Polycab India Ltd

NSE:POLYCAB

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Polycab India Limited Q1 FY '24 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. Thank you, and over to you, sir.

[Gandharv Tongia, executive]

Thank you, operator. Good afternoon, everyone, and thank you for joining us. I hope all of you are staying healthy and safe. I'm Gandharv Tongia, Executive Director and CFO at Polycab India Limited. On this call, we shall discuss the Q1 FY '24 results which were approved in the Board meeting held yesterday. We will be referring to the earnings presentation, financial results and financial statements, which are available on the stock exchanges as well as on the Investor Relations page of our website.Joining me today from the management team, we have our Chairman and Managing Director, Mr. Inder Jaisinghani; and our Head, Investor Relations, Mr. Chirayu Upadhyaya. Let me now hand over the call to Inder Bhai for his comments.

[Inder Jaisinghani, executive]

Good afternoon, everyone. We have had a excellent start to fiscal year 2024, registering strong sales growth as well as the domestic profitability, favorable macroeconomic environment, along with supportive structural measures had translated into healthy demand for our product categories and which [indiscernible] the future as well.The commendable work done by our team with Project LEAP, through focus on the customer-centricity, various GTM and [indiscernible] initiatives as well as new product development has [indiscernible] well with the encouraging market condition, resulting into our highest ever first quarterly revenue and profit in the company's history, which is the current on-ground demand and market outlook. I'm confident that this year will be highly rewarding for us, creating significant value for [indiscernible].Now I request Gandharv to take you through our earning presentation.

[Gandharv Tongia, executive]

