Ladies and gentlemen, good day, and welcome to Polycab India Limited Q1 FY25 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gandharv Tongia, Executive Director and Chief Financial Officer, Polycab India Limited. Thank you, and over to you, sir.
Thank you so much, moderator. Good afternoon, everyone, and thank you for joining us. I hope all of you are staying healthy and safe. I am Gandharv Tongia, Executive Director and CFO at Polycab India Limited. On this call, we shall discuss the quarter 1 fiscal 2024 to 2025 results, which were approved in the board meeting held yesterday. We will be referring to the earnings presentation, condensed financial results, and statements which are available on the stock exchange website as well as on the investor relations page of our website. Joining me today for, from the management team, we have our Chairman and Managing Director, Mr. Inder Jaisinghani, and our Head, Investor Relations, Mr. Chirayu Upadhyaya. Let me now hand over the call to Inder Jaisinghani for his comments.
Good afternoon, everyone. We are pleased to have commenced the year on a strong note, achieving the highest ever first quarter revenue in the company history. Our operating margins do remain healthy, reflecting our ability to adapt and succeed in a dynamic market environment and the robust domestic economy, supported by structural reforms, focus on the infrastructure development, promising strong growth for our diverse product categories. As the demand landscape continue to show strength, we are fully prepared to capitalize on these significant opportunities and drive sustainable growth.
Thank you, Inder Bhai. India continues to be a bright spot on the global map, as is evident from the fact that most high-frequency indicators indicate that the domestic economy continues to remain resilient. Both manufacturing and services PMI rebounded after moderating in May 2024 from the high in March 2024, driven by a sharp rise in new orders. UPI transactions have shown an upward trend since their inception, continuing to remain near a record high in June 2024. While credit growth remains healthy at 13.6% year-on-year in June 2024. GST revenues stood at INR 174,000 crore, marking an 8% growth on a YoY basis, and thus remained above the INR 100,000 crore mark for 28 consecutive months.
Furthermore, the RBI has upgraded the FY25 GDP forecast to 7.2% from its earlier projection of 7%, indicating strong prospects for the domestic economy going forward. This growth was propelled by the ongoing momentum of manufacturing activity, positive trends in the construction sector, and a gradual recovery in the rural segment. These factors are anticipated to enhance the prospects of household consumption in the future. However, infrastructure and construction growth slowed down in May 2024, mainly on account of lower government ordering activity due to elections in April, May 2024, and labor shortages. This was a temporary phenomenon and should revert as government spending picks up in the coming months. With stability at the center, we anticipate policy continuity to drive the overall economic momentum further, with a sustained focus on infrastructure, capital expenditure and manufacturing, which will occupy center stage.
Furthermore, the improved balance sheet positions for the corporate sector and financial sector, alongside a rise in capacity utilization to an 11-year high of 76.5% in March 2024, is providing support to the nascent recovery in private capital expenditure. Meanwhile, alongside structural policy initiatives such as reduced corporate tax rates, PLI schemes, and the global shift towards multipolarity, encouraging procurement diversity, we foresee these cyclical and structural shifts sustaining a positive cycle of increased investment. I would now hand over to Chirayu to take you through the financial performance for the quarter gone by.
Thank you, Gandharv. I would request everyone to refer to slide four of the earnings presentation. For the quarter ended thirtieth June 2024, our consolidated revenue grew by 21% year-on-year, driven by steady performance in the wiring business, easily supported by strong performance in the EPC and energy businesses. EBITDA grew by 6% year-on-year, with EBITDA margins at 12.4%. The notable decline in EBITDA margins was influenced by a shift in our business mix towards segments with lower margins. Specifically, the contribution from our higher margin international business declined from 8.9% in the same quarter last year to 5.3% in quarter 1 of fiscal year 2025, while that from our lower margin EPC businesses increased from 3% last year to 10% in the current fiscal.
The contribution increase from the EPC business was also accompanied by its own margin decline of 150 basis points year-on-year, which further added downward margin pressure. Additionally, domestically, our lower margin institutional business grew at a faster pace than our channel business, which further dampened margins. Our profit after tax stood at INR 4 billion, while with PAT margin at 8.5%. Overall, finance cost stood at INR 413 million, and other income at INR 584 million rupees. A detailed breakup of our other income and finance cost is provided on slide 17 of our earnings presentation.
Net cash position improved from INR 16 billion to INR 16.3 billion rupees, over INR 10.1 billion rupees in Q1 of the previous year, while working capital cycle, at 64 days, was higher than our comfortable range due to finished goods inventory buildup in the Wires and Cables business. The finished goods inventory buildup was due to sudden fall in demand towards the end of the quarter on account of the sharp decline in commodity prices. The inventory days are expected to normalize in the coming quarters. Moving on to slide 6. The Wires and Cables segment recorded a steady 11% year-on-year growth, with the domestic business registering a 15% year-on-year growth. The past quarter witnessed high volatility in commodity prices, with a sharp decline in the second half of the quarter impacting channel sales.
