Polycab India Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Record revenue, but two soft spots: Highest-ever quarterly revenue was driven by 20%+ domestic W&C volume growth, yet FMEG de-grew and international business was muted by Red Sea disruptions.
• FMEG restructuring is a multi-quarter reset: The B2C business has been merged with Power under new leadership, and management asks for three to four quarters before the business stabilizes and returns to growth.
• Capex is accelerating ahead of demand: FY24 capex will overshoot guidance to ₹800–900 crores, with another ₹600–700 crores planned for FY25, as the company builds capacity across cable types and the new EHV plant.
• Margins held by mix, not volume: Superior product mix from high-margin LDC and export cables, plus strategic price revisions, supported profitability even as wires growth stayed soft and FMEG losses persisted.
• What to watch next quarter: Whether the promised Q4 acceleration in growth and margins materializes, any stabilization in FMEG sales as the fan season begins, and clarity on the IT search outcome.

Wires & Cables: The Core Engine

• Cables powered the quarter: Domestic cables growth was robust, driven by government capex, infrastructure activity, renewable energy investments, and a pickup in private capex; institutional business growth outpaced distribution on a much lower base.
• Wires hit a soft patch: Volume growth was in single digits YoY due to rising copper prices, a pause in construction in certain states from pollution concerns, and a slowdown linked to state elections; management views these factors as transient and expects demand to improve.
• Real estate pipeline is a tailwind: Residential property launches and annual sales hit a ten-year high in CY2023, and since wires demand typically arises toward the end of the second year or early third year of construction, the past two years' launches should generate heightened demand in upcoming years.
• Etira is the unorganized-market play: The Etira wires brand was introduced to capture share in Tier 3–5 towns; margins are similar to other wires, and its contribution is expected to increase.
• Export order book is strong but delayed: Delivery timelines to Europe have stretched from three weeks to six weeks due to the alternate route around the Red Sea, postponing some sales; management expects Q4 and beyond to be good.

Chirayu Upadhyaya: "There will be certain sales which generally happen wherein the distributors stock up their products. And that is something that would have just been postponed to the next month. So that we'll be able to recoup a part of it as well. But it will be difficult for us to quantify on this."

FMEG: Restructuring a Chronic Underperformer

• The business shrank again: Sustained weakness in consumer demand drove de-growth; fans fell YoY on a high base from pre-BEE stock liquidation, lights declined on further pricing erosion, and festival demand was not as strong as anticipated.
• Profitability stayed negative: Segmental EBIT remained in the red due to higher A&P spends and fixed costs in the absence of scale.
• Switches and switchgears were the bright spot: This sub-category registered YoY growth, supported by in-house manufacturing set up over the past 1–1.5 years, expanded capacity, a price-laddering strategy, and cross-selling with wires.
• A full organizational reset is underway: The FMEG vertical has been merged with the Power Business vertical under a unified Business Unit Head; the B2C piece is now led by Mr. Ishwinder Singh Khurana with deputy business heads for product-level verticals, and second-line recruitment is ongoing.
• Management concedes past execution failed: The company acknowledges that execution has fallen short of expectations and is addressing the issue with a full blueprint now in place; it asks for one or two quarters before detailing the changes.
• Inorganic growth is on the table: If an opportunity arises at an acceptable valuation, the company may pursue the inorganic path for FMEG.
• New launches are a near-term lever: 28 new SKUs are planned for Q4 across premium, BLDC and exhaust fan ranges, and the Silencio series of BLDC fans will expand to all Indian states within the quarter, timed for the fan season beginning February.

Chirayu Upadhyaya: "While we definitely accept that, yes, the execution hasn't gone as per what we had planned out, and that is why we are now addressing this issue by taking different steps."

Capex: Building Ahead of the Cycle

• FY24 spend is overshooting: The company will incur ₹800–900 crores in the current fiscal year, above its earlier guided range, to capture demand across domestic cables, OFC cables, export cables, special purpose cables, and the EHV plant.
• FY25 will stay elevated: An additional ₹600–700 crores of capex is expected next year.
• The EHV plant is the flagship project: The manufacturing facility is on track to be operational by late FY26; management declined to quantify capex incurred so far or revenue expectations, saying it will provide details when the plant is near operational.
• Capacity is not fully fungible: OFC and export cable facilities are not fungible; domestic cables have better fungibility, which provides some flexibility in allocation.
• New competitor supply is not a threat: Peers are adding capacity over the next 12–18 months, but management argues the industry acts rationally, historical pricing revisions have not been material, and demand momentum is strong enough for all manufacturers.

Margins & Profitability

• Mix drove margin support: A superior product mix, driven by a shift toward high-margin LDC cables domestically and better-margin export cables, along with strategic price revisions, helped sustain profitability.
• Cables and wires margin guidance is maintained: The company reiterated its 11% to 13% EBITDA margin range for the segment, with 12% to 14% realizable at better scale.
• FMEG losses are a structural drag: Negative segmental EBIT from FMEG, driven by high A&P spends and fixed costs, continues to weigh on consolidated margins.
• A&P spending will stay within a band: The company will continue to spend 3% to 5% of B2C top-line on advertising and promotion annually; World Cup-related ad spend is seeing early improvement in visibility and customer awareness, though no sales impact was quantified.

IT Search: Facts, Not Allegations

• What is known: Income Tax authorities conducted search operations at manufacturing plants, facilities and offices in the last fortnight of the previous calendar year; the company cooperated fully and has not received any written communication from the IT department regarding the outcome.
• Operations are running smoothly: All filings have been made to the stock exchange, and day-to-day operations are ongoing.
• Management declined to quantify any sales impact: Some distributor stocking sales were likely postponed to the next month and may be partly recouped, but the company said it is difficult to quantify any loss.
• Management did not formally deny unconfirmed allegations: When asked if shareholders can assume allegations of unaccounted cash transactions are completely false, management pointed to the absence of any communication from the department and stated confidence in its compliances, without issuing a direct denial.

Gandharv Tongia: "We never ever did anything which would put anyone in a wrong spot, and we are confident on our compliances."

Guidance & Commitments

Key Metrics