Polycab hosted a conference call on July 19, 2024. In the conference call the company was represented by Inder T. Jaisinghani, Chairman and Managing Director.

Key takeaways of the call

Strong revenue growth in Q1FY25 was supported by steady performance in W&C business supported by strong performance in the EPC business driven by robust EPC order book execution and a seasonally robust quarter for the FMEG business. 

Domestic wires and cables business grew 15% year-over-year, with volume growth of about 10%. Sharp commodity price movements led demand fluctuations in channel sales in later part of the quarter curtailed the positive impact of higher average commodity prices.  

FMEG business registered a growth of 21% YoY, on the back of robust demand for fans amid heatwave in several parts of the country. Driven by healthy real estate demand, the switches & switchgears and conduit pipes & fittings segments exhibited strong growth during the quarter. However, the lights & luminaires segment continues to be affected by pricing erosion and weak consumer demand.

The decrease in EBITDA margin by 170 bps on YoY basis to 12.4% in Q1FY25   was driven by a shift in the business mix toward segments with lower margins. In Q1FY25 the contribution from higher margin International business and domestic distribution business declined, while that from lower margin EPC business inched up.  

EBIT Margin of C&W decline of about 220 bps YoY was largely on account of lower contribution from the higher margin international business as well as domestic distribution business.

In Q1FY25, Cables contributed about 75% to revenue, wires about 25%. Cables growth continued to outperform wires growth.

The international business of C&W registered a decline of 28% YoY in Q1FY25. Contribution from the international business to the consolidated revenue stood at 5.3% for the quarter. The shift to the distributor led model in the US takes time to stabilize. Company aims for the international business to reach 10% of revenue by FY26.

Domestically, the institutional business outpaced the distribution business. Domestic institution business saw good growth.

Commodity/copper prices witnessed fall in June 2024. Thus in the domestic market, distribution business was affected with channel   destocking.  At the moment inventory levels in the channels are  at normal levels.

Demand momentum for W&C remains strong, with uptick in sales expected during the remaining part of the year. Expect real estate demand to drive wires growth as 70% of wires demand is from the sector and cables growth to be driven by infrastructure spending.

Current capacity utilization of Cables & Wires (C&W) is around 70-75% with cables at higher end of the range and wires at the lower end.

Fans and lights contribute 50-55% of FMEG revenue, switches and switchgears business and the conduit pipes and fittings business both are in high teens each and rest is others. Company used to focus more on fans and lights till now but have started working on switches and switchgears. It has lower competitive intensity and hence margin profile is better. Company manufactures everything in-house so capacity utilization is less currently. With increasing scale profits will improve.

The operating margin is expected to normalize through the year. The guided EBITDA range in cables and wires is 11-13%  but company expects to do 12-14% margin this year due to better operating leverage.

Domestic C&W has an 11-13% margin range and in international it is higher. Wires business margins are generally 15-16% at EBITDA level, cables are between 9-11%

Annual sustainable operating margin of EPC/others business is expected to be in high single digit over mid-to-long term. In Q1FY25 the EBIT margin stood at 11%. 

Capex incurred in Q1FY25 was about Rs 280 crore and the company is on track of meeting its FY25 capex guidance of Rs 1000-1100 crore.