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Polycab India Ltd
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Ladies and gentlemen, good day, and welcome to Polycab India Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Gandharv Tongia, Chief Financial Officer, Polycab India Limited. Thank you, and over to you, sir.
Thank you, operator, and very good noon, everyone. I hope you all are doing well. It's a pleasure to have you on the call. As operator mentioned, my name is Gandharv Tongia, and I'm the CFO at Polycab India Limited. Thanks for joining us today to discuss our Q1 FY '23 earnings. During the call, we will be referring to the presentation, financial results and financial statements, which are available on the stock exchanges as well as Investor Relations web page of our website. It can also be downloaded through QR code on Slide #8 of earnings presentation. From our management team, we have with us our Chairman and Managing Director, Mr. Inder T Jaisinghani.
Let me now hand it over to him for his opening comments.
Good afternoon, everyone. We have started the fiscal year 2023 on solid footing, with top line growth of 48% fueled by strong performance across B2B and B2C categories, which underline our strategy to be agile, focused on robust execution and consistency, delivering the best quality of the product to our customer. Profitably was supported by the better operating leverage and various strategic initiative implemented over the past few quarters. We will strive to continue the path of profitable and sustainable growth and contribute to the success of all our stakeholders.
I now request Gandharv to take you through our earnings presentation.
Thank you, Inder bhai. Revenue growth of 48% marked the beginning of FY '23 on a promising note, as most of our businesses are now performing above prepandemic levels. The numbers might look upbeat due to low base, but we are seeing sustainable improvement in our underlying businesses. More importantly, we are progressing well on our strategic agenda, which will drive transformation over mid-to-long term. The current quarter breaks the rhythm of back-to-back impacted Q1 results, turning it to be the best Q1 in the history of the company in terms of revenue and margins.
Before I take you through the presentation, let me give you a flavor of macro environment. Overall macro environment has been a bit of mixed bag during the quarter. Global economy is going through an extremely uncertain period amidst the simultaneous interplay of various headwinds, a lingering war and enduring COVID, the sharp volatility in energy and other commodity prices, strain in global supply chain and worsening food security.
In several economies, inflation is ruling at levels not seen by the recent generations. For advanced countries, against an inflation target for 2% and emerging markets against an average target of about 3% to 5%, 2/3 are witnessing inflation about 7%. The sharply tightening financial condition due to the ongoing normalization on the one hand and the persisting geopolitical tensions on the other cause significant downsizes to near-term global economic prospects. The global economy is projected to deteriorate significantly during 2022 by all multilateral agencies. The outlook is shrouded in high uncertainty. A silver of hope has been visible in the recent moderation in global commodity prices and especially food prices.
Back home, the Indian economy has, however, shown some dynamism. Several indicators suggest that the Indian economy is making resilient progress in Q1 FY '23 in spite of the drag from global spillovers, elevated inflation and some flattening of external demand as geopolitical development take their toll on world trade. The high- [ pressure ] indicators for first quarter are mixed, however, amidst a sea of red and yellow, greens are making their appearance. For example, GST collections for the first quarter stood at over INR 4,50,00,000, up 37% year-on-year, while other indicators such as services PMI, IIP, core sector, all showed meaningful improvement.
India's [ polarization ] results are approximately close to nearly 10 months of imports projected for the current fiscal, thereby providing a supplication buffer against external shocks. However, on the contrary, consumer sentiment still remain below prepandemic labels, which was emphasized by RBI's consumer confidence survey. It is expected that the consumer demand in the urban market remains resilient, while a pickup in monsoon will support the rural market, which had been showing a consumption strength.
Besides, most of the commodity costs have been corrected in the last couple of months, offering some respite to the adverse net growth, thus the glass seems half full, perfectly balancing ambiguity with some silver linings. Meanwhile, on our business, we remain agile through our portfolio and go-to-market strategy, which gives us confidence to drive industry-leading growth.
Moving on to the presentation, Slide #4. For the quarter ended 30th June 2022, our consolidated revenue grew by 48% year-on-year. EBITDA more than doubled in the first quarter, while EBITDA margins improved by almost 420 bps year-on-year to 11.3%, led by better operating leverages and calibrated price hikes. During the quarter, we launched several brand campaigns across TV, digital and social media platforms. Seminars and [indiscernible] help us to improve awareness amongst B2B, customers, electricians and contractors amongst others.
Moving on, other expenses were broadly in line. Overall finance costs stood at INR 84 million and other income at INR 443 million. A detailed breakup of our other income and finance costs have been provided on Slide 12 of our earnings presentation. PAT also tripled on a year-on-year basis to INR 2.23 million. On segmental results, the current quarter is yet another example of how the diversity of our growth levers come into play.
