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Polycab India Ltd
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Ladies and gentlemen, good day, and welcome to Polycab India Q4 FY '21 Earnings Conference Call. [Operator Instructions] We would like to remind you that certain statements made by the management in today's presentation may be forward-looking statements. These forward-looking statements reflect management's best judgment and analysis as of today. Actual results may differ materially from current expectations based on the number of factors affecting the business. Please refer to safe harbor disclosure in the presentation. Please note that this conference is being recorded. I now hand the conference over to Mr. Gandharv Tongia. Thank you, and over to you, sir.
Thank you, operator, and a very good afternoon, everyone. I hope you all are staying healthy and safe. I'm Gandharv Tongia, CFO at Polycab India Limited. We are very happy to have you on the call today to discuss our Q4 fiscal 2021 business performance. I know this call had been long overdue. Thank you for being considered. Unfortunately, the night after our Board meeting on 13th of last month, I have started observing few common COVID symptoms, which aggravated the next morning. So as a precautionary step, we decided to postpone the call. However, I'm fortunate to have recovered well and feeling much better now. Moving on, please note, 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 10 of our earnings presentation. From our management team, we have with us our Chairman and Managing Director, Inder Jaisinghani. Let me now hand it over to Inder Bhai for his comments.
Good afternoon, everybody. Welcome to our FY '21 has been a good year.
Sorry to interrupt sir, but your voice is bit feeble, if you can come bit closer.
Okay. Okay. Good afternoon, everyone. Welcome to us. FY '21 has been extraordinary year marked by distribution, resilience, compression and the transformation. Our endeavors to ensure safety of Polycab and help the society at large remand until concurrently. We also ensured under take operations to the agility and technology, which helped us leverage the favorable market trends and report robust business performance in the fourth quarter. We are excited to commence a journey towards our 5-year vision, which will shift a bit our brand positioning, operations and business growth, along with the strong emphasis on the governance and sustainability. Considering our ongoing transformation initiative, I believe we all are well placed to take a leap and create long-term value for everyone connected to the Polycab. I now request Gandharv to take you through our earnings presentation.
Thank you very much, Inder Bhai. Overall, we had strong Q4 with healthy market share gains. The underlying business performance of -- was fairly good across the board. The domestic demand trend remains supportive. Pandemic-related disruptions across all facets of the economy were relatively minimal in Q4. As a result, infrastructure and construction activities picked up in full swing. Central and State Government as well as private project activity showed an uptick. Private sector investment has been evidently higher in the second half. Consumer sentiments improved unlocking and vaccination drive leading to buy out demand for B2C products. Having said that, we continue to remain cautious and agile in the face of ongoing second wave of COVID-19. While the severity of it inside, I believe we, as a country, are much better placed than last year given increased safety awareness and fast based vaccine rollouts. Even as a company, we are well putted from an operational standpoint. And we don't foresee any significant disruption. Our teams continue to perform at a very high level while adopting a nimble approach to seize all opportunities regardless of business environment. Moving on to presentation on Slide 4. For the quarter ended March 31, 2021, our consolidated revenue at INR 30.3 billion grew by 43% year-on-year. Performance has been quite strong, even if we normalize it for the impact of pandemic. We do see portfolio continued to outpace B2B, whereby increasing its overall contribution. EBITDA grew by 43% year-on-year resulting in 13.9% margins, led by pricing actions, leverage benefits, cost-saving initiatives, offsetting sharp input cost inflation. Our stock cost at INR 997 million was higher versus last year. Polycable has ensured that employees are well rewarded for the efforts and commitment, especially during such challenging times. Accordingly, hikes, promotions and variable pay was rolled out for FY '21. Moving on, A&P spend at INR 144 million or 0.5% of sales was lower versus last year as we reorganize our marketing strategy to better suit the business objectives. Hence, we can take this quarter as an aberration. Our annual A&P spend are likely to be in the tune of INR 1.5 billion to INR 2 billion for fiscal 2022. Finance costs was broadly stable, while other income was lower on a year-on-year basis to higher mark-to-market gains in this quarter. 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 3.8 billion and profit after tax at INR 2.8 billion increased by 36% year-on-year and 32% year-on-year, respectively. On Slide 5, for the fiscal year 2021, I am delighted to highlight that we suffered last year despite a dismal -- dismissal start to the year. Our revenue grew on a year-on-year basis with B2C contribution rising by over 750 bps. From 32.6% in fiscal '20 to about 40.2% in fiscal '21 on a stand-alone basis. Adjusting for a large export order, it would have been increased further. EBITDA margin was relatively stable which...[Technical Difficulty]
Requesting all the participants to please stay connected, we lost the line for the management. Ladies and gentlemen, thank you for patiently waiting. We have the line for the management reconnected. Thank you, and over to you, sir.
