In an interaction with Gandharv Tongia, Executive Director and CFO, Polycab India
India is a consumption powerhouse, driven by a rapidly growing middle-class and increasing urbanisation
In Q1FY24, the company has achieved the best ever quarterly revenues and profitability. The revenue of the company surged by 42 per cent on YoY basis to Rs 3,889.4 crore while the net profit of the company zoomed by 81 per cent on YoY basis to Rs 402.8 crore. What were the contributing factors to the company’s stellar results?
Our growth during the first quarter has been achieved on the back of a combination of several macro factors as well as through various strategic initiatives taken by us under Project LEAP. India’s capex cycle has witnessed a meaningful upswing in recent years with both public and private capex showing positive momentum. Moreover, the real estate industry, which drives most of the demand for wires, has been in an upward momentum over the past two years, registering exceptional growth numbers. In addition to domestic demand, we are witnessing remarkable growth in our international business with sectors like renewables, oil and gas and infrastructure driving the pace.
Within Project LEAP we are working on a range of strategic themes across both B2B and B2C categories to achieve industry-leading growth and improving profitability. On the B2B side we continue to increase our presence in under-penetrated districts and enhancing our distribution reach. We are also employing surgical targeting of select weak markets with a different go-to-market strategy as well as region-specific targeted product development. Our merger of the HDC and LDC verticals undertaken a year back has also helped improve sales through cross-selling. On the B2C side, our NPD efforts are also bearing fruits, as Class 5 wires, including ‘Etira’ which was introduced to capture the price-sensitive customer segment in the semi-urban and rural areas has been received extremely well.
Our premium segment comprising ‘green wire’ too is doing well. The fans’ business also exhibited healthy growth sequentially as older non-BEE-compliant inventory with channel partners was mostly sold off, leading to fresh sales of newer BEE-compliant inventory during the quarter. The switches’ business continued with its impressive growth as benefits of improved availability through in-house manufacturing continues to play out. On the profitability front, better margins were driven by judicious price revisions, better operating leverage and strong growth in international business.
Your revenue from international business has grown significantly by 88 per cent YOY basis, contributing 8.9 per cent to the consolidated revenue. What were the factors which led to this trend and can we expect continued momentum in growth in international business?
Over the years, we have made substantial investments in building robust capabilities for expanding our international business, and these efforts are now yielding tangible and considerable benefits. Our global presence is now across 72 countries, and we expect this segment to continue performing well in the years to come. Our growth in the international business segment has been significantly driven by strong demand in key markets such as the USA, Australia and Europe, particularly in sectors like renewables, oil and gas and infrastructure.
As part of Project LEAP, our target is to achieve 10 per cent contribution from the international business to the overall top-line by FY26. We are currently operating in the range of 8-10 per cent over the past two to three quarters, which brings us close to our target. The international opportunity is substantial, and there is potential for growth in top-line contribution from this segment. Our strategic focus in the international business revolves around positioning Polycab India as the preferred provider of cabling solutions. This involves delivering superior products, exceptional service, and expanding our distribution network to ensure faster delivery to our customers.
The company’s fast moving electrical goods (FMEG) business showed 3 per cent YoY and sequential growth. Can you shed some light on the factors responsible for the muted performance? What is your outlook on India’s FMEG sector?
Our FMEG business experienced a subdued quarter due to weak consumer sentiment, which adversely impacted sales. The FMEG segment is a vital part of our business, and we are actively working to enhance its performance. Under Project LEAP, we have implemented various initiatives to accelerate future business growth. For the FMEG segment, we have transitioned to a ‘large distributor’ model, where a large distributor, along with 8-10 sub-distributors, caters to demand from a cluster of towns. This strategic shift has resulted in broader geographical availability of our products and increased reach to more retail outlets.
To strengthen our brand presence, we have tied up with Ogilvy and Interbrands, and have substantially increased our investment in brand-building efforts through ‘above the line’ (ATL) and ‘below the line’ (BTL) marketing activities. Advertising and promotion spends have risen by 51 per cent this year compared to the previous fiscal year. With the help of Silvan acquisition, our research and development efforts for the FMEG segment have improved, driving innovation and facilitating the development and launch of products across different price points to cater to diverse customer segments. This aligns with our strategy of offering premium products to enhance our margins. To expand our brand awareness and boost sales, we have also extended our influencer management programme to additional cities.
As a result of these concerted efforts in the FMEG segment, we are optimistic about improving both our top-line and bottom-line performance, starting from FY24. We are targeting an annualised EBITDA margin of about 10 per cent by FY26. The FMEG industry is expected to experience robust growth over the medium term driven by various factors, including increasing disposable incomes, evolving consumer preferences, technological advancements and a shift towards premium products. Within the broader market, large and organised players such as Polycab India are likely to grow at a much faster pace on the back of increased consumer awareness, expanded product availability and government regulations.
