Polycab India Ltd

NSE:POLYCAB

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Polycab India Limited Q4 FY 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gandharv Tongia, Chief Financial Officer of Polycab India Limited. 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, Execute Director and CFO at Polycab India Limited. On this call, we shall discuss the Q4 and full year FY '23 results, which were approved in the Board meeting held on Friday last week. 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. Joining me today from the management team, we have our Chairman and Managing Director, Mr. Inder T. Jaisinghani; and Mr. Chirayu Upadhyaya, Head, Investor Relations on the conference call.

Let me now turn the call over to Inder bhai for his comments.

[Inder Jaisinghani, executive]

Good afternoon, everyone. We concluded the financial year 2022 at a promising note, with several key achievements that have helped solidify our strong market position. The more notable of these achievements is our all-time high revenue and profitability, which is a testament to the hard-working and dedication of our employees and management team. Throughout the year, we have demonstrated consistently in our business by paying more attention to our i-Power values, by providing, integrity, customer satisfaction and innovation we have been able to differentiate ourselves and build a large customer base. The combination of our solid market position and potential growth opportunities bodes well for our future success.

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

[Gandharv Tongia, executive]

Thank you, Inder bhai. Before I take you through the quarterly and yearly performance, let me give you a flavor of the macro environment. Despite a volatile global environment, India's economy remains resilient with several high-frequency indicators showing sustained positive momentum. Key indicators such as manufacturing PMI, services PMI and core 8 industries consistently remained above long-term averages, while growth momentum was visible in steel and cement output, GST collections, e-way bill generation, capacity utilization and rising demand for electricity and travel; also, double-digit credit growth improvement in passenger vehicle sales and downward trajectory of inflation indicate positive momentum for the economy.

On rural front, sequential improvement in 2-wheeler sales along with robust rabi sowing exhibits positive signs. Specific to our sector, the government's continued focus on infrastructure through increase in budgetary allocation to an all-time high of INR 10 trillion at 3.3% of GDP augurs well for the cable industry. The residential sector being in its upcycle, with residential sales hitting 9-year high in calendar year 2022 and new project launches exceeding sales for the first time since 2013, exhibits extremely potent signs for the wires and FMEG industry. On the whole, we remain optimistic on the country's future growth as well as prospects for our areas of operations.

Moving on to the presentation, please refer to Slide #4. For the quarter ended March 31, 2023, our consolidated revenue grew by 9% year-on-year on the back of a strong growth in the international business. EBITDA grew by 27% year-on-year, with EBITDA margin at 14.0%, a growth of 200 bps year-on-year. The company registered its highest ever quarterly PAT at INR 4,284 million, a growth of 32% year-on-year and 19% quarter-on-quarter. PAT margin stood at 9.9%, an improvement of 170 bps over that of the same quarter last year. The year was a remarkable one for the company as we surpassed the revenue threshold of INR 140 billion for the first time ever, growing by 16% year-on-year. Achieving this growth in spite of a high base and lower commodity price, environment is an exemplification of the kind of demand that exists in the market and the execution capability of the Polycab team to capitalize on this opportunity.

What is very important to note here is that the growth hasn't come compromising on the margins. Our EBITDA has, in fact, grown at a much higher pace than revenue growth at 46% year-on-year with EBITDA margin at 13.1% an improvement of 270 bps year-on-year. On the back of this, we have registered our highest-ever quarterly PAT at INR 12,823 million, a growth of 52% year-on-year. Given that the commodity prices were on a downward trajectory this year, partly offset by the depreciation in INR versus U.S. dollar, a strong growth this year is completely on account of robust volume growth in the cable business. Our net cash position stood at -- strong at INR 18.9 billion against INR 11 billion, same last year. A detailed breakup of the other income and finance costs have been provided on Slide 31 of our earnings presentation.

Moving on to Slide 5. Herein, we have presented the key highlights for the year. I already talked about the improvement in EBITDA margins in spite of the volatile commodity price environment. During the year, we also continued to work on optimization working capital days. One of our key areas of focus since listing successfully reducing it further to 50 days, a reduction of 11 days from last year. The reduction was achieved on account of improvement in channel financing penetration in the business. For the Wires and Cable business, the channel finance penetration stood at 83% during the year, up from 75% last year. On trend of improvement in channel finance penetration since listing in the Wire and Cable business is presented on Slide 11 for your reference.

You may also compare our journey of improvement in working capital days over the past 3 years through Slide 31 of the earnings presentation. A natural outcome of improvement in work capital days is an improvement in cash flow, leading to higher cash available for the business. As I mentioned earlier, the net cash on balance sheet increased by 72% this year over the last year. An important use of the cash available to the company other than for CapEx is to reward our shareholders through dividend payments. In line with the growth and as has been our trend since listing, we increased our dividend payout for the year to 23.5%, paying dividend of INR 20 per share, a 43% increase over INR 14 per share paid last year. The last but a very important highlight for the year is the strong growth achieved in international business, which registered a growth of 50% during the year to stand at INR 13.8 billion, contributing to 9.8% of the company's total revenues versus 7.6% last year. One of our goals within Project LEAP was to achieve a top line contribution of 10% from the international business.