Thank you, Inder Bhai. Before I take you through the quarterly performance, let me give you a flavor of the macroenvironment. Amidst the heightened global uncertainty, Indian economy has showcased remarkable resilience with growth surpassing many large economies. Favorable domestic policy environment and government-led structural reforms have positioned India as a promising economic black spot. Key indicators such as manufacturing and services PMI have consistently exceeded long-term averages, while growth momentum is also evident in GST collections, diesel consumption, air and rail passenger traffic et cetera, reflecting India's robust economic spending during challenging times.Furthermore, the domestic demand environment has started to realize the benefit from [ receding ] inflation, which has now remained within the RBI's tolerance band of 2% to 6% for 4 consecutive months, raising hope for an end to the tightening cycle. Consumer demand in urban markets remains steady and a potential pickup in monsoon will further support the rural markets, which have been showing signs of recovery in recent months.Moving on to the earnings presentation. Please refer Slide #4. For the quarter ended 30th June 2023, our consolidated revenue grew by 42% year-on-year on account of strong volume growth in the wires and cables business.EBITDA grew by 77% year-on-year with EBITDA margins at 14.1%, a growth of around 280 bps year-on-year. The company registered PAT of INR 4,028 million, a growth of 81% year-on-year. PAT margin stood at 10.4%, an improvement of 230 bps over that of the same quarter last year.As Inder Bhai mentioned in his opening remarks, this is our highest ever first quarterly revenue and profit after tax. As evident, this quarter's performance surpasses even our third quarter figures from last year, a feat unprecedented in our history, highlighting the remarkable scale of our achievement.However, do note that the growth percentage seems visibly higher on account of a soft June month last year whereby sales were affected during the end of the quarter due to a sudden decline in commodity prices. A detailed breakup of the other income and finance costs have been provided on Slide 21 of the earnings presentation.Moving on to Slide 5. The wires and cables business accounted for 89% of our sales during the quarter, with FMEG contributing 8%, and other segments, which mainly comprises of the EPC business accounting for the remaining 3%. In this slide of the business on geography, the domestic business contributed to 91% of the total sales for the quarter, and the international business contributing the remaining 9%.We will now go deeper into business performance of each segment during the quarter.Please refer to Slide #7. During the first quarter, the wires and cable business grew by 46% year-on-year on the back of strong volume growth of around 50% to 60%. Domestic distribution driven business sustained its strong growth momentum, while institutional business exhibited remarkable growth acceleration. Geographically, growth was broad based, with highest growth coming from North region, followed by West, South and East. In terms of contribution, higher revenue came from West followed by South, North and East.The wires and cable industry is witnessing robust domestic demand supported by government measures, improving private CapEx and a strong real estate [ uptake ]. Government's CapEx plan of INR 10 trillion investment in fiscal '24 for infrastructure growth is running at full [ throttle ].By June 2023, that is within the first 3 months of the financial year, 54 sector -- public sector enterprises and 5 departmental arms of the central government with an annual CapEx target of INR 100 crores and above, have utilized 32%, that is INR 2.34 trillion of their fiscal '24 CapEx target, of INR 7.33 trillion.The Ministry of Road Transport and Highways had made significant strides utilizing 38% of its INR 2.58 trillion budgetary CapEx allocation. Meanwhile, the railways has already spent 33% of its INR 2.4 trillion budgetary CapEx allocation, signaling strong progress in capacity utilization.Additionally, the government has set its sight on achieving an impressive 80% utilization of budgetary CapEx by December 2023, underlining the commitment to growth of the nation through infrastructure growth.Furthermore, even the state governments are joining the CapEx upcycle after lagging behind in fiscal '23. By June 2023, Center had already disbursed over INR 300 billion of the sanctioned INR 600 billion 50-year CapEx [ loads ] to state, with a focus on boosting state-level capital expenditure.The government is further planning to sanction the entire INR 1 trillion of non-captive budgetary CapEx and disbursing half of it by July end. CapEx [ done ] by state till May end was higher than similar period last year and is expected to increase to be around INR 8.4 trillion during fiscal '24. This financial support has a potential to create a ripple effect, invigorating local economies and fostering holistic development across the country.As consumption gradually improves, the private sector too has increased its CapEx plan. In fiscal '23, private sector CapEx announcement [ surged ] to an impressive INR 26 trillion, nearly doubling from the previous year's figures. Sectors such as chemicals, air transport and renewables have been leading the charge in these robust investment decisions.In Q1 fiscal '24, private sector CapEx addition amounted to approximately INR 5 trillion with transport services, chemicals and power sectors playing a significant role in this growth. The healthy capacity utilization of the manufacturing sector recorded at 74.3% by end of calendar year 2022 has [ spurred ] corporates to move beyond maintenance CapEx to discretionary CapEx.This shift is reflected in the CapEx to depreciation ratio for listed corporates, which rose to 1.6x in 2023 from 1.3x in 2021, demonstrating their willingness to invest in expanding their operations. Notable private players, including large EPC companies, are anticipating substantial growth in their order books.The real estate sector to sustain its impressive growth momentum, helping our wire sales. According to a report, the top 8 Indian cities witnessed the highest volume of [ residential ] launches in the first half of the calendar year 2023 compared to any other half yearly period in the past 8 years. Residential unit sales were equally robust, registering the second highest sales volume in almost a decade.As per another report, out of the total 2,181 acres of land transacted between Jan '22 and May '23, around 84%, or around 1,800 acres has been allocated for proposed residential development, showcasing the confidence of real estate developers in continuation of the real estate upcycle, and which bodes well for our wires and housing, electrical appliances segments.Office market transactions too are showing improvement in momentum with 14.8 million square feet transacted in second quarter of calendar year 2023, the highest quarterly [ tally ] since Q1, calendar year 2021.In conclusion, the current landscape presents a highly conducive environment for [ expansional ] business growth in the Wires and Cables segment in the medium to long term. Internally, the company has undertaken various initiatives under Project LEAP to take the maximum advantage of this ongoing opportunity and achieve industry-leading growth.On B2B side, we continue to increase our presence in underpenetrated districts, enhancing our distribution reach. In FY '23, we expanded to 146 such white spaces, and we are targeting to penetrate further 140 white spaces during the current year. We are also employing surgical targeting of select weak markets with different GTM strategy as well as region specific targeted product development.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 wire, green wire too is doing well.To further enhance efficiency, we also have established [ various ] focused GTM vertical across sectors, which will yield meaningful results over the next few years. Our goal has always been to achieve growth without compromising on profitability, and this has allowed us to not only maintain margins, but improve on it whenever the opportunity arises.During the quarter, profitability within the segment was robust with EBIT margins at 14.8%, an improvement of 330 basis points over last year. Better margins were driven by judicious price revisions, better operating leverage and strong growth in international business.Now moving to Slide #9. Revenue from international business grew by 88% year-on-year, contributing to 8.9% of the consolidated revenue. This growth was primarily fueled by strong demand in the U.S.A., Australia and Europe, with key sectors like renewables, oil and gas and infrastructure driving the momentum.During the quarter, the company leased its first warehouse in U.S.A. on the Eastern Coast and will gradually lease more warehouses to cover all geographies in line with the strategy to shift to a distribution-led model in the international business.Over the years, we have invested significant efforts and resources in building robust capabilities for international business expansion, and we are now realizing substantial and tangible benefits from these endeavors. As a testament to our progress, the company has successfully expanded its global presence to over 72 countries.Please refer Slide #11 for an update on the FMEG business. FMEG business had a strong quarter as [ these ] consumer sentiment weighed down on sales. However, this segment showed 3% year-on-year as well as sequential growth as benefits of channel realignment started to play out.Fans business 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. From Jan to June this year, since the transition to the BEE norms, we have introduced almost 80 new SKUs in the market, with 20 more in pipeline to be launched in the second and third quarter of this financial year.Switchgears and conduit pipes and fittings businesses too showed sequential growth, stepping on to the continued strong momentum in the real estate sector. Within switchgears pricing [ revisions ], we undertook in 10 KA MCBs last quarter, has held us improved price realization in this quarter. Moreover, the new 6 KA category MCB launched last quarter is already contributing to 20% of incremental sales done during the Q1 FY '24.Post merger with the wires vertical, we are focused on improving switchgears sales through cross-selling. For this, we have identified top retailers of wires business which are not yet selling switchgears and will be aggressively pursuing cross-selling through them.Switches business continued with this impressive growth as benefits of improved availability through in-house manufacturing continues to play out. The Etira segment launched in the switches category is generating good response from the market.Lights and luminaires business de-grew marginally on a sequential basis on account of the continued pricing correction in the LED segment. Till date, prices have corrected by almost 10%, 12%, with further correction expected as well. In this business, we have plans to launch about 50 to 60 SKUs in the second and third quarter of the current year.On the geographical front, the Western region, the company's stronghold, demonstrated positive growth both on year-on-year as well as a sequential basis, while Southern and Eastern regions too showed sequential growth.Segmental EBIT margins during the quarter continued to be negative territory saddled by fixed costs in the absence of scale. However, the quality of earnings have improved with channel financing penetration now at 91% for the FMEG segment. The company continues to invest in brand building through increased advertising and promotion such as sponsorship of ICC events, TV commercials, distributors and retailers needs, digital marketing, et cetera.The company is committed to improve both top line and bottom line in the business through our focus on areas such as product innovation, influencer management, premiumization and distribution expansion, among others.Now let's move to Slide 13, which gives us an update on our other businesses, which largely comprises of our strategic EPC business. We clocked revenue of INR 122 crores in Q1, a growth of 63% year-on-year. Profitability grew by 47% year-on-year with segmental margins at 12.5%. Annual sustainable operating margin in this business is expected to be in high single-digit over mid to long term.So that was the update for the quarter. To conclude, the company's dominant wire and cable business continues to experience robust demand and we are well prepared to capitalize on this favorable opportunity. Looking ahead, we anticipate the momentum to persist throughout the remainder of the year, helping us achieve growth over the strong base of last year.Thank you, and we are now open for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Atul Tiwari with Citi Group.