As the commodity prices now seem stable and channel inventory at normalized levels, we expect an improvement in sales performance in the forthcoming quarters. Our optimism stems from the resilient demand environment in India, which continues to outpace many global counterparts, as highlighted in Gandharv's Macro Comment. Looking ahead, we believe that the upcoming budget will proactively set the tone for economic development in the coming years, aiming for a Viksit Bharat by 2047, building upon the transformation witnessed over the last few years. The real estate sector, too, continues to maintain its impressive growth momentum as it stepped into 2024, with sales in H1 2024 scaling an eleven-year high in terms of half-yearly growth.
The sales volumes achieved in the first half of the year, despite the General Elections being conducted in quarter two of this year, showcases the strong undercurrent of demand in the market. Project launches, too, are on a very strong footing. Calendar year 2023 had witnessed a 10-year high in terms of beginning of constructions in new projects. The first six months of this calendar year has already surpassed 80% of the last year's number. All such projects will require wires over the course of next couple of years, leading an accelerated industry growth. Meanwhile, our international business registered a 28% year-on-year decline, resulting into a contraction in its contribution to the company's top line. Further, elevated freight costs compressed the margins in the business.
Overall, the shift in business mix from distribution to institutional sales, coupled with lower international business revenue, contributed to a reduction in margins in the Wires and Cables segment. Moving on to slide 8 for an update on the FMEG business. FMEG business recorded solid growth of 21% this quarter, driven by strong demand for fans due to heat wave across several parts of the country. The fan business achieved its highest quarterly sales in the past couple of years. Both the switches and switchgears and conduit pipes and fittings segments showed robust growth, supported by healthy demand in the real estate sector. Besides, our switches business continues to benefit from improved availability through in-house manufacturing, while the switchgear business continues to benefit or reap the benefit of our new product development initiatives.
The Lights and Luminaires segment continues to face challenges due to pricing pressure and weak consumer demand. In terms of profitability, we've seen a decline in losses attributed to lower advertising costs and boosted by higher contribution from Switches and switchgear and Conduit Pipes and Fittings product segments. At an annual level, our advertising and promotion spends will continue to be within a guided range of 3% to 5% of the B2C top line. Moving on to Slide 10. This slide provides an update on our other businesses, which primarily comprises of our strategic EPC business. We achieved revenues of INR 4,850 million in quarter one, marking a 292% year-on-year growth. Profitability increased by 244% year-on-year, while segmental margin registered a decline of 150 basis points to 11%.
The robust growth within the business was driven by strong execution of the RDSS order book . Looking ahead, we expect this business to maintain its contribution in mid- to high-single-digit range to the company's consolidated top line. The annual sustainable operating margin for this business is expected to remain in the high single digits over the medium to long-term. To conclude the financial update, the industry is experiencing robust demand environment, and Polycab is well positioned to capitalize on this favorable market dynamics. Looking ahead, we anticipate sustained demand momentum throughout the remainder of the year. As an update on our continuous efforts to improve on corporate governance practices, the board yesterday has reconstituted the Audit and Nomination and Remuneration Committees. Both these committees will now fully comprise of independent directors in line with globally accepted best governance practices.
This change underscores our commitment to maintaining transparent accountability and integrity in our corporate governance framework. As in another positive update, India Ratings has improved our credit rating outlook to positive from the initial on watch with negative implications. So that was an update for the quarter. Thank you, and we are now open for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone.
...If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Praveen Sahay from PL India. Please go ahead.
Yeah, hi. Thank you for taking my question. So the first question is related to the domestic wiring cable business, where if I look at around 16% of the value growth you have reported, can you give some color on how much is the volume number? Because raw material, copper, aluminum price is also elevated for a quarter quite significantly. So that is the first question. And the second question, sir, I'll on the international business. So as the international business down by 28%, and in the last call also, you had mentioned about the three to five quarters it is going to be impacted. So the current quarterly run rates to be maintained in the rest of the year, how to look at?
And, also, earlier quarter, you had given a guidance of a 10% contribution by 2026. So is that an impact or no?
Sure. Thanks, Praveen. On your first question, as far as the volume growth is concerned, the domestic wires and cables business registered a volume growth of about 10 odd percent. While the value growth in terms of the because of the increased commodity prices was there, but to a large extent, it was a negative because of the effect it had on sales and largely on the channel sales. So that is where the volume growth was. And one needs to take into account that this is on a very high base of previous year. So that is where we believe that the wires and cables business have done reasonably well in this quarter. On your international business related question, one needs to look at a yearly trend data.
So, as against domestic business, wherein we supply our products or are able to supply within 24 hours or a matter of few days, an international business has a transit time within that. And as a result, the numbers that one has in a particular quarter is, largely, at the end of the quarter, number. But there might be, some revenue accrual that might be delayed and would come in the second quarter. So that is where one needs to look at a yearly number as far as the international business is concerned. But having said that, yes, we've, we've guided that there is, a bit of demand softness in one of our largest geography, and that is where the international business numbers are a bit softer as compared to previous year.
But we believe that this will improve gradually going ahead. As far as the contribution to the overall top line is concerned, we will continue to work on what we have guided, that is, we would want the international business to continue to contribute 10% of the company's top line.