During the year, we expanded our global footprint through 70 countries. On Slide 12, we have presented the performance of our international business since listing, along with how we are continuously expanding our reach globally across more and more countries. With tremendous increase in spends globally in sectors such as renewables, oil and gas and infrastructure, the company is confident of growing the international business further, strengthening our foothold in various international markets.

Moving on to Slide 6. As is visible in the first chart, the Wires and Cable business accounted for 89% of our sales during the year, with FMEG contributing 9% and others segment, which primarily comprises of the EPC business, accounting for the remaining 2%. We will now go deeper into each of these business segment performance during the year. Please refer to Slide #10. During the fourth quarter, the Wires and Cable business grew by 12% year-on-year on account of strong traction in international business to register its best quarterly sales ever. EBIT margin too came in strong at 14.6%, an improvement of 300 bps year-on-year. For the year, the business registered a revenue growth of 17% year-on-year on the back of strong volume growth, both domestically as well as internationally. The domestic distribution business grew by 20% year-on-year, with volumes growing by an impressive 21% year-on-year. The outperformance was primarily on account of benefits realized through the merger of HDC and LDC verticals last year. Within domestic distribution business, cables grew faster than wires. We have given a zone wise split of our distribution channel on Slide 11 of our -- for your reference.

Special purpose cable business also gained momentum with sales growing 1.7x over last year, mainly driven by the railways and defense segment. Profitability within the segment was robust with the EBIT margin at 13.1%, an improvement of 340 bps over last year. Overall, the demand environment for the Wires and Cable business continues to remain strong, supported by government measures and revival in private CapEx. The company will leverage its strong market position, largest distribution network, product innovation, ample available capacity created by investments ahead of the curve and digitalization to capitalize on the market opportunity.

Performance update on FMEG business is given on Slide 14. The FMEG business had a soft year on account of the realignment of distribution channel exercise undertaken during the year. As part of Project LEAP, to enable improved pace of future business growth as well as weak consumer demand due to continued high inflation. Revenues were flat year-on-year for FY '23 and de-grew by 20% year-on-year in Q4 FY '23. Segmental EBIT turned negative during the year, largely on account of higher A&P spend, stock cost and input cost pressures. If you look at individual categories, fan business was impacted in Q4 due to heavy channel inventory stocking done ahead of the transition to the new BEE norms in Q3. However, the channel inventory of non-BEE-compliant stock has now been largely sold with the new BEE compliant inventory primarily being sold today in the market. Post the transition, the company introduced almost 40 new BEE compliant SKUs during the quarter, with 60% of them in the premium and super premium categories, in line with the company's premiumization strategy.

Our new fan manufacturing plant in Halol is now operational, adding an annual capacity to produce 6 million fan units. The company will manufacture the TW that is table, pedestal and wall frames in-house in Halol plant, in addition to manufacturing the ceiling fans. The switches business witnessed a healthy growth in Q4 growing 1.5x year-on-year and 1.9x quarter-on-quarter as we reap the benefit of our in-house manufacturing plant that became operational mid last year. With the distribution realignment completed, we are confident of improving top line and bottom line from fiscal '24 and we are committed to achieve 10% to 12% annualized EBITDA margin in this business by fiscal '26.

In our numerous interactions with investors, analysts, we have been asked about the drivers of growth for the FMEG business to achieve our Project LEAP goals. On Slide 15, we have given the details of the key elements that will form the growth engine for our FMEG business going ahead. Our top line growth will be on the back of distribution expansion, product innovation, structured influencer management program and investment in brand building, while the drivers for our bottom line growth will be premiumization strategy, higher focus on product categories with better margins, strong backward integration and economies of scale.

Let's dwell deeper into each one of them. As I touched upon our previous slide for distribution expansion, we are already done with the rejig of our distribution channel, wherein we have moved on to a super distributor model of operation, whereby a super distributor supported by 8 to 10 sub-distributors will cater to demand from a cluster of towns. Through our acquisition of Silvan last year, we have improved on our R&D efforts for the FMEG segment, stoking innovation as well as product development and launches across price points to cater to customers from all segments. Going ahead, basis the positive outcome achieved through our structured influencer management program, which we piloted in select cities, will be expanded to more cities as well as across dimensions of influencers to improve brand awareness as well as increased sales.

Lastly, the company will increase its investment in brand building through higher spend for its ATL and BTL marketing activities in line with its larger FMEG peers. The company has tied up with Ogilvy for its A&P activities and inter-brand and has already scaled up its efforts in this direction through a sponsorship of the 3 major international cricket council events of calendar year 2023, namely the ICC's Women's T20 World Cup, the ICC World Test Championship Final in the U.K. and the ICC Men's Cricket World Cup 2023 scheduled in India later this year. In FY '23, the company's A&P spend, which are largely for the FMEG segment and wires, increased by 51% year-on-year to INR 1,244 million. This trend will continue in years to come as well.

On the profitability side, we will focus on improving margins through premiumization of our offerings, leveraging on the brand building and product innovation efforts. Also going ahead, we will have a greater focus on the product categories of switch gears and switches when the competition is lower and hence, margins are higher. In-house manufacturing and strong backward integration have always been our area of focus. And the same will start deriving benefits for us through lower cost and economies of scale, in addition to better product quality and availability. So through our focus on all these strategic areas, we are confident of being able to scale up our FMEG business from FY '24 onwards to improve its contribution share to overall revenue as well as improve its profitability to achieve our FY '26 LEAP goal.

