Polycab India Ltd

NSE:POLYCAB

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Polycab India Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I'd now like to hand the conference over to Mr. Gandharv Tongia, Chief Financial Officer, Polycab India Limited. Thank you, and over to you, sir.

[Gandharv Tongia, Chief Financial Officer]

Thank you, Vikram, and a very good afternoon, everyone. I hope you all are doing well. It is a pleasure to have you on the call. As Vikram mentioned, I'm Gandharv Tongia, CFO at Polycab India Limited. Thanks for joining us today to discuss our Q3 FY '22 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 the link or QR code on Slide 9 of the earnings presentation. From our management team, we have with us our Chairman and Managing Director, Mr. Inder Jaisinghani. Let me now hand it over to him for his comments.

[Inder Thakurdas Jaisinghani, Chairman & MD]

Good afternoon, everyone. We saw the momentum continue in the third quarter despite a challenging business environment. We recorded the highest quarterly top line in the history of the company for the second continuous quarter, which underline our strategy to be agile, focus on robust execution and consistently deliver the best quality of product to our customers. We have revitalized our demand generation capability and go-to-market strategy with a greater focus on emerging India clusters and new age challenges. We have also commenced work on developing a robust ESG framework that will align us to the best global standard and serve as guideline principle for sustainable business practices. I now request Gandharv to take you through our earning presentations.

[Gandharv Tongia, Chief Financial Officer]