Okay. Lastly, if you can give any, you know, guidance related to the LEAP project for INR 200 billion revenue for 2026. Is that going to be preponed, or how is the target going to change?
So, Praveen, as you are quite aware, we have this target of reaching INR 20,000 crore of top line by FY 2026. We executed the previous year at a top line of about INR 18,000 crore, and that is where we believe that we should be either able to achieve or beat the guidance ahead of its time. As again, we've guided in our previous calls, we are in the process of calibrating our new midterm guidance, and we will be releasing the new guidance during the course of this financial year.
Okay. Thank you, and all the best.
Thanks, Praveen.
Thank you. The next question is from the line of Umang Mehta from Kotak Securities. Please go ahead.
Hi. Thanks for the opportunity. So, my question is primarily on mix. Would it be possible to share the margin differential between your international and domestic, and even between domestic distribution and institutional? The context is that somehow, you know, 200 to 50 basis points contraction in wires and cables seems that there's some other element at play as well. Possible to elaborate on this?
So, Umang, on our domestic business, generally, we make EBITDA margins of somewhere between 9% to 11%. On our international business, the margin profile is a bit better. This is what plays out in a normal scenario. The last quarter was a bit off, where the commodity prices were quite volatile. This has a material impact as far as their channel sales are concerned, but not as much on the institutional sales, wherein we have back-to-back prices. Right. So, the margin profile for the past quarter will be a bit different than what we normally have. Again, as we've commented, this is something that we believe should normalize as commodity prices now seem stable, and even the inventory levels in the channel have normalized.
So going ahead, we believe we should be able to resume back to our margin profile. Even now, we are at the higher end or even at a bit higher than our guided range within the wires and cables business, and we should be able to improve upon that in the quarters to come.
Understood. So just one clarification. So 11% to 13% is your guidance in wires and cables, but last year I understand you benefited a lot from higher capacity utilization. But it would be safe to assume that given commodities are stable, you'll be doing better than your top end in the coming quarters?
... would that be fair to say?
See, our guidance range on cables and wires for the long term is 11% to 13%, but we also said that because we are, as of now, realizing better operating leverage, we should be able to generate somewhere between 12% to 14% at EBITDA level. And that is where even now our EBITDA margins are in the first quarter. So we believe that this level of margins should be able to continue as well as improve upon as the entire issue with channel sales, sales, which happened in the first quarter moves away if the commodity prices continue to remain stable.
Okay, sure. This is helpful. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Yeah, hi. Thank you for the opportunity. Sir, I have a couple of questions on wires and cables. Firstly, your comment and your peers, too, you said that there was a very sharp inventory destocking by the channel in June. So while I understand this reasoning, there was also a very sharp rise in copper prices from mid-March onwards till May end. So going by that logic, you know, channel must have even restocked inventory at a very high rate. So ultimately, this should actually negate that and not further depress the margins. So sir, can you please comment on this phenomenon that how does it play out?
So, Natasha, you are, your, understanding is quite correct. In the first couple of months, the uptake was very good because the copper prices were on the rise, and that is where industry had or the channel, had stocked up on inventory. June saw very sharp decline in commodity prices, and that is where the, channel, they, kind of went slow as far as new orders were concerned and utilized the inventory that they had stocked up in the first couple of months. That is why we believe that, now at the channel level, the inventories have, are at a normalized level.
If the commodity prices continue to be at stable, as we've seen over the past few days, then hopefully that should mean that there should be an improvement in sales as well as margins going ahead.
Understood, Chirayu. My second question is on the international business. While that, you know, registered a degrowth, so all this while we've been saying that, you know, we've moved we're moving to a distribution-based model in the US, and now a new commentary that there is a demand slowdown in that market. So just trying to understand, is it one-off election days or the dynamics are changing fundamentally there? Because if that is the case, then are we going to further lose out on order booking in the international market? Is there a preference for other players or other global players and not Indian players? So a little bit, if you can touch on how US market is panning out in terms of cables.
So, Natasha, there has been no material change as far as any preference for a particular country players are concerned. We don't believe there is any such sentiment that the country is preferring players from other countries. Largely, the demand slowdown or slowdown in the sales that we realize is because of the movement in our business model over there. Of course, we've guided that we'll take some more quarters for the new model to stabilize. So once, hopefully that is done, the sales from that geography should recover back to its normal levels.
So, Chirayu, can we expect that the impact from moving to a distribution-led model is greater in terms of numbers getting depressed and lower in terms of really demand not picking up in the US?
To a certain extent, yes, that is, that is what we can say.
Okay, and just one last question, if I may. So you also mentioned that domestically, the institutional business outpaced the distribution. First of all, can you explain if, rather, you know, is the company taking more orders directly and therefore there is more of institutional booking than GT? Because if that's the case, you know, we could probably see more sales and margin moderation, because distributors are of the opinion that they prefer Polycab because they are not bypassed in the value chain. So just thinking out loud, if you can help, why exactly institutional outpaced the GT this time? That's all. Thank you.
