Polycab India Ltd

NSE:POLYCAB

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day and welcome to the Polycab India Limited Q4 FY '22 Earnings Conference Call. [Operator Instructions] Please note that conference is being recorded. I now hand the conference over to Mr. Gandharv Tongia. Thank you, and over to you, sir.

[Gandharv Tongia, executive]

Thank you, operator. Good afternoon, everyone, and thank you for joining us. I hope you all are staying healthy and safe. I'm Gandharv Tongia, CFO at Polycab India Limited. On this call, we shall discuss the Q4 FY '22 result, which was approved in the Board meeting held yesterday. We will be referring to the earnings presentation, financial results and financial statements, which are available on the stock exchanges as well as Investor Relations page of our website. It can also be downloaded through the link or QR code on Slide 9 of earnings presentation.

Joining me today from the management team, we have our Chairman and Managing Director, Mr. Inder Jaisinghani; and Chintan Jajal, Head of Investor Relations on the conference call. Let me now turn the call over to Inder for his comments.

[Inder Jaisinghani, executive]

Good afternoon, everyone. Our strong performance in the fiscal year '22, '21 underpinned by the extraordinary efforts of our team to achieve new milestones even in one of the most uncertain environments. We delivered escalated business growth, record free cash flow and return on the capital and market leading shareholder returns. We will champion our renewed purpose of the innovated -- innovating for a brighter living, our i-POWER values will guide our thoughts and actions, which will help us create long-term sustainable value for the shareholder. And indeed the lives of everyone connected with Polycab.

I'll now request Gandharv to take you through our earnings presentation.

[Gandharv Tongia, executive]

Thank you, Inder. I think overall business environment has remained quite supportive in Q4 despite the sharp inflation. Demand across most segments remained healthy. Macro indicators such are GST collections, e-way bill are at new highs while other indicators like IIP, Core Industries Index, Consumer Sentiment Index amongst other are trending up. Government initiatives and reforms are certainly helping. And even capacity utilization across most private industries at good level.

Fresh CapEx announcement are at multi-decade high, post towards transitioning to a renewable energy-driven ecosystem globally is like never seen before. All of these are obviously good signs of an initiation of a long capital investment cycle, which bodes well for our business. On the contrary, inflation is now perhaps one major risk to the improving demand environment. While we do not anticipate it to be any more challenging in B2B segment, we will remain watchful of consumer sentiment and how it plays out for B2C categories.

One key question raised by many is that copper and aluminum prices have gone so high, what it affect the demand for wire and cables? Generally what we have seen in is that for the macros are broadly favorable. Secondly, inflation is quite broad based, many industries are seeing a stronger balance sheet. For example, given the higher crude oil prices, many projects in oil and gas globally have divided. Similarly, many sectors like metals have benefited.

Lastly, but most importantly, quality of wires and cables is paramount for health and safety. And hence our customer segment, which is largely mid or premium do not want to risk it. Nevertheless, cognizant of these challenges, we remain agile through our portfolio and go to market interventions that gives us confidence to drive industry leading growth.

Before we move on to presentation and financial review, I would again like to highlight the P&L and segment number for current and prior comparable period are restated due to divestment of Ryker Base in accordance with the applicable Indian Accounting Standards. All related gains and expenses on divestment are reported under profit from discontinued operations as seen on pace of P&L in consolidated financial statements. This along with few exceptional items of last year are also presented in Slide 10 of this presentation.

Moving on to Slide 4, for the quarter ended 31st March 2022, our consolidated revenue grew by 35% year-on-year on the backlog of healthy demand environment, despite sharp inflation, coupled with the strong execution by our team. It is yet another quarter of highest quarterly sales we have ever recorded. As we have been highlighting earlier, one key focus area remains improving profitability progressively. Even though most of our key inputs remain quite elevated, I'm happy to share that EBITDA margins improved sequentially by about 125 basis point touching 12% led by better operating leverage and price hikes.

Other expenses and other income as a percentage of sales were lower while finance costs were broadly stable. 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 4.3 billion increased by 17%, while adjusted profit after tax at INR 3.2 billion, increased by 20% year-on-year respectively.

On Slide 5, for the full year ended 31st March 2022, our revenue grew strongly by 39% year-on-year despite the 2 waves of pandemic and unprecedented inflation. EBITDA was up by 14% with 10.3% margin. Adjusted PAT also grew by 14% year-on-year. It was a year full of challenges, but we achieved several significant milestones.

Our overall top line surpassed INR 120 billion, clocking 17% CAGR in the last 5 years. Export is inching towards becoming a sustainable INR 10 billion business. Polycab is the largest exporter of cable and wire in India. FMEG is now INR 12 billion franchisee. The business also churned out healthy cash flows with negligible debt levels.

Moving onto segment on Slide 6. Our wires and cable revenue grew by 39% year-on-year, despite a relatively healthier base. Demand environment continued to remain encouraging, which led to healthy volume growth. Domestic distribution driven business continued to see strong traction. However, institutional business was subdued compared to last quarter. Housing wires posted strong growth led by continued momentum in real estate and renovation activities as well as our demand generation initiatives.

