Ladies and gentlemen, good day and welcome to the Polycab India Limited Q4 FY22 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gandharv Tongia. Thank you, and over to you, sir.
Thank you, operator. Good afternoon, everyone, and thank you for joining us. I hope you all are staying healthy and safe. I'm Gandharv Tongia, CFO at Polycab India Limited. On this call, we shall discuss the Q4 FY22 result, which was approved in the board meeting held yesterday. We will be referring to the earnings presentation, financial results and financial statements, which are available on the stock exchanges as well as investor relations page of our website. It can also be downloaded through the link or QR code on slide 9 of earnings presentation. Joining me today from the management team, we have our Chairman, Mr. Inder Jaisinghani, and Chintan Jajal, Head, Investor Relations on the conference call. Let me now turn the call over to Inder Jaisinghani for his comments.
Good afternoon, everyone. Our strong performance in FY21 to achieve new milestone even in one of the most uncertain accelerated business growth. Record free cash flow, healthy return on capital, and market-leading shareholder returns. We'll continue innovation in the brighter living. Our higher purpose, values and ethos will help us create a sustainable value for all and enrich the lives of everyone connected with Polycab. I now turn to take you through our earnings presentation.
I think overall business environment has remained quite supportive despite demand across most segments remain healthy. Indicators, like e-Way Bills are at new highs, while other indicators like IIP, Core Industries Index, Consumer Sentiment Index, amongst others, are trending up. Government initiatives and reforms are certainly helping, and even capacity utilization across most private industries is at good levels. Fresh CapEx announcements are at multi-decade high. Push towards transitioning to a renewable energy-driven ecosystem globally is like never seen before. All of these are obviously good signs of an initiation of a long capital investment cycle, which bodes well for our business. On the contrary, inflation is now perhaps one major risk to the improving demand environment. While we do not anticipate it to be any more challenging in B2B segment, we will remain watchful of consumer sentiment and how it plays out for B2C categories.
One key question raised by many is that copper and aluminum prices have gone so high. Won't it affect the demand for wires and cables? Generally, what we have seen is that first the macros are broadly favorable. Secondly, inflation is quite broad-based. Many industries are seeing stronger balance sheets. For example, given the higher crude oil prices, many projects in oil and gas globally have revived. Similarly, many sectors like metals have benefited. Lastly, but most importantly, quality of wires and cables is paramount for health and safety, and hence our customer segment, which is largely mid or premium, do not want to risk it. Nevertheless, cognizant of these challenges, we remain agile through our portfolio and go-to-market interventions. That gives us confidence to drive industry-leading growth.
Before we move on to presentation and financial review, I would again like to highlight that the P&L and segment numbers for current and prior comparable periods are restated due to divestment of Ryker Base. In accordance with the applicable Indian Accounting Standards, all related gains and expenses on divestment are reported under profit from discontinued operation as seen on page of P&L in consolidated financial statement. This, along with few exceptional items of last year, are also presented in slide 10 of this presentation. Moving on to slide 4, for the quarter ended 31st March 2022, our consolidated revenue grew by 35% year-on-year on the back of healthy demand environment despite sharp inflation, coupled with strong execution by our team. It is yet another quarter of highest quarterly sales we have ever recorded. As we have been highlighting earlier, one key focus area remains improving profitability progressively.
Even though most of our key inputs remain quite elevated, I'm happy to share that EBITDA margin improved sequentially by about 125 basis points, touching 12% led by better operating leverage and price hikes. Other expenses and other income as a percentage of sales were lower, while finance costs were broadly stable. A detailed breakup of our other income and finance costs have been provided on slide 13 of our earnings presentation. Our profit before tax at INR 4.3 billion increased by 17%, while adjusted profit after tax at INR 3.2 billion increased by 20% year-on-year respectively. Despite for the full year ending 31st March 2022, our revenue grew strongly by 39% year-on-year, despite the two waves of pandemic and unprecedented inflation. EBITDA was up by 14% with 10.3% margin.