So, Natasha, as, as I mentioned, in institutional orders, we have back-to-back pricing, so they don't get largely affected because of this volatility in commodity prices, and that is where the orders that we had taken in the past three to six months, and that we had to supply cables, those are something that we continue to supply. Whereas the distributors, they, they take a view on where the copper prices are headed. Generally, the volatility in commodity prices or copper prices in a month is only about 4% to 5%. But last quarter, the volatility was quite high. From mid-March to mid-April, it was, it went up by almost 15%, mid-April to mid-June by almost mid-May to almost about 11%, and from mid-May to mid-June, went down by almost 12%.
The volatility was quite high, and that is where the distributors, they obviously would not want to miss out on the lower prices that might be available to them in the next month. That is where there was a slowdown as far as channel sales are concerned. Largely because of this, the mix or growth rate contribution was higher than the general.
Understood, Chirayu. Thank you so much. That was helpful, and all the best.
Thank you, Natasha.
Thank you. The next question is from the line of Rahul Agarwal from Ikigai Asset Management. Please go ahead.
Thank you for the opportunity. So, two questions. Firstly, on the operating cash flow for the quarter, looks like the cash profit is about INR 450 crore plus, but the operating cash flow negative INR 200 crores. I think partially Chirayu explained about inventory being higher, but the swing appears to be larger than that. Could you please explain this number, please?
... Your observation is right. As Chirayu mentioned a while back, because of steel volatility and copper prices, in the month of June, we witnessed a slowdown in demand, particularly from the channel. We had a very robust run in the last fiscal, and in anticipation, we had a slightly higher than actual requirement inventory at RM level as well as at finished goods level. So that is the reason why the working capital has stressed a bit. And second reason, which we mentioned a while back, is the uptick in EPC business and institutional business. As you know, both of these businesses are not on channel financing and which has some impact on our receivables base.
So by and large, the cash flow which you are reading got impacted because of the change in the mix and higher inventory, which we believe is transitory in nature, and the quarters to come, we should be able to normalize and go back to regular working capital cycle of 50/50 or 35 days or thereabout.
Got it. So fair point. Secondly, on the balance sheet, I'm referring to the March balance sheet. There is some long-term receivables shown, about INR 120 crore, which are, you know, overdue 12 months. Just wanted to know the nature of this, you know, the nature of this line item, please.
Yeah, sure. Your observation is right. As Chirayu mentioned, we have a small EPC business. In general, if you were to reflect on the last year, June, it was almost 3% of our top line. This year it is 10% of top line. In the EPC business, there are some balances which are retained by the customer as retention money, which ranges between 5% to 15%, depending on the contract, customer and contractual terms. And these, as per the accounting standards, are required to be classified as long-term receivables. That INR 120 crore is comprising of such balances.
All right, so no risk of no. When does it get liquidated? Broadly 12, broadly like 15 months or 18 months? What is the timeline here?
It ranges between 12 to 24 months from the end of the contract. And, any which way, as part of the accounting requirement, we are required to carry provision in the books for all types of receivables, including short-term and long-term receivables, so that provision is any which way done, which is called expected credit loss provision.
Perfect. Got it. Just one feedback, not a question, if Inder is on the call. You know, been waiting for a Polycab analyst meet to be done from the company's side, wherein we could spend some time with the BU heads, as well as the next generation of the promoter family, you know, Nikhil and Bharat. If you would appreciate that, this might be helpful to understand what are their thoughts in terms of building this business ahead. If that is possible and practical, I would request the company to essentially consider this, whenever it's convenient. Thank you so much.
I think that's great feedback. Thanks a lot for using this forum to share this feedback with us. As Chirayu mentioned, that during the course of the current year, we will probably recalibrate the expression guidance, and I think it would make sense to have such interactions once we have the revised guidance in place. So allow us some time, and hopefully in the current quarter, we should be able to do both of them.
Appreciate that, Inder. Thank you so much. All the best.
Thank you.
Thank you. The next question is from the line of Sanitha C. from Unicorn Asset Management. Please go ahead.
Hi, Sanitha here. So my first question is on the part of the margins on, in the EPC business. So, as observed, the margins in the EPC segment has been quite volatile, ranging from somewhere 12, positive of 12, north of 12 to currently at 11 versus stage, and sometime back it was less than 10, that is in single digits. So how do the margins in the EPC business look to us going ahead? And what kind of revenue share it could be in the total revenue?
Sure. So, as far as the EPC business is concerned, you know, this is a very strategic business for us, wherein we go in and bidding for such a project where there is a good, or large element of cable supply. So it has not been an area of focus. As and when, in whatever quarter we come across such a project where there is a good cable supply, we go in and bid for this project, and that is where the margin profile, as well for that segment has varied. Going ahead, we have a pretty good order book, and that's largely because of the RDSS scheme of the government. We've always guided, that within the EPC business, the margin profile in the long term will be in high single digits.
That is something that we'll continue to guide the market. As well as with contribution to the company's top line is concerned, we believe that the contribution will range somewhere between mid to high single digits going ahead.