Moving on to Slide 17, this gives performance details about our other business segments, which is largely comprised of our strategic EPC business, this segment witnessed a revenue growth of 22% year-on-year in FY '23 to stand at INR 3,584 million with EBIT margins at 12.1%. We expect the annual sustainable operating margin in this business to be in high single digit over mid to long term. Overall, the financial position of the company continues to remain healthy with debt-to-equity ratio at amusingly 0.02x and the business generating good cash flows. Key financials are available on Slide 28 to 31 of the earnings presentation.

So that was the financial update for the quarter. Now let us talk about our key transformational project called Project LEAP, which completed 2 years this month. As you all are aware, we embarked on this project post FY '21, partnering with BCG to work on a range of strategic themes and initiatives focused on growth, profitability and long-term capability building for the organization across B2B and B2C businesses, with a goal of achieving INR 200 billion of top line by FY '26. Under the project, we have been working on various streams clubbed into 4 key strategic themes, namely customer centricity, go-to-market excellence, winning with new products and setup of organizational enablers. We have made tremendous progress in each of these key areas over the past 2 years. I will take you through each of these topics one by one.

Under customer centricity, we have been redesigning our business operations, keeping the customers' needs and convenience at the center. Keeping the same in mind, we had undertaken the merger of our HDC and LDC verticals last year, realizing the customer as well as distribution overlap between the 2 segments. Our robust performance during the year in the cable business was an outcome of this strategic maneuver. On similar lines, during the year, we undertook the merger of fans vertical with lights vertical and retail wires vertical with switches and switch gear vertical. We are confident of starting to realize the benefit of this merger through increased cross-sales and operational efficiencies from fiscal '24 onwards.

Further, being a largely distribution-driven business, we did not have a complete handle on our end customers. So we started deploying our own fleet on street team to get to know our end customers, understand their needs and thereby generate higher business from them. Through these efforts, direct quotes from Polycab have increased from 16% in fiscal '22 to 34% in Q4 FY '23, indicating a strong shift towards control over pricing, market dynamics and direct dealing with customers. We have also initiated an integrated structured approach for a strategic key account across real estate, OEMs and data centers and the special cable industries making it easy to serve customers with custom or tailored solution. Under the agenda of improving our go-to-market strategy, we have been focusing on enhancing our distribution reach in B2C business and increasing presence in white spaces for B2B business. We expanded our reach to 146 underpenetrated cities for B2B business as well as onboarded 317 and 371 new distributors, respectively, for our retail wire and FMEG businesses.

We have also identified distributors with the opportunity to cross-sell as well as are working on activating distributors with low growth rate or degrowth by actively working with them. We are also strengthening our presence in alternate channels of sales such as modern trade and e-commerce to increase penetration in Tier 2 and Tier 1 cities. As part of winning with new products strategy, we have revamped our entire fans portfolio with premiumization at core, we are focusing on more design and aesthetic-oriented product portfolio with fans up to 5 star ratings. We have also changed our strategy for the switchgear segment with focus on gaining market share. Following the same, we took price revision for 10KA portfolio to ensure parity with competition as well launched new 6KA MCB products. Following success of Etira wires, we have launched the Etira brand in the switches segment as well to capture the price-sensitive customer base. Overall, we have a robust product pipeline across segments supporting our future prospects.

On the setup of organizational enablers, we are pursuing structural distribution addition planning and monitoring with focus on technology to exemplify as well as simplify the entire process. We are also leveraging technology to manage the key cost drivers in the FMEG business to drive up its profitability. As I had communicated in our quarter 2 earnings call this year, we have set up a digital vertical focused on advancing our business initiative. Our digital council setup under the vertical is looking after the implementation of all the initiatives on the vertical through a detailed B2C and B2B digital road map. Also, towards the end of the year, we also upgraded our ERP technology to the latest version of Oracle. This will also -- this will allow us to utilize the relevant business insights in real time and deliver more accurate business decisions. On Slide 20, we have presented the key themes and priorities for the company under Project LEAP for fiscal '24. We will be regularly updating our stakeholders of our progress on the same.

Now coming to a topic that is extremely important for us and which will form the bedrock of our business operations in the future, which is our ESG strategy. Polycab has finalized its ESG framework aligned with international ESG protocols, guidelines and standards along with the ESG charter. The ESG framework will be ingrained into the company's ethos with all business decisions taken now onwards focused on sustainability on the pillars of environment, social and governance principles. On Slides 23 and 24 of the earnings presentation, we have presented our ESG strategy and approach. The ESG material topics have been identified, keeping in mind our business as well as its effect on the environment and the society as a whole. The ESG council, consisting of various functional heads will be responsible for implementing the policies formulated under the framework with the help of ESG Working Groups.

The Board, along with the CSR and ESG committee, will be responsible to monitor the implementation of the framework. We have taken various internal goals across different ESG material topics, and we will be communicating the progress we make on each of those goals in our annual report. We will also be looking to get an ESG rating from a well-known rating agency during the current fiscal. While the company has always been aware and focused on carrying out its business in a sustainable manner, we believe the implementation of a structured ESG framework will enable us to build resilience in the business, transform culture and create long-term value for all our stakeholders.