Thank you, Inder Bhai. Overall, macro environment has been a bit of mixed bag during the quarter. We saw healthy demand in our B2B categories as well as institutional business on the back of an uptick in private CapEx. Demand visibility over medium to long term has been improving across sectors like real estate, infrastructure, renewable energy, manufacturing. This has led to a strong flow of press investment announcement. And most of the companies are going ahead with their capital projects despite the ongoing third wave. At the consumer end, while inflation is a bit worrying, lower interest rates, coupled with increased income, has significantly improving affordability. However, on the flip side, persistent volatility in our key raw materials and fear of lockdown presented some headwinds in improving consumer sentiment. Having said that, watching the current sales sentiment, we expect economic impact of the current base to be limited considering less severity of Omicron virus. While there may be hiccups in terms of localized lockdowns in the first half of Q4, second half is likely to be better. We remain watchful of trends on the ground, and our teams are well prepared to come back strongly as the wave continues. Overall, we believe that key factors of strong customer-supported economic infrastructure growth, coupled with improved execution efficiency through reforms, like [ public supplement rule ] or Gati Shakti national plan, and favorable consumer demographics and trends, will provide a long runway for growth. Our business and portfolio are quite uniquely placed to benefit from this favorable macro development. Before we move on to presentation and financial review, I would like to highlight that the P&L and segment numbers for the current and prior comparable periods are restated due to divestment of Ryker Base in accordance with the applicable Indian Accounting Standard. All related gains and expenses on divestment are reported under profit from discontinued operations as seen on page of P&L and interim consolidated financial statements. Few exceptional items of last year are also presented on Slide 10 of the presentation.Moving on to Slide 4. For the quarter ended 31st December 2021, our consolidated revenue grew by 23% year-on-year and 34% on a 2-year basis. On a quarter-on-quarter basis, our consolidated revenue grew by 12%. Q3 is the highest quarterly sales we have ever recorded. EBITDA margins improved sequentially by around 100 bps to 10.7%, led by better operating leverages and price hikes, partly offset by 3x increase in A&P spend and input cost pressure.During the quarter, we launched several brand campaigns across TV, digital and social media platforms. Seminar and influencers' meets helped improve awareness among B2B customer, electricians and contractors amongst others. We also initiated rural outreach programs through mobile ramps, where we connected with customers in the Internet. As the business environment normalizes, we will continue with our branding spend. Moving on, other expenses were broadly in line. Overall finance cost at INR 78 million and other income at INR 216 million was slightly lower. A detailed breakup of our other income and finance costs have been provided on Slide 13 of our earnings presentation. Our profit before tax at INR 3.24 billion, decreased by 2% while profit after tax at INR 2.48 billion increased by 1% year-on-year, respectively. On Slide 5, in the first 9 months ended 31st December 2021, our revenue grew strongly by 41% year-on-year. EBITDA was up by 11% with 9.6% margin. Adjusted PAT also grew by 11% year-on-year. Please note, the difference between adjusted and reported PAT is highlighted on Slide 10. Moving on to segments on Slide 6. Our wires and cables business continued its sequential momentum. Sales grew by 24% year-on-year and 38% on a 2-year basis. Normalizing the sales of a large order, growth was better at 28% year-on-year in third quarter. Delving deeper into subsegments, on a year-on-year basis, cables grew faster than wires in Q3, supported by strong growth in institutional business. Having said that, on a 2-year basis, growth is quite broad-based. The green shoots, we saw in the month of September. And institutional business continued leading to nearly 2.5x higher revenue. We are hopeful of sustaining this momentum in coming quarters. In the quarter, wires business was slightly impacted by high volatility in copper business, copper prices in early November and fears of lockdown impacting the trade sentiment in December. Consequently, the inventory levels in trade were much below normal and overall cash cycle also slowed. Despite these challenges, it is pleasing to note that blended wires and cables volume grew on a year-on-year basis and also higher than pre-pandemic levels. Export business contributed 8.1% to consolidated revenue but declined by 8% year-on-year, largely on account of 1 large order in base year. Excluding that, the business posted a healthy 24% year-on-year growth, led by Africa, Asia and Australia. We have put in considerable effort over the past 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 sales contribution target over the medium term for this business remains intact. We have seen a 155 bps sequential improvement in wires and cables segment margins during the quarter, driven by price at and better operate leverage. Overall inflation in our raw material basket was close to mid-single digits, largely emanating from copper and aluminum while our blended price hike was slightly higher than that. Considering the continuing competitive intensity in select segments of this business, the improvement in margins is accurate. On Slide 7, our FMEG business grew by 11% year-on-year. October saw a robust momentum. However, December was impacted by weaker trade and consumer sentiment. Having said that, on pre-pandemic Q3 FY '20, these sales are up by a healthy 57% and market share gains continued across categories. Fans had a slightly subdued quarter. However, growth in lights, pumps and conduit pipes business remained healthy. Switchgears and solar continued to witness strong demand. Our deep-dive initiative on widening the distribution network has started delivering tangible benefits. Work on portfolio optimization, brand architecture and augmenting influencer management program is also progressing well. We have started clocking sales from e-commerce channel. And we expect to ramp it up significantly over the next few years. Profitability in this business has been a bit volatile in recent past. But this is largely because of our blend of actual factors like unprecedented commodity inflation, demand disruption, coupled with a lot of internal changes in terms of creating the right team, right infrastructure, right team strategy, brand investment, et cetera, which aligns with our aspiration. We strongly believe this alignment is necessary to achieve the next leg of profitable growth in FMEG, which gets us to [indiscernible]. On Slide 8, other segment, which largely comprises of our strategic EPC business, witnessed a 21% year-on-year increase in revenue to INR 745 million. EBIT stood at INR 106 million, up 24% on a year-over-year basis. While many of you may know, but just for the benefit of everyone, I would like to highlight that during the quarter, we divested our entire stake in Ryker Base, which was our wholly owned subsidiary, for an enterprise value of INR 3.23 billion. Ryker played a strategic role in providing us high-quality copper rods, which are an input for manufacturing of wires and cables. It started as a JV, but we had subsequently acquired the balance of 50% stake when the other partner decided to exit. Consequently, Ryker Base became quite overwhelming, and we couldn't fully utilize this state-of-the-art facility with our core internal requirements. Our limited experience and interest in metal business and a strong focus on optimal capital allocation also suggested it was prudent to divest. So after exploring various strategic options, we believe this deal was a win-win proposition as we simultaneously executed a multiyear tolling arrangement with Hindalco, which will ensure our operations and supply chain dynamics remain intact. And we continue to deliver higher quality of products to our customers. Consequent to this transition, we have also withdrawn the copper segment. In line with Ind AS, all Ryker business income has been reported as income from discontinued operations in P&L. The P&L and segment numbers are restated for prior comparable period. Our pretax gain on investment was around INR 1.24 billion. On the balance sheet side, our financial position continues to remain healthy with net cash position of INR 6.7 billion. That has reduced sequentially from INR 2.3 billion as of September 2021 and to just INR 10.9 billion. Debt-to-equity ratio is low at 0.02x. On the working capital side, there are a couple of things to highlight. One, receivable days are at a comfortable level of around 40 days. We are seeing decent improvement compared to FY '20 and FY '21. We will continue to optimize this progressively with the help of channel financing. Second, inventory levels are higher than normal because of two reasons. One, we were anticipating better demand in December end. However, as I highlighted that trade sentiments went down a bit due to fear of third wave and dealers and retailers review their stock levels. And second, we had done some preplan procurement for Q4, considering possible impact of Omicron supply chain. Having said that, we are calibrating our plans based on market demand. And inventory levels should normalize by next month. As part of transformation project, we are bolstering our organization structure with great talents across labels and business. We are creating new verticals, function and support teams. This will bring in new competencies and enable us to explore new business avenues, which will make Polycab a future-ready organization. Deepak has joined us recently from Tata Group to lead the Transformation Management Office under Project Leap. Tapas has joined us from Havells to head our fans business. If you remember, we had initiated a few pilot projects to test the rural market. The results have been heartening. We believe with the right infrastructure, portfolio and people, we can leverage the immense demand potential of semi-urban and rural India. Accordingly, we have onboarded Deepak Mitra from Crompton to take this initiative further. We are elated to have all the new members joining the Polycab family, and our good wishes are with them. Lastly, taking our sustainability initiative a notch up, we have initiated a project with an external partner to create our long-term ESG framework aligned with international ESG protocols, guidelines and standards. This framework will provide us sustainable outlook towards the environment and society, alongside business goals.Thank you. With that, I hand it over to operator for Q&A.