Our new sub-brand, Etira, was launched in the economic price segment. Trade sentiment in cables was temporarily restrained by significant volatility in aluminum prices, which does nearly $4,000 per metric ton before correcting sharply. Exports business grew by nearly 100% year-on-year, excluding a large customer, the growth was slightly better led by strong demand from sectors like oil and gas, renewable and infrastructure. Overall exports business was 7.6% of consolidated revenue in FY '22.

Our telecom business saw good traction. Towards the year-end Polycab was on-boarded by Tamil Nadu Fiber Corporation Limited or TANFINET as a master system integrator to implement the BharatNet Phase II project and provide end-to-end connectivity with high speed bandwidth using optical fiber cable in over 3,000 gram panchayat in 75 blocks across 9 districts of the state at a cost of about INR 5 billion under the master service agreement. The revenue of this project will be accrued as per execution timelines over the next few years. Wires and cable segment margins continue to improve sequentially led by judicious price hikes and improved operating leverage. During the quarter, inflation in our raw material basket as well as price hike was in mid-single digits.

On Slide 17, our FMEG business grew 9% year-on-year and 11% on a sequential basis. Overall demand momentum in Q4 was a bit subdued largely attributable to broader inflation. The business also underwent realignment exercise to improve sales force efficacy and achieve distribution synergy, which temporarily hampered growth. Fans, light and switchgear business posted healthy growth while conduit pipes continued the strong momentum.

Switches saw a decline due to supply challenges. Given the prolonged challenge in switches, we are now transitioning to in-house manufacturing, which is ongoing and likely to be completed in the current fiscal. The new state-of-the-art facility in Daman will help us improve product availability, drive innovation and reduce go to market time, thereby improving our market presence significantly.

Solar business was muted. However, for the full year, it achieved over 50% year-on-year growth. Profitability improved on a sequential basis, but was much lower than last year and our expectations largely on account of higher advertisement publicity, the staff cost and input cost pressure. However, we are committed to achieving 12% annualized EBITDA margin in this business by fiscal 2026.

On Slide 8, other segment, which largely comprise of our strategic EPC business, witnessed a 8% year-on-a-year increase in revenue to INR 827 million. EBITDA stood at INR 122 million, down 15% on year-on-year basis. On the balance sheet side, our financial position remains quite strong. Net cash position stood at INR 11 billion, up from INR 9.6 billion same period last year. Debt-to-equity ratio is merely 0.01x. Our efforts to optimize working capital is taking shape. We are seeing good optimization of receivables as well as inventory.

I would also like to highlight that towards the end of the year, we made a large one-off investment for buying office space in Mumbai. As we move forward in our growth journey, our teams are expanding. However, the current head office building has limited space to accommodate everyone in the near future. At the same time, we are also mindful of one other important element that is having adequate open spaces for cross-functional collaboration and create an inclusive workplace.

Hence, we invested about INR 2 billion to acquire around 55,000 square feet of office space in Mumbai, very close to our existing head office. A part of this cost will be compensated by monetization of existing office in Mahim. We are quite excited to move to our new head office hopefully by third quarter of the current fiscal. The cost is reflected in the fourth quarter and full year CapEx number.

In the meeting yesterday, Board has recommended for the payment of final dividend of INR 14 per equity share for the year ended 31st March '22 subject to the approval of the shareholder. Our dividend payout ratio on shareholder profit will sequentially improve further to about 23% in FY '22.

Moving onto exciting stuff, project Leap, our flagship transformation project. Just to recap for everyone, project Leap is a multi-year program that includes a range of strategic teams and initiatives focused on growth, profitability and long-term capability building for the organization across B2B and B2C businesses with a goal of achieving greater than would be INR 200 billion or INR 20,000 crores sales by fiscal '26. We have partnered with global management consulting firm, BCG who will help us drive this transformation, it's been one year and the journey and we have made significant strides toward our vision.

In the first year, we primarily work on 4 key areas that is setup of right organization enablers, customer centricity, go to market and product portfolio optimization. Delving deeper in the first that is setup of right organization enablers. Within this, the major initiative was setting up the right organization structure and fill critical capability gaps across the department like manufacturing, procurement, supply chain, digital and IT and across the businesses including B2B, fans, lights and retail wire. Over 90% of talent acquisition for critical roles was completed in fiscal '22 while the balance will be done in the coming quarters.

Performance measure, rewards and recognition, they aligned to the growth strategy and cascaded through all levers of team. New transformation management office was set up to strengthen governance, and most importantly monitor the implementation of various initiatives because we believe we have an ambitious vision for our organization. We also have the enabler so education has to be sublime.

Second area is customer centricity. During the past year, we redesigned the operating model of B2B businesses. The new model was implemented in pilot stage and saw tremendous opportunity for growth. Accordingly, we took a bold structural move to merge heavy duty and light duty cable verticals in order to unlock latent value through cross-selling opportunities and operational efficiencies.

