Polycab India Ltd - Q3FY22 Analysis
Updated: Jan 27, 2022
Polycab India Ltd seems to be on track to achieve its target of annual revenue of ₹20,000cr (by FY26).
The quarterly revenue figure for Q3FY22 is the highest quarterly figure in the 58 year history of the company, growing by 23% year on year(YoY).
Before we go any further, let me first give a brief about the company below.
Polycab India Ltd- Company Profile
Polycab India Ltd is the largest wire & cable(W&C) company in India with a 14% market share of the total market and 20-22% market share in the organized space. The company ventured into FMEG segment in FY14 to move towards higher margin & B2C side of the business. The idea was to use the same distribution channel to cross sell FMEG (Fast Moving Electrical Goods) products as well as identify a new engine of growth. Around 20% distribution channel is common between the two segments. There is a lot of synergies between the two businesses in terms of raw materials, distribution, branding etc. FMEG business has grown at a CAGR of 37% in the last 5 years.
As of Q3FY22, the company derives around 11.5% revenue from FMEG products, 81% from Wires & Cables, 7.5% from Copper rods & rest from EPC business.
Polycab India Ltd - Q3FY22 Financial Analysis
On a year on year basis, company's revenue grew by 23% on a much higher base driven by B2B segment. This growth was fueled by increase in Private CAPEX. Company has many repeat orders from large customers.
Wires & Cable business grew by 26% while FMEG business grew by 11%.
Exports was at 8% of sales on the high base of Dangote order last year. If we exclude that order export growth would have been 24%.
But the EBITDA margin declined by 2% mainly on account of increase in raw material cost.
Advertisement and promotion cost during the quarter stood at ₹43.4cr compared to 37.2cr on a year on year basis.
Company has cash of ₹670cr on its books.
Key highlights- Polycab India Ltd Q3FY22
With increase in raw material prices, unorganized players are finding it difficult to survive.
But Polycab has been able to increase prices more than the increase in raw material cost and capture market share. Company has increased its Market share in organized Wires & Cables business from 18% during its IPO in Apr 2019 to 20-22% in Q3FY22.
Company's E-Commerce sales have started to increase.
Polycab is aggressively widening its distribution reach.
Polycab has divested its 100% stake in Ryker base during the quarter. The details of which can be found below.
Real estate market has come back strongly, that is going to create push for B2C wires business.
Polycab has roped in Ayushmann Khurana as its brand ambassador in Nov'21.
Wires & Cables : 70%
FMEG: Grown to 50% from 35% in Q2FY22. That is a significant increase in a matter of a quarter.
This leads to improvement in working capital cycle.
In the current quarter 'Days sales outstanding DSO' stood at 40.
FMEG Sales Breakup:
Divestment of Rykar Base Pvt Ltd
Ryker Base was formed as a Joint venture(50:50) with Trafigura Pte. Ltd. in 2016 to manufacture Copper rods, a key raw material used to manufacture wires and cables. In March 2020, the company acquired the remaining 50% stake from its JV partner and it became a wholly owned subsidiary of the company as the partner wanted to exit the JV.
Given that it is a non-core business of the company, the company sold the entire subsidiary for a sum of ₹323cr in Nov 2021 to a subsidiary of Hindalco ltd. Post the completion of the transaction, Polycab's debt is likely to come down by 150cr.
Project Leap: Started since FY21
The most important part of this blog is 'Project Leap'. An ambitious target set by Polycab for itself.
Company is working with consultancy firm BCG on Project Leap.
Some initiatives taken by Polycab for project leap:
Visited 600 districts to find out the gaps and increase distribution to drive growth.
Conducting nationwide reach analysis.
Portfolio optimization: Conducting mapping exercise of company's portfolio to customer needs vs market offerings.
Achieve Target of ₹20,000cr by FY26 from ₹9000cr in FY21. This will require a revenue CAGR of 17.3%.
EBITDA margin in FMEG > 12%
Growth engine for Project Leap:
2. B2C Business
Strengthening the team to achieve the said target.
Company has seen good result of rural transformation projects
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