Moving now on to Slide #5, Wires & Cables, which is our largest business, saw a strong top line growth of 48% year-on-year, led by healthy channel sales, while institutional business also witnessed growth traction. On the geographical front, the growth was broad-based with the highest contribution from West followed by South, North and East regions. During the quarter, wire business was slightly impacted by high volatility in metal prices. Consequently, the inventory, labor and trade was slightly below normal and overall [ care cycle ] also slowed. Despite these challenges, it is pleasing to note that the blended wire and cable volume grew on a year-on-year basis and is also higher than prepandemic levels. Export business contributed 6.7% to consolidated revenue and reported a healthy revenue growth of 62%.
We have put in considerate effort over the last few years in terms of new product development, getting approvals and penetrating new geographies. This is now materializing as we are seeing many repeat orders from large customers globally. Our focus on achieving double-digit contribution target over the medium term for this business remains intact.
On Slide #6, our FMEG business grew by 59% year-on-year to INR 305 crores. April month saw robust momentum, however, June was impacted by weaker trade and consumer sentiment arising out of inflation. The growth is quite structural, supported by strategic intervention and distribution expansion. Segmental operating profit increased to INR 62 million with a 2% margin largely on account of pricing action, cost-saving initiatives and premiumization, which have been partly offset by input cost pressures. While lighting, switchgear and pump continued their strong growth momentum, fans, conduit pipes and solar businesses posted healthy growth. However, switches saw a decline due to supply challenges.
On Slide 7, other segment, which are largely comprised of our EPC business, witnessed a 31% year-on-year increase in revenue to INR 75 crores. Our debt-to-equity ratio is strong at 0.02x and [ BI ] net cash of around INR 590 crores. On the working capital side, there are couple of things to highlight. One, receivable days are at comfortable level. We will continue to optimize this progressively with the help of nonrecourse channel financing. Second, inventory levels are higher than normal because we were anticipating better demand in the month of June. However, as I highlighted a while back, the trade sentiments were negative or went down a bit due to high volatility in metal prices and dealers and retailers reduced their stock level in the month of June. On payables, due to improved -- due to change in the procurement pattern from international to local vendors, the payment terms underwent a change from advanced to FCs, and that has resulted into reduction of liabilities. We expect this to normalize in 1 or 2 quarters.
Now let's talk about our key project, Project Leap. In the first quarter of the fiscal 2022-'23, we primarily worked on 4 key areas: one, customer centricity; second, go-to-market excellence; third, winning with new products; and last is, setup of organization and digital enablers.
Starting with customer centricity. Under this initiative, we have successfully integrated GTM for go-to-market for cable and wire B2B segment. This will materially improve our customer servicing capability as well as create one single route for our B2B customers. We have improved our understanding of the customer and its preference by using various tools and appointment of dedicated KAMs or Key Account Managers, which helps us to better serve our customers. We are also implementing pilot projects focusing on deepening reach and engagement with ISV and allied influencers.
Second area is go-to-market excellence. We are putting lot of effort on enhancing our presence. During the quarter, our B2B cable and wire, each expanded to additional 27 new districts. For FMEG, we have added around 100 new distributors, while also a strengthened our presence in modern trade and e-commerce channels.
Next, we are building a winning portfolio of our products which are innovative and resolve consumer needs. During the first quarter, we have already launched [ 15 and 52 ] new products, nearly 2% premium and underserved segments in fans and lights, respectively. Our premiumization journey is progressing well with premium products now contribute almost 12% to our consumer business, which was just 8% in fiscal '22 and 4% in fiscal '21.
Fourth area is setup of organization and digital enablers. Within this is a media initiative of setting up the right organizational structure and fill critical capability gaps across the department and businesses. Majority of talent acquisition for critical growth was completed across business and functions, while performance measures and reward recognition are aligned to the growth strategy. We also successfully instituted end-to-end digitalization of front-end sales across businesses. So that was broadly on Q1 FY '23.
Going ahead, we have pinned down some key focus areas for the next few months. One is enabling customer centricity in B2B business through which we are driving our sales team towards better consumer and customer understanding and expanding our customer view to include all relevant information in customer lifecycles. Secondly, expanding our reach and distribution across businesses, which includes expanding [ our base ] to 200-plus districts for B2B and scale-up of emerging India in the identified priority states.
Third, winning in the new products in B2C businesses. We have a strong NPD pipeline to stand on and build differentiated portfolio in FMEG businesses. Fourth, driving the digital agenda and creating a digital-first organization, under which we are strengthening our digital infrastructure across sales force, distributors, retailers and influencers. Lastly, emphasis on governance, where we have bottom-up and granular target setting approach deployed with linkages with scorecard across levels of business and functional teams. So that's about it [ only ]. We will continue to share periodic updates and are excited to see how the rest of the year pans out.
Thank you. And with that, I hand it over to operator for Q&A.
[Operator Instructions] The first question is from the line of Atul Tiwari from Citigroup.
Congrats on good set of numbers. Just a couple of questions on cables and wire business. So we have seen a very sharp commodity price cash over past 45 days or so. So have you passed all of that in your end product pricing? And how it should impact your margins over next 2 to 3 quarters? So that is one question -- first question.