Currently you were saying it is around 10%, right?
Right. In the quarter, in first quarter of this financial year, it is at a higher level of 10%, but that's largely because the normal business, the cable and wire business, has registered a bit lower growth as compared to what we generally do. But going ahead on a consistent basis, if you take a yearly view, the contribution from the EPC business will range in mid to high single digits.
Okay, so you are suggesting a higher contribution in the top line from the other segments rather than the EPC for the year going ahead. That would directly or indirectly help us in margin, EBITDA margin?
That's right.
Okay, thank you. Thank you. And secondly, on inventory days and inventory turnover, so we are seeing quite a volatile nature there. In recent last three years as well, our inventory days have been continuously increasing. So is it due to the EPC business or it is on the retail side, distribution basically?
Again, over here, you'll have to take a more annual view rather than a quarterly view, because depending on the business circumstances in every quarter, the inventory days will vary. But generally, in general, what we have been able to achieve over the past four to five years is that the inventory days have come down. If you look at the inventory levels that we used to maintain while we got listed 5 years back, they used to be as high as 130 to 140 days. But since last year, we are now generally averaging somewhere between 100 to 110 days of inventory. We believe this is a more optimized level of inventory.
We've been able to optimize on that because of the advanced channel, supply chain that we've been able to implement within our, system in the country. Depending on what quarter you are looking at, it might be high. The past quarter, as I've already informed in my initial remarks, the inventory levels were high because of higher levels of finished goods that we had on our books, because of the kind of demand that we were, expecting in June. But again, what we've guided is that this is transitory nature, and this inventory levels will, moderate going ahead in the, quarters to come.
So generally, at a working capital day view, we believe 40 to 55 days of inventory or of working capital days is what is an optimum working capital cycle for us. Within that, the inventory days will be somewhere closer to about 100 days. The receivable days should be somewhere closer to 30, and the pay by days will be about 20 days minus where the inventory days are. So that is where we believe we'll continue to operate in the medium long term.
Lastly, on the FMEG business. So even though this was a great quarter for the FMEG business, but we are still not seeing it EBITDA positive. So what's your take on this?
So we are working on the FMEG business. As we've been guiding in the past few quarterly calls, there are a lot of new, different things that we are doing within that business. We have a strategic roadmap for us on how we want to change that business. We have identified the four areas where we have to do a lot of work. We are working on improving our reach, we are working on new product development, we are working on improving our brand positioning, and we are also working on influencer management. The goal going ahead for us will be to do a good job of execution on all these four identified areas. As far as the profitability is concerned, that will also gradually become better with time. Over there, there are three levers on which we are working on.
Within the product categories that we have on the FMEG business, historically, we've been focused more on fans and lights. But over the past year or so, we've started working more on the kitchen and switches segment, and both of them are such a product segments, where in at an industry level, the competitive intensity is relatively lower and hence the margin profile is better. So we are working on increasing the mix of those two product categories within the FMEG business. We've had some success over the past year, where the contribution from those two product categories have increased. We'll continue to work on that strategy, and that should result into improvement in margins, as far as FMEG is concerned.
Within the larger product categories of fans and lights, again, we are working on the premiumization of our offerings. Through our new product development initiative, we now have four offerings across price points. Within both fans and lights, we have been able to improve the contribution from premium products, and that is where we are actually seeing improvement as far as the margin profile is concerned. And third, and, another one important point is the scale in the business. As you are well aware, within our FMEG business as well, we manufacture everything in-house. As of now, the utilization rates are quite low, but as the business scales up and utilization scales up, we'll have operating leverage, and that should again help on the margin front.
So as far as the goals are concerned, in the near term, our first goal will be obviously to calculate the losses and become positive at an EBITDA level, and then gradually enter into profitability.
Okay, thank you. Thank you so much. All the best. Thank you.
Thank you. The next question is from the line of Sonali Salgaonkar from Jefferies India. Please go ahead.
So thank you for the opportunity. So my first question is, any update on the income tax, you know, issue?
So Sonali, as of now, there is no further update than what we had communicated in our previous investor call. Even as on the present date, we have not received any tax demand notice or any other order from the income tax authority. Having said that, it goes without saying that we are fully committed and we cooperate with the income tax authority as far as their procedure is concerned. Our priority still continues to remain transparent and adhere to all regulatory requirements. And as and when there is an update to be given, we will be very proactive and towards the same to the market as we have been doing in the past few months.
Understood. Thank you, Chirayu. Second question is again on the exports, because exports seems to be the main reason for the margin dilution this quarter. So, we understood that there is a interim transition of the business model to a distributor-led model in the US. How many quarters do you think this impact can sustain?
So Sonali, it will still take us a bit of time as well as the geography that we're discussing is concerned. It will take us a few more quarters. It's a large geography, and we'll have to have enough distribution in place. We'll need to have knowledge of the fastening sleeves, and hence it takes a bit more time to completely move to a different kind of a business model. But having said that, while that continues in U.S., we continue to work on other geographies. Every quarter, we keep on adding new geographies where we can supply our inventory to, and that is where we continue to scale up the business or the international business from the other geographies.