Given the significant distribution and geographical overlay, the initiative with materially improved customer suggesting as most of their B2B wires and cable requirements will be addressed by single point of contact. Combined portfolio selling will drive faster business growth. Optimization of team structure and joined back office operation will also enable faster rollout of GTM initiative while establishing a leaner cost base, marketing, and influential management platforms will be streamlined to increase efficacy, the new structure also includes key account management or KAM to enable selling of full product portfolio and bring in more customer focus. We designed and piloted unique structured influence management to support our B2B businesses.

Third area is GTM. I had talked about this earlier as you may be aware, we put in lot of efforts to build presence in semi-urban and rural India, post successful pilot projects we select rural market, we took several initiatives to build infrastructure, portfolio and team to leverage the immense demand potential of semi-urban and rural India.

We created a new business vertical called emerging India, focusing on building presence in towns with up to 2 lakh population. Distribution architecture was designed, post detailed mapping and evaluation of these geographies. Product portfolio has been calibrated to address specific needs of customers, while offering innovative product at economical price point.

Another area where we've really worked hard over is building presence in alternate channels like e-commerce, modern trade, connecting department stores. Currently over 600 Polycab products are available on all leading e-commerce portals like Amazon, Flipkart, Gmart and Moglix. We believe these 2 new sales channel vertical will act as additional lever of growth for our B2C businesses.

Core distribution expansion was driven by rigorous execution using digital tools and structured playbook. We passed expansion clocking nearly 2x increase in direct count coverage. Our authorized dealers and distributors increased from over 4,100 last year to over 4,600 now. Retail outlet reach increased by nearly 25% over last year to about 2,05,000 outlets now. We also successfully piloted end-to-end digitalization of front-end sales. It is currently being rolled out in phase manner.

Lastly, we are trying to create a winning portfolio of products, which are innovative and there is no-name where consumer needs. Towards the end of FY '22, we launched new sub-brand, Etira, which will play a pivotal role in economy price segment as well as enable our expansion into emerging India clusters. Currently, we have launched Etira housing wire, which has seen a strong response. We will extend this brand to other categories progressively.

Overall, we have built up robust portfolio road map for next 3 to 4 years, across large businesses. This will ensure we are present in segments which are growing faster and are margin accretive. NPD or new product development concept have been set up across businesses for structure review and governance of innovation initiatives. We also saw healthy progress in premiumization journey. For example, premium products now contributes 16% to overall FMEG business, which was just 7% last year. So that was probably on FY '22.

Going ahead, we have chopped out some key focus areas for next year. One is improving customer centricity through enhancing visibility and control of secondary sales by significantly improving our understanding of endpoint -- end users and influencers. Secondly, we will aim tirelessly on executing this NPD road map to drive growth market share gains, as well as premiumization. Third, again go to market, where you aim to digitalize the entire distribution ecosystem.

And lastly emphasis on governance where we will monitor progress towards clearly defined growth and profitability drivers for all building blocks. So that's about it on Leap. We will continue to share periodic updates and we are excited to see how the coming year pans out. While there could be challenges like inflation, pandemic amongst others, we are confident of our strategy, and this will enable us to grow this proportionately.

Thank you for patiently hearing us out. With that, I hand over the call to operator for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Naval Seth from Emkay Global.

[Naval Seth, analyst]

Yes. Congratulation Gandharv for a stellar performance. Few questions, first can you outline what was the value and volume mix for 4Q and FY '22 for cable and wires and FMEG?

[Gandharv Tongia, executive]

Thanks, Naval. Thanks a lot for your compliment. If I talk about cable and wire, we can proudly say that around 25% of the total growth can be attributed to volume and balance for value. And in FMEG, it will vary from product category to product category, but it would have similar trend there as well.

[Naval Seth, analyst]

Okay. Second, on your project Leap as you stated that in terms of your dealer distributor expansion of 12 odd percent and retail outlet by 24%, 25%. Now, I see that this, the major increase has come in 4Q because your corporate presentation of January suggest the same number of 4,100 and 165,000 and now it has expanded. And during the same period your market share has also improved by 200 basis point. So now as you have outlined your strategy, very clearly, can you also share what is the aspirational market share you want to reach with the kind of aggression you were outlining in project Leap?

[Gandharv Tongia, executive]

Sure, so the first one on the data points, these data points generally we revise on annual basis, so the presentation you were referring to December probably had March data point and we'll continue to revise these data points on annual visit. As far as exploration is concerned now you will know our history, Inder bhai forayed into this business almost 5 decades back, we were no one in cable industry.

We got to #1 position in cable, wire we started in 1996, we are #1. We enjoy almost 24% of market share of organized market and as we go along we want to outpace the industry and our peers and grow in disproportionate manner. As part of project Leap broadly, we are targeting INR 20,000 crore of top line over the period of 5 year. Last year in FY '21, we exited close to INR 9,000 crore of top line. In the first year project Leap, we have already crossed INR 12,000 crore. So it seems that we would be able to achieve INR 20,000 crore of top line under project Leap.