[Atul Tiwari, analyst]

Congratulations on yet another very strong quarter. Sir, my question is on FMEG business. So obviously, I mean, we understand that the demand was a little soft, and as a result, the revenue growth was about 2%, 3%. But one would have expected a slightly higher revenue growth, especially given your base that this business is still smaller compared to some of its peers in the marketplace. And even last year, we had kind of a flattish revenue when the company was undertaking the distribution channel overhaul. So could you, I mean, throw some light on what kind of growth we can expect this year and the next year in the business, given that the channel [ rejig ] is over?

[Unknown Executive]

Sure. On the FMEG side, what is continuing to play out is that the consumer demand is muted, what has been the case for the past 2 to 3 quarters, while the inflation is on its downward trend. But what is generally the case is that whenever people have more cash in hand with them, you generally see them making more small ticket size purchases, discretionary spending in the beginning and then go on towards more higher ticket size spending. So that is something even what is going to play out. We expect that going forward. Maybe in quarter 2, quarter 3 onwards, you'll start seeing that consumer demand to come up in the FMEG segment as well. As far as our internal issues are concerned, we are done with the channel [ rejig ], and we are in the process of further improving our channel distribution as well. We are -- as Gandharv mentioned in his opening remarks, we are introducing new products. New SKU launches are lined up for the next couple of quarters as well. So through all of this, we expect that our top line as well as bottom line will start improving gradually from this year itself.As far as our growth is concerned, as you are aware, we have taken -- we have committed that we want to achieve an EBITDA margin range of about 10% in the FMEG segment by FY '26, and we will continue to work in that direction.

[Atul Tiwari, analyst]

And my second question is on the working capital. So obviously, I mean, we understand that when the growth is very strong, it is kind of natural to expect some working capital buildup. But just trying to clarify that this buildup is temporary? Or should we expect a slightly higher working capital this year?

[Unknown Executive]

No. So this increase in working capital that we have witnessed for this quarter is temporary in nature. As you would have seen, our inventory on books have increased and that is something that we have done on purpose because of -- because we are expecting that kind of demand going ahead, and we don't want to be [ caught ] off-guarded wherein we are not able to supply cables when there's opportunity in hand. So whatever increase in working capital that you have seen this quarter, or going ahead -- is temporary in nature going ahead. 50 to 55 days of working capital cycle that we achieved a couple of quarters back is something that we are very comfortable that we'll be operating in that region.

[Operator]

Our next question comes from the line of Ravi Swaminathan with Spark Capital.

[Ravi Swaminathan, analyst]

[ Congrats ] on a very good set of numbers. My first question is to the growth in the cable and wires. How has the growth been this quarter? What has been the growth in the cables side and the wires side and the mix of cables and wires?

[Unknown Executive]

Sure. So both cables and wires have done exceedingly well. Both have grown in excess of what was anticipated on -- [ previously ]. But yes, cables have grown faster than wires. And for that, if you recall, for FY '23, our mix between cables and wires was at about 70%, 30%. This quarter cables would have gained about to a 100, 200 basis points on that.

[Ravi Swaminathan, analyst]

So cables would be 72%, 73% and wires would be the remaining. That's the kind of number?

[Unknown Executive]

Yes.

[Ravi Swaminathan, analyst]

And then [Technical Difficulty] on the cables side, [Technical Difficulty], how much would be industrial, how much would be real estate, kind of the -- broader kind of mix? And how each of these segments have grown? That will be great.