Sincere apologies participants, there was some technical issue in the line. Let me just go back to Slide 5, which I was trying to explain and let's continue from there. So if we go to Slide 5, for the fiscal year 2021, I'm delighted to highlight that we surpassed last year despite a dismissal start to the year. Our revenue grew on a year-on-year basis where B2C contribution rising by over 750 bps from 32.6% in fiscal '20 to about 40.2% in fiscal '21 on a stand-alone basis. Adjusting for a large export order, it would have increased further. EBITDA margin was relatively stable, which again is a decent achievement, I would say, considering the adverse leverage and sharp rise in input costs seen during the year. PAT grew 16% year-on-year, partly led by few one-off gains in Q1, as highlighted on Slide 10. Moving on to segment on Slide 6, Wires and Cables business clogged a healthy growth of 35% year-on-year, led by pickup in construction activity, higher realization, increased distribution reach and portfolio announcement. On the domestic side, institutional business outperformed distribution business during the quarter. However, this was on the back of a soft base, and hence, it may be a bit early to call out full recovery. Having said that, the business certainly continue to gain traction on a sequential basis. Exports portfolio, excluding the large orders, declined by 7% year-on-year, mainly on account of the stalling of a few large projects on account of pandemic. However, we continue to build presence in many key geographies through appointment of distributors and expanding product offerings. We believe the business will get back to growth trajectory soon. For the year as a whole, our domestic market assessment suggests we would have gained at least 200 bps of market share in fiscal '21. However, we abated market and industry data as of now. On the profitability side, segment has build margin at 13.4% was broadly stable versus previous quarter. This was supported by pricing actions to offset the double-digit inflation seen in our raw material basket. Moving to Slide 7, FMEG posted an impressive 89% year-on-year growth in Q4 on the back of strong execution. All categories as well as regions, witnessed strong growth with market share gains. Consumer demand remained healthy on account of returning normalcy. FMEG contribution to overall sales increased over 290 bps year-on-year to 11.4%. During the quarter, Fans posted healthy growth despite stiff competition and cost push. Lighting products business nearly doubled led by better demand and supply alignment. Switches and Switchgears grew 2.5x, while other categories also witnessed strong offtake. Profitably continued to move in an upward trajectory despite input cost inflation, helped by pricing intervention, premiumization, better working capital management and cost optimization. Segmental EBIT margin stood at 7% in Q4 and 5.5% for fiscal '21. While the ongoing phase of intermittent lockdown do pose a challenge, we are well placed from a supply perspective to cater demand across in Asia. We have also observed some resilience in retail channels as well retailers are now delivering directly at home. While this may not be meaningful, it does offer some optimism and showcase resilience of Indian trade. On Slide 8, other is settlement, which is largely our strategic EPC business, witness a decline on off a severe impact of pandemic and higher base of last year. The Copper segment, as disclosed in the financial results largely reflect Ryker, which is a part of our backward integration initiatives. Moving on to financials from Slide 10 onwards, our balance sheet grew stronger with over INR 9 billion of net cash position as of March 2021, which is a 5.5x of same period last year. ROCE and ROE in Q4 stood at 32% and 24%, respectively. Working capital looks optically stable on a Y-o-Y basis. However, there has been decent underlying improvement. The numbers should be correlated to the fact that the prices of the imports like copper, aluminium merely increased as a matter of fact copper has doubled over last year. And this inflation reflect in mark-to-market inventory as of 31st of March 2021. Besides financials, during the year, we have made tremendous progress on expanding our distribution and influence our ecosystem. Our authorized dealers and distributors count as of March 2021 grew by about 17% year-on-year to over 4,100. Our retail outlet reach increased by about 32% year-on-year to over 165,000 electricians, while our influencer program grew by about 33% year-on-year to over 180,000. We now have 7 bonded and experience centers across several large cities across India. Furthermore, we are also now redefining our retail marketing approach through different outlet formats versus Polycab Galleria, which we also call it as knowledge centers. These are large showrooms with virtual LED showcase as the audio/visual facilities. They also serve as training hubs for influencers and assist back office for our employees. Second is Polycab Arena these include experience centers as well as Polycab exclusive retail outlets. And the third format is Polycab Shoppy, which is a shop-in-shop model, where we design the exclusively EMR space granted by the retailer. We believe this concept will help us provide a better demand experience, better brand experience to millions of customers and influencers. Under Project Shikhar our sales acceleration program, we have also launched the express -- experts program, which is a robust 360-degree influencer management initiative from promoting inclusive growth. The electricians and retailers enrolled in this program are provided loyalty based monetary incentives in conjunction with training in their respective fees by industry experts. Once trained, they are certified as experts by Polycab. The certifications will be provided through government recognized institutes, the aim is to help them build soft skills like people, social, communication skills and time management, along with professional knowledge. Leveraging on this program, we will also be piloting bunch of basket offering soon. A glimpse of our new product, Polycab Galleria, opened in Cochin is on Slide 14. We have some exciting stuff on the next few slides. It gives support of our 5-year vision project, which we have titled it as Project Leap. This year, marks the 25th anniversary of