[Operator]

[Operator Instructions] We have our first question from the line of Ravi Swaminathan from Spark Capital.

[Ravi Swaminathan, Assistant Vice President]

Sir, my first question is with respect to the volume value mix. So what kind of volume growth we have seen either during the third quarter or 9-month number? If you can give that, it would be great. I know multiple products are there, but if you can give a broad sense, it would be great, sir.

[Gandharv Tongia, Chief Financial Officer]

Thanks, Ravi, for your question. As you can see, there's a significant amount of growth in value. Particularly, if I were to add color on the volume, I think there are slight increase despite having [indiscernible] base predominantly from business verticals like HDC followed by LDC. On FMEG also, the growth is visible across all the product categories, barring fans, which was slightly subdued.

[Ravi Swaminathan, Assistant Vice President]

Okay. So volume growth might have been kind of mid-single-digit or high single-digit? Or how is it?

[Gandharv Tongia, Chief Financial Officer]

Yes. I would say that most of it is because volume -- most of it is because of value and only part of it is because of volume. And within that, HDC is leading the pack followed by other businesses, cables and wires.

[Ravi Swaminathan, Assistant Vice President]

Got it, sir. Got it. And in terms of, say, the demand from -- if you can give some color on real estate-led demand, infra-led demand, more color on that. And also urban/rural, how demand is -- demand for wires? So if you can give a broad thought process, that would be great, sir.

[Gandharv Tongia, Chief Financial Officer]

Yes. Let me split it into two or three broad components. Let me talk about, first, the typical B2B business. As you would know that in first couple of quarters for demand from the execution, it was slightly subdued. In the current quarter, there's an uptick in the demand and the distribution business has reported almost 150% growth in the revenue, followed by dealers and distributors on all the product categories across all the regions. If I give you color on the export business, there is, of course, an element of repeat order. But if I remove Dangote from the base, there is overall growth of 24%. And Dangote also, if I'm not wrong, in the last year December, in the base quarter, it was -- it had almost $20 million of contribution to the top line. And this current quarter also, there's a $10 million contribution. Wires, I would say, is slightly less impressive than a typical B2B business in the current quarter. And on the FMEG side, across all the regions, all the product categories, there is a growth, barring the fans, which is slightly subdued. Fans now contribute almost 35% to our FMEG top line, followed by lighting and lumens, which would be roughly around 30%. And switchgears would be around 10%, 15%, followed by pipe and fittings, which would be around 10%, 12%.

[Ravi Swaminathan, Assistant Vice President]

Got it, sir. Sir, only question is so basically not only for Polycab but for multiple electrical companies is that, on one side, there is, sir, stocks of real estate seeing a very strong recovery. But products like wires, et cetera, they are not seeing very good traction. Any reason can you can attribute to this as to why there is a dichotomy between the real estate growing but wires not seeing that much traction?

[Gandharv Tongia, Chief Financial Officer]

So we have seen a fair amount of growth on LDC and wires side, blended, I would say, around 20%, 25% growth, which we have seen in a few of these product categories or SKUs within these businesses. Overall, availability of credit and softening of interest is also helping the housing sector and building sector. And as we go ahead, it appears that in the fourth quarter after Omicron, the overall private CapEx would help us in improving the top line of the industry as well as large players like us. And affordability, I think, has reached multiyear-high, and it should get reflected in the demand for cable and wire business in the quarters to come.

[Ravi Swaminathan, Assistant Vice President]

Got it, sir. Got it. And my final question is with respect to the EBITDA margin. So what kind of range that we can see in the next fiscal year? So can we go back to double-digit kind of margins? Or are seeing something similar to what it can -- what it is likely to be this year? So if you can give some thoughts.