[Unknown Executive]

So Ravi, as you are aware, on the cables side we largely operate through our distribution [ channel ], wherein it is actually the distributor who gets in the final order from the end customer. While we are moving a direction wherein we are employing our own people on the ground and trying to get secondary orders from these clients, but that as of now is competitively a smaller portion. So I won't be able to give you an exact pie or proportion of what amount of demand is coming from this sector. But certainly, I can guide you that the top 2 to 3 sectors which are contributing to cables growth are your infrastructure, your roadways, highways, railways, and then there is electricity transmission distribution and there is real estate.

[Ravi Swaminathan, analyst]

Any of these subsegments would have kind of grown by -- or not just doubling or [Technical Difficulty] this quarter? Or it's the uniform growth that is there across all [ sectors ]?

[Unknown Executive]

Look, so like I said, it's -- this will be the top 3 contributing sectors. We don't have a proportion or -- neither for this quarter nor for last quarter that I can give you an exact growth number of which sector would have grown or contributing more in this quarter.

[Ravi Swaminathan, analyst]

And with respect to [ import ], any target for this year in terms of revenue? Say -- I think, first quarter we had done close to around INR 300-odd crores. Will the year-end target be around INR 1,000 crores, INR 900 crores or something of that sort in terms of revenue? And are we seeing any large orders, one-off orders or something that is there in the pipeline?

[Unknown Executive]

So we continue to work on our international business. That has been an area of focus for us for quite some time, and we are now seeing the results of that continued focus. We are targeting to improve our availability or the number of countries that we are presenting in [indiscernible]. And in that sense, you see the amount of international business that we are doing to gradually increase. Within Project LEAP, as you are aware, when we started in FY '21, we had taken this target that by FY '26 we want to achieve about 10% of contribution through the international business of the overall top line. We are more or less very near to that target.We are operating somewhere in the range of 8% to 10% over the past 2 to 3 quarters. What we have realized is that the international opportunity is quite large, and it might be possible that the contribution might increase, but we will have to see and recalculate that and we'll have to come back to you. But yes, we are seeing a very good opportunity on the international [ business ].

[Ravi Swaminathan, analyst]

And my last question is with respect to the gross margins [Technical Difficulty] wires [Technical Difficulty] cables, but cable deals have grown faster than wires. But in spite of that, the gross profitability has improved by around 150 bps year-on-year. Is it that the entire -- profitability of the entire cables and wires [Technical Difficulty] significant improvement that has led to -- any -- your thoughts on?

[Unknown Executive]

So definitely, both of them have seen improved margins because, as you are aware, normally when the commodity prices are on a decline, every player in the industry sees some kind of improvement in margins. So -- and that improvement in margin is across product categories. So that is one thing. Second is, of course, your scale. When your scale increases at this pace, your economies of scale [ kicks ] in and because of that your operational leverage improves. So because of that as well, the margins have improved.And the third point is the international business, which is again a better margin business, and which again has improved as compared to what we had in Q1 of last year. So all 3 this combined has helped us in improvement of [ margin ].

[Ravi Swaminathan, analyst]

And [Technical Difficulty] the higher margins at an EBITDA level or [Technical Difficulty] regular business? Is my understanding right, or it's higher?

[Unknown Executive]

I'm sorry, I didn't get your question?

[Ravi Swaminathan, analyst]

[ Exports ], are they [ 200 bps, 300 bps ] higher than the regular cables and wires business or the [indiscernible] business? Or is it more or less?

[Unknown Executive]

So different product categories would have different -- better margins. But -- so like renewable cables, they are much higher margins, whereas your normal power cables while they have better margins than what we make on domestic, but they are compared to lesser. But yes, overall, you have that kind of premium over what we make on domestic.

[Operator]

Our next question comes from the line of Manoj Gori with Equirus Securities.

[Manoj Gori, analyst]

And many congratulations for a strong set of numbers. My question here would be on the -- as you highlighted in your opening remarks, like last year in the June month, we saw some channel inventory destocking. And accordingly, that would have positively impacted to some extent. So can you highlight that number? And also, if there was -- last year, there was channel destocking, it means like probably in 2Q or 3Q, there would have been channel normalization, which would have led to better primary sales as compared to secondary sales. So can we expect some impact or probably we should see secondary and primary going in line in the coming quarters? That would be my first question.

[Unknown Executive]

Sure. So Manoj, in Q1 of last year, what happened in -- towards the end of the quarter was that the commodity prices, which were very high post the Q4 of last year because of the external circumstances, they came off. Your copper, which was at about $10,500 per metric ton came down to as low as $8,500 per metric ton, and similar decrease was there in aluminum. And this started to play out from June onwards. So because of that, the base of Q1 last year was compared to the [indiscernible]. Yes, from Q2, Q3 next year -- last year, the commodity prices had comparatively been normalized. So in that sense, yes, that kind of base effect would be there.But in terms of growth, like Gandharv mentioned in his opening remarks, we have seen pretty good demand on ground, and we are also working on various strategic initiatives on Project LEAP. So we are confident that all our steps we are taking, we will be able to get hold of all this opportunity that is coming up in the cables and wires business, and we'll be able to grow.

[Manoj Gori, analyst]

Can -- if possible, can you quantify what was the impact in the June month last year?