And the second one is now that there is a widespread expectation that prices of the cables and wire product will be reduced, are you seeing reduced demand from channel and how long that is likely to continue?
Thanks, Atul. Thanks a lot for your kind words. I think your first question was around margin and whether we have passed on the -- all the benefits to the end consumer or customer. So you know this business, Atul, historically, we have maintained EBITDA margins of 11% to 13% in cable and wires. And we believe in the quarter 2 and years to come, we should be able to maintain the same way. In the current quarter also, it was 11%. Almost 87% of our business comes from dealers and distributors and where we revise our prices at least for monthly basis. And when we revise these prices, we consider 2 sectors predominantly. One is changes in copper and aluminum [ LME ] and second is change in [ USV ] and exchange rate. And this is what we have done even in the current quarter, and we will continue to do that in the subsequent quarters as well. So to answer your question, we expect to maintain a margin of 11% to 13%.
Second, on demand, generally, in the falling commodity prices, we have observed that dealers and distributors, they generally optimize the inventory at their end. And this is what we witnessed in the month of June. Expectation, broadly, is that we should have some stability in commodity prices in a month or so. And after that, I would not expect a significant correction in the inventory level of our dealers and distributors. It is expected that the second half of the year would be better than the first half of the financial.
The next question is from the line of Naval from Emkay Global.
I have 2, 3 questions, Gandharv. First, as you stated, the volumes have seen growth over prepandemic levels also. Can you give out any number on that? That is first question. Second, on Project Leap, because when we gave our Project Leap guidance of INR 20,000 crores revenue by '26, copper prices were kind of 20%, 22% higher than the current levels. So if copper prices or the other commodities are going to stay where they are right now, so will any -- will there be any change in time line or number on this INR 20,000 crores? And third question is on the unorganized players where last year, we have seen unorganized players facing difficulties because of spike in commodity prices. So do you think that they will come back in this year as things are now falling in place with commodity cooling off?
Great. Thanks, Naval. So I'll go in the same order. I think your first question was around the volume growth and you rightly observed that we have registered a fair amount of volume plus value growth. If I were to give you a broad color on the current quarter growth of 48%, it is safe to assume that most of it, almost 2/3 is coming from volume and balance is because of price reduction which we have taken.
I think your second question was around the top line target of INR 20,000 crores by fiscal 2026. So when we were working on this top line target as part of initial thoughts in the Project Leap around a year back, we considered last 5 year's movement in copper and aluminum LME as well as in USV and exchange rate and of course, the sectors in some management estimate. At this pace, considering some mid-to-long-term view, I don't think we need to revise the top line of INR 20,000 crores. But we will continue to keep you updated. At this pace, I, as well as the larger management team is confident of touching INR 20,000 crores of top line by fiscal 2026.
Third is on the unorganized. My sense is, like other industries, this industry will continue to move towards more organized market players, irrespective of what happens to the commodity prices. And I would be surprised if unorganized market share increases in the quarters to come or years to come.
Sure. Just a follow-up on the first question on volumes. Can you state number on prepandemic level on volume growth, as you stated in the initial -- your opening remarks that there was volume growth on prepandemic levels as well?
Yes. This is true that we have been able to register a fair amount of growth. But it would be slightly incorrect on my part to give you that number because in our business, a kilometer length of copper cable would be described in terms of value and volume when I compare with the aluminum. So I think it's safe to assume that we are ahead of the curve as far as the industry growth is concerned. But if I were to give you only specific response to this particular quarter, with June '21, I think most of it is coming because of volume and a part is because of value.
Sure. And if I may, one last question on the, again, commodity prices. Have you started -- you stated that H2 will be better than H1. But do you think that last year volumes were impacted because of a significant increase in commodity prices? And have you started to see some green shoots where demand coming back or some demand, which might have got postponed last year will come back this year?
Theoretically, yes, that's possible. But as of now, when we speak, I have not seen any significant or dramatic change in demand as a matter of when June was slightly softer. And it appears that there would be some impacts of the softer commodity prices even in the second quarter. But broadly, from third quarter onwards, we should see some uptick in demand and second half of the year should be significantly better than the first half of the year.
The next question is from the line of Achal Lohade from JM Financial.
My question was if you could help us understand the FMEG part. First, in terms of the revenue mix, if you could break it into key products. And you did point out to a drop in switches. If you could give some sense as to what exactly is the issue out there, and how do you see it going forward.
Sure. So we have broadly 5 or 6 subproduct categories within FMEG. One is fans, second is light and [ lumis ], switches and switchgear, conduit pipe, a bit of solar and a bit of agropumps. Fan contribute almost 30%, 35% to our top line of FMEG and light and lumis also have a number closer to the same range. And other businesses are slightly smaller. Fan got impacted in this quarter. As you remember, in the previous quarter, we had mentioned that we are doing the [ amendment ] exercise in fan business because we believe to achieve a significantly larger top line within fan business, we need to revisit our GTM dealer distributors and all that. So there were some impact on fan business. But on a consistent basis, we would expect fan and light and lumi both together should contribute almost 65% to 70% to our FMEG business, followed by other smaller business.