Polycab as a structured entity. Since 1998, we have recorded a robust 43% compounded annual growth rate in business. Even in the last 5 years, this growth has been relatively healthy at about 11% CAGR while maintaining market leadership and tackling challenges like the pandemic. By diversifying our portfolio, building robust manufacturing capability, creating a strong IT backbone and strengthening our brand positioning, we have created a very functional platform, which has the potential to unlock significant amount of decent growth. Now is a time to leverage these competencies to the fullest and challenge ourselves to realize our future vision for the company over the next 5 years. Accordingly, we have embarked on a multiyear transformational journey with an aim to cross INR 200 billion in sales by fiscal '26. We can't positively think of a thriving business without thinking of the environment, social development and good governance. And hence, we are also aimed to significantly up the pedals on our sustainability agenda as well. Now let us come how do we formulate our directions towards this vision. For this, we believe simplicity is excellence. We have essentially created 4 core areas that help B2B, B2C, capability and sustainability. I will probably touch each one of these briefly over the next few slides. Slide 16, on the left, we have highlighted through the few growth target while on the right, we have key box teams to achieve that target. On the B2B side, we want to reenergize the business and strengthen our leadership position. This will be done by defining our business model to win in large towns, announce value proposition to explore untapped opportunities enable demand generation through micro market analytics. And have a strong business development up. On Slide 17, for B2C business, we wish to activate -- achieve the core growth and position ourselves to be in these categories. We want to make our product an integral part of consumers' day to day life. We are aimed to build a comprehensive portfolio across price points, redefining our brand architecture other digital-first approach and explore adjacencies. Slide 18 highlights 3 core growth enablers which will guide us through the journey. We will build an operating model, which foster performance innovation and customers first driven culture with increased autonomy and accountability. We plan to take our IT capabilities to the next level by having digital and analytics driven decision-making across all facets of business. Slide 19, lastly, but most importantly, we believe our progress will be analogous to our sustainability initiative. While we have made wonderful progress in terms of reducing environmental impact and promoting inclusive growth, we believe there is a lot of work which can be done in the areas of renewable energy, optimizing users of energy, water and other resources, recycling of waste and water and further augmenting social development contribution. We have already taken baby steps by appointing an environment consultant, who will help us with our green initiative. Our Polycab Social Welfare Foundation will help us drive significant and focused CSR initiative. We have also embarked on an integrated reporting journey starting fiscal '21, which we hope will meaningfully increase transparency and form a base for good governance. Environment, sustainability and governance focus will be ingrained further into core business, and we aim to achieve leading ESG score in Indian Corporate Space. In the coming period, we will also double our long-term ESG targets. Now there are couple of updates which I would like to share with you. Firstly, considering the healthy financial position of the Board has recommended for payment of final dividend of INR 10 per equity share for the year ended March 31, 2021, subject to the approval of the shareholders. Our dividend payout ratio on shareholder profit will sequentially improve to 18% in fiscal '21. Second, there has been some reorganization in the Board of Directors. On the Executive Directors side, Mr. Ajay Jaisinghani, Mr. Ramesh Jaisinghani, and Mr. Shyam Lal Bajaj have stepped down from the Board. And Mr. Bharat Jaisinghani, Mr. Nikhil Jaisinghani, and Mr. Rakesh Talati, had been appointed as Executive Director, subject to approval of the members at the ensuing annual general meeting of the company. The change was a part of our larger succession planning. Bharat and Nikhil have been working in different areas of sales, marketing, production, IT, and others for nearly 15 years now, and both have played instrumental roles in driving several important projects within the company.On the Independent Directors side, we had 2 changes. Firstly, Ms. Hiroo Mirchandani has resigned from the force of Independent Directors with effect from 12th of May 2021 in order to rebalance our Board portfolio in line with her professional and personal goals. We really admire the guidance and all, where she provided, which helped the company grow. We wish her good luck for her future endeavors. For the second change, I'm very pleased to announce Mrs. Sutapa Banerjee has joined the Board as an Independent Director with effect from May 13, 2021. Mrs. Banerjee comes with over 30 years of professional experience, heading many large financial services company. Mrs. Banerjee is a gold medalist in Economics and Advanced Leadership Fellow at Harvard University and Visiting Faculty with IIM-Ahmedabad. Mrs. Banerjee is also an adjunct faculty with IIM with Indian Institute of Corporate Affairs, the Government of India think tank under the Ministry of Corporate Affairs. With his appointment, she adds Polycab to the list of esteemed companies like Godrej Properties, JSW Cement, Zomato, Manappuram Finance and others, where she is a Board member. Lastly, we have entered the new financial year, and we are progressing well across all facets of our business. We are gearing ourselves to our lead into the future. I feel confident about our organization's vision and execution capabilities to deliver maximum value to our consumers, partners and shareholders alike. Thank you, and we will be pleased to answer your questions now. Over to you, operator.
[Operator Instructions] First question is from the line of Ravi Swaminathan from Spark Capital.
Congrats on a good set of numbers.
Mr. Swaminathan, if you can speak closer to the handset please.