Adjusted PAT also grew by 14% year-on-year. It was a year full of challenges, but we achieved several significant milestones. Our overall top line surpassed INR 120 billion, clocking 17% CAGR in the last five years. Exports is inching towards becoming a sustainable INR 10 billion business. Polycab is the largest exporter of cable and wires in India. FMEG is now our INR 12 billion franchise. The business also churned out healthy cash flows with negligible debt levels. Moving on to segment on slide six. Our wires and cables revenue grew by 39% year-on-year, despite a relatively healthier base. Demand environment continued to remain encouraging, which led to healthy volume growth. Domestic distribution driven business continued to see strong traction. However, institutional business was subdued compared to last quarter.
Housing wires posted strong growth led by continued momentum in real estate and renovation activities, as well as our demand generation initiatives. Our new sub-brand, Etira, was launched in the economy price segment. Trade sentiment in cables was temporarily restrained by significant volatility in aluminum prices, which touched nearly $4,000 per metric ton before correcting sharply. Export business grew by nearly 100% year-on-year. Excluding the large customer, the growth was slightly better, led by strong demand from sectors like oil and gas, renewables and infrastructure. Overall exports business was 7.6% of consolidated revenue in FY 2022. Our telecom business saw good traction.
Towards the year-end, Polycab was onboarded by Tamil Nadu FibreNet Corporation Limited or TANFINET as a master system integrator to implement the BharatNet phase two project and provide end-to-end connectivity with high-speed bandwidth using optical fiber cables in over 3,000 gram panchayats in 75 blocks across 9 districts of the state at a cost of about INR 5 billion under the Master Service Agreement. The revenue of this project will be accrued as per execution timelines over the next few years. Wires and cables segment margin continued to improve sequentially, led by judicious price hikes and improved operating leverage. During the quarter, inflation in our raw material basket as well as price hikes were in mid-single digits. On slide 17, our FMEG business grew 9% year-on-year and 11% on a sequential basis.
Overall demand momentum in Q4 was a bit subdued, largely attributable to broader inflation. The business also underwent realignment exercise to improve sales force efficacy and achieve distribution synergies, which temporarily hampered growth. Fans, lights and switchgear business posted healthy growth, while conduit pipes continued the strong momentum. Switches saw a decline due to supply challenges. Given the prolonged challenge in switches, we are now transitioning to in-house manufacturing, which is ongoing and likely to be completed in the current fiscal. The new state-of-the-art facility in Daman will help us improve product availability, drive innovation and reduce go-to-market time, thereby improving our market presence significantly. Solar business was muted, however for the full year it achieved over 50% year-on-year growth.
Profitability improved on a sequential basis, but was much lower than last year and our expectations, largely on account of higher advertisement publicity, the staff costs and input cost pressure. However, we are committed to achieving 12% annualized EBITDA margin in this business by FY26. On slide eight, other segments which largely comprise of our strategic EPC business witnessed an 8% year-on-year increase in revenue to INR 827 million. EBITDA stood at INR 122 million, down 16% year-on-year. On the balance sheet side, our financial position remains quite strong. Net cash position stood at INR 11 billion, up from INR 9.6 billion same period last year. Debt-to-equity ratio is merely 0.01x. Our efforts to optimize working capital is taking shape.
We are seeing good optimization of receivables as well as inventory. I would also like to highlight that towards the end of the year, we made a large one-off investment for buying office space in Mumbai. As we move forward in our growth journey, our teams are expanding. However, the current head office building has limited space to accommodate everyone in the near future. At the same time, we are also mindful of one other important element that is having adequate open spaces for cross-functional collaboration and create an inclusive workspace. Hence, we invested INR 2 billion to acquire around 55,000 sq ft of office space in Mumbai, very close to our existing head office. A part of this cost will be compensated by monetization of existing office in Mahim.
We are quite excited to move to our new head office, hopefully by third quarter of the current fiscal. The cost is reflected in the fourth quarter and full year CapEx numbers. In the meeting yesterday, board has recommended for the payment of final dividend of INR 14 per equity share. For the year ended 31 March 2022, subject to the approval of the shareholders, our dividend payout ratio on external profit will sequentially improve further to about 23% in FY 2022. Moving on to exciting stuff, Project LEAP, our flagship transformation project. Just to recap for everyone, Project LEAP is a multi-year program that includes a range of strategic teams and initiatives focused on growth, profitability, and long-term capability building for the organization across B2B and B2C businesses, with a goal of achieving greater than INR 200 billion or 20,000 crore sales by fiscal 2026.