[Unknown Executive]

We wouldn't be able to quantify. I don't have those numbers specifically in hand. But yes, like I said, it was 1 month out of the 3 months, so you can maybe take an approximate -- approximation [indiscernible].

[Manoj Gori, analyst]

And my second question would be on the -- overall if you look at the growth profile, so we have been very strong. And given that the RM prices are largely steady, we have been reporting a strong set of margins. So even today, if you look at getting into 2Q, so probably it would be difficult to forecast the copper prices. But given these current trends, can we expect a similar kind of margin profile in the coming quarters because you continue to remain very upbeat on the demand scenario, and RM prices are relatively far more settled as compared to the volatility that we were seeing in the previous year?

[Gandharv Tongia, executive]

So Manoj, you know our business. As far as copper price volatility is concerned, we are -- we have our hedges in place and risk management in place. And to that extent, any volatility in copper prices or almunimum prices generally has no bearing on our profitability on an annualized basis. Having said that, historically, we have been working in an EBITDA range of 11% to 13%. We believe we'll continue to play in the similar range. A while back, Chirayu highlighted that we are getting benefit of operating leverage. And if we are able to fully utilize that leverage, it's quite possible that there's at least 1 percentage point improvement in that range.But to answer your question, we don't see any impact on annualized basis due to changes in the metal prices.

[Manoj Gori, analyst]

Yes. So that's what I was referring. Probably now we are moving on the higher end. So yes, answered that. And sir, on the FMEG side, so probably going forward on a sequential basis, probably from Q2 or probably from 3Q, should we see improving trends? And obviously, you have already indicated the first quarter trend on profitability and overall on the sales front, right?

[Gandharv Tongia, executive]

You're right. So in fiscal 2026, we anticipate that we would be able to get to 10% EBITDA margin in FMEG space. And I think year after year, there's been some improvement. Not necessarily every quarter we would be able to register growth. But directionally, every year we should be able to get positive movement between now and fiscal '26.

[Operator]

Our next question comes from the line of Girish Achhipalia with Morgan Stanley.

[Girish Achhipalia, analyst]

And [ conservating ] congrats on a great quarter. I just wanted to understand one small thing from your annual report. I read that you are among the top 10 in the world in the cable and wire category, and you aspire to be in the top 5. I wanted to understand what is the gap currently that exists in terms of dollar billion? And secondly, I mean, because you wanted to ramp up your international business, are there any specific geographies and specific cable wire product types that you're likely to kind of expand into?And finally, the related question was that, given the growth that you are seeing, are you in the process of giving us some new CapEx assumptions for the next couple of years?

[Gandharv Tongia, executive]

So, the global cable and wire business, India is very small in that. It's almost USD 250 billion market. U.S. is almost 20% of that and India is a low single-digit. And to that extent, Indian companies are not necessarily comparable with the top 5 companies in the world. Directionally, what we have done over the last few years is, from being a simple cable company, we became largest cable company, simple wire company. So we became largest cable and wire company, and now we are trying slowly and gradually to have a sizable footprint across the globe. And directionally, we should be able to get to top 5 companies in a few years from now.As far as CapEx is concerned, I think we are comfortable with the guidance of around INR 600 crores on an annualized basis. You are already aware that we are in the process of setting up a, factory for EHV, and we have a tie-up in place with a partner from overseas. We are setting up facilities to meet and satisfy export requirements and demand, and then some maintenance CapEx and some CapEx on FMEG side.The other thing which I would like to highlight is, when we were working on this Project LEAP, and these were initial days, sometime in early 2021, we felt that since the annual turnover in those days used to be around INR 9,000 crores, we felt that INR 20,000 crores is a good target to have by fiscal '26. Within 2 years, we have reached to almost INR 14,000 crores of annualized revenue.We believe in next 2, 3, 4 quarters, we'd like to recalibrate that guidance and see whether we want to revisit the time line of fiscal '26 to achieve INR 20,000 crores, and if that happens, whether there would be any consequential impact on any other guidance which we have given so far, including CapEx.

[Girish Achhipalia, analyst]

Just one follow-up, Gandharv, whilst you were working on Project LEAP, obviously, we were just coming out of COVID, and your annual report also talks about supply chain disruption on cable and wire [ plans ]. So obviously, you are focusing a lot more on exports in the last few quarters. I wanted to understand directionally is there any specific geographies and any specific product segments that you are likely to more target?

[Gandharv Tongia, executive]

2 sets of opportunities. One is developed countries where they have reliance on imports. To give you examples that is countries like U.S. and Australia, and there are some pockets, both in Middle East and EU. And the second is large EPC players because, when they execute large projects, they need cables, and we are competitively placed to meet their expectations and requirements. So that's the overall outlook on the exports. In terms of the product categories, I think there is -- entire piece around green and renewable energy is an area where there is an active demand, and we have facilities in place to meet that expectation, and these are slightly margin accretive as well.

[Operator]

Our next question comes from the line of Sonali Salgaonkar with Jefferies.

[Sonali Salgaonkar, analyst]

Congratulations on a great set of numbers. My first question is regarding the volume growth of cables and wires. Now is it fair to estimate that the volume growth in your cables and wires business would be about 55%? And if so, how much of that could be contributing from domestic and how much from exports, please?