Congrats on a good set of numbers. My first question is with respect to the pricing action that we had taken at Cables and Wires segment over the past 3 to 6 months. What kind of price hike that we have taken? And how much is more or less, given the fact that commodities has been on a pricing trend?
Sure, thanks, Ravi, for your kind words. On the pricing action, if I reflect on the quarter gone by, the raw material cost at the basket label increased in almost double digit, whereas the price hike on a weighted average basis, we would have taken in lower teens. So that is where slightly, if you see the margins have improved at contribution level. And you know this industry already, Ravi. Every month, a player like us, we are revising our prices after considering increase or decrease in the input costs, for example, copper or change in foreign exchange rate between USD and INR. So we'll continue to follow the practices, which we have been falling consistently over the period. And wherever there's a need to adjust the prices, we will continue to do that.
And are we confident that, so basically, we will be able to sustain or maintain gross margins given the fact that past couple of quarters, gross margins have contracted a bit year-on-year basis? In spite of the fact that wires and other products, higher-margin products have increased in proportion, so would we be able to maintain gross margins which we had seen, say, last year, that's FY '21?
So, Ravi, the business model, which we have, gives us flexibility to price our input cost, particularly copper, when we have significant visibility on the selling price. And that is how we have been able to maintain our margins. At times because of lag impact or the inventory in the distribution, there could be some delay but if we take a 12-month view or analyzed view, I generally believe that we should be able to give and take a few hundred basis points here and there. Generally, we should be able to maintain our EBITDA margins.
Got it, sir. And with respect to traction with respect to the first quarter so far, April-May and some part of June, how has it been in terms of demand given the lockdown scenario?
So if I compare April and May of '20, we say, April and May of '21, I think '21 is significantly better than the base. I know there are restrictions, there are lockdowns, but those are more I mean in comparison to last year, these are slightly less negative on the business side of it. And since in the current month, most of the states have started relaxing the lockdown restrictions. We expect that in the coming quarters, the performance will continue to improve. I believe that second quarter will be better than first quarter. And directionally, it seems that the second half of the fiscal would be better than the first half of the current fiscal.
Got it, sir. And with respect to, say, the breakup of revenue for FMEG, if you can give and the CapEx plans next 2 years, if you can give that would be great, sir. That's my last question.
Sure. So on the CapEx, we anticipate that we would incur our INR 300-odd crore this fiscal around 35% will go for FMEG, which would have, say, for example, new CapEx on Fans factory, TPW factory as well as especially for pipe and all that. So that's around 35%. Balance would have a combination of a bit of a backward integration as well as Cable and Wire facilities. In Cable and Wire, predominantly, it would be because of special cables and export cables. We have -- we need to make some investment. And if special cable, if you relate in earlier quarters also had talked about that we are focusing on something called import subsidies, and we have been able to secure several approvals in the last few quarters. We want to now set up our facility so that we can manufacture these products in India, in true spirit of making India an Atmanirbhar Bharat and supply to the Indian customer. So that's a broad blue print. There will be some slight maintenance costs and all that. But overall, the CapEx would be around INR 300 crores and thereabout. I think your second part of the question was around the breakup of FMEG business. You would have already noticed that this year, we have entered the INR 1,000 crore club in FMEG. And I think it's a commendable performance by the team Polycab to reach that number in 5, 6 years. If I break it down for you, it would be around 35% to 40% of fans followed by lighting, which would be around 25% to 30%, followed by switches and switchgears around 15%. And pipe would have touched almost double-digit now. So there's a broad breakup of FMEG revenue, which is INR 1,000 crores plus in the fiscal '21.
The next question is from the line of Pritesh Chheda from Lucky Investment Managers.
Sir, I have 1 broader question. So from your Project Leap Bandhan and Project Josh, which you have been mentioned over the last 1 year now. Over the next 3 to 5 years, where do you see your company revenue some total rising to? What kind of margins do we see 3 to 5 years from now? What CapEx would you incur to derive that size of the business? What would be your reach as a percentage of the market by then? And what is the organizational building activity that would -- that has been done or needed to achieve that?
Yes. So let me demystify it for you. I think there are 2 or 3 different projects. Let me spend some time on Project Leap this is a new project, which we have just started -- built it a month back. We are working with a persistency from Boston Consulting -- Consultancy Group, BCG. The objective is to transform the organization. And I dwelt about it in my opening remarks as well, we want to work on B2B, B2C as the IT capabilities, as well as the process and organization in the place. By end of fiscal '26 is a forward statement. We expect that we will be able to touch almost INR 20,000 crore of top line, which is more than double than the current year. There could be several activities, which will be carried out to build each of these blocks, which are B2B, B2C organization, process, IT capabilities and governance and ESG. Every half yearly, we will come back to you on your specific questions on EBITDA margins, CapEx and what we have done and all that. But at this stage, I wouldn't be able to give you color only on revenue. As we go along, we would be happy to give you additional input. Directionally, it appears that our EBITDA margin has improved because the proportion of B2C business is increasing, and that is where the margins are expected to go up. But I think we should wait for half yearly update where we can come and update you on the activities which we have implemented or carried out and the results are thereof. On the specifics on the market share and all that, I think we have already covered part of it in my presentation, that we are gunning for 1.5x in 1 particular business category and 2x in other business category as far as growth is concerned in comparison to industry growth. But I think I would love to give you more information and color when we come to the September presentation. The second project is Udaan, which we initiated almost a year back and which was a cost optimization project. As of now, we have already identified cost optimization initiatives translating to almost 80 to 100 bps of our top line. These are in the process of implementation, and we expect that we benefit will accrue over the period to the P&L of the company. But at the same time, the project is ongoing, and it's quite possible that we are able to unlock values in addition to what have already unlocked in the quarters to come. And on Josh and others, the third project is actually the Project Shikhar, which is serious acceleration program, which, in a way, covers both Bandhan as well as Josh and that is on how we are going to penetrate the focused geographies and empower and train our influencer. So these are the 3 projects on which we are working on, and we'd be happy to update you on a half yearly basis on the progress.