We have partnered with global management consulting firm BCG, who will help us drive this transformation. It's been one year in the journey, and we have made significant strides towards our vision. In the first year, we primarily worked on four key areas. That is setup of right organization enablers, customer centricity, go-to-market and product portfolio optimization. Delving deeper in the first, that is setup of right organization enablers. Within this, the major initiative was setting up the right organization structure and fill critical capability gaps across the departments like manufacturing, procurement, supply chain, digital, and IT, and across the businesses, including B2B, fans, lighting, and retail wires. Over 90% of talent acquisition for critical roles was completed in fiscal 2022, while the balance will be done in the coming quarters.
Performance measures, rewards, and recognition be aligned to the growth strategy and cascaded through all levels of teams. New transformation management office was set up to strengthen governance and most importantly, monitor the implementation of various initiatives because we believe we have an ambitious vision for our organization. We also have the enablers, so execution has to be streamlined. Second area is customer centricity. During the past year, we redesigned the operating model of B2B businesses. The new model was implemented in pilot stage and showed tremendous opportunity for growth. Accordingly, we took a bold structural move to merge heavy duty and light duty cable verticals in order to unlock latent value through cross-selling opportunities and operational efficiencies. Given the significant distribution and geographical overlap, this initiative will materially improve customer servicing, as most of their B2B wires and cable requirements will be addressed by single point of contact.
Combined portfolio selling will drive faster business growth. Optimization of team structure and joint back-office operation will also enable faster rollout of GTM initiative while establishing a leaner cost base. Marketing and influencer management platform will be streamlined to increase efficacy. The new structure also includes key account management or KAM to enable selling of full product portfolio and bring in more customer focus. We designed and piloted unique structured influencer management to support our B2B businesses. Third area is GTM. I have talked about this earlier. As you may be aware, we put in lot of efforts to build presence in semi-urban and rural India. Post successful pilot projects in select rural markets, we took several initiatives to build the right infrastructure, portfolio, and team to leverage the immense demand potential of semi-urban and rural India.
We created a new business vertical called Emerging India, focusing on building presence in towns with up to 2 lakh population. Distribution architecture was designed post detailed mapping and evaluation of these geographies. Product portfolio is being calibrated to address specific needs of customers while offering innovative products at economical price points. Another area where we really work hard on is building presence in alternate channels like e-commerce, modern trade, canteen department stores. Currently, over 600 Polycab products are available on all leading e-commerce portals like Amazon, Flipkart, JioMart and Meesho. We believe these two new sales channel verticals will act as additional lever of growth for our B2C businesses. Core distribution expansion was driven by rigorous execution using digital tools and structured labor. We crossed expansion, clocking nearly 2x increase in direct town coverage.
Our authorized dealers and distributors increased from over 4,100 last year to over 4,600 now. Retail outlet reach increased by nearly 25% over last year to about 205,000 outlets now. We also successfully piloted end-to-end digitalization of front-end sales. It is currently being rolled out in phased manner. Lastly, we are trying to create a winning portfolio of products which are innovative and resonate with consumer needs. Towards the end of FY 2022, we launched new sub-brand Etira, which will play pivotal role in economy price segment as well as enable our expansion into Emerging India clusters. Currently, we have launched Etira House Wires, which has seen strong response. We will extend this brand to other categories progressively. Overall, we have built a robust portfolio roadmap for next 3-4 years across large businesses.
This will ensure we are present in segments which are growing faster and are margin accretive. NPD or New Product Development Councils have been set up across businesses for structured review and governance of innovation initiatives. We also saw healthy progress in premiumization journey. For example, premium products now contribute 16% to overall FMEG business, which was just 7% last year. That was broadly on FY 2022. Going ahead, we have chalked out some key focus areas for next year. One is improving customer centricity through enhancing visibility and control of our sales by significantly improving our understanding of end users and influencers. Secondly, we will aim tirelessly on executing the NPD roadmap to drive growth, market share gains as well as premiumization.