As far as switches are concerned, switch, any which way is a smaller business for us, but this is the only product where we were dependent on third-party supplies, and we had some supply side issues on that. But parallelly, we have started our process of setting up our own factory for switches. It is expected to be up and running in the current fiscal as well. And once that factory is operational, we should not face any significant issues on supply side of switches.
But you think you will have all the approvals with respect to -- because I recall for another company, it took lot of time to get the approvals -- the government approvals required to launch these switches and switchgears.
No, I think we have a very good handle on the approvals on switches as well as on the other businesses' approvals. I don't expect any significant challenges in launching our own switches in the current fiscal fixtures.
Got it. If you could help us what is the CapEx you are incurring? And what's the capacity and the revenue potential of this?
Sure. So historically, we have incurred between INR 300 crores to INR 350 crores every year. This year as well, we are anticipating a number close to INR 300 crores to INR 400 crores. When we were working on Project Leap, there were several priorities. So what we decided that, in the year 2 of Project Leap, we will start exploring adjacent categories and see whether we have to enter into these categories, either through M&A route or otherwise through our own facilities. So if we decide to get into adjacent product categories, that number of INR 300 crores, INR 400 crores will probably undergo a change, but that's a work which is in progress. I think during the course of the year, I should be able to give you additional color on this. And against the INR 300 crores to INR 400 crores target of the current year CapEx, we have incurred almost INR 100 crore in the first quarter.
And specifically on this facility, what is the -- for the switches facility, what is the CapEx and the volume and the revenue potential for the asset turn?
So FMEG business is generally a lighter business in terms of capital intensity. We should be able to get anywhere between 6x to 8x of the CapEx spend. Once it is up and running, we will come back to you with additional color and data on these facilities.
Got it. Just one more question I had, if I may ask. With respect to the distribution, you had talked about the overlap. And you have pointed out in the slide, it's about 25% is the common distribution. What I wanted to check, this classification is based on the retail mix or the dealers to distributor mix? How have you worked out this mix?
Yes, the data which you've talked about is the dealers and distributors. And the classification is on the basis of type of product they procure from our company. So if they're procuring cable and wire, then they are cable and wire dealer and distributor, if they are procuring FMEG products, then they are FMEG distributors but almost [ 46% ] of dealers and distributors are procuring both the products, and that is the number [ that you want I think ].
Sorry, that number is 45% or 25%, because I saw it is 25%?
25% are the dealers who are procuring both cable and wire...
So, in effect, you are saying there is 75% of our dealer distributor of wires, they are not actually buying FMEG. Is that understanding right?
Or other way around. There are 75% dealers and distributors who are either doing only cable and wire or only doing FMEG.
Understood. Understood. And just one clarification on the slide. If I see the map of the location -- manufacturing locations, I see 3 places, you've written 23 units of manufacturing. So just wanted to get that clarity.
Yes. So there are multiple manufacturing locations in these geographical locations. If you go to Halol, there are manufacturing facilities for different type of cables and wires. And these numbers of locations are as per the regulatory approvals which we have received.
The next question is from the line of Uttham Kumar from Spark Capital.
I think 2 of my questions have already been answered. I would like to ask a question on the demand trend. So actually, how do you see, I mean, the current demand panning out over the next 1 to 2 years, considering that now we are witnessing a scenario where the interest rates are on dire side? And are we really seeing these [ interest rates ] gaining traction? Or is there any certain pockets which are kind of driving the volume growth for us?
Yes. Your voice was cracking in between. I think you are talking about the demand outlook. Is that the correct...
Yes, sir.
Yes. So as I briefly mentioned in my opening remarks, the June month got impacted because of significant softening of commodity prices. The expectation is that the commodity prices will get stabilized in a month or so. And after that, we should not have any significant challenges as far as demand is concerned. Ours is a business, which is a distribution play, almost [ 80-some percent ] of our top line comes from dealers and distributors. And whenever there is a significant softening of prices, generally, dealers and distributors, they optimize their inventory level. But as you could imagine, this is only a near term or immediate-term effect, it doesn't impact on a midterm or long term.
As far as demand environment is concerned, macros are positive. You know the country already. There's a consumption story as well as manufacturing story. When I think of China, I can think of only manufacturing. When I think of U.S., I can think of only consumption, whereas in the case of our country, it has benefits of both. We can produce as well as we can consume and that is where I don't see any challenge in terms of demand over mid-to-long term.
Right, sir. Sir, secondly, because of the raw materials, I mean, the company has divested Ryker Base recently to Hindalco. So just want to understand in terms of the copper procurement, right? So in this case, I mean, is there any kind of -- could you just give us more clarity on what kind of terms do you have in terms of procurement of copper? And then Is there any kind of advantage that the company enjoys in terms of maybe receiving the raw materials at the lower price or at a discount? Or is there any other third party also would be supplying copper? Or is it only from Hindalco to whom you'll be currently sourcing with the entire raw material?