Sir, what is the distribution reach as a percentage of the total market after this 165,000 retailers?
So we have almost 4,100 authorized dealers and distributors, around 165,000 and retailer. We believe we have a sizable, significant presence as far as authorized dealers and retailers are concerned. But the universe is designed, it's slightly difficult to come to a precise number, and that is why it will be difficult for me to give you an absolute number as an answer to your question. But every year, we have been able to improve our number of dealers and retailers and we'll continue to do that.
Okay. Sir just 1 last clarification, I missed it. You mentioned CapEx for '22 was INR 300 crores, it will be INR 300 crores. And the mix that you gave for FMEG for FY '21, was 30%, fans, 20% lightings and I missed the other parts.
So these are 2 different topics. One was on the revenue part. So revenue breakup is what I explained, where in the fan is almost 35% to 40%, lighting, almost 25% to 30%. Switch, switchgear around 15% followed by piping, which is just above double digit. On the CapEx side of it for fiscal '22, not for FY '21, fiscal '22, we believe that we would be able to incur almost INR 300 crores thereabout. And around 35% will be invested in FMEG, and balance will be invested in Cable and Wire, particularly in special cables, export cable and part of backward integration, and there's an element of maintenance CapEx as well.
How much did you spend in '21 CapEx?
Every year the presentation, is just shy of INR 200 crores, INR 191 crores. It's on Slide #12.
The next question is from the line of Rahul Agarwal from InCred Capital.
Good to see you back Gandharv and congratulations for a good performance in a tough year. Just 2 questions, one is on the capacity expansion. So you have answered it partly on the fiscal '22 side, I was more to -- more focusing on the 5-year plan to reach INR 20,000 crores. I would imagine the company would read significant investment into capacity. And since the efforts of the group is to manufacture in-house, even if I take an average of INR 300 crores a year into 5 is INR 1500 crores of CapEx, if could help us understand what are the areas of investment you're thinking to reach that INR 20,000 crore goal over 5 years will be really helpful in terms of what factories -- what products are you thinking bringing in-house versus with the outsource right now? That is one. And secondly, on the B2B slide, where you mentioned at 1.5x or 2x type growth for core and emerging products, if you could help understand what are these products we're talking about, if you're splitting them into core and emerging, will be really helpful.
Thanks, Rahul. Thanks a lot for your fine words. I'm glad that you liked our performance. On the capacity expansion and CapEx for the next 5 years, around -- on these particular projects, I must admit that these are early days. We have barely embarked on this journey almost a month back. Though we have a broad picture available in terms of the top line and how we are going to do it, but there's a fair amount of detailing, which is being done by the team, both by Polycab as well as the consulting partner. I expect that by second quarter of the year, sometime in October, when we have the earnings presentation, I would be able to give you a bit of additional color. And then I will continue to update you on a half yearly basis. I think for the time being on Leap, I think we should pick up the key messages. One is we are committed to growth, and we want to ensure that we are value additive for all the stakeholders, including the investors. And that is where I -- we have embarked on the journey with a very credible consultancy group. The second is the top line target is INR 20,000 crores. But beyond this detailing, if you allow me to come back to you in the month of October, as part of Q2 presentation, I think that would be a good approach to have.
Okay. So 1 small thing on inventory, I'm not sure about the project name, but my sense is Polycab was working on inventory rationalization and improvements. If I look at last 5-year numbers, broadly, we have stabilized about 80 days of sales, I'm looking at it as a number of sales and not on COGS. Could you help me understand, I mean, we cannot -- have not seen real improvements there. Could you help me understand the entire project is already completed and the numbers have already come through? Or is there something left there? That's my last question.