[Naval Seth, analyst]

So is it fair to assume 200 basis point kind of a number, market share improvement year-on-year at least in this project Leap period?

[Gandharv Tongia, executive]

I can't certainly talk about the past this year FY '22 we have achieved, we would have gained at least 200 basis point of additional market share. Our aspirational Leap is to enjoy our leadership position and further enhancing. And even for FMEG, the aspiration is similar that slowly and gradually we should get into top 5 market player then to top 3 and eventually in few select product categories move upward even from top 3 to further north.

[Naval Seth, analyst]

Sure. Last 2 things, one is clarification that volume value mix you stated watch for FY '22. Is that correct?

[Gandharv Tongia, executive]

Yes.

[Naval Seth, analyst]

Okay, and lastly can you provide some color on CapEx spend for FY '23?

[Gandharv Tongia, executive]

So historically we have incurred around INR 300 crore, INR 350 crore every year, exception was last year, where we incurred INR 300 crore for regular CapEx and INR 200 crore for a new office, which I alluded to in the opening remarks. As we go along, I think the number between INR 300 crore and INR 350 crore is a sustainable CapEx number.

Having said that, in year 2 of project Leap, we would explore what we need to do differently. For example, getting into additional product categories or further building on M&A initiatives. So excluding these 2 because they are still under study stage, a number of INR 300 crore to INR 350 crore is what we should factor in for FY '23 as far as CapEx is concerned.

[Operator]

The next question is from the line of Ravi Swaminathan from Spark Capital Advisors Limited.

[Ravi Swaminathan, analyst]

Congrats on a very good set of numbers. If you can give a breakup of the wires and cables business in terms of ratio of how much is cable and how much is wire, if you can give that breakup that would be great.

[Gandharv Tongia, executive]

Sure. Thanks, Ravi, for your compliment. Cable and wire broadly I would believe that we are around in early 50s as far as cable is concerned and the balance is wires. In total basis, if I give you a breakup of entire INR 12,000 crore of top line around -- around 60% would be 58%, to 60% would be B2B and around 40% give and take 1 percentage point or 2 percentage point would be B2C.

[Ravi Swaminathan, analyst]

40% to be B2C, okay. And majority of the 40% would be wires, sir?

[Gandharv Tongia, executive]

Yes. So we've, around 10% of our top line is FMEG, which is fan, light, [indiscernible] and all those products and balance is wires.

[Ravi Swaminathan, analyst]

Wire, okay. And any difference in strategy between the growth in cables and wires? I mean do we aim for higher growth in wires vis-a-vis cables or vice versa. Is there any view on that because wires, I believe can be better margins than cable, so just what are your views?

[Gandharv Tongia, executive]

Absolutely. Your understanding is absolutely correct. Wires are more profitable because B2C product whereas traditional cables are B2B where the profit margins are comparatively lesser than wires. Anyway as I was mentioning to Naval a while back, objective is to get to #1 position in all the product categories and then significantly expand our presence there, enhance our positioning. Though wire is more profitable, I do not think the strategy is that we would like to concentrate on wires.

We are looking for more holistic picture wherein we want to go for growth across all the product categories where we are present. And thereby believe that if you are in a product category, you should be the #1. If you don't want to be #1, you should not be in their product category and that's the guidance principle which we are trying to follow across all the business segments where we operate.

[Ravi Swaminathan, analyst]

Got it, sir. And the time of volume growth that you envisage over the next 1, 2 years in the wires and cable segment. What would be the target that you would be having? Any sense for that?

[Gandharv Tongia, executive]

I can give you a directional thought process, won't be able to give a number. You can safely assume that we are going to grow significantly higher than the industry growth.

[Ravi Swaminathan, analyst]

Got it, sir. And my final question is with respect to FMEG business. Can you give the revenue breakup for the INR 1,250 crores in terms of fans, lighting, pumps et cetera.

[Gandharv Tongia, executive]

Yes, absolutely. So fan would be 1/3 of our top line of FMEG. And switch and switchgear would be around 15%, light and loom would be around 15%, and then there would other small business categories.

[Operator]

The next question is from the line of Sonali Salgaonkar from Jefferies India.

[Sonali Salgaonkar, analyst]

Congratulations on a great set of numbers, sir. Sir, my first question is regarding the price hikes. Would you be able to elaborate what is the quantum of price hikes that we have seen in FY '22 and particularly in Q4. And also any price hikes that we have taken from first April onwards?

[Gandharv Tongia, executive]

Sure. Thanks, Sonali, for your compliment. If you talk about fourth quarter, the product -- raw material product basket label, we witnessed inflation in mid-single digit and more or less the price hikes we have taken is in similar range. And that is where you can see the contract -- the contribution margin of March quarter is comparable with December quarter. So we have been able to pass almost all the input cost increases to our end customer in the current quarter.

[Sonali Salgaonkar, analyst]

Cumulative FY '22 and from 1st of April.