Sure. So the transaction which you are referring to was consummated in December of last year. Ryker was a subsidiary, which was supplying or converting one form of copper into another form. We used to procure and even now also procure copper in cathode form from overseas suppliers as well as few domestic suppliers. And Ryker used to convert those cathodes into rods. And that is where the rods were being used by our manufacturing facilities to manufacture cables and wires. So this transaction doesn't impact the procurement philosophy or procurement [indiscernible] which company enjoys. It was only a conversion. And as you would probably be able to recollect, when we did this transaction, simultaneously, we entered into a multiyear job conversion or subcontinent arrangement with Ryker, which is now part of Hindalco. So we continue to get the same benefit, which we were enjoying earlier.
Why we decided to divest Ryker, because Ryker was not being utilized at 100% capacity. Our utilization was really 30%, 50%. And it was not making sense from ROCE perspective to continue with that particular legal entity within our group. And this arrangement helps us both in top line as well as the bottom line.
Now your question on the strength that we have or the benefits which we have on copper procurement, before I specifically [indiscernible] the copper procurement for you. Most of the commodities worldwide generally are traded with embedded derivative, which means that on the date of procurement, you need not to decide the final price, which you need to pay to your vendor. You can decide it 1 month or 2 months or 3 months down the line.
And generally, in that time frame, you are able to convert the raw material into finished goods and you have visibility on the selling price, and that is where you decide and firm up the procurement price. And this is how these changes in raw material prices becomes a pass-through for us. And that is where it doesn't impact the profitability of our company. There could be some few chances of changes on month-on-month or quarter-on-quarter basis. But if we were to take an annualized view, it won't have significant impact on the profitability of the company. And you know we are the largest consumer of copper in India, and we have those benefits as label, both from international suppliers as well as other domestic suppliers.
Got it, sir. Sir, lastly, on the gross, is it a fair understanding that the current gross margins of almost 25% level, it would be sustainable or there can be some kind of improvement going ahead from your planned 200 bps? Because of either -- it can be either because of the export mix which is coming in or the current inventory being of the lower-priced raw material. Is there any scope, which can be there in terms of improvement? Or can the current level sustain?
So over the past few years, we have maintained EBITDA margins of 11% to 13% in our cable and wire business on an annualized basis. I think for your modeling purposes, it is best to assume a range between 11% to 13%. And I think probably, even if we are able to better the margins in terms of actual numbers, it will only give you only positive surprise and no negative shock.
[Operator Instructions] The next question is from the line of Nikunj Gala from Sundaram AMC.
Sir, I just have one question with respect to your cable and wire division. When you are mentioning that you are -- you will be maintaining your EBITDA margin in the range of 11% to 13%, but I just want to understand, during the deflationary scenario, is that understanding correct that during this period, your absolute gross profit -- I'm just focusing on the contribution margin perspective, that absolute gross profit in the deflationary scenario would be lower in that piece?
Let me give you -- let me share with you my experience of this industry in the last 15 years or so. What I have observed in this industry is whenever there is a reduction in commodity prices, generally, the contribution margin and EBITDA margin would improve for cable and wire manufacturers. And it is other way around whenever there is increase in commodity prices. So I would expect something similar to happen if there is significant reduction in copper or aluminum prices. If that doesn't happen, I would probably then expect significant competitive intensity in the industry and significant market share gain. But generally speaking, I would expect improvement in contribution and EBITDA margin if the commodity prices are falling.
Okay. understood from that point, sir, but why I'm asking is, to see the clarity on the absolute contribution, if you look at our numbers from FY '19 to FY '22, FY '19 commodities were approximately -- just to give you example of copper, from FY '19 to FY '22, the basket of commodity has increased by 60%. So for example purpose, for -- your procurement was at INR 75, you were selling at INR 100, hence your contribution margin was at 25%. When I look at your FY '22 number, the commodity basket moved from INR 75 to INR 120 purely on account of 60% inflation.
At the same time, your realization also increased from INR 100 to INR 160. And during this period, your contribution remained 25 to 25. However, at a gross profit level, your gross profit, which was INR 25 in FY '19 have become INR 40. So that was a scenario we have seen in the FY '19 to '22. In the next -- for the example purpose, going forward, see, let's take a similar example when you are procuring goods today at INR 75, but this INR 75 reduces by 20%, which has come down to INR 60. So I just want to understand the INR 100, which you are selling, will come down to INR 85 or INR 80. If it comes down by INR 85, then you try to maintain your -- increase your margin, but your absolute profit comes down.