You're correct in your assessment that the larger declining margins during this quarter has been because of the international business. What one also needs to... So while we had good sales happening in the other geographies, what has also happened is the freight cost has increased over the past few quarters. And hence, when we compare this, the margin profile of international business in Q1 of this year versus Q1 of last year, you have that additional impact. So even in the international sales that we've done in this year, the margin profile is a bit weaker than what we had in the past year. So that is, that is, contributing a bit more as far as the margin suppression is concerned.
But as far as the overall demand momentum is concerned, we believe that it it's very strong, and that's from across all the geographies. Us being a very, very small player, we still have a lot of opportunity to do work over there and continue to grow. We'll keep on adding more geographies, diversify our risks over there, and keep on adding more end approvals, and that is how we'll be able to continue to scale up the international business.
Understood. Our target of export reaching 10% of sales is by when? By 2026.
Yes. As part of the Project LEAP, we target to reach 10% contribution from international business for FY 26.
Understood. Just one last question. Any change in your earlier CapEx guidance?
No, there is no change. As you would have seen, even in first quarter, we've done CapEx of about INR 280 crores. So we are on track to do the CapEx on our guided range of INR 1,000 crores-INR 1,100 crores. We believe it should be at, towards, more towards the higher end of that range. But yeah, we are on track. We believe the demand momentum in the domestic cables and wires business is very strong, and will continue to be the key case in the many years to come.
We believe there is enough and more requirement for large player like us to add on capacity, so as to be able to cater to all the increased demand that will be coming over the next few years, and that is why we continue to work on the CapEx guidance that we've given.
What's our current target capacity utilization in cables and wires?
For the first quarter, it was somewhere between 70% to 75%.
Understood. Very helpful. Thank you, and all the best.
Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.
Hi, good afternoon. So can I have my first question into, you know, my understanding, for any specific project, cable and wire is like 4% to 5% of the total project cost. So what are these projects that-
Sorry, can you please repeat?
I'm saying that to my understanding, for any project, cable and wire is like less than 10% of the total project cost. So with that, what are the kind of projects that we are taking where, you know, cable and wire is a substantial proportion, and it makes sense for us to take up those projects?
Again, I wasn't able to hear it very clearly, but I believe you are asking that generally the cost of cables is, as the overall cost of the project is generally sub 10%, and what are the kind of projects that we are undertaking within the EPC business, wherein the-
Yes.
Right.
Yes.
So, as we mentioned, within the EPC segment, we are largely taking the RDSS order. The RDSS scheme is for revamping the power distribution infrastructure in India. And that is where the component of cable supply is high. So generally, you are correct. In normal infra projects, the component of cable supply is roughly in low single digits, somewhere between 3% to 4%. But in power transmission and distribution, the component of cable supply is higher, and those are the kind of projects we largely undertake within the EPC business.
Right. Okay. So this is where the cable is being redone, these are not new distribution lines being set up? Right.
Yes, so it's, as of now, it's kind of an upgradation of the existing infrastructure. But what-
Right.
I s being guided by the government, which might be in the future, in the new, RDSS scheme, that they might, take up, post-completion of this scheme, which might be, also for new infra. Because, as you know, in India, the power infra, has a requirement of, because of all the investment that we've been doing in the renewable space and the new infra which will be further over. There might be, such projects which come up in the future, but as of now, within the RDSS scheme, the larger outlays for, revamping of existing infra.
Right. Secondly, can you share the, you know, breakup of your cable and wire revenue mix for us between, B2B and B2C, and what it was, let's say, for the whole of last year?
So, cables versus wires, the mix within our was somewhere between the cables would have been contributed closer to 75%, whereas wires would have contributed closer to 25%.
What was this number for 2024?
Again, similar, just a few bits lower. So again, as we mentioned, even in this quarter, the cables have outgrown wires, and that is where the mix has again gone in favor of cables. But largely, pretty much similar contribution from cables and wires in my opinion.
Right. So just one housekeeping question. Between international and B2C, which is the higher margin business for us?
Yes. B2C, so within B2C, the wires business is a better margin business. So generally, when the commodity prices are stable, we made somewhere between 15%-16% at EBITDA level on the wire business, whereas on domestic cables, we generally make between 9% to 10%. International business is again a much higher margin business. But within the B2C, as of now, it's the wire business which is of better margin. And FMEG business is something that obviously, in future will have profitability coming in.
So, so export is even higher than building wire margin, though?
Yes, that is it.
Oh, okay. Thank you.
Thank you.
Thank you. The next question is from the line of Swati Jhunjhunwala from JM Financial. Please go ahead.
Yeah, hi. Thanks for taking my question. I just wanted to understand, within the FMEG segment, what are the focus regions that you are looking at in terms of expansion? And, do you have any target as to what will the 2,900 retail FMEG dealers that we have, any expansion plan on that? And also, related to the FMEG business, could you also give me a broad understanding of the mix within the FMEG segment?