[Gandharv Tongia, executive]

Yes. So from the next year you know the business model. The business model is we try to recalibrate our prices on a monthly res after factoring 2 data points, one is change in the commodity prices. Second is change in USD and our exchange rate. So we'll continue to do that. The intent is to maintain traditional cable and wire margins, which used to be between 11% to 13%. So we -- our intention is to maintain that range.

[Sonali Salgaonkar, analyst]

Got it, sir. Sir my second question is regarding your B2B and B2C business, you mentioned that 60% is B2B right now. Sir, what could be the number about 5 years back?

[Gandharv Tongia, executive]

My sense is that number would be around 70% or around 70% of B2B and 30% of B2C around 5 years back.

[Sonali Salgaonkar, analyst]

Got it, sir. Sir, and on the industry basis, what is the kind of channel inventories that we are looking at, are they at the optimum levels or lower? My question is, from the point of view of volatile copper prices.

[Gandharv Tongia, executive]

If I talk FY '22, I think these were at acceptable level. But since 1st of April, we have witnessed a fair amount of correction in both either as copper as well as in aluminum inventory level, sorry, copper and aluminum price levels. In such a situation what we have seen is generally dealers and distributors would like to be lose the inventory levels, so that they don't lose on the margins. If the prices around upward trajectory, that is where they build higher inventory levels. So up small amount of correction is possible in channel inventory, but I don't expect that will be very material.

[Sonali Salgaonkar, analyst]

Got it, sir. And what about FMEG inventory?

[Gandharv Tongia, executive]

I think it is at acceptable levels.

[Sonali Salgaonkar, analyst]

Okay. Normal levels. Then lastly, any guidance you would like to share for the near term in terms of either the revenue or the margins, please?

[Gandharv Tongia, executive]

Sure. As I was mentioning to Ravi as well as Naval, that as part of project Leap, we want to touch INR 20,000 crore of top line by fiscal '26 and we embarked on this program last year. In FY '21 when we did INR 9,000 crore of top line rounded off. This year we have INR 12,000 crore. So directionally, we are all set to achieve INR 20,000 crore of top line as far as our performance on top line is concerned. On the margins -- on cable and wires, we'll continue to hover between 11% to 13% and we would like to improvise as we go along, than the current label, which is opening around 12%. On FMEG, we expect to get to 12% by FY '26.

[Operator]

[Operator Instructions] The next question is from the line of Renu Baid from IIFL.

[Renu Baid, analyst]

Yes. Congratulations on good results. My top 2 questions here. First is on the FMEG portfolio, as you've mentioned, the business has been looking at multi-brand strategy positioning in the premium, mass premium and also launching the Etira for the economy segment. So as a company in the next 18 months given that there is an inflationary headwind could be risk of down trading, how should one look at where would be the incremental focus be in the near term. And are you seeing any potential headwinds in terms of demand softness because of inflationary impact on near-term softness in the real estate market to that extent? That's the first question.

[Gandharv Tongia, executive]

Sure, great question, Renu. I have Chintan also on the call with our Head Investor Relations. So I will request him to participate in the call. So Chintan will take this one.

[Chintan Jajal;Head of Investor Relations, executive]

So I think our strategy in FMEG is really to cover all the price points. So what we aim to do with straddle across all the price pyramid across price spectrums. So if you remember in our portfolio is largely focused more on the mid premium space. And eventually over the last few years. What we've tried to do is increase the share of premium products. So say for example in various categories. If I pick up fans, for example, the share of premium fans is increasing, even in lights, the share of say, premium panel, et cetera, is increasing. Overall in consumer business, I think the premiumization percentage has improved.

Now what we are trying to do is, we are even trying to get into the economy price points or maybe sub-economy price points. So we are working on our entire brand architecture just to be ensure that there is minimal cannibalization and we spread our brand presence through effective brand communication.

So we recently launched a new sub-brand, Etira, which will play at these lower price points. Currently, we've launched it in wires. We also aim to extend it throughout our portfolio. And I think this will really help us develop our presence and resonate better with consumer needs and wants. And especially when we are trying to get into say alternate channel as well as geographies like semi-urban, rural, I think here you need the right product portfolio to really drive that penetration and that's where you know these -- this brand as well as our, all of our portfolio initiatives will help.

[Renu Baid, analyst]

Sure. My second question is on the cables part of the business where the company has been consciously trying to work on some of the specialized cables and applications to improve the portfolio. So if you can share some updates on this side. And on the average INR 300 crores to INR 350 crores CapEx, which you've mentioned, how should we look at the incremental spending across various subsegments and categories [indiscernible].

[Gandharv Tongia, executive]

Sure, Renu. So on the first one, we are probably the only company in the entire country are probably in the continent, which can supply all types of cables and wires. We have only one space, where we don't have adequate presence, which is EHV and we are trying internally to figure that out how we can offer products there. In this year, we have been able to get 2 new spaces, for example defense, automobile, railways. And all of these product categories are niche with good margins and require a fair amount of product innovation.