[Gandharv Tongia, Chief Financial Officer]

Yes. So Ravi, our business, historically, in cables and wires, we have generally over between 11% to 13% on a sustainable basis. When we met in September quarter, I had mentioned that slowly and gradually, we'll start improving on the EBITDA margin towards the -- in the second half of the year, the likely exit number would be towards the lower end of the EBITDA margin, which we have seen historically of 11% to 13%. And if you dissect our current quarter performance, you would notice that the EBITDA margins have improved in the third quarter in compared to the second quarter, despite the fact that we have invested -- we should have invested like, for example, advertisement, publicity has increased from INR 14 crores to INR 44 crores, INR 45 crores. And this said, it seems that next year margins would be better than what we have seen in the current quarter. But at the same time, I would like to be cognizant of the fact that pandemic is still not over. If there is another wave of pandemic and it has significant impact on the business, it could adversely impact the margins. But by and large, adjusted, it seems that we should be able to have better margins in the years to come, including the next financial year.

[Operator]

We have next question from the line of Atul Tiwari from Citigroup.

[Atul Tiwari, VP & Analyst]

Congrats on a pretty decent set of numbers in a tough environment. Gandharv, my first question is on the pricing. So on the commodity price increases, which has happened over year or so, have they been passed on into your pricing structure of both cables and FMEG business or something still remains to be passed? Hello?

[Operator]

Gentlemen from the management, this is the operator, so we're unable to hear you. [Technical Difficulty] Thank you for patiently holding, ladies and gentlemen. We have the line for the management back in the call. Sir, you may proceed. Thank you.

[Gandharv Tongia, Chief Financial Officer]

Sincere apologies, Atul, and the other attendees. Somehow, we lost the connection. Atul, thanks a lot for your kind words. I think you wanted to know on the pricing side of it. What I was saying is in our business, on the B2B side, basically on the distribution business, we revise our prices generally on monthly rate after considering two variables. One is the changes in metal prices, copper and aluminum. Second is change in production rate [indiscernible] and this what we have done in the current quarter as well. On the other side of business, which is institutional and exports, we generally do it on a back-to-back basis. As you can see, between second quarter and third quarter, there is almost 70 basis point improvement in contribution margin, which means that we have been able to increase the prices slightly more than the actual increase in the raw material cost and the product basket level. And as I mentioned to Ravi a while back, we believe that in quarter to come, we should be able to improve our margins slowly and gradually.

[Atul Tiwari, VP & Analyst]

So I mean, would it be the right characterization to say that most of the commodity price hikes have already been passed on, and from here on, whatever price hikes you take, it will kind of trickle down to the margin number, and we will get to the more normal 11% to 12% kind of margin? Is that a right, correct presentation or...

[Gandharv Tongia, Chief Financial Officer]

Yes. I would add one element to your understanding that in our business, the input cost is not constant. It undergoes a change multiple times in a year, as you know, because copper and aluminum is stated on LMEs, and that is where it is a moving price. But generally, from an understanding point of view, give and take a few basis points here and there, we believe that we should be able to pass on the increase in cost of input costs to our end customer and slowly and gradually should be able to improve on margins, both at contribution level as well as EBITDA level. And slightly on a long-term view, you know this already, Atul, that we are working on Project Leap with the help of Boston Consulting Group. And there are several enablers which are in place. Once those levers are used, we should be able to improve our profitability, both for B2B and B2C. However, it will take a while to fully achieve the true potential of these levers.

[Atul Tiwari, VP & Analyst]

Okay. And my second question is on the channel. So how many dealers and distributors you would have currently on cable and wire side and FMEG side? And what proportion of those are currently covered under channel financing? How many -- or how much more can be potentially covered under channel financing you think?

[Gandharv Tongia, Chief Financial Officer]

Give and take some numbers, we have around 4,100 dealers and distributors in our family. 50% of them are on FMEG. In terms of value, advanced plus channel financing put together in cable and wire, we would be around 70% of our top line. And in FMEG this year, it has improved reasonably well. And we are in late 40s or almost just shy of 50%. Theoretically speaking, this number can go right up to 80s and 90s. And that is where FMEG channel financing penetration should improve in quarters to come. And there's upside which is possible in cable and wire business as well.

[Atul Tiwari, VP & Analyst]

Okay. Great. And my final one is on -- obviously, we have seen across the industry, some tapering down of demand in December and after Diwali was over. So how are things right now qualitatively? I mean, do you see demand bouncing back in fourth quarter from the retail categories like you have? Or do you still see some time? So if you could share some broad qualitative color on that, that would be helpful.