Yes. I think I probably lost you when you were changing numbers from 75% to 60%. But I think I probably oversimplify for you as well as for others. We work on EBITDA margin target. We don't work on per ton target. And that is where I gave you guidance of 11% to 13%. At the same time, what I highlighted to you in my experience in the cable and wire industry, in falling commodity prices, you should be able to get better margins both at contribution level and EBITDA level. And that is where I would suggest that for your modeling purposes, you can consider EBITDA margin in the range of 11% to 13% as far as cable and wire business is concerned.
But if I were to give you color on FMEG business, which is almost 10%, 12% of our top line now and expected to grow over the period, there, the current EBITDA margin -- or EBIT -- current EBIT margin is around 2%, and we would expect to be in the range of 10% to 12% of EBITDA margin by fiscal '26 and that is where there is a fair amount of upside which is possible as far as that particular business of FMEG is concerned.
Okay. Just clarifying that, in that case, you are saying, if the cable and wire business, INR 100, you are making INR 11 to INR 13. And if tomorrow, this INR 100 becomes INR 80 on account of passing on the prices to the consumer, you will make INR 11 to INR 13 on INR 80. That understanding is right, right, sir?
That is partially right. What I highlighted as my experience in the last 15 years, in the falling commodity prices, the margins should improve. And that -- if that happens, then we should have a positive surprise on to the range of 11% to 13%.
Next question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, on the new brand, Etira, can you share more light, means, basically where it is launched and which are the products that we have entered right now with, what is the pricing difference versus Polycab brand and where it is exactly positioning? I agree it is at low end of the market, but compared to unorganized products or the premium products like Polycab, where it is basically positioned? And is there any 3- to 5-year target that the company is working on?
Yes. As part of our rural as well as low cost product offering, we have initiated our work on penetration of rural market. We have a vertical called [ Magic India ], which is being headed by Deepak, who joined us around 1 year back, and he has significant experience on the rural market. Etira was launched in the last -- in the fourth quarter of fiscal 2022. And if I'm not wrong, we have registered 100% growth on sequential basis. Of course, numbers are small with -- the numbers are not very significant, but the fact is the growth of 100% shows that it's very promising. As of [indiscernible] it has been launched only in the wire product portfolio. As we go forward in the current fiscal, we will introduce Etira brand for other businesses as well in FMEG for example, fans.
Okay. And is there any target that the company is working with 3-year, 5-year kind of a target or...
Yes, you are absolutely right. We have very ambition target for the total market and Etira would help us in achieving that over the period. And on a quarterly basis, we'll continue to provide you updates on the actuals for the quarter.
Next question is from the line of Kunal from B&K Securities.
Most of my questions have been answered. Just one question, sir. You mentioned that strengthening of the leadership team was one of the focus area. If you can talk a little bit about how has that moved and what has been the key additions of late and especially on the FMEG side, would be really useful.
Sure. Sure. So when we were thinking about Project Leap and this is 15 months back, and we were in active discussions with our partner, Boston Consulting Group, we realized that the workstreams which were inside the [indiscernible] 24 workstream as part of Project Leap, if we want to successfully implement those 24 workstream, we need probably more experience and more leaders at the top management level. And you know this business and company, Kunal already. We don't have any capital that we are sitting on cash in our balance sheet. We are always leaders. The only risk we had if we were to particularly challenge is execution. What does that mean, that even if you plan for something, you are not able to implement in the most effective manner. And the way to mitigate that is have better quality of the leaders, have more leaders to support the journey of INR 20,000 crores of top line by fiscal '26.
So we have hired leaders for various businesses and functions in last year or so. If I were to talk about top leaders, probably we would have hired almost 18, 20 leaders. But at the same time, there is significant augmentation of middle-level managers as well. Let me start with the functions first. We hired Rajesh from Tata Motors as our CHRO. He was with Tata for 28 years, and all of us know Tatas are known for their HR and people skills and practices. And we believe that Rajesh would be able to support us in transforming HR practices of Polycab. We hired Vivek Sharma as Deputy Managing Director.
As you know, Vivek, superannuated from Panasonic and he is looking after the B2C businesses. We hired a Head of Fan business from another large company, we hired Deepak Mitra from Emerging India. Deepak [indiscernible] for TMO. I probably would go on, but just to give you a broad color, we have mend almost all the businesses and functions now and it's also slightly getting reflected in the FY cost of the company. But we have all the ticks in the checklist in place. Now it's a matter of implementation and execution. And in the quarters to come, we should be able to get better results with the help of these leaders who have joined us very recently over the period of the last 10 to 12 months.
[Operator Instructions] The next question is from the line of Gopal Nawandhar from SBI Life.
Sir, if you can just highlight because of this decline in the commodity prices in the June, what kind of revenue loss would have been there for cable and wire business and because of this GTM...
Sorry to interrupt you, Mr. Nawandhar, please increase the volume of your device.
Am I audible?
Yes, now you're audible, sir.
Yes. So if you can just highlight the revenue deferment because of decline in the commodity prices for cable and wire business and impact on the fan business because of GTM and whether that GTM is through or it will further have impact on the remaining quarters.