On the CapEx out of around INR 300 crore to INR 350 crore, broadly 2/3 will go to cable and wire, and 1/3 for FMEG. Within that 2/3, most of it will go for setting up new facilities to meet the export requirements as well as for the product categories, where the utilization is fairly high. A part of it will go forward by demand and balance for backward integration. On FMEG, we will invest in product categories where we don't have enough manufacturing for example, switches, and we set up facilities where the utilizations are fairly high.

[Operator]

The next question is from the line of Rahul Agarwal from InCred Capital.

[Rahul Agarwal, analyst]

Congratulations on the performance given the challenges. Just 3 quick questions, Gandharv. One is on the cash usage. I think I'm sure that the senior leadership was looking at that number and the cash flows are increasing year-on-year. We already have INR 1,100 crores, I'm thinking you will have another INR 8 billion to INR 10 billion next year as well given what growth we're talking about. You alluded that you will spend, you look at new categories to get into or some kind of M&A, could you throw some more color on this. That's the first question.

Secondly, on the -- anything on the FMEG EBIT margins is still tracking pretty low for the year as well as for the quarter. Anything you would like to state for fiscal '23.

And third is on the significant reduction. I can see, on inventory debtors and creditors across though the net working capital is the same Y-o-Y, what is really happening here. I'm sure BCG is working very hard here and this was a very high priority area for us. [indiscernible] there as well.

[Gandharv Tongia, executive]

On M&A when we embarked on this project Leap, we felt that we have to do several things. But what we decided is, we'll split the entire project into 24 works team and then we picked up few work teams at year 1 priority, then few work teams for the year 2 priority and so on.

M&A and evaluation of adjusted product category, we decided they will take those up in the second year and as we embark on the second year of project, I expect by September quarter, we should be able to give you additional color what we should be doing. But you are absolutely right that business that is generating a fair amount of cash and it's better to use that cash to meet the growth ambition for the company. And by that means improve the shareholder system.

On FMEG margins, this quarter of course, there was some pressure of inflation by the same time we got into this realignment, because you know what got us to INR 1,000 crore will not necessarily will take us to just to say a number, say, INR 5,000 crore. We have to change the strategy and this is what we did. We ensure that we have right leaders in place. We have hired for example French leaders from another peer company. We have hired another veteran from Panasonic who is super innovative as MD of Panasonic to lead our FMEG or B2C business.

So we have done fair amount of investment, both on the process and enabler side as well as on the capability side and which is getting reflected in this year's margin. But as I mentioned a while back, we are confident on 12% EBIT margin in FMEG business by fiscal '26. And this year we should be able to further improve on the existing margin levels.

Third is the working capital, your observation is absolutely correct. It is a focus area and will remain a focus area only -- if you split the working capital into 2 broad categories, one is receivables and second is inventories. On the receivables, we have been able to further improve our channel financing penetration. Cable and wire give and take 2 percentage point, we will be around 70% of channel financing. And FMEG, we have almost 50%, which is helping us in reducing our receivable number of days and these facilities are without any recourse.

On the inventories, we have been able to optimize. Now the game is to balance the availability. So that you are able to meet the requirement of the customer and optimize the inventory. We will continue to work on this and that is where of course BCG is helping. But the leaders, we have hired recently, they are also spearheading these initiatives. For example, we hired someone as Head of Logistic almost 8 months back, Vipul Aggarwal, from another peer company and he's doing fantastic job on optimizing the inventory levels and improving the overall delivery time to the end customer.

[Rahul Agarwal, analyst]

So this is the base right then that continues going forward right?

[Gandharv Tongia, executive]

On general financing...

[Rahul Agarwal, analyst]

On net working capital, yes.

[Gandharv Tongia, executive]

Sorry, I missed that. May I request you to please just repeat.

[Rahul Agarwal, analyst]

On net working capital, is this base going forward? I mean you'll just improve from here, right?

[Gandharv Tongia, executive]

Yes, yes, absolutely. Absolutely.

[Rahul Agarwal, analyst]

Okay. And just lastly, you answered the question partly saying fiscal '23 CapEx where do you want to spend, could you help me understand where did you spend the [indiscernible] just broad areas where do you spend?

[Gandharv Tongia, executive]

Sure. Let's split this in 2 parts. Around 2/3 will go for our regular cable and wire. And 1/3 for FMEG. On 2/3 part of it, most of it will go for building capabilities and capacities for exports market. And for the product categories, where our utilization are fairly high and we need to put in additional facilities as to 1 portion of that 2/3. The second one is on backward integration, and third is maintenance CapEx.

On the remaining 1/3 in FMEG, most of it will go for additional capacities, which we need to build. For example, for switches we don't have in-house factory, so we will set up that. There are few product categories where our utilization is fairly high. We'll have to have planning capacities there, and a part of it will also go for prevented CapEx.

[Operator]

The next question is from the line of Atul Tiwari from Citi.

[Atul Tiwari, analyst]

Yes. Congrats on a very good set of number. Sir, I have just one question, how much would be the broad price hike taken over say, past 12 months across cable wire, cable and wires and FMEG. And as a result of this price hike, are you seeing any sign of either demand slowdown or downgrading in any part of the portfolio?