[Gandharv Tongia, Chief Financial Officer]

Absolutely. You're right, Atul, second half of the quarter got impacted. [indiscernible] last 2, 3 weeks of, say, December quarter was impacted because of Omicron and pandemic. If I were to take a view today, sentiments are positive. So in the month of December, few other dealers decided to reduce the inventory levels in the channel. As of today, the things have improved. Dealers and distributors are inching back to normalcy. And you know the data already that Omicron wave in most of the large cities has already peaked or about to peak in next few days. At this stage, it seems that the second half of the current quarter should be better than the first half of the current quarter. And overall, macro elements like uptick in private CapEx should also help us in improving and augmenting the top line of the company on cable and wire side. On the B2C side as well as on dealer distribution, any which ways we are focusing and improving our presence in all the addressable market, adding our dealers and distributors. And all these initiatives would also help us in improving the top line. So to answer your question, the sentiment got impacted in the month of December adversely a bit. But as of now, things have started improving.

[Operator]

We have next question from the line of Aditya Bagul from Tata Mutual Fund.

[Aditya Bagul]

Congratulations on a good set of numbers in these challenging times. Gandharv, a couple of questions from my end. Firstly, with regards to the B2B business, right, we've seen a sharp recovery. Can you help us understand what are some of these end user industries that are driving this growth? And how -- what is your outlook over a period of the next 1 year, especially when it comes to the B2B part?

[Gandharv Tongia, Chief Financial Officer]

Thanks, Aditya. Thanks a lot for your kind words, and great to see you on the call, joining from another group of company. On the B2B side, as I mentioned a while back, predominantly, the improvement in the demand is emanating from private CapEx. As I mentioned to Ravi a while back, institutional business has recorded a 150% growth, which is a meaningful number in our B2B business. On the dealer side, there are several sectors where we have seen uptick in demand, whether it is coming from real estate, infrastructure, renewable energy or manufacturing. But I would say it is broad-based and it's coming from most of the geographies. So it's not that only one particular region, all the country is contributing to the demand. It's coming from all the geographies. And that is where we have been able to also record a decent volume growth, even if we consider [indiscernible] in the base.

[Aditya Bagul]

Sure. Gandharv, just to probe this a little bit further, just if you can help me understand, is there a chunky nature to this B2B sort of institutional demand? Or is this more industrial CapEx-led demand?

[Gandharv Tongia, Chief Financial Officer]

There's no particular one industry or sector which is contributing to this demand. I would say this is broadly broad-based. I think the private CapEx spenders are not shying away from making the commitment and incurring the cost and which is benefiting us in terms of the improved performance in the top line.

[Aditya Bagul]

Understood. My second question is just trying to understand the premiumization trends, especially in our FMEG business. So can you just throw a little light on how you see some of our premium products, right, Levana or Hohm? And how do these fit into our Project Leap over a period of the next 3 to 5 years?

[Gandharv Tongia, Chief Financial Officer]

Yes. Premiumization is an important focus area as part of Project Leap. We are working on several elements. One is to ensure that we have the right product available in our product portfolio to meet the premiumization. Second is we should have like GTM and dealers and distributors who can cater to the end demand or end consumer. And that has helped us in slightly improving the overall contribution of premiumized products to our top line. Fans is hovering between 25% to 30%. Purocoat fan, which was internally innovated, has also helped us in improving the overall premiumization agenda, which is the fan business. And similarly for lighting, we have recorded a growth in premiumization on downlighters and others. Hohm, Silvan and smart, these are the areas where we are still working. I would expect that in the next fiscal and that in the second half of the next fiscal, we should have some meaningful numbers coming to our P&L through Hohm and Silvan and IoT. And that remains a focus area for us. Overall, the idea is to have a balance of premiumization as well as regular products so that we have right EBITDA and EBIT in the B2C businesses and we're able to improve the margins from the current labels to almost 12% by FY '26.

[Operator]

And we have next question from the line of Nitin Arora from Axis Mutual Fund.

[Nitin Arora, Equity Research Analyst]

Just first question on the demand side, [indiscernible] take it that value growth is also the large proportion as can be 99% as well. But just talking in the last 2 quarters, last quarter, on a base of 5% decline, we did 44% growth and the copper prices were up roughly 40%, 45%.

[Gandharv Tongia, Chief Financial Officer]

Sorry. Are you there? Hello? Operator, can you hear us?[Technical Difficulty]

[Operator]

Yes, sir, we can hear you. Mr. Nitin Arora, would you like to complete your question? So we seem to have lost the line of Mr. Nitin Arora. We take the next question from the line of Charanjit Singh from DSP Mutual Fund.