So in our business, Gopal, generally speaking, you would not necessarily witness a demand loss or loss of opportunity especially with deferment from one month to another month, one quarter to another quarter, and this is a generalized statement. My expectation is that the second half of the year should be significantly better than the first half of the year. And that is where I would not necessarily would like to quantify the impact on the first quarter. But I would like to give you this comfort that in the history of the company, this was the best quarterly performance as far as the first quarter of the fiscal is concerned.
On fan, I think we have completed almost all the alignment. By September, we should be able to complete everything. But fan is a slightly seasonal business. So the benefits of the alignment would get reflected in the next season, which will start sometime November onwards, and more meaningfully in the fourth quarter of this year, as well in the first quarter of the next year, we should have some benefit in the P&L because of the realignment of GTM in the fan business.
Sure, sir. And if you can just highlight the gap between the increase in the commodity prices for FMEG portfolio and the kind of price increases we have taken. And are you seeing any kind of price correction post this decline in the commodities in the last 1.5 month?
The way we revise our prices in cable and wire business are [ monthly based ], same in FMEG also. We take corrective action as and when required, of course, after considering the actions taken by other participants at the industry level. We have done that, and we will continue to do that. Wherever there is an opportunity to pass on the benefits to end consumers or increase the prices because of increase in commodity prices, we are doing that very promptly and we'll continue to do that in the quarters and periods to come.
[Operator Instructions] The next question is from the line of Abhijit Akella from Kotak Securities.
Just a couple. First one was on the gross margins, which have improved quite a bit this quarter to about 25%. Just to check whether there's any one-off item in there that might have boosted these and should we expect this to come back down in coming quarters? That was one. Second, if you could just give us some sense of your market share trends in both the segments, say, over the past year or so, if you have any data points with you. And last one, I just wanted to clarify, when you mentioned this 87% of revenue coming from the distribution-driven business, does that include some element of institutional sales also within that? Or is that only the remaining 13%?
Sure, Abhijit. So I think your first question was on the gross margin and EBITDA margin. There is no one-off in the first quarter. As I was mentioning to another participant, we have maintained EBITDA margin of 11% to 13% in cable and wire business. And in the period to come, we should be able to maintain the same. As far as market share is concerned, in cable and wire business, of the organized market, we have almost 24% of market share. In FMEG, we are comparatively small, actual range is between 1% to 1.5%. In terms of packing order, we would be anywhere between sixth player to ninth or 10th players. So we are comparatively [indiscernible] in FMEG business. And on the last one on the distribution, you are right, 87% of the total revenue comes from distribution, institutional and export is over and above 87%.
[Operator Instructions] The next question is from the line of Ankit Babel from Subhkam Ventures.
Sir, sorry, I missed the initial comments. Just wanted to confirm, was there any inventory loss in Q1?
Ankit, you know this business, you have been tracking our company since long. We have a very robust hedging tempers in place. And when we procure inventory, it comes with embedded derivative. And when we decide the selling price of our [indiscernible], that is when we have the ability to decide the procurement price, and that is where it becomes a pass-through. And that is the reason, generally speaking, I would not expect any inventory loss to incur to the P&L of our company. And to directly answer your question, there is no inventory loss.
The next question is from the line of Viraj Mehta from Equirus PMS.
Just one thing is in terms of FMEG, if we look at our...
Sorry to interrupt you, Mr. Mehta. Please use the handset mode.
Gandharv, if we look at our growth in FMEG segment, has significantly slowed down to our -- vis-a-vis the market compared to our growth in earlier years. What do you think that is hampering it? And what are we doing to kind of address that situation?
So I would partially agree with you when you are talking about there's a slowdown. There's a slowdown because of the base effect when the business is small, the CapEx would be slightly higher than the business is larger, or sizable the CapEx will go down. So that's -- to that extent, I would disagree. But at the same time, if your question is on the aspiration, whether it can be better, you know we are an aggressive company as far as growth is concerned, and we believe that we can always do better than what we have achieved. Only one element, which I would like to add here is slight realignment, which we have done in the last couple of quarters in the fan business, GTM, which has impacted the growth of our fan business. But other than that, almost all the large businesses have registered a fair amount of growth. And by 2026, when we are talking about achieving INR 20,000 crores of top line, FMEG as well as cable and wires will have a significant share of the INR 20,000 crore of top line.
[Operator Instructions] The next question is from the line of [ Varun Vasun ] from Julius Baer Wealth Advisors.
I hope I'm audible.
Yes, sir, you are.
Just wanted to understand, are we seeing any improvement in rural market demand offtake?
It's a mixed bag, Varun. There are few pockets where we have noticed there is a slight uptick in demand, but in few pockets, slight sluggishness. But our reading from the ground suggest where this onset of monsoon should help in reviving and improving the rural market demand.
Next question is from the line of Deepak from Unifi Capital.
Sir, as we expect a better H2 this year, but you had a healthy base in the previous year supported by the higher prices, in this deflationary environment, how are we able to defend the strong base of last year in H2?