[Gandharv Tongia, executive]

On cable and wire, in the fourth quarter, we would have taken a price hike of mid-single-digit and the inflation was also in the similar range. Progressively, we have been able to improve our EBITDA margin. If you remember, in the first half, we faced a bit of challenge on maintaining contribution as well EBITDA margin, but after things have improved. Third quarter was completely better than the first half and the fourth quarter was better than the third quarter.

On FMEG also, it's mixed. There was a bit of pressure on contribution margin in the first half of the year. But after that we had been able to take price hikes there as well.

[Atul Tiwari, analyst]

Any sign of demand slowdown or down trending by customer in any of the portfolio as of now?

[Gandharv Tongia, executive]

No, no, there is some bit of inflationary challenges in the private categories, but it is not broad based. In fact, if you're available, if your product is bidding their specifications and requirements for the customer, practically there's no challenge on demand.

[Operator]

The next question is from the line of Achal Lohade from JM Financial.

[Achal Lohade, analyst]

My first question was, you -- in one of the answers you mentioned that 25% is the price increase and about balance is the volume increase in both FMEG as well as cables and wires business, have I understood it right?

[Gandharv Tongia, executive]

Partly right. It's other way around.

[Achal Lohade, analyst]

So you're saying 25% is the volume growth and 15% is the price increase in both the segments?

[Gandharv Tongia, executive]

Out of the total increase, 25% is because of volume and the balance 75% is because of value.

[Achal Lohade, analyst]

Okay, okay. #2 is, is it possible, like you mentioned in terms of volume for FY '22 and I presume FY '21 was kind of a low base. If we were to look at in terms of volume CAGR for last 5 years, would it be possible to put a number, would that be mid-single digit, high single digit, mid-teens, any number -- ballpark number?

[Gandharv Tongia, executive]

It would be slightly incorrect for me to give that number to you. I don't have that handy, but I can give you a color on that. My sense is. our number would be significantly better than the industry number. Whatever cut last 3 years, last 5 years.

[Achal Lohade, analyst]

Yes, yes. That part. I completely agree. What I just wanted to check is the aggregate growth, volume growth. And the second question I had in mind is in terms of the pricing for cables and wires specifically in terms of pricing, our product, is it the margin percentage margin or it is rupees per unit may be per meter per kg anything if you can give some color.

[Gandharv Tongia, executive]

It's percentage margin.

[Achal Lohade, analyst]

It's a percentage margin. Okay. So, which brings me to the next question. You know if copper prices and aluminum prices were to normalize to earlier averages, how would that impact in terms of aid the volume and the margin. This is a hypothetical question, but just color your perspective on the same would help.

[Gandharv Tongia, executive]

So as I mentioned it's a percentage margin, so irrespective of the fact whether top line goes up or down because of increase or decrease in input cost, we would be able to maintain the margin. Historically in cable and wire we afforded between 11% to 13% and we should be able to maintain that.

[Operator]

The next question is from the line of Chetan Gindodia from AlfAccurate.

[Chetan Gindodia, analyst]

Congratulations for a great set of numbers. Just 2 questions. Firstly, you said that the volume growth is 25% of the growth of this year, so 40% was the revenue growth. So wires and cable, so kind of implies 10% volume growth. This seems kind of underwhelming considering in or the major building material players, players are seeing kind of 20% volume growth for this year given the real estate buoyancy. So just wanted to understand why has been the volume growth low? And any reason for this -- do you expect this to improve going from here?

[Gandharv Tongia, executive]

So the volume growth cannot be directly linked with the real estate. Our products are introduced at the different phases of the construction and that is where it's not apples-to-apples comparison. As far as future is concerned, as I mentioned, a while back to one of the participants that we are inching towards INR 20,000 crores of top line by FY '26 and we will continue to outpace the industry growth.

[Chetan Gindodia, analyst]

Okay, okay. And just lastly, wanted to understand on the payable days. So we, so whatever gains we have achieved from reduction in inventory days and receivable days, we have kind of given that away by decline in payable days. So, what has really led to the decline in payable days? Because of this, our ROC is not improving, so just wanted to understand what has led to the movement in payable days.

[Gandharv Tongia, executive]

Yes, I think that's a great observation, we import copper. Copper is the biggest or most significant raw material if we talk about our cable and wire business and we import copper from overseas market. In the last year in the fiscal '22, during the course of the year, we realize that because of logistic challenges, we should have alternate options available in the form of domestic supply. And in the domestic market, generally speaking, it is on cash and carry business. So you get supplied by making advanced payments as against in the import arena, where you get LCs which could range between 90 days to 180 days.

And which is what we have done in the current year, which has impacted the past payable pace. Having said that, I don't think that that will continue in future in the similar proportion. Of course, we would continue to have some supplies from domestic market, but in the form of cash versus SD, we should be able to get as the option from both the suppliers, domestic as well as an import and we should be able to go back to our regular table base once we get to that arrangement port with the international suppliers as well as domestic suppliers.