To conclude, I would like all of to have a look at Slide #7, wherein we have given details of our performance on certain key parameters since listing. Company's revenue have grown at a CAGR of 15% over the 4 years, growing from INR 80 billion in fiscal '19 to crossing $140 billion this year. The remarkable growth has been achieved in a profitable manner with EBITDA margin improving by 120 bps from 11.9% to 13.1%. From our previously INR 450 million net cash in hand in FY '19 and negative cash prior to debt, we have improved our cash flows, optimizing our working capital and reducing debt to have INR 18.9 billion of net cash on balance sheet as at the end of the fiscal '23. From being largely a domestic player, the company has evolved into an international player, being one of the top 15 Wires and Cable companies in the world, aiming to be among the top 5 in the near future.

Our international business has grown 6x in the 4 years since the listing to now contributing to 10% of the company's overall revenues. Domestically too, we have seen healthy growth in our market share from 18% in fiscal '19 to 22% to 24% in fiscal '23. And while we have progress, we have also generated value for our shareholders with Polycab being one of the leading wealth creators in the country with market capitalization growing at a CAGR of 57% since listing and dividends growing at a CAGR of 63%. While we have made considerable progress in the past, we strongly believe in our future growth is going to be exceptional. The domestic as well as international business environment is conducive and the company is completely ready to capitalize on the macro opportunity to become one of the best success stories of the country.

That was the update for the quarter and the year. Thank you, and we are now open for questions.

[Operator]

[Operator Instructions] Our first question is from the line of Sonali Salgaonkar from Jefferies.

[Sonali Salgaonkar, analyst]

Team, congratulations on a great set of numbers and a wonderful and detailed presentation. A few follow-up questions from my side. Firstly, your operating margins for Q4 are very strong, growing both year-on-year and Q-o-Q. Could you highlight which are the major factors driving such a strong operating margin?

[Gandharv Tongia, executive]

Thanks, Sonali. Thank you so much for your kind words. I have Chirayu also in the room. I'm going to request him to provide his inputs to your questions. Over to you, Chirayu.

[Chirayu Upadhyaya, executive]

Sonali, so operating margins have definitely been on the higher side of our guided range. And there has been -- this has been through better contribution of our exports business as well as better margins made through some good orders received on our cables business as well. So combined for the 2, we have been able to generate better margins towards the higher range of our guidance. But if you look at the overall on a yearly level, our EBITDA margins from the Cables and Wires business were at 13.1%, again within our guided range, and we expect that in the future as well, one should continue to look at the margins to be in the guided range as well.

[Sonali Salgaonkar, analyst]

Understand. And if I may ask what kind of operating margins does our international business register because if it has grown at 50% year-on-year, and we are getting such good margins and would really matter what is the operating margin we are working at?

[Chirayu Upadhyaya, executive]

So Sonali, it generally depends on product to product, on certain categories, the margins are similar to what we make at a domestic level, while for ceratin product categories, they are at 300 to 400 bps higher. So depending on what the product mix is in that particular quarter, your margins from the international business will be.

[Sonali Salgaonkar, analyst]

Got it. My second question is regarding price hikes. So have we taken price hikes across any of the products in Q4, either cables and wires or fans? Fans, I mean new BEE models? And what would be the quantum of that?

[Chirayu Upadhyaya, executive]

So we have taken price hikes is in line with how the commodity prices have moved in the Cables and Wires business. This would be in the mid-single-digits level. And again, on the fans business, when we've introduced the new BEE-compliant products, again, the price hikes have been from low single digits to high single digits depending on which product category we're in averaging at mid-single digits for the entire portfolio.

[Sonali Salgaonkar, analyst]

Understand. Any guidance for CapEx for FY '24?

[Chirayu Upadhyaya, executive]

So like we had guided in our quarter 3 earnings call. We will be having CapEx of about INR 600 crores to INR 700 crores for this calendar year.

[Sonali Salgaonkar, analyst]

Understand. And last question from my side. Private CapEx remains a strong lever for your cables and wires business, could you help quantify what is the industry capacity utilization right now? I do remember you had called out for about 73%, 74% last quarter. Does it remain in similar range?

[Chirayu Upadhyaya, executive]

We don't have an updated data point on that as of right now. So we'll have to look at how the various companies gave out with the results and maybe we'll be able to comment on that post that.

[Operator]

Our question is from the line of Mr. Atul Tiwari from Citi.

[Atul Tiwari, analyst]

Yes, sir. And first of all, congratulations on a very strong performance yet again. Sir, my question is on next year. So any like more definitive guidance for revenue growth in cables and FMEG for FY '24?

[Chirayu Upadhyaya, executive]

Thanks, Atul, for the kind words. As you are aware, we normally do not give guidance on a yearly basis. We have given a guidance of about INR 200 billion of top line that we want to achieve by FY '26 through our Project LEAP so we are continuing to work in that direction. But to -- depending on how the macro environment is panning out and how we are looking at our business, we expect this double digit growths of revenues next year as well.