Third, again, go-to-market where we aim to digitize the entire distribution ecosystem and lastly, emphasize on governance, where we will monitor progress towards similarly defined growth and profitability drivers for all building blocks. That's about it on LEAP. We will continue to share periodic updates, and we are excited to see how the coming year pans out. While there could be challenges like inflation, pandemic among others, we are confident of our strategy and which will enable us to grow this proportionately. Thank you for patiently hearing us out. With that, I hand over the call to operator for Q&A.
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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets 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 Naval Seth from Emkay Global. Please go ahead.
Yeah, thank you and congratulations, Gandharv, for stellar performance. Few questions. First, can you outline what was the value and volume mix for Q4 and FY 2022 for cable and wires and FMEG?
Thanks, Naval. Thanks a lot for your compliment. If I talk about cable and wires, we can probably say that around 25% of the total growth can be attributed to volume and balance for value. In FMEG, it will vary from product category to product category, but it would have similar trend there as well.
Okay. Second, on your Project LEAP, as you stated that in terms of your dealer distributor expansion of 12-odd% and retail outlet by 24-25%. Now I see that this the major increase has come in Q4 because your corporate presentation of January suggests the same number of 4,100 and 1,65,000, and now it has expanded. During the same period, your market share has also improved by 200 basis points. Now, as you have outlined your strategy very clearly, can you also share what is the aspirational, you know, market share you want to reach with the kind of aggression you are, you know, outlining in Project LEAP?
Sure. The first one on the data points, these data points generally we revise on annual basis. You know, the presentation shared up to December probably had March data point, and, we'll continue to revise these data points on annual basis. As far as aspiration is concerned, Naval, you know our history. Inder Jaisinghani forayed into this business almost five decades back. We were no one in cable industry. We got to number one position in cable. Wires we started in 1996, we are number one. We enjoy almost 24% of market share of organized market. As we go along, we want to outpace the industry, and our peers and grow in disproportionate manner.
As part of Project LEAP, broadly we are targeting INR 20,000 crore of top line over a period of five years. Last year in FY 2021, we exited close to INR 9,000 crore of top line. In the first year of Project LEAP, we have already crossed INR 12,000 crore. It seems that we would be able to achieve INR 20,000 crore of top line under Project LEAP.
Is it fair to assume a 200 basis point kind of a number, you know, market share improvement, year-over-year, at least, in this Project LEAP period?
I can certainly talk about the past. This year, FY 2022, we have achieved, you know, we would have gained at least 200 basis point of additional market share. Our aspiration on Leap is to enjoy our leadership position and further enhance it. Even for FMEG, the aspiration is similar, that slowly and gradually we should get into top five market players, then to top three, and eventually in few select product categories, move upwards even from top three to further north.
Sure. Last two things. One is clarification that volume value mix you stated was for FY 2022. Is that correct?
Yes.
Okay. Lastly, can you provide some color on CapEx spend for FY 2023?
Historically we have incurred around INR 300-350 crore every year. Exception was last year, where we incurred INR 300 crore for regular CapEx and INR 200 crore for a new office, which I alluded to in the opening remarks. As we go along, I think a number between INR 300 and 350 crore is a sustainable CapEx number. Having said that, in year two of Project LEAP, we would explore what we need to do differently. For example, getting into additional product categories or further building on M&A initiatives. Excluding these two because they are still under study stage, a number of INR 300-350 crore is what we should factor in for FY 2023 as far as CapEx is concerned.
Sure. Thank you and all the best. I'll come back in the queue.
Thank you, Naval.
Thank you. The next question is from the line of Ravi Swaminathan from Spark Capital Advisors (India) Private Limited. Please go ahead.
Hi, sir. Good afternoon. Congrats on a very good set of numbers. If you can give a breakup of the wire and cables business in terms of ratio of how much is cables and how much is wires, if you can give that breakup, it would be great.