[Unknown Executive]

So in terms of volume growth, you're correct. Depending on our various product categories and various geographies, the volume growth would be somewhere in the region of 50% to 60%. And this is on a combined basis, of both domestic as well as international combined. This is where our average volume growth was in this quarter.

[Sonali Salgaonkar, analyst]

Secondly, on the pricing revisions, please, how much -- or how many rounds of pricing revision have you taken during the quarter Q1 and also in July, if any?

[Unknown Executive]

Sure. So during the quarter, the commodity prices haven't been that much volatile. And we undertake revisions only when there is a good amount of [ volatility ]. So the overall reductions that we would have taken during the quarter would be about low single-digits.

[Sonali Salgaonkar, analyst]

And any activity in July?

[Unknown Executive]

Nothing so far.

[Sonali Salgaonkar, analyst]

My third question is regarding the ad spend. Now if I look at your annual report, on an absolute basis, your ad spend in FY '23 has increased by about 54% year-on-year and at 0.9% of your sales versus 0.7% last year. Where do you think they can normalize considering that you are wanting to create more stronger visibility in FMEG?

[Unknown Executive]

Right. Sonali, so we are incrementally investing a lot in -- on brand building, especially for our FMEG and our B2C categories. And therein, we are doing various steps, some of which were mentioned by Gandharv in his opening remarks. We have tied up with ICC, [Technical Difficulty] sponsorship. We are doing various influencer management needs. We are doing retailer needs and [ on so forth ]. So what we are thinking internally is that we'll be increasing the spend going ahead. So we'll be spending somewhere in the range of 3% to 5% of our B2C top line as A&P spends are going. So it will vary in this range.

[Sonali Salgaonkar, analyst]

And just lastly, on your B2B mix of your overall sales, is it still at about 65% or a bit lower?

[Unknown Executive]

No, it is similar to as it was.

[Operator]

Our next question comes from the line of Renu Baid with IIFL Securities.

[Renu Baid, analyst]

Congratulations for strong results. My question is on the core cable suppliers business. If we see the last couple of quarters, there was a very strong [ spot ] in demand and insufficient investment by industry peers. The lead time for supply has significantly increased, because of which Polycab was able to benefit. So how is the situation now in the industries? Has the demand supply situation now relatively eased off? And in your view, this kind of imbalance is likely to persist how long until the next round of capacity expansion comes in?

[Gandharv Tongia, executive]

Renu, you know our company. We are known for our quality and availability, and we have always invested in these capabilities since the last several years. We believe that is our unique characteristics and edge, and we continue to develop on that. I would not be able to comment specifically on what our peer companies are doing, but we believe that if we want to deliver industry-leading growth, we'll have to continue to build on these core capabilities of the organization.

[Renu Baid, analyst]

Currently, what capacity utilization are you running for the cables and wires [indiscernible] overall?

[Gandharv Tongia, executive]

So it would be around 60% to 70%. If you include the factories, would be slightly higher than 70%, but it's generally in that range?

[Renu Baid, analyst]

Secondly, when you look at the overall business, FMEG, the consumption has been fairly weak for the market itself. Now that we are coming out of the old inventory issues in the fans category, what is your strategy to have a much more steady market share in this [ phase ], and what has been the kind of price increases that have taken for the new BEE rated fans?

[Unknown Executive]

So in terms of fans, we are kind of working on 3 different things over there. We are working on doing our distribution channels. We are working on product differentiation. Like Inder mentioned, we've already introduced about 18 new SKUs since we transitioned to the BEE norms. And we are also working on a influencer management thing. So through all of these 3 things, we are working on improving our market share in the fans business. As far as size increases are concerned, no increases have been done or revisions have been done in this quarter. Whatever increase happened is last quarter, which [ was in about ] mid-single digits. That is the only thing -- price revisions that have been done.

[Renu Baid, analyst]

And lastly, if I could ask, clearly a lot of strategic initiatives that we have taken has been translating in significantly higher volume growth for us. Having seen the environment of macro [Technical Difficulty], in your view, can this -- from double-digits to INR 200 crores, [ which is ] 20% plus, same for the next 5 to 12 months?

[Unknown Executive]

So of course, I wouldn't be able to give you a specific number or guidance in terms of what kind of volume growth we will be able to achieve. But I can -- what I can tell you is that our strategic initiatives that we've taken in the Project LEAP, they are working quite well for us. And the on-ground demand that we are seeing is something that is also on a good pace and going ahead. So as and when -- or how the on-ground demand plays out, we'll be able to capture the maximum growth out of that through our [indiscernible].

[Renu Baid, analyst]

And one more if I can ask on -- incrementally for the strong free cash that we're generating, apart from the CapEx plans and spending on ASP and product development, branding, et cetera, where do we plan to deploy this large [ CapEx ]?