[Atul Tiwari, analyst]

Okay. And for FY '23 out of, say, INR 128-odd billion of revenue in wires and cables. So any qualitative comment on how much of it is cables and how much it is wires?

[Chirayu Upadhyaya, executive]

So roughly, it is in the same range as last year would be somewhere around the 70-30 range.

[Atul Tiwari, analyst]

70% is cable, you mean to say?

[Chirayu Upadhyaya, executive]

Yes.

[Atul Tiwari, analyst]

Right. And say, within cables how much will be like direct institutional sales that you guys are doing and how much will be through dealer and distributor network?

[Chirayu Upadhyaya, executive]

So largely, we operate out through our dealers and distributors network, so broadly about 88% to 90% of our sales normally happens through dealers and distributors network.

[Atul Tiwari, analyst]

Okay. So 80% to 90% of 70%, anyway the remaining 30% is -- wires is through the dealers channel itself, right?

[Chirayu Upadhyaya, executive]

Right, right.

[Operator]

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

[Achal Lohade, analyst]

Yes. Congratulations for a great performance. What I wanted to understand was in terms of the margin difference between cables and wires, is it possible to give some clarity would the margins be similar or it would be different for cables and wires?

[Chirayu Upadhyaya, executive]

Thanks, Achal, thank you for the kind words. In terms of margins at an EBITDA level, cable and wires would have a differential of about 400 bps. So cables would operate at about 10% to 11% of margin range, whereas wires should be at about 14%, 15% of EBITDA margin range.

[Achal Lohade, analyst]

Okay. And in terms of the margin improvement you called out that it is the international business which has driven this margin improvement. Is there any mix also which has driven this margin improvement for the fourth quarter?

[Chirayu Upadhyaya, executive]

Other than the international business like I said, in the cables business domestically as well, we were able to get some orders which has better margins, so that is how it has contributed at an overall level. The product mix has broadly been seen, but otherwise, the cables have -- like we have mentioned, cable has been actually better than wires for this year.

[Achal Lohade, analyst]

Got it. Is it possible to get some idea about the metal consumption tonnage growth Y-o-Y for copper and aluminum put together?

[Chirayu Upadhyaya, executive]

So as you are aware the commodity prices as compared to last year have been actually on a decline. But if you look at how the U.S. [indiscernible] rate has panned out, it has more or less balanced the negative impact of the commodity price decline. So if you look at for us for the year, the revenue growth that we have achieved would more or less be through the volume growth here.

[Achal Lohade, analyst]

Understood. Understood. And just last question, if I may. In terms of the raw material, what would be the split? Is it fair to say, most of the cables will be aluminum while wires will be copper, so split for copper and aluminum assumption would be similar fashion?

[Chirayu Upadhyaya, executive]

So it depends on the end product. We can assume that at the company level is going to be 50-50. Wires, as you rightly highlighted, is slit between copper, but when it comes to cable, it has both cable as well as -- copper as well as aluminum.

[Achal Lohade, analyst]

So 50% will be copper, 50% aluminum at the company level...

[Chirayu Upadhyaya, executive]

That's right. Absolutely correct.

[Achal Lohade, analyst]

And just one more question, if I may. On the exports front, you mentioned we are now exporting to more than 100 countries, is it possible to get some color in terms of, A, what are the new countries you have added? B, are we there in terms of certification for these key markets in terms of all the certification in place or there are white spaces there as well?

[Chirayu Upadhyaya, executive]

So we are now exporting to almost 70 countries. In terms of certification every year, we are making progress. One of the success story is U.S., where we have almost all the required approvals in place. Similarly, we have done that in other geographies, some part of EU, Australia, Latin America. We believe that every year, we would be able to add additional geographies, but chunk of it should come from developed countries like U.S. and Australia and a bit of EU.

[Achal Lohade, analyst]

How much would be the contribution of these geographies at this point in time Gandharv?

[Gandharv Tongia, executive]

So U.S. would be around 50%, 60% and the other countries would be ranging between 5% to 10%, 12%.

[Operator]

Our next question is from the line of Ravi Swaminathan from Avendus Spark.

[Ravi Swaminathan, analyst]

Sir, congrats on a very good set of numbers. My question is, sir, with respect to the cables and wires mix, which now with the 70-30 is what you had mentioned. Is there a chance of wires increasing in proportion over in 2 to 3 years? What is the kind of -- any ratio target that you have with respect to wires here?

[Chirayu Upadhyaya, executive]

So wires being a better margin product, we are definitely focused on improving its mix into the overall cables and wires mix for the company. As you are aware, we are taking various initiatives on that side. We are doing much more brand building. You would have seen a couple -- a few of our commercials as well on the last quarter. We had also introduced Etira brand for -- to look to capture the low-economy segment. So in the -- we had also reintroduced our green wires category into the premium segment. So we are actually doing -- taking a lot of initiatives to make sure that the wires growth -- wires segment grows at a faster pace. And that is, of course, that is how we'll try to go in the future as well. In terms of target mix, we don't actually have a target in terms of cables and wires, but we do look at a B2B versus B2C mix that we want to achieve by FY '26, which is 50-50. By B2B, I mean, the cables business as well as the EPC business and by B2C, I mean, the wires business plus the FMEG business.