Sure. Thanks, Ravi, for your compliment. You know, cable and wire, broadly, I would believe that we are around in early 50s as far as cable is concerned, and the balance is wires. On a total basis, if I give you a breakup of entire INR 12,000 crores of top line, around 50-60% would be B2B and around 40%, give or take one or two percentage points, would be B2C.
40% will be B2C. Okay. Majority of the 40% will be wires, sir? So-
We've, you know, around 10% of our top line is FMEG, which is fan, light, loom and all that is product, and balance is wires.
Wires. Okay. Any difference in strategy between the growth in cables and wires? I mean, in the sense that do we aim for higher growth in wires vis-a-vis cables or vice versa? Is there any view on that? Because wires, I believe, carry better margins than cables, so just what are your views, sir?
Absolutely. You know, your understanding is absolutely correct. Wires are more profitable because they're B2C product, whereas traditional cables are B2B, where the profit margins are comparatively lesser than wires. You know, as I was mentioning to Naval a while back, objective is to get to number one position in all the product categories and then significantly expand our presence there, enhance our positioning. Though wires is more profitable, I don't think the strategy is that we would like to just concentrate on wires. We are looking for more holistic picture, wherein we want to go for growth across all the product categories where we are present. You know, Hindalco believes that if you are in a product category, you should be the number one.
If you don't want to be number one, you should not be there in the product category, and that is the guiding principle which we are trying to follow across all the business segments where we operate.
Got it, sir. The kind of volume growth that you anticipate over the next 1, 2 years in the wires and cables segment, what would be the target that you will be having? Any sense on that?
I can give you a directional thought process. Won't be able to give you a number. You can safely assume that we are going to grow significantly higher than the industry growth.
Got it, sir. My final question is with respect to the FMEG business. Can you give the revenue breakup for INR 1,050 crore in terms of fans, lighting, pumps, et cetera?
Yeah, absolutely. Fan would be around 1/3 of our top line of FMEG. You know, switch and switchgear would be around 15%. Light and loom would be around 15%, and then there would be other small business categories.
Got it, sir. Thank you.
Thank you. The next question is from the line of Sonali Salgaonkar from Jefferies India. Please go ahead.
Sir, thank you for the opportunity, and congratulations on a great set of numbers, sir. Sir, my first question is regarding the price hikes. Would you be able to elaborate what is the quantum of price hikes that we have seen in FY 2022 and particularly in Q4, and also any price hikes that we have taken from first April onwards?
Sure. Thanks, Sonali, for your compliment. If we talk about fourth quarter, at the product raw material product basket level, we witnessed inflation in mid-single digit, and more or less the price hikes we have taken is in similar range. That is where you can see the contrast, the contribution margin of March quarter is comparable with December quarter. We have been able to pass almost all the input cost increases to our end customer in the current quarter.
Right. Sir, and cumulative FY 22 and from first of April.
Yeah. You know, from the next year, you know the business model. The business model is we try to recalibrate our prices on a monthly basis after factoring two data points. One is change in the commodity prices, second is change in USD-INR exchange rate. We'll continue to do that. The intent is to maintain traditional cable and wire margin, which used to be between 11%-13%. Our intention is to maintain that range.
Got it, sir. Sir, my second question is regarding your B2B and B2C business. You mentioned that 60% is B2B right now. Sir, what could be the number about five years back?
My sense is that number would be around 70%, or around 70% of B2B and 30% of B2C around 5-10 years back.
Got it, sir. Sir, on an industry basis, what is the kind of, you know, channel inventories that we are looking at? Are they at optimum levels or lower? My question is, you know, from the point of view of volatile copper prices.
If I talk about FY 2022, I think these were at acceptable level. Since first of April, we have witnessed a fair amount of correction in both areas, copper and aluminum price levels. In such a situation, what we have seen is generally, dealers and distributors would like to reduce the inventory levels so that they don't lose on the margin. If the prices are on upward trajectory, that is where they build higher inventory levels. A small amount of correction is possible in channel inventory, but I don't expect that would be very material.
Got it, sir. What about FMEG inventory?
I think it is at acceptable levels.
Okay, normal levels. Lastly, any guidance you would like to share for the near term in terms of either the revenue or the margins, please?