So Deepak, you know this business, you are an investor in our company since long. As far as B2B business is concerned, we are taking steps to deliver industry leading growth. And as far as B2C business is concerned, as part of Project Leap, we are targeting to get to a record growth. And irrespective of softening of commodity prices, we believe that we would be able to beat the industry growth in cable and wire business over mid-to-long term. And in FMEG, we should have a significant growth when compared to the industry growth.
[Operator Instructions] The next question is from the line of Shrinidhi from HSBC.
My first question would be on FMEG segment margin where you have reiterated that your ambition of 12% margin by FY '26. Would it be possible to guide us what is going to drive this sharp margin improvement and price increases are going to drive substantial part of this margin? So that's my first question.
Sure, do you want to give me your second and then I can take both?
Yes. And the second one, Gandharv, is that you alluded to some change in the payment methodology during Q1. Can you please elaborate that? These are my 2 questions, yes.
Sure. So Shrinidhi, your first question was on FMEG profitability. One is with larger size, we will get operating leverage, and that will -- that is where the EBIT and EBITDA margin should improve. Second is new product development and premiumization of our offerings. As I mentioned a while back, premium's contribution to FMEG top line was around 4% in fiscal '21, almost 8% in fiscal '22, and in the quarter gone by, it was almost 12%. And this is expected to go up in the quarters and years to come, and that is where the contribution margins will improve. And third is [indiscernible] of cost optimization wherever possible. So all of these factors should help us in improving our EBITDA margin. Having said that, at the same time, I would expect some increase in expenses, for example, advertisement and publicity. In the COVID year, we were going since -- we were following a bit of a soft approach on A&P spend, but I would expect this to go up in the quarters and years to come. That was on the FMEG profitability between now and 2020 FY.
Second was on the payment terms. When we procure copper and we used to procure copper predominantly from the overseas supplier, we used to have the FC arrangement, which roughly means or broadly means that we need not to discharge the liability on day 1. We have flexibility to discharge the liability 2 months or 3 months down the line. Because of global supply chain issues, we decided to source some copper from local market in India. And there, since these were domestic suppliers, we opted to make payments on advanced basis or on the date of availability basis as against availing the FCs, and which has impacted the working capital adversely, which is what is visible in the [ same number of days and payables].
Having said that, in a quarter or 2, we should be able to go back to our regular import vendors, and we should be able to avail FCs and that is where the working capital cycle, as far as payables are concerned, should get normalized. Since we are on working capital, let me also highlight that the channel financing percentage has improved over the period. We are working around 75% or thereabout of channel financing. And most of it is -- almost all of it is without any cost to the company, and that is where the number of days of receivables have improved significantly in the last few quarters.
The next question is from the line of Rahul Agarwal from Incred Capital.
Just one question, I think, is left with me now. On FMEG, Gandharv, we're looking at 60%, 70% coming from lighting, fans. The sector is -- has a lot of large competitors, incumbents. Going forward, FMEG has to play a very large role in achieving that Project Leap targets. The botheration is essentially coming from how does this -- what does Polycab do different in terms of product offerings and getting to that growth number, because growing this category now at INR 1,200 crore base at more than 20% is going to be tough. Market share gains in this category is going to be tough because we have very large competition here. Any thoughts, if you could help us understand what would Polycab do different in terms of either go-to-market or in terms of new product launches or if you're thinking of new categories? Because fans and lights are 2 categories that are highly competitive, and it's very tough to grow at 20%, given the category growth itself is like 7%, 8%. So could you help me understand that? That's my only question.
It's a great question, Rahul. And believe me, we have invested a lot of time in the board room, in the lead meeting as well as in meeting discussing and deliberating. We have a complete group put in place. And the topic which you have touched upon, these are the areas where we are making considerable investment of time and making a lot of efforts, whether it's the GTM, dealer distribution expansion, adding more geographies into our network, whether working on brand architecture and so on and so forth.
But let me give you a broader perspective to FMEG. When we started this business 50 years back, we got into cable. And today, we are market leader in cable. Then in 1996, we got into -- we are a market leader in wires. When we got into FMEG business in 2015, there were many who were believing or were of the view we would not be able to get to the type of growth which we've experienced in the last 5 to 7 years. So any business is difficult. Any business is complicated. But I think the quality of the management team, which we had, we are absolutely comfortable with the top line target of INR 20,000 crore by fiscal 2026. And whatever steps are required to be taken are being taken, and we should be able to achieve our aspiration of INR 20,000 crores of top line by fiscal '26.
Thank you very much. We will take that as a last question. I would now like to hand the conference over to Mr. Gandharv Tongia for closing comments.
Thank you so much for joining us this afternoon. In case if you have any follow-up questions, please write to us at investor.relations@polycab.com, and we would be pleased to attend your question. Thank you, and have a great day ahead. Bye-bye.
Thank you. Ladies and gentlemen, on behalf of Polycab India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.