[Ravi Swaminathan, analyst]

Got it. And in terms of the entire cables and wires portfolio, any sense on the volume growth that would have been -- that would have happened over the past 2 to 3 years? It will be very difficult for you, I mean, given many SKUs are there, but any -- can you hazard a guess in terms of volume growth?

[Chirayu Upadhyaya, executive]

The volume growth has been good for the entire industry. While I wouldn't be able to comment on what it has been for the past 2, 3 years, as I don't have that data handy right now. But as I mentioned in my previous reply, for this particular year, the entire revenue growth would have been more or less been through the volume growth. So it would have been somewhere in mid- to high teens of volume growth for the year.

[Operator]

Our next question is from the line of Girish A. from Morgan Stanley.

[Girish Achhipalia, analyst]

A couple of questions. Firstly, when we are looking at exports. How should we look at the outlook going into the future? Would it mean that from 10% here, would you continue to grow at higher clip? Would it be 12% to 14% of your revenues going into the next 2, 3 years?

[Chirayu Upadhyaya, executive]

So we continue to be very aggressive in terms of how we are looking at our international business. As Gandharv mentioned in his opening remarks, we are already amongst the top 15 cables and wires business in the world and are looking to be among the top 5 in the future. For this particular year, the contribution of exports business was at about 9.8%. Within Project LEAP, we had taken a target of achieving 10% of overall revenue to the international business. We would continue to try and achieve this or continue with this by -- till FY '26. As of now, we wouldn't want to revise any guidelines going ahead.

[Girish Achhipalia, analyst]

In terms of cables and wires, if I had to compare you to your peers like Havells and Kei, some of the larger ones, would you say your margins in cables are probably slightly higher than their numbers?

[Gandharv Tongia, executive]

Yes, that's a great observation. I think on a call, I would not be able to talk about the margins of other large listed peers. But I can certainly tell you that because of our quality as well as availability in most of the SKUs we enjoy premium. And that is the reason why it is getting translated in a better bottom line.

[Girish Achhipalia, analyst]

Okay. So let me ask it differently. So would it mean that your wire margins are comparable because your mix is lower at 30%. So would you say that, that is more or less comparable to peers?

[Gandharv Tongia, executive]

Not all the peers, but yes, a few of the large peers it is comparable, and it would differ from geography to geography. So your experience in the western market in [indiscernible] could be different from what happens in say in Delhi.

[Girish Achhipalia, analyst]

Okay. And the final question is on FMEG revenue split. Can you help us with the FY '23 split, please, because that's something that you provide? And any outlook on this for margins for FY '24, like because the margins have been all over the place, how should we think about FY '24?

[Chirayu Upadhyaya, executive]

Sure. So for the FMEG part, broadly about 60-odd percent of the top line is contributed through our fans and lights and luminaries divisions combined. The switches and switchgears would contribute to about 15% to 16% of the FMEG top line with the pipes and fittings contributing to another 15% and the remaining would be through our other small businesses such as solar, agro pumps and so on and so forth. In terms of margin guidance, we have been vocal about us achieving about 10% to 12% of EBITDA margin range by FY '26 we are working in that direction and are pretty confident that we should be able to be there. The improved in margins will be a gradual change that will be happening. So from this quarter or this year onwards, you'll start seeing our margins improve towards our targeted EBITDA margin of FY '26, but I wouldn't be able to give you a specific number for this particular year.

[Girish Achhipalia, analyst]

Just one small question on pumps, is the industry -- I mean, are you growing in line with industry? And how has the industry trend been for FY '23? And I mean, I think some players like Compton have taken a price cut. So I mean, if you can just explain our positioning in terms of price points?

[Chirayu Upadhyaya, executive]

So are you talking about the fans portfolio specifically or how...?

[Girish Achhipalia, analyst]

Pumps. Pumps, I was referring to pumps.

[Chirayu Upadhyaya, executive]

The pumps portfolio is actually a very, very small business as of now right now -- as of right now. So in that sense, price variations and that wouldn't be contributing much or making much differential to our top line of the FMEG segment.

[Operator]

Our next question is from the line of Shrinidhi from HSBC.

[Shrinidhi Karlekar, analyst]

Congratulations on good set of numbers. I have one question on capacity utilization. Would it be possible to share company's capacity utilization in full year '23?

[Chirayu Upadhyaya, executive]

Thanks, Shrinidhi. So capacity utilization for cables and wires will be at about sub-70% number. And for FMEG, of course, it would depend -- it will vary product and product wise. So like car switches business, we have just started manufacturing last year itself. Switch gear has been operational, so that it would be operating at about 65% to 70% of its capacity. And we have pretty much a good capacity in other product categories as well. But the thing about FMEG utilization is that we -- that capacity utilization will never be a roadblock for us to grow because you can set up new capacity within the time period of a couple of months. So our capacity utilization will never be a roadblock for FMEG growth.

[Shrinidhi Karlekar, analyst]

Right. And second, if I look at condensed financial statement, there we talked about B2C revenue being flat Y-o-Y. So just wondering is wires business was flat year-on-year for company?

[Chirayu Upadhyaya, executive]

Yes, more or less, it would have been flat, low single digits. Yes.