[Unknown Executive]

So our largest part will continue to be the CapEx. As we mentioned, we continue -- we would -- we'll be making more -- in setting up our EHV plant. We'll be utilizing CapEx for expanding our FMEG facilities as and when required. We'll be requiring to set up new facilities for our exports as well. So CapEx will continue to be the largest utilization level for your cash. Over and above that, as you are aware, our dividends year-on-year has kept on increasing, and that is what is our internal policy and [indiscernible] amount of dividends will continue to go increase. Third, utilization would be -- maybe an M&A. If we come across some of the other company in both -- either FMEG or wire and cable category, that can add significantly to our ability. So we are open to acquire such companies. And of course, some amount of cash we'll keep as buffer on our balance. So through all of this, we'll be utilizing our free cash flows and the cash flow balance.

[Operator]

Our next question comes from the line of Amit [ Mahawar ] with UBS.

[Unknown Analyst]

Gandharv, congratulations on great set of results. I have 2 questions. First is, broadly, you also do a lot of direct project supplies in domestic marketing, cable and wire. So what would be the broad share of that, if you can help us?

[Unknown Executive]

So if you look at our domestic wires and cables revenue this quarter, about 9-odd percent was through institutional sales and the remaining was through our distribution side.

[Unknown Analyst]

And second question, maybe Gandharv or Inder Bhai can comment. What are the thoughts on the channel-led export business that you're thinking on? Because branded wires is largely a unique phenomenon in India. So any thoughts on how do we see the attractiveness of branded wires in a U.S. market or any other global market?

[Gandharv Tongia, executive]

Good to interact with you when you are part of a new organization. So as of now the focus is more on cable business. Wires generally is a very competitive market in most of the international opportunities areas. We believe we should continue to remain focused on the cable side of it. And probably in few quarters from now, we will see if we can get to a slightly premium wires product portfolio, which would add value for the international customers. For the time being, the focus is on the cable side.

[Operator]

Our next question comes from the line of [ Amarnath Bhagat ] with Ministry of Finance of [ Oman ].

[Unknown Analyst]

Once again, congratulations for a consistent set of numbers for -- quarter after quarter. I have 2 questions specifically. One, with respect to [ FMEG ] results, which you started, I think, 2 years back, has that studies been completed and implementation -- where we are in terms of implementation of -- any recommendation coming out of it?

[Gandharv Tongia, executive]

This actually, in a way, not a report, but a project, and it's a joint project which is being executed by Polycab as well as by the BCG leadership team. In the first few quarters of the project, we had laid out the priorities and defined the blueprint and strategy. This project was initiated in May of 2021. And 2 years down the line, most of the strategy either have been implemented or are being implemented. And what you see as a result is the improved performance in the P&L for that matter, say, fiscal '23 or the first quarter of the current fiscal.

[Unknown Analyst]

Just follow up to that, what I'm trying to understand -- Because now it's [ 23] years, like Polycab going beyond the boundary of India and started switching and to make in the international market. And hopefully, it will be quite aggressive as the time passes by. So I'm trying to understand, in terms of [ Q2 ], will there be any product diversification strategies which may include maybe some premiumization of some of your existing products or entering into new products, for example, digital [ bitumen ] or something similar which can improve the efficiency in electricity or energy-related sectors, including the emerging sectors like hydrogen or electric [indiscernible]. So in that study, if we are making plans to move Polycab from a current business to much more value-added side of the business, especially considering the demand coming in India as well as from the export market?

[Gandharv Tongia, executive]

That is, in fact, the -- one of the objectives under the Project LEAP. There are some white spaces where we are not present, for example, extra high voltage. To that extent, there's a bit of a diversification which is being done now, and we are setting up the factory. The second thing is we have the -- probably the largest R&D and product innovation team in the country. We have a fair amount of backward integration which we have achieved over the period. Practically almost all raw materials are processed in-house, and that is when we convert those materials into finished goods. And that gives us capability to innovate products at a rate which is better than the industry. And that's the reason we believe we have almost all types of SKUs, both in cable as well as wires, which one can think of, right from power to data and so on and so forth.There are some additional avenues which are available, for example, TV cables, some opportunity which is available in terms of premiumization of wires and retail wires. And same is true for products like fan and lighting, and we are making focused efforts to diversify, to ensure that we are able to add value to our customers as well as we are able to get to better margins.The another example is special cables. This is a business which we have recently developed in the last 2, 3 years. To illustrate the type of achievements which we have done under cables, special cables vertical is we had supplied cables to INS Vikrant which was a battleship which was commissioned by Indian Navy. We have supplied cables to high-end utilization industries, for example, refineries and automotive. So to summarize, we are similarly working on diversification with a focus both on the domestic as well as on international market, and we'll continue to hasten the pace of such development.

[Unknown Analyst]

My second question would be, as you were guiding for a more or less consistent amount of CapEx for the next few years, and hopefully, the bigger CapEx will be for due to [Technical Difficuty], ROE and ROCE is fine. It was [ this ] during 2021 and '22, probably due to low market condition and higher CapEx, which is probably increased a bit in '23. How we will look at the ROE and ROCE profile as your CapEx continues for the next 2, 3 years, and your margin so fine, hopefully, as you are saying, will improve as well? So can you get a better return on capital profile considering the current ones?