[Operator]

The next question is from the line of Nitin Arora from Axis Mutual Fund.

[Nitin Arora, analyst]

My first question is on the FMEG, when we look at the last 5 to 6 quarters pretty much stuck in the top line of INR 340 crores to INR 350 crores on an average. When I look at your annualized number being industry saw last year, a huge pent-up, our growth is just about 21% and I'm assuming there must not be any collapse, let's say, a very less volume growth in that, to be honest. So you started saying that volume growth is in the double-digit even in FMEG. So that's not adding up given what other consumer companies are saying minimum category price hike is in the range of 15% to 16% on an annualized basis.

So what's going really wrong there in FMEG, other products, what we have launched, are not able to scale up. If you can throw some light on that, because I'm not comparing you with the other player, you're so small in the industry because you're growth should look be higher and that's also not happening even if you look at the Q4 numbers, so that's my first question, if you could throw some light on that.

[Gandharv Tongia, executive]

Yes, you're absolutely right. Your observation is correct. Our business underwent realignment exercise to improve salesforce efficacy as well as to achieve distribution synergy that has hampered temporarily our growth. We also identified the need to change the overall operation model because what got us to INR 1,000 crore will not necessarily take us to, say, just throwing a number, to INR 5,000 crores. And we also had fair amount of change at the leadership level in our B2C business, but at the same time, I must acknowledge this is momentary from the next quarter numbers and little in the current year, we should be able to bounce back.

If I were to give additional color for example because of switches, we had some supply-side issues because of which we -- though we have taken the correct direction in the form of setting up a new facility, it has impacted our top line and bottom line performance for the year gone right. So it's a mix of everyone.

We have our action plan in place. A part of it has already been implemented in the form of new leadership, in the form of product innovation. To give example, we launched BLDC fan, which can be operated with the help of remote. Chintan a while back talked about Etira brand, which has been launched. So the corrective actions are being taken. We should be able to bounce back. And as I mentioned a while back, we are confident to achieve INR 20,000 crore of top line, including for FMEG and retail and a 12% EBITDA margin basis by fiscal '23.

[Nitin Arora, analyst]

And secondly just on cable and wire though you talked about in the starting I think everyone got confused that there is a 25% volume growth, but I think you clarified saying that's a 10% volume growth, 25% of the overall revenue is the volume growth. So the 10% volume growth, can you attribute some segments where it has come from because despite so much of commentary is being spoken about there is a phenomenal growth across industry capacity utilization or private industries are so high. The volume growth is still about 10%. So it will be helpful to understand where actually the growth is coming from and how you are looking this volume growth at least 10% growth even for FY '23 is that the base number you're working with on the volume side, that's my last question.

[Gandharv Tongia, executive]

So here to give you an answer on this 10% growth or 25% total increase in top line. It is broad-based product by product. If I were to give you a flavor of cable and wire, it would range between 35% to 40%, 45% across all geographies. For example, in the case of wire, we witnessed a growth of almost 60% for the market and in the case of flexible or light-duty cables, we registered a growth of almost 60% in another market. But to give a broad big picture across product category and region, as well as future is concerned, I would probably take you back to our ambition of INR 20,000 crores of top line by fiscal '26 and we are committed to maintain the momentum and improve further as we go along.

[Operator]

Your next question is from the line of Aniruddha Joshi from ICICI Securities.

[Aniruddha Joshi, analyst]

So on the Etira brand. Basically, if we see most of the durable companies, they operate with one brand only considering limited surplus for brand-building activities. And all the variants, be it economy, mid-price or even the premium are introduced with that same brand itself. So why we have gone ahead with the, basically a new brand Etira itself at the low end of the market. So, and also will Polycab and Etira brands will both operate in the same market. Then there is a risk of cannibalization or will they operate in completely different geographies. So what is the plan on Etira brand. Yes, that is the question.

[Gandharv Tongia, executive]

[Technical Difficulty] to conduct the brand study for us. We are also working on Ogilvy on our marketing side of the agencies for marketing and when we were going through the product portfolio optimization exercise, we realized that in few of the product segments, we don't have products available at the right price point or at all the price points. That is available for Etira. Etira is slightly different product with slightly different product specification to meet the requirements of the customers who are cost conscious without compromising of course on quality and with a focus on different geographies.

So Etira would probably cater the requirements of emerging India where all government led suppliers, which are required to be met by the dealers and distributors, where not necessarily they want to spend more money. And at the same time, they don't have higher expectation in terms of quality. So for example, on the green wires, we have better specification, but it's slightly more costlier, which is can be said that like a premium variety of the regular retail wires, whereas Etira is on the economy range or just at economy range product.

[Operator]

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Gandharv Tongia, for closing comments.

[Gandharv Tongia, executive]

Okay, thank you everyone for taking out time and attending this call. We would be happy to attend your questions. You can always reach out to me or Chintan or you can write to us at [e-mail]. Thank you for your confidence in us. Take care. Bye-bye.

[Operator]

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