Sure, Swati. So within the FMEG business, as of now, we have pretty good stronghold on the western zone of the country, and that is where largely our distribution is based. But obviously, the idea is to improve it across the country. Those 2,900 dealers or distributors which are currently distributing our FMEG products, obviously, the number is should go up materially, and that is what we are working towards. This is something that that will obviously play out in the near future as and when we keep on tying up with newer distributors and dealers. If you look at the industry leaders, they have over 16,000 dealers and distributors. So there is a lot of work that is required to be done by us on the on the distribution expansion, and we are working on that.
We have identified the kind of distributors that we want to work with across all the geographies, and the idea will be to improve our presence in all the geographies across the nation. As far as the mix is concerned, the fans and lights, both of them are the larger contributors within the FMEG segment, contributing somewhere between 50% to 55% of the FMEG top line. Switches and switchgear would contribute in high teens. Similar, contribution will be from conduit pipes and fittings, and the other businesses will, are relatively smaller, contributing in single digits.
Just one more thing. This, which is currently 75 to 25, do you expect this to materially change over the next two, three years? Or, is it expected to stay within the, given that, you know, there is significant real estate registration that we are seeing in this country. So what's your view on that?
So, Swati, as far as our company's intention is concerned, obviously, we would want to improve the mix more towards wires, because wires are better margin business. But ultimately, the growth rate depends on what kind of growth is being seen as well the end demand, and infrastructure or real estate demand is concerned. For wires, almost 70% of the demand comes from real estate, and that is where continuous growth in the real estate is important for wires growth. As far as cables is concerned, the demand is from across various infrastructure sectors as well as industries. And over the past two to three years, we've seen a lot of investments happening within that space, and as a result, we've seen the cables outgrowing wires.
But what we do believe is that we are now in that phase of real estate upcycle, wherein the demand for wires should start picking up. We've also already seen a couple of quarters where we've seen the demand for wires improving than what we had witnessed over the past decade or so. And that is where we believe that if what we think will pan out, that is where the wire growth will also pick up, and that is where the mix might move more towards wires. So it will be difficult to say what that 75, 25 will look like in next three or four years, but we do believe that that mix should change more in favor of wires.
Sorry to interrupt, sir, but the current participant has been disconnected. We will move on to the next question. The next question is from the line of Nikunj Gala from Sundaram Asset Management. Please go ahead.
Yeah, good afternoon, everyone. Just continuing on that part, so in this quarter where you mentioned 10% volume growth in domestic business, how the growth rate would be bifurcated between cables and wires?
So Nikunj, cables has grown faster than wires, so it will be in double digits, while wires volume growth will be single digits.
Sure. So in the last few quarters, like, you know, we have seen wires, the growth rates are, you know, pretty, much lower than the cables. I understand, I take your point of real estate, but, is there, like, in the next, you know, few quarters, what's the outlook there? Do you see, the real estate demand, you know, leading to a better, volumes in wires?
So Nikunj, that was what I was referring to. We do believe that there should be a pickup in the demand for wires over the course of next 2 quarters. And if that pans out, there should be an improvement in mix more towards wires going ahead. It will be very difficult to say whether it will be from next quarter or couple of quarters from now, but if you say, so let's say next 4 quarters or next 8 quarters view, you one should definitely see a pickup in demand for wires because of all the real estate projects which are now undergoing construction across the country.
Sure. And lastly, what would be our capacity utilization in cables, versus capacity utilization in wires?
... So utilization rates will be higher in cables. At the company level, we were operating between 10% to 75%, so cables will be at the higher end of that range, whereas wires will be at the lower end of this range.
Okay, sure. Yeah. Thank you.
Thank you.
Thank you. The next question is from the line of Girish from Morgan Stanley. Please go ahead.
Yeah. Hi, gentlemen. Thank you for the opportunity, and sorry if I missed this, but a couple of questions. So my first question is to Inder Bhai. I think promoter family sold 2% stake at the back end of June. Outlook wise, all comments that are coming through from the business are very positive. I just wanted to understand, it's not a small sum, because it's almost INR 2,000 crore. If you can just probably highlight or want to comment, the use of funds and timing of the decision to sell the stake. That was first question.
Girish, why don't you continue and share all your questions and then we'll go one by one.
Yeah. The second one was, this particular quarter, exports was weak, and it is explained. If you can just provide us some outlook for fiscal 2025, because, this number obviously is up 6%. Can we expect for fiscal 2025 to this number to be between 6.6% to 6.5% of overall revenues? And the third one is, more, you know, I saw there are a couple of, changes that have happened on the committee on, where it's become more independent. Any, initial feedback from further strengthening the governance, et cetera, that have come through, if you'd like to share in your current update? Thank you.
Thank you. Thanks a lot. So I'll probably start in reverse order. You know, we got listed around 6, 5.5, 6 years back, and corporate governance is the center of whatever we do. And it's a journey, right? It's not a destination. So in our recent interactions, we realized that there are still better practices than what we were following. In the case of these two committees, which you rightly pointed out, we had a presence of chairman in those committees as members. And when we—though these are perfectly, totally aligned with the legal requirement and totally compliant, we realized that if you pick up the large companies in the country, there are only limited instances which are available, wherein the chairman of the company, who is an executive, is also member of such committees.