So you're right. If I see on absolute number of days via optically, it would look like that there is no significant improvement. But if I play it with the top line growth and increase in market share, that would help us and understand the availability of each of these SKUs that the different sales point has increased. So that is where the science has been implemented. There is a fair amount of work which we have completed or finished goods right from having the right architecture in place, what we need to store where, whether it's a mother warehouse or at the plant or whether we need to add to distribution and all that. There is a bit of a work, which we haven't completed yet on the RM side on the raw material side, which is going well. Directionally, we believe that we can certainly optimize the inventory levels further. But in last couple of quarters, there was a bit of a challenge on availability. I'm sure you would have also heard about the availability and pricing pressure on the raw material side. And that is where we had to at times take a step back and see whether we need to relook on the overall approach. But to answer your question, whether the inventory can be further optimized or not. I believe that, yes, certainly, it can be further optimized. But what we want to, at the same time, ensure is that we increase the availability because that is the clear differentiator for us in every marketplace. And the OTIF or On Time In Full is generally between 95% to 98% as of now, which has improved significantly in, I would say, in last 3 to 4 years, and we as a company would like to reach to 100%. I know it sounds impossible. But directionally, we would like to reach 100%, and that is where all of us are working.
The next question is from the line of Aditya from Axis Capital.
Gandharv and team, first of all, congratulations on great set of numbers, I hope Gandharv, you are doing well. Gandharv, I have 3 questions. One is on our FY '26 product roadmap that we've put through. I would assume that the FMEG growth of high teens to early 20s would be a key cornerstone of that strategy. Just wanted to understand some new -- some nuances as to which segments is it that we are targeting such high growth, and how are we likely to achieve that? That's my question number one. My question #2 is in terms of catchment version, right? We've done INR 1,200 crores or operating cash this year and it's a stellar number. I just wanted to understand on a steady-state basis over the next 3 to 5 years, what is the kind of cash conversion that we can expect. And the third is with INR 900-plus crores of cash on our balance sheet, are we looking at any inorganic addition?
Thanks, Aditya. Thanks a lot, I think these are a great set of questions. And thanks for highlighting our performance. So on the first one, I believe the real growth drivers of those engines between now and FY '26 would be exports as well as B2C revenue. B2B will continue to play its role. But I think that in terms of growth percentage, B2C will outshine B2B. There will be some element of adjacencies but I think the core product categories where we have present, these product categories will drive the more product growth and roadmap to continue to INR 20,000 crores. On the cash conversion, as I mentioned in 1 of the responses earlier, and our time to come back to you on a 6, 7-month basis because we are still very early to this particular initiative. We want to beat these numbers and decide what all we want to externally communicate and then commit ourselves to those numbers. So that every quarter, every 6 months, we can go back to the investors and upgrade them and be active. So I'll come back to you on that in October. But I believe that cash conversion will continue to improve in the years to come. On M&A, we are actively involved in few of these activities, including identification of the focus areas, zeroing on the target and then doing the procedural aspect of it. I'm hopeful that we would be able to upgrade you soon on a few of these M&A activities.
Sure, Gandharv. 2 follow-up questions. One is within our target of achieving INR 20,000 crores, we are looking at B2C, B2B kind of a split rather than Cables and Wires and FMEG plus exports obviously. Is that a fair way of understanding things? Because then we would be also building in a fair bit of growth when it comes to housing wire and other B2C wire segments as well. Just trying to understand your thoughts on that.
Absolutely. Either that's a way to review our performance. We have 2 growth engines. One is B2B, which has traditional cable business. And then we have B2C, which has retail wire as well as FMEG business. And then on top of it, we have the export business. So that is how we are internally trying to improvise on a growth performance, as well as that is how we review our performances.
Perfect, just 1 last question. With regards to our INR 20,000 crores target, we've not built in any inorganic additions, right? I mean we're talking about this on an organic side.
Yes. So as I mentioned, Aditya, I'll come back to you in the month of October and to the extent possible, I'll give you additional color on this. And then from there, we can take it forward on a half yearly basis we update our financials.
[Operator Instructions] The next question is from the line of Yellapu Santosh from Asian Market Securities.
Congrats on the good set of numbers. I had a couple of questions. Sir, when you're internally targeting for 12% EBITDA for the FMEG business by FY '26. What would be the approximate top line that you're having internally in that -- the thought process when you are building? And what are the initiatives we're taking to reach that kind of milestone on the top line front as well as in the margin profile? If you could give some color on me. That's the first question. And the second question, from a lockdown from a 3 to 5-year cycle point of view, what are the initiatives we're taking so that the exports distribution strategy pans out the way we are thinking, what new specific geographies, any specific products we are targeting having, we have won recently a few export orders from Australia to South America to North America. So we are gaining a lot of export orders. So what is your thought process there? If you could just give some color on both the points, it would be thankful.
Yes. So the first one, the growth will continue to come from B2C and exports followed by B2B. But as I mentioned to others, and all our clients in October where we can come back and give you more color on how this INR 20,000 crores we've achieved. On the export, we have been able to improve our presence across the globe in the last around 24 months. We have additional approvals in place, for example, basic approvals or URN approvals and all that. If we just slice and dice our exports. I would say that almost 50% or thereabout is coming from U.S. followed by Asia and Australia and the rest of the world. We believe that having this twin approach of going after few identified sectors. As well as having local presence in identified geographies would help us in improving our top line. And that is why where we believe that export will be a key contributor to our INR 20,000 crores top line target by fiscal '26.