[Shrinidhi Karlekar, analyst]

Okay. So in that way, you look at '23 versus '22, the overall cable business grew by about 17-odd percent largely led by cables. So mix was actually unfavorable. And despite that, margins have kind of expanded. So is it fair to say that the underlying margins have improved for both cables business as well as wires business because despite unfavorable mix, margins have gone up?

[Chirayu Upadhyaya, executive]

Yes, that would be a correct observation.

[Operator]

Our next question is from the line of Rahul Agarwal from Incred Capital.

[Rahul Agarwal, analyst]

Congratulations for a very strong year, commendable job again at Polycab to reach investor expectations. Two questions largely first is copper was volatile in the quarter. We've seen 2 listed players reporting and they haven't seen such a strong wire growth, neither on -- and obviously not on cables. I understand LDC, HDC merger, you're entering new stakes. But I understand exports helping out. But purely from an India perspective, what is driving Polycab's outperformance? Because whenever we're doing channel checks, we are hearing more competition on wires. We are hearing more fighting between south and north, north getting into south, western players getting into more east. And just getting a bit difficult to understand. And of course, you have mentioned a lot of building blocks like 4 themes, 5 themes on why Polycab is doing great and how your consultants have helped you out, but what could be like a top 2 reasons for Polycab to beat industry growth on cables?

[Chirayu Upadhyaya, executive]

So Rahul, probably, I would guide you to look at our corporate presentation, wherein we have given the economic modes that works very well for the company. We have highlighted about 4 to 5 different economic modes that have helped Polycab to be the largest cables or wires and cables business in the country and continues to be the primary growth driver for us. So first of all, it's because of our largest distribution channel that we have. The distribution -- we have been working with the same distributors for almost 2 to 3 decades now. We -- for some distributors, we have also been working for the second or third generation of this. And as you are aware, within India, the relationship with our distributor is very important. So that is some -- that is one of a unique advantage that the company enjoys.

Second is your -- the number of SKUs that the company has as you are aware, we are perhaps the only company on the complement to manufacture each and every type of cables that can be manufactured. And if we look at any particular infrastructure project, there will be requirement of about 50 to 60 different types of cables and Polycab is the only company that is able to provide all those different types of cables. And of course, as a developer or as a guy with the project, you would prefer to go to one single guy and get all your cable requirements rather than 2 to 3 different guys to get all your cable requirements. So this is the second advantage.

Third is we have been working very well on our digital enablers. So we have reduced our turnaround time of providing our products to our end dealers or customers to almost less than 24 hours. What does that -- what does help over here is that this uses the amount of inventory that the dealer or distributor has to maintain at his end. And hence, it improves his margin. And that is why the dealers and distributors is able to work with us. So this 3 to 4 different economic modes which the company has and that is the reason why Polycab has been able to perform so well in the cables business and continues to do so.

[Rahul Agarwal, analyst]

Got it. Just follow-up on this was on wires. We hear a lot of other brands being pretty aggressive. We're hearing Ducab entering India as well on wires. Just wanted to understand your thoughts on competition on wires. Like do you expect Finolex, KEI, RR Kabel, Apar, V-Guard, most of these companies have been saying that their wire market shares have been improving. What is your thought on this?

[Chirayu Upadhyaya, executive]

So I think it would be unfair to say that there is no competition in any business. We are confident of our quality and availability and our numbers since listing our, in a way, testimony of our performance. We have no concerns on the competition and we will continue to up our game year after year.

[Rahul Agarwal, analyst]

And lastly, on working capital, should we expect more improvement? That's the last question. Like we are already at 50 days. Should we expect anything more or we are at optimum level?

[Gandharv Tongia, executive]

I mean for the purpose of modeling, it's best to continue with a number between 50 to 55 days. We will, of course, attempt to further improvise. But in our business, we have to always maintain a fine equilibrium or balance between availability and optimized inventory levels. And that is where I believe for the purpose of modeling, we should assume a number of between 50 to 55.

[Operator]

Our next question is from the line of Venkatesh Balasubramaniam from Axis Capital.

[Venkatesh Balasubramaniam, analyst]

The first question is on the Cables and Wires business, the international part of the business. Can you throw a little more light what is the kind of sales which you do there? Is it more -- international sales is B2C sales? Or is it more B2B?

[Chirayu Upadhyaya, executive]

So Venkatesh, largely, we do B2B sales, but we are also in the process of improving our distribution network in all the geographies that we are present in. We are taking incremental steps starting from our largest geographies and would continue to do so in our other geographies as well. So we supply each and every different types of cables that are required. Largely, we are seeing better demand from the renewables, oil and gas and infrastructure sectors. So these are the sectors which are driving growth for us.

[Venkatesh Balasubramaniam, analyst]

Okay. So -- but what I was trying to understand is the B2B part would be to large industry, it would be to large conglomerates, builders, what exactly how does the sale happen? Is it happening through a distributor or you're dealing with these guys directly?

[Gandharv Tongia, executive]

So it's a mix of both. We started with large supplies to large institutional or EPC parties. Over the period of last 2, 2.5 years slowly and gradually, we have started setting up our distribution arms. We very recently signed up for the warehouse in the U.S. And slowly and gradually, we are moving towards distribution. This is akin to what we did in India in the last 10, 12 years. We were more like an institutional driven business and last 10, 2 years have moved to a distribution-led business. This is what we believe we should replicate in the exports arena as well. And every quarter, we are improving our contribution of distribution business to our overall international business.