We felt that a step in the right direction would be to not have executive director in the committee, like audit committee or NRC. That is why board yesterday decided to reconstitute the committee. Both of these committees now have only independent directors, and that is why that change was done. We believe that's a step in the right direction, and we will continue to make efforts to further improve on corporate governance practices wherever we believe there is scope for improvement. Having said that, I would like to specifically call out, the previous composition was exactly in line with the legal requirement, so it was SEBI compliant.
Now, moving to the first part of the question, though it is for the shareholders to answer, and it's a shareholder decision, since I'm privy to, you know, the decision-making process, I'll probably share that. Would be more comfortable having those conversations and not answering those conversations in the formal sector. But since you have raised it in the formal sector, I will probably attend that session. So the promoters raised the money as part of the IPO in 2019, and since then, there was no material transaction. It's a fairly large family, as you know, Inder Bhai, along with three brothers, you know, founded this company almost 50, 60 years back, and whatever money was earned by the company was deployed into the business.
And, over the period, now the second generation is also, you know, available, and they also want to do several other things. So to meet the personal requirements, from the second generation of the people who are not involved in the company, they decided to raise some money. It is... Though it, on the face of it, looks like a sizable amount, but it's not necessarily a sizable amount when you start thinking about the number of individuals who are involved. And they have their personal needs. They want to have their, you know, better houses or properties, outside of what they already have. Few of them would like to explore investments, outside of what they have. So it's only for personal consumption.
It is not for any other business venture or otherwise, and I don't expect this to be a regular feature. This was done practically, if I'm not wrong, first time or second time since the time we got listed. I would tend to believe this is going to be once in a while type transaction, not necessarily a regular transaction. On the second part on exports, I'll probably defer it to Chirayu, and he'll be, he will take your question.
So Girish, as I mentioned in my reply to Sonali, the last quarter was a bit weak because of a softness in one of our larger geographies. But and again, something which I mentioned to one of the participants, was that one needs to take a yearly view rather than a quarterly view as far as this business is concerned. We believe if you look at our numbers, going ahead in every quarter, you see an improvement, and that is why the contribution from international business to the overall company's income, which also see an improvement compared to what we have been able to register in the first quarter of this year.
Thank you, and all the best.
Thank you, Girish.
Thank you. The next question is from the line of Neeraj Jain from BNP Paribas. Please go ahead.
Yeah, hi, sir. Thank you for the opportunity. Sir, firstly, I just want to understand, like, what is leading to this high interest cost in Q1, like, and especially, like, I understand this might be on the back of higher channel financing, but my understanding is that we can, we are already close to 20% to 35% of channel financing. So in that context, why are we seeing such a sharp jump in this finance cost as compared to our top line growth? And secondly, my question is more on the margin front.
Again, I'm sorry if this has already been answered, but I just want to better understand, like, the major reasons that have been highlighted for the margin contraction is on the higher contribution from EPC business as well as the decline in exports. But these two issues seems likely to, I mean, likely to be there at least in the near term for next two to three quarters, and your EPC business is likely to contribute roughly high single digit versus what it used to be, 2% to 4% in last two to three years. As well as on the export side, that distribution model change is yet to stabilize. So, what is leading to our optimism on these margin expansions from here on versus what we saw in the first quarter? That's all. These were my questions. Thank you.
Thank you, Neeraj. On your first question on interest costs, the interest costs are linked to our procurement, not to general financing. In general financing, it's a non-recourse facility, and the facility is between the distributor and the bank. We are not liable to pay any interest on that. As far as the interest or financing cost is concerned, it's because the acceptances have been going up. So when we procure our raw materials, we would employ LCs over there, and that is where which is an interest-bearing facility. If you look at the acceptances number, compare it past Q1 versus this Q1, you would see that there has been a material change, and accordingly, there has been a rise in the financing cost.
On the second part, on the margin of the company, you are correct on your two assumptions, where the EPC business will relatively contribute higher than what it has done in the past. But there are two other things to be considered as far as the international business and the domestic business is concerned. Within quarter one, since the general business was affected because of higher commodity prices, and that is where the contribution from that business went down. That had a material impact as far as the margin profile of that segment is concerned.
Since the commodity prices are now relatively stable, we believe that this one-off instance which happened in the past quarter shouldn't be the case in the quarters to come, and that should result into better or improvement in the margin profile. On the international piece, again, as I had mentioned, there has been an increase in freight costs across the geographies. Again, this is something which is temporary. It should come down in the near future. As and when that happens, that should result into an improvement in margin profile. So these are both of this is something which will result into improvement in margin profile, and these are the confidence that we should be able to show an improvement in the quarters to come.
Sure, sir. Thank you for the opportunity. Yeah.
Thank you so much.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Mr. Gandharv Tongia for closing comments.
Thank you so much for your time. We look forward to your continued support. In case if there are any unanswered questions, please feel free to reach out to our group email ID, investor.relations@polycab.com. Thank you, and take care.
On behalf of Polycab India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.