[Charanjit Singh]

Yes. Can you hear me?

[Operator]

Yes. We can hear you.

[Charanjit Singh]

Okay. So if you can just help us understand, one, in terms of the quantum of price hike, exactly how much you would have taken in cables and wires? And if you have to look at it from a 9 months' perspective, volume growth in cables and wires, what it was, if you can give the figures here?

[Gandharv Tongia, Chief Financial Officer]

Yes. Sure, Charanjit. As I mentioned to Atul and Ravi, most of the increase is coming from value. There's some contribution coming from increase in volume. And if I even consider Dangote in the base, there is some improvement in volume. In terms of price hikes, in the second quarter, there was some impact on the contribution. And that is why there was a contraction in contribution margin. In the third quarter, there is almost improvement of 70 bps. The raw material cost and the product basket level increased by mid-single-digit. And the price hike we have taken is slightly more than that and which is what is getting reflected in expansion of contribution margin by 70 bps point. And we'll continue to take pricing action to offset the increase in the input costs in the quarters to come.

[Charanjit Singh]

So if we have to compare the price action, what we would have taken versus the industry, is there a gap between that?

[Gandharv Tongia, Chief Financial Officer]

Are you trying to ask there whether the price that we have taken is in line with the industry? Is that the question? Or is...

[Charanjit Singh]

Yes, that's it. Yes, yes, yes.

[Gandharv Tongia, Chief Financial Officer]

In all fairness, we are the largest manufacturer of cable and wires in the country. We are the market leader, price leader and, of course, the quality leader. And I think we have acted like a market leader in the current quarter. We have taken the price hikes, which were required to be taken, to ensure that we are able to offset the input cost. It's quite possible the market participants have followed what we have done. There could be some aberration where the market participants of peers have not necessarily followed what we have done. But by and large, we have taken the price hike, which we felt were necessary to offset the increase in input cost.

[Charanjit Singh]

Okay. So just one other question on the volume growth perspective, so as we are entering into Q4, generally it is more infrastructure, construction-heavy. And even from next year's perspective, there's a [indiscernible] that maybe the activity on the government infrastructure side should continue to remain strong. So any thoughts what are the kind of volume growth which you can see in cables and wires side separately?

[Gandharv Tongia, Chief Financial Officer]

So Charanjit, you know us, we don't give guidance on future performance. If I were to provide you a long-term guidance, we are fully committed to Project Leap agenda, whereby we go to double our revenue in 5 years from now, by fiscal '26, which would mean that a INR 9,000 crores of top line of fiscal '21 would be INR 20,000 crores by fiscal '26. And it will come from all the businesses, both B2B as well as B2C.

[Charanjit Singh]

Okay. So Gandharv, just lastly, on the FMEG front, so we have built a very strong team, and we are getting on to a journey, where we expect to grow much more faster than the industry. So from an FMEG perspective, we have seen that the growth has not been as strong as what we have seen for the other larger players. So if you can touch upon how the journey is panning out from FMEG perspective, and this new team, when do you see their activity starting to pick up? So just on the FMEG journey, if you can give some more color on the future perspective, how do you plan to ramp up.

[Gandharv Tongia, Chief Financial Officer]

Yes. On a 2-year basis, if I see FMEG top line performance, we have registered a growth of 57%, which would roughly mean 25%, 30% annualized growth. In terms of achieving the true potential of Project Leap arena, there are several enablers on which we are working. One, which I very briefly touched upon in the opening remarks, is having the right resources in the management team. And that is where we have invested heavily in getting the best of the talent of the industry. In the last quarterly call, I had updated all of you that Mr. Vivek Sharma has joined us from Panasonic. He was the MD of Panasonic. And after superannuation, he has joined us as Deputy Managing Director. Tapas has joined us from Havells, and he's leading our fans business. Similarly, there are other team members who have joined from other large companies like Crompton and other large B2C players. These management professionals, with the help of BCG, are in the process of revisiting and revising and revitalizing the product portfolio, GTM, geographical expansion and augmentation of dealers and distributors. We have already improved penetration in new geographies in the current 9 months. Once we implement all the items, which we have identified in the blue plate, I would expect that we would be easily be able to achieve the top line of B2C business by FY '26. Also, we would also be able to have meaningful improvement in the bottom line. I think we'll have to give some time to the new team members who have recently joined our family. And post that, we should be able to get to the numbers which we want to achieve as part of Project Leap.