And sir, 1 follow-up question, if I may. Sir, what is the timeline have you put to the top 300 cities we want to penetrate. So there is still some way to go ahead and penetrate the top 300 cities. Any timelines, any targets and how you could contribute to your growth? If you could just give some color or some numbers that will be very insightful.
Yes. So at this stage in terms of quantity -- quantified target, I would be able to give you a top line target of INR 20,000 crores by fiscal '26. Within that, the breakup, it would be difficult for me to give you because we have just embarked on this particular journey. So if you just allow me time until October. I'll come back to you on the target, which we will be able to talk about externally and along with the investors. And then after that, we can then do a call of every 6 months basis.
The next question is from the line of Chetan Gindodia from Alpha Credit Advisors.
Gandharv and team congratulations for a great set of number. I have just 1 question. Can you give us a sense of the volume growth and the pricing growth for FY '21 for the Wires and Cable segment?
Thanks for your time. You know this industry already. It's a bit difficult to give volume data, and that is where most of the large players get all gated. And I'll tell you why this is difficult because if I sell per cable of length of say 1 kilometer vis-à-vis an alminum cable of the same length the pricing would be significantly different. I think the best way to analyze from your perspective, a particular company's performance is to compare it with peers' performance. And if its growth rate is slightly better or worse than their peers, that is where you can raise the company because the quantity of information is not necessarily would get added value.
Okay. Okay. Still, if you can give some sense on whether the volume growth in this quarter was in double digits or at least some sense that would help us analyze whether what is the underlying growth.
Yes. So most of the growth has come predominantly from the B2C business categories, both from FMEG as well as retail buyers. FMEG has already touched of course INR 1,000 crores club, and that is why it continues to grow at a rapid rate. Outside that, the NDC business is growing significantly. On the cable, poor cable side, there is some sort of sluggishness on the institutional. But overall, the second order is like this that B2C forward by B2B.
Okay. And just a clarification, you said that our B2C business contribution is currently 40.2% in FY '21. So this is for the overall revenue, including FMEG? Or this is just a breakup of Wires and Cable segment?
This is overall, including FMEG, which is B2C plus wire business, retail wire business, which is also a -- plus which is a B2C. FMEG plus retail buyer both put together is almost 40.2%.
The next question is from the line of Manoj Gori from Equiras Securities.
Glad to see you back in action. A couple of things. One would be on the cables front. So if you look at currently -- in the current system, we witnessed strong traction for the wires business, however, the institutional business was relatively large. And we were able to see industry was able to see some green shifts during February and March. So because of the second COVID wave, do you feel like this business is back on track? Or there would be some delay like for this business to be normal?
Okay. So the cable was -- the distribution was any -- which was back to all those pre-COVID levels after the wave 2 but the challenge was on the institution side there also, we have seen some bit of traction in the fourth quarter but I think we'll have to wait for a month or 2 before we finally decide and conclude where we are back to -- whether we are back to the pre-COVID levels on a cables this thing. But directionally I believe, that second half of the year, of the current year should be better, both for institutional as well as distribution business.
Right. And also, does this indicate that I suppose of last year, whatever institutional business that has been lost for the industry so there might be some pent-up demand when the situation normalizes and move back to the pre-COVID level in volume terms and this -- yes.
Yes. So I think the element of expected demand is expected to be there both in B2C as well as the B2B. Either this pent-up demand will take us back to the pre-COVID levels or not, that would be difficult for us to comment at this stage. But I think directionally, we should be able to -- will wait to issue it after the first quarter.
Right. Sir lastly, on exports, I think the -- over on the call, you have explained very well regarding the long-term strategies and everything. On the exports, if you have been focusing a lot on the U.S. market, so how are things getting up over there? And what's the overall outlook? And in terms of your distribution model over there? So can you throw some light over there? That would be helpful.
There's no change in the distribution model. We have only established a distribution model there. Now we are trying to do it and further penetrate the market and see if we can introduce additional product categories. This will continue to be a continuos process of penetrating all the overseas geographies including U.S. and my -- U.S. is top on our priority is because as of today, U.S. contributes almost 50% to our exports top line. But outside the U.S. as well, there are geographies, for example, just to illustrate Australia or part of Asia where we can further augment our top line through exports.
The next question is from the line of Sanjaya Satapathy from Ampersand.
Yes, congratulations once again on a good set of numbers. I just -- if you can share with us the gross margin of your FMEG business, the main reason why I'm asking it is that like how do you compare in terms of your profitability at gross level, we are both in terms of pricing as well as product positioning point of view?
So if we mature our product categories within FMEG, we have already reached to the industry level growth margin, which are give and take a few percentage points here and there around 30% or thereabout. And in the product category, which are completely smaller within the FMEG market, there is some scope for improvement in margins. And as far as EBIT margins are concerned, those you would have already seen, have improved in the periods to come. But that's mainly because we have slightly higher cost base, which will get optimized that increase in the top line. And these projects like Udaan, which is a cost optimization project as well as Project Leap would also help us in improving these margins.