[Gandharv Tongia, executive]

Yes. So I think 2 parts to that question. One is how best we utilize our existing set of factories, and second is whether there is a scope for improvement in margins or not. Historically, we have been working within the range of 11% to 13%. And as Chirayu alluded to a while back, because of better operating leverage, it seems that we should be able to improve it by almost a percentage point. The utilization of the factories have improved over the period, and we are now committed to CapEx closer to the required period rather than sooner, and which is also helping us in better utilization. So directionally, it seems that these numbers should ideally improve. I mentioned to one of the participant a while back that as part of Project LEAP, we had guided for INR 20,000 crores of top line by fiscal '26.On the basis of performance in the last 7, 8 quarters, we believe that we would have to recalibrate that guidance, and we should be able to come back to the to the group in 2, 3, 4 quarters from now. And if we do that, probably there would be a positive impact on the -- almost on the -- all the ratios.

[Operator]

Our next question comes from the line of Achal with JM Financial.

[Achal Lohade, analyst]

Congratulations for the great numbers. Sir, just couple of questions. One is with respect to the mix in terms of copper and aluminum, is it fair to say that we would be somewhere around 65%, 70% aluminum wires versus copper? Would that be fair assumption?

[Unknown Executive]

As far as mix between copper and aluminum is concerned, it will be more or less 50-50 between the 2.

[Achal Lohade, analyst]

And in terms of the channel financing in -- what is the quantum? You've mentioned some 83%. Is that in terms of number of distributors under channel financing [ arrangement ], or in terms of value of your sales, 83% is under channel finance?

[Unknown Executive]

So the number is in terms of value of sales.

[Achal Lohade, analyst]

So is it possible to give the quantum, what is the extent of channel financing as of 30th of June? Would that be like INR 800 crores -- INR 700 crores, INR 800 crores, [ or ] less than that?

[Unknown Executive]

So about 83% for cables and wires and 91% for FMEG was through channel financing. So you can -- you have the top line numbers you can just [indiscernible].

[Achal Lohade, analyst]

Just one more question. So just last question. If we look at the growth -- the volume growth what you're implying is 50% to 60% for this quarter, and I think that is partly to do with the low base like you mentioned. Is it possible to get some color in terms of if we look at a 4-year CAGR, what would that be? Would that be 25%, 30%, would that be 10%, 15%?

[Unknown Executive]

So generally, Achal, you are aware, normally, volume growth in cables and wires business, they range between 1.5 to 2x of [indiscernible] GDP growth. In -- on years like this wherein there is increased demand because of various seasons, you can -- we witness higher volume growth. But otherwise what we've been guiding is -- will remain 2 for most of the times, 1.5 to 3x of [indiscernible] GDP.

[Achal Lohade, analyst]

That's a long-term growth, right? I mean for the industry in general, right? 1.5 to 2x?

[Unknown Executive]

Right. That is correct.

[Achal Lohade, analyst]

Both cables and wires.

[Operator]

Our next question comes from the line of Praveen Sahay with Prabhudas Lilladher.

[Praveen Sahay, analyst]

The first one is related to the gross margin improvement. One of the reasons you had mentioned the commodity decline, which also led to the improvement. So in the coming quarters, can we assume some price correction with the commodity expected?

[Unknown Executive]

So Praveen, I guess, even you would agree that nobody will be able to guess where the commodity price movements will be, right? So depending on where the commodity prices are moving, whether they are going up or down, we pass on that kind of to our end customers. What generally happens is that whenever the commodity prices are in the downward moment, we are kind of keen on our margins. So that is something that has held [ true ] for this quarter, but that will vary quarter-on-quarter, and we'll have to see how the commodity prices play out going ahead.

[Praveen Sahay, analyst]

And the second question related to the inventory. So the higher inventory is because of anticipated higher growth only? Or there is something else to that as well?

[Unknown Executive]

No. The major reason is because of higher anticipated growth. And the second reason for that was that we are expecting a couple of smelters from where we booked the copper to go in their annual maintenance shut down. And because of that, we have preponed our procurement of copper for this reason.

[Praveen Sahay, analyst]

That is not at the annual -- every year, they go for maintenance? Is it something new come up or...?

[Unknown Executive]

Annual maintenance is something that they go for every year, and that is why we are normally just ahead of [indiscernible] when the annual maintenance is scheduled for. We increased the amount of inventory, raw materials and we procure copper ahead of time.

[Praveen Sahay, analyst]

And lastly, on the -- as you are mentioning about the export and the -- to meet the export demand, you will go for expansion. So what is the plan, like a brownfield expansion or the greenfield expansion plans for the export demand, the CapEx?

[Unknown Executive]

So we have our facilities in place for manufacturing the cables and cables which are required for various different geographies. As we anticipate an increase in demand, we'll need to add additional facilities, which can be both brownfield as well as greenfield as and when we see it and what kind of requirements we have.

[Operator]

Thank you. Ladies and gentlemen, that was the last question. I would now hand over the conference to Mr. Gandharv Tongia for his closing comments.

[Gandharv Tongia, executive]

Thank you participants for taking out time and attending this call. In case if you have any follow-up questions, you can write to us at [e-mail], and we would be glad to attend your questions. Thank you so much. Have a great day.

[Operator]

Thank you. On behalf of Polycab India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.