[Operator]

We have next question from the line of Satwik Jain from Generational Capital.

[Satwik Jain]

So I had a couple of questions. So first is just hearing investment mode in the FMEG business, how would there any internal ROCE targets at the business level? And secondly, you have basically told about how you are passing on the inflation to the end consumer. So if you could throw some more light on it across the verticals.

[Gandharv Tongia, Chief Financial Officer]

So I missed the first part of the question. I think let me handle the second part and then you can repeat the first part. I think the second part is how have we passed on the increase in the input cost to the end customer. And if the understanding is right of the question, the answer is for the dealers and distributors, we reset or revisit our list price on a monthly rate. And that is what we have done even in the current quarter. So almost all the increases in the input costs have been passed on to the end customer. For the exports as well as institutional business is generally on a back-to-back basis. And that is where we have been able to pass on the input cost increase as well to the counterparty or to our customers. If that answers your second part of the question, I would request you to just repeat the first part.

[Satwik Jain]

Yes, that was helpful. The first part was basically the FMEG business, that is a scale of modes, return on capital employed targets at the FMEG level as such.

[Gandharv Tongia, Chief Financial Officer]

Yes. I think you're trying to understand our ROCE target for the FMEG business, if that is the correct understanding, objective is to improve profitability for all the businesses as well as have better capital allocation, including for FMEG or B2C businesses. As of now as you know, there are two levers to improve ROCE: one is better profitability and second is better capital allocation. As far as better profitability is concerned, we're targeting to get to around 12% of margins by FY '26. And we are taking all the required steps to achieve that. The second is on capital allocation. Slowly and gradually, we are increasing the utilization of our factories in FMEG as well as in cable and wire. If I were to illustrate this with the help of an example, fan business where our existing facility is almost being fully utilized, and we are in the process of setting up another facility, which should be operational sometime in the first quarter of the next fiscal. And that will also help us in augmenting the top line as well as the profitability. So we'll continue to make efforts to improve the profitability of the B2C business and ensure that our assets are [indiscernible] to get better returns.

[Operator]

We have next question from the line of Devansh Nigotia from SIMPL.

[Devansh Nigotia, Research Analyst]

It might be a repetitive question, but when you're looking at the real estate demand and against that, when we are looking at the demand from real estate ancillaries, like fine lighting and retail lighting, is there actually -- it doesn't add up. So if you can help us understand how does this lead and lag effect play out? Because ideally, is it that currently the existing inventory, real estate has been sold and the new construction is yet to pick up in a big way? So if you could just share your thought process of how is it your interaction with the customers and how is actually the demand shaping up.

[Gandharv Tongia, Chief Financial Officer]

Yes. Sure, Devansh. As you have noticed that in all the businesses, we have recorded significant amount of growth in cable and wire as well as in FMEG. FMEG, on a 2-year basis at the quarter, 57% of growth in top line. And similar numbers are there in cable and wire businesses. Of course, the percentages are different because of higher base. So I would not say that we are not able to see an uptick in demand or there's a disconnect between the between the real estate revival as well as growth in our sector. But we need to look at the customer cycle in its entirety. Because few of our product categories -- or products are used toward the end of the construction phase. And that is where we'll have to deep dive into the greater details of this cycle of real estate and correlate with our industry or our company's performance.

[Operator]

We have next question from the line of Aniruddha Joshi from ICICI Securities.

[Aniruddha Joshi, Research Analyst]

Sir, just one strategic question, the FMEG business that we are working on, we are doing completely excellent. This is a highly competitive business. I mean, fans and all these are relatively far more penetrated categories. So here, the growth is to gain market share and which is again relatively a bit tough part. So what is the management's thought process on something -- business as something like kitchen appliances, where there are not too many big players and even the top 5 players have less than 40% -- 45% market share? And the segment is also a pretty fast-growing segment. Considering Polycab's strong brand distribution, what is our thought process on that as a segment?

[Gandharv Tongia, Chief Financial Officer]

I think it's a great question, Aniruddha. In the boardroom as a management team, we have deliberated on this several times. Let me give you two perspectives. If you want to visualize all the products which Polycab is manufacturing and offering to the end customer and compare with a typical electrical hardware store, you would be able to see almost all the products. When we want to move away from this product category to something like kitchen equipment, there are two or three things which are additionally required to be considered. One, the kitchen equipment are not expected to be channeled through electrical hardware stores. Second, the target audience is different. In electrical hardware store, generally man of the house would be involved in the decision-making, whereas in the kitchen equipment, the lady of the house would have a say. And the last thing is the brand Polycab that we have today not necessarily would go well, and which is a matter of discussion and deliberation even internally, with the kitchen appliances. So the current thought process for the time being is to ensure that we have complete coverage of all the electrical products and as part of Project Leap, explore the exigencies and then monetize those exigencies as we implement Project Leap initiative between now and FY '26.