Mr. Satapathy?
Yes, there is a lot of noise, I do not understand what is going on. [Technical Difficulty]
Operator, I think you should mute for someone. I think there's disturbance coming from one of the line.
Checking sir. We take the next question from the line of Rajesh Kothari from AlfAccurate Advisors.
Congrats on a good set of numbers. Sir, you talked about next 5 years within the FMEG segment are you planning to enter into the new product categories in that segment and whether it will be existing segment or it will be complete new segment?
So at this stage Rajesh, we are at a growing stage, growth stage. Theoretically, it is possible, but we have not closed our thought process there. The focus remains that we continue to grow the existing product categories. For example, fans, lighting, lubes, switches and switchgears, conduit pipes. But as I mentioned, as a response to one of the earlier questions, at our time till October, by when we'll come back to you in case we have any mature thought process. But within FMEG, I would like to call out 1 specific thing, which you would have noticed already that we are trying to play a level up as well as level down in the existing pricing portfolio. So for example, we introduced home automation around a quarter bet, which is a premium category, which will be revenue accretive as well as will help us in augmenting our top line. Theoretically, this is slightly different from the exiting product category because it's on automation side, but if this would help us in giving a boutique product or bouquet of products to our customers.
Okay, and my second question is since company has grown a very ambitious plan for the next 5 years. Are there any major new recruitment at the senior leadership level? And if yes, if you can disclose this thing, that will be great.
Absolutely. So we can't reach top line of INR 20,000 crores without having right set of people, processes and capital. Processes I have already talked about where I was claiming the Leap. I touched upon the fact that we have reshuffled the board, and we have younger and high energy individuals who are going to lead us from the board. We have independent director like Sutapa. She has significant amount of experience and she is competitively younger. On the management team, there are a couple of changes. We have recently hired Mr. Rajesh Nair, as our CHRO, he was with Tata Motors for almost 28 odd years. And I'm very confident that he would be able to help us in improving our HR practices and people management practices because when we are thinking about ambitious target, we have to ensure that these ambitious targets are well litted with the PMS and KRAs of the business and function head. And that is where someone who is joining us from Tata Group would help us immensely. Nilesh joined us almost a year back as Head of Marketing. He was instrumental in shaping the brand architecture as well as marketing plan at JSW Steel, and he is doing tremendous work on the marketing road map for brand architecture for Polycab. And I'm expecting results of that would start reflecting in the quarters to come. We continue to augment our senior management team. And we have very attractive compensation strategy, both in cash as well as through SOPs, and we would be -- we are very confident that we'll continue to do that. As a matter of fact, if I'm not wrong, we would have almost 25-odd individuals who will be doing more than INR 1 crore of package on an annualized basis, excluding this compensation. So that's how the quality of manpower, which we have assembled over the period. And these high energy highly driven individuals would help us in implementing the Project Leap and other projects which I talked about.
Ladies and gentlemen, due to time constraints, we take the last question from the line of Vikas Mistry from Moonfort Ventures.
Hello, am I audible?
You are, please go ahead.
Gandharv, my question is that, would we be looking for the new product lines like micro inverters and something software IoT based automation system, as you mentioned, we are also looking towards energy efficient home solutions to the customers and all that.
Yes, I think your question is around whether are we going to get into home automation, IoT and all that. Answer is, yes, we have already taken a baby step by launching home and we'll continue to take steps to expand on this side of the FMEG business. We believe that the consumer business will get significant amount of traction through this IoT automation route, and we'll continue to make investment accordingly.
My question is mainly pertains to what software side. Are we looking at strategically thinking about giving customers better energy-efficient solutions in form of software and coupled with the hardware, so that they could save energy on account of doing that?
Absolutely. In fact that is the key differentiator for us, most of our products come with energy efficiency. And if I may say, we can easily considered as industry leader on that aspect. And we recently launched a BLDC fan, which would be energy-efficient product, and there are several other projects in pipeline. So we'll continue to do that. So that our consumers continue to get energy-efficient products, and they get best of Polycab to experience.
My follow-up question is to the same, is that how many workforce is in innovation and new product development and how we are looking to ramp up these human resource capabilities to make sure that we come up with cutting-edge new innovative products and...
Yes. So it's a combination of both internal team as well as external team. Externally we partner with several industry leaders and consultancy organization. Internally, we have around 100 to 150 manpower team doing only R&D throughout the year. Very recently, this picked up a large fee from an existing Indian arm of a large German player, and that team will also continue to help us in improving our R&D, as well as innovation aspects of our business.
It's good to hear, Gandharv, and we hope that you keep on driving the innovation thereon.
Thank you. Thanks a lot for your kind words and wishes.
I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone, for your time. In case if you have any follow-up questions, please write to us at investorrelations@polycab.com. Stay safe and take care and follow social distancing norms. Thank you, operator.
Thank you. Ladies and gentlemen, on behalf of Polycab India, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.