Recently, you talked about entering into high-voltage and extra-high-voltage space. What is the TAM in this space and what kind of competition are you expecting?
The increasing demand for power in India, particularly in Tier 1 and 2 cities and smart cities, is driving the requirement for high-voltage (HV) and extra-high-voltage (EHV) cables. As the load transmission systems continue to expand, the existing 220 KV transmission lines will be replaced by 400 KV, and there is even the possibility of higher 550 KV transmission lines. We estimate that the EHV business in India could reach a potential value of around Rs 40 billion to Rs 50 billion by FY26. Recognising this significant opportunity, we are investing in the establishment of an advanced EHV production facility in Halol, Gujarat. We have already commenced the setup of this facility, and we expect it to become operational in FY26.
To ensure that we are at the forefront of EHV cable production, we have partnered with Brugg Cables, a leading Swiss cable manufacturer, to acquire state-of-the-art technology required for EHV production. Brugg Cables will transfer their latest design, testing, production and installation expertise to Polycab India, enabling us to manufacture EHV cables of up to 550 KV. This strategic investment not only positions us to cater to the growing domestic demand but also opens up significant opportunities for overseas business expansion. As of now, in the country there are only a handful of players who are actively involved in manufacturing of EHV cables. By leveraging our collaboration and cutting-edge technology, we are confident in our ability to achieve a prominent position in the evolving EHV market and further strengthen our presence in the global cable industry.
What efforts are you taking to maintain current growth? Are you looking for growth organically or via mergers and acquisitions?
India is a consumption powerhouse, driven by a rapidly growing middle-class and increasing urbanisation. Further, the government’s ambition to make India a developed country by 2047 necessitates investment in physical capital and comprehensive reforms across sectors covering infrastructure, healthcare and technology, among others, to raise productivity. This augurs well for the cable and wire industry which is sector-agnostic and is vital for any type of infrastructure formation. Polycab India, a leading player in the industry, is well-positioned to capitalise on this macroeconomic opportunity.
The company commenced a five-year transformation journey post FY21 under Project LEAP, wherein we have been diligently working on various initiatives, organised into four key strategic areas of customer-centricity, go-to-market excellence, winning with new products and setup of organisation enablers. Over the past two years, substantial progress has been made in each of these focus areas. Within customer-centricity, we have restructured our business operations with a strong emphasis on meeting customers’ needs to ensure their convenience remains at the forefront of our operations. In pursuit of an improved go-to-market strategy, we have dedicated efforts to expand our distribution reach in the B2C business and establish a stronger presence in untapped areas for the B2B business.
As part of winning with new products strategy, we have revamped our entire fans portfolio, re-launched green wires as well as introduced a new brand ‘Etira’ for targeting the economy price segment, and many more. Furthermore, Project LEAP serves as a catalyst in reinforcing our commitment to sustainability by implementing innovative and best practices. Our overall commitment lies in staying ahead of market trends, delivering superior products and services, and consistently generating long-term value for our stakeholders. As far as mergers and acquisitions are concerned, we remain open to opportunities in both the FMEG and wire and cable categories. Should we encounter an opportunity that helps in significantly enhancing our capabilities – distribution on the wire and cable side and technology on the FMEG side – we are willing to explore and pursue such an acquisition to further strengthen our position in the market.
At the moment, what are your top three strategic priorities?
We are committed to achieving sustainable business growth across all aspects of our operations, with a particular focus on growing the B2C and international business. These segments hold immense potential and are expected to drive the future growth of our overall business. In the realm of international business, we are actively working to expand our global footprint by entering newer geographies. We are working to obtain the necessary approvals to supply all types of cables in all regions where we operate. Additionally, we are transitioning to a distribution-led mode of operation to enhance our international business’ contribution to our top-line revenue. This strategic expansion into global markets will not only diversify our revenue streams but also reduce reliance on specific regions, rendering our company more resilient to market fluctuations.
Our aspiration is to secure a position among the top five global wire and cable companies in the medium to long term. For our B2C business, we are taking proactive measures to strengthen it further. We are adding new functions such as sales analytics, channel development and product management to enhance planning and support capabilities. Our strategic priorities encompass distribution expansion, brand-building through increased advertising and promotion spends, launching new products, improving retail execution, enhancing sales force effectiveness and implementing a comprehensive influencer management programme. These initiatives are geared towards driving growth, optimising profitability and improving our market share.
Furthermore, we are keenly focused on the environment, social and governance (ESG) aspects of our business. We have developed a robust ESG framework aligned with international protocols, guidelines and standards, and have established an ESG charter. The ESG framework will be integrated into our company’s ethos, ensuring that all business decisions are aligned with sustainability principles across environmental, social and governance pillars. While we have always been mindful of conducting our business in a sustainable manner, the implementation of a structured ESG framework will further strengthen our resilience, transform our organisational culture and create long-term value for all stakeholders.