[Aniruddha Joshi, Research Analyst]

Okay. And what are the products, if you can say, that we would be focusing on in FMEG, apart from fans and maybe [indiscernible]?

[Gandharv Tongia, Chief Financial Officer]

So we have several FMEG products already applicable. We have fans and water heaters. We have light and lumens. We have switches and switchgears. We have conduit pipes. We have a bit of [indiscernible]. And there are some adjacencies which are being explored. But nothing on the kitchen equipment side as of now.

[Aniruddha Joshi, Research Analyst]

Okay. And about air cooler, sir, [indiscernible], et cetera, those kinds of products or any miss? Most of the other companies are not even in kitchen app, and we still continue to sell these products. So any plans on completing this portfolio?

[Gandharv Tongia, Chief Financial Officer]

So there are some products which are available in the product category which you mentioned. But as I mentioned that these are adjacencies and these are being explored, and we'll continue to do that. But if you go back to my earlier comment, the idea is to first cover all the electrical products and then explore at we have to or go beyond it.

[Aniruddha Joshi, Research Analyst]

Okay, sir, last question. You said in the opening page that multiple new professionals joined the company. So what are the key areas that they will be working on over next 2 to 3 years? So is it like maybe 1% to 2% market share gain in each of the product categories that we are working on? Or is it improvement in the profitability and margins? And what are the basically 3 to 4 key areas on which they will be focusing mainly the investments?

[Gandharv Tongia, Chief Financial Officer]

The new professionals who have joined the organization as well as the current leadership team is totally focused on only one initiative or agenda, which is Project Leap. The objective is to achieve INR 20,000 crores of top line, improvement in profitability. And there are several enablers to achieve this vision, for example, improvement in our dealers and distribution base, improvement in GTM, expansion and penetration of new geographies, where we don't have meaningful presence, improve exports. But if I were to just summarize and give you inputs in a single statement, it's only Project Leap agenda, which is what is being targeted by all of us in the leadership team of Polycab.

[Operator]

We have next question from the line of Shrinidhi Karlekar from HSBC.

[Shrinidhi Karlekar, Analyst]

Gandharv, I just want to know how far has company raised in terms of human capital addition? I see very interesting hires from the industry for new as well as existing roles. I just want to know how far has the company raised? Is there a top team already in place for most of the roles that have been identified under Project Leap?

[Gandharv Tongia, Chief Financial Officer]

I would say as part of the Phase 1 of Project Leap, most of the senior resources have been already hired. I would not -- I do not think that at this stage under the Phase 1, we need to do any additional significant hiring for the top leadership. However, having said that, at the middle level and lower level, we'll continue to make investment. And that is required for initiatives like increase in all our dealers and distributors, further penetrating the geographies where we don't have meaningful presence and so on and so forth.

[Shrinidhi Karlekar, Analyst]

Right. And second question, Gandharv, is on the business on state distribution utilities. Any color on how has it been recovering that part of the market? And also how much of the company's cable and wire business directly or indirectly comes from state distribution utilities?

[Gandharv Tongia, Chief Financial Officer]

We don't directly deal with government entities, generally speaking. The government's contribution to our top line directly would be less than 2.5%. Of course, our dealers and distributors serve these companies. There is some improvement. But since this is a secondary sale, I don't necessarily have adequate color to give to you. But to answer your question from the primary sales point of view, we don't directly have significant government supply to government orders.

[Shrinidhi Karlekar, Analyst]

But just Gandharv, wondering, could you have some color on indirectly how much would it be?

[Gandharv Tongia, Chief Financial Officer]

I think there is some improvement over the period, but this is secondary. It's difficult to give you a precise color. But generally speaking, power distribution reforms have had and will continue to help us in improving the demand at the industry level.

[Operator]

As there are no further questions, I'd now like to hand the conference over to Mr. Gandharv Tongia for closing comments. Over to you, sir.

[Gandharv Tongia, Chief Financial Officer]

Thank you, everyone, for taking out time and attending this call. In case if there are any unanswered questions, please write to us at [e-mail], and we would be extremely pleased to attend to your queries and provide any clarification. Stay safe and take care. Bye-bye.

[Operator]

Thank you very much, sir. Ladies and gentlemen, on behalf of Polycab India Limited, that concludes this conference call. Thank you for joining with us. You may now disconnect your lines.