incurred.

Gandharv Tongia: "If we are able to sustain the current levels or the current scale that we are operating, if we are able to sustain the contribution from international business of HDC, LDC different types of mix, definitely we should be able to sustain the margin. But sitting at this point in time, we wouldn't be able to comment that 100% sure is something that will play out."

Capex & Capacity: Investing Ahead of Demand

• EHV facility is on track for end-FY26: The company has started incurring capex on the extra-high-voltage facility; a large part of this year's and next year's cables and wires capex will go toward that project, with operations expected in the next 12–18 months.
• Capacity expansion is pre-emptive: Management can run up to 95% utilization but invests ahead of time, expanding facilities for special purpose cables and other categories every year without waiting to hit a utilization trigger.
• Annual capex guided at ₹600–700 cr: This run-rate applies to both FY24 and FY25, with the EHV project absorbing a large share of the cables and wires portion.
• Government capex is a structural, not cyclical, story: Orders being placed now will generate cable demand over the next year, so management expects no demand slowdown during election months; private capex is also beginning to crowd in after three years of public investment.

Chirayu Upadhyaya: "If you look at the cables as a business, whenever new orders are given out, it is not immediately that the requirement of cables come in. So, in that sense, all those orders which are being given out for the development of new projects right now, the demand for cables is something which will be coming in over the period of next one year."

Strategic Initiatives: Brand, Distribution, Project Leap

• New brand identity unveiled: The Polycab relaunch was executed during the quarter, with part of the cost already accounted for; A&P expenses will continue to increase as the brand positioning effort scales.
• Distribution realignment is largely complete: Project Leap's effort to tie up with larger distributors has been executed; the company will continue to improve distribution across geographies.
• Southern region wires grew 19% YoY: A targeted approach in Karnataka, Telangana and Tamil Nadu made the South the fastest-growing wires region in the quarter.
• Price laddering is working: The Etira, Optima and Green Wire ranges collectively accounted for 30% of H1 wires sales, supporting both volume and mix.
• Project Leap targets are under recalibration: All targets, including the 10% export contribution goal, are being revised; management said revised calibrated numbers will be released in a matter of a few quarters.

Guidance & Commitments

Key Metrics