[Operator]

Sorry to interrupt, Mr. Venkatesh, maybe we question that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Our next question is from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

Congrats on a great performance again. Just on the margin outlook for wires and cables. So we've been saying 11% to 13%, and yet in the last couple of quarters, we've been significantly ahead of that. Was there some sort of maybe temporary benefit arising because of falling commodity prices? And is that the reason why we are sort of maintaining this guideline? Or should we sort of realistically expect a higher margin trajectory in FY '24 as well?

[Chirayu Upadhyaya, executive]

So Abhijit, we have been guiding 11% to 13% margin range for our cables and wires and that is what we achieved at a yearly level. Of course, within -- at quarterly level, there might be some or the other volatility because of different product mix that we might be able to achieve in a particular quarter. But overall, you should consider at 11% to 13% as the EBITDA margin range for the cables and wires business.

[Abhijit Akella, analyst]

Okay. Sure. Sure. And also just one other thing. For the fourth quarter, is it possible to just give us a split of domestic growth between, say, volumes and prices year-on-year?

[Chirayu Upadhyaya, executive]

So if you -- if you're looking at our cables and wires distribution channel sales, the volume growth would be at about 21% versus a growth of 17%. So you could say the value growth was negative, but the volume growth is something that took the revenues higher.

[Abhijit Akella, analyst]

Yes. But those numbers are for the full year, right, Chirayu? For fourth quarter, how much would it have been?

[Chirayu Upadhyaya, executive]

For the fourth quarter, volume growth would be in the high single digits.

[Operator]

[Operator Instructions] Our next question is from the line of Alok Deshpande from Nuvama Institutional Equities.

[Alok Deshpande, analyst]

Yes. Congratulations on a great set of numbers and a great year. Two questions from my side. Firstly, this working capital improvement that has come through, now considering that going forward, we'll be doing more B2C, how do you expect this working capital trend to go ahead in terms of FY '24 to '26? That is one. And secondly, in terms of your goal of INR 20,000 crores revenue in '26, what are the other metrics that you're looking at in terms of where do you think the margins would be? Or where do you target your international business to be by that year? That's my 2 questions.

[Chirayu Upadhyaya, executive]

Sure, thanks, Alok. So in terms of working capital cycle, as Gandharv mentioned in his previous comments that one should consider 50 to 55 days to be the ideal working capital days going ahead as well. In terms of our FY '26 LEAP goals other than the INR $200 billion of top line that we want to achieve, if we look at our margin guidance on Cables and wires, we continue to guide between 11% to 13% of EBITDA margin range. On the FMEG segment, we have guided a 10% to 12% of EBITDA margin range that we want to achieve. On the international business, our aim is to -- our aim for the international business to contribute to about 10% and higher overall top line, and that is where we'll continue to work.

[Alok Deshpande, analyst]

Okay. So there is no revision for the international business share as that number is already close to where you are currently, right?

[Chirayu Upadhyaya, executive]

That's right, Alok. As of now, we will -- we don't want to give any revised guidance on any of our FY 2016 LEAP goals.

[Operator]

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

[Praveen Sahay, analyst]

So my question is related to the merger of HDC and the LDC vertical. Can you give some color how much of the volume growth we had achieved with this and the margin improvement in the financial year FY '23?

[Chirayu Upadhyaya, executive]

So Praveen, we did the merger of the 2 verticals in FY '22 itself. So in that sense, whatever growth in terms of volume value, whatever we achieved this year has been because of the -- through the merger of the 2 verticals, we've not been able to carve out whatever has been the difference that vertical has been relative. But yes, otherwise, that is how we should look at it. And in terms of margins, of course, like I said, International business doing well has contributed to better margins in a particular quarter. The wires business doing well has contributed to better margins in a particular quarter. But overall, if you look at on a yearly basis, we have been within our guided range for the cables and wires.

[Praveen Sahay, analyst]

Yes. And just to clarify on the special purpose cable, there also, there is a good growth in the financial year. So how much is the contribution? And is that an institutional business?

[Chirayu Upadhyaya, executive]

The special purpose business has actually been quite well, growing at about 1.7x from what we did last year. And again, that too is a good margin business to have. As far as contribution to overall revenue is concerned it would still be in a small part of the overall mix. So that is -- we would continue to look to improve it going ahead. And I'm sorry, what was your second question that you had?

[Praveen Sahay, analyst]

So is that the institution business even have a higher margin because you are dealing with the railway and the defense, that is special purpose.

[Chirayu Upadhyaya, executive]

Right. So SPC would be an institutional business. Yes.

[Operator]

That was the last question of our question-and-answer session for today. I would now like to hand over the conference to Mr. Gandharv Tongia for closing comments. Over to you, sir.

[Gandharv Tongia, executive]

Thank you, everyone, for taking out time for this conference call. In case if you wish to reach out to us, please write to us at [e-mail], and we would be extremely happy to attend your queries. Thank you, and have a nice day ahead. Bye-bye.

[Operator]

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