Sure. You know, as I was mentioning to Ravi as well as Naval, that as part of Project LEAP, we want to touch INR 20,000 crore of top line by fiscal 2026, and we embarked on this program last year. By 2021 we did INR 9,000 crore of top line rounded off. This year we have done INR 12,000 crore. Directionally we are on track to achieve INR 20,000 crore of top line as far as, you know, our performance on top line is concerned. On the margins, on cable and wire, we'll continue to hover between 11%-13%, and we would like to improve as we go along from the current levels, which is hovering around 12%.
On FMEG, we aspire to get to 12% by FY 2026.
Got it, sir. Very helpful. Thank you and all the best.
Thank you very much.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your question to two per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Renu Baid from IIFL. Please go ahead.
Yeah, good afternoon and congratulations for good results. My top two questions here. First is on the FMEG portfolio. As you have mentioned, I mean, the business has been looking at multi-brand strategy positioning in the premium, mass premium, and also launching the Etira for the economy segment. As a company in the next 18 months, given that there's an inflationary headwind could be risk of down trading, how should one look at where would be the incremental focus be in the near term? And are you seeing any potential headwinds in terms of demand softness because of inflationary impact on near term softness in the real estate market to that extent? That's the first question.
Sure. Great question, Renu. I have Chintan also on the call, who is our Head, Investor Relations. I'll request him to participate in the call. Chintan will take this one.
Hey. Hi, Renu. I think our strategy in FMEG is really to cover all the price points. What we aim to do is, you know, straddle across all the price pyramid across price spectrums. If you remember, you know, our portfolio is largely focused more on the mid-premium space. Eventually over the last few years, what we've tried to do is increase the share of premium products. You know, say for example, in various categories, if I pick up fans, for example, the share of premium fans is increasing. Even in lights, the share of, say, premium panels, et cetera, is increasing. Overall, in consumer business, I think the premiumization percentage has improved.
Now, what we are trying to do is, you know, we are even trying to get into the economy price points or maybe sub-economy price points. We are working on our entire brand architecture just to ensure that, you know, there's minimal cannibalization and, you know, we spread our brand presence through effective brand communication. We recently launched a new sub-brand, Etira, which will play at these lower price points. Currently, we've launched it in wires. We also aim to extend it throughout our portfolio, and I think this will really help us, you know, develop our presence and resonate better with consumer needs and wants. Especially, you know, when we are trying to get into, say, alternate channels as well as geographies like semi-urban, rural, I think here you need the right product portfolio to really drive that penetration.
That's where, you know, these, this brand as well as our, all of our portfolio initiatives will help.
Sure. My second question is on the cables part of the business, where the company has been consciously trying to work some of the specialized cables and applications to improve the portfolio. If you can share some updates on this side and on the average INR 300 crore-INR 350 crore CapEx which you've mentioned, how should we look at the incremental spending across various sub-segments and categories in which the company plays?
Sure, Renu. On the first one, we are perhaps the only company in the entire country or probably in the continent, which can supply all types of cables and wires. We have only one space where we don't have adequate presence, which is EHV, and we are trying internally to figure that out, how we can offer products there. In this year, we have been able to get to new spaces, for example, defense, automobile, railways, and all of these product categories are niche with good margin and require fair amount of product innovation. On the CapEx, you know, out of around INR 300 crore-INR 350 crore, broadly two-thirds will go to cable and wire and one-third for FMEG.
Within that two-thirds, most of it will go for setting up new facilities to meet the export requirements as well as for the product categories where the utilization is fairly high. A part of it will go for maintenance and balance for backward integration. On FMEG, we will invest in product categories where we don't have enough manufacturing, for example, switches. We'll set up facilities where the utilization are fairly high.
Got it. Thank you, Nikhil. Back to you for more questions.
Sure. Thank you very much.
Thank you. The next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Hi. Thank you, and congratulations on the performance given the challenges. Just three quick questions, Gandharv. One is on the cash usage. I think, I'm sure that the senior leadership is looking at that number and, the cash flows are, you know, increasing year-on-year. You already have INR 1,100 crore. I'm thinking you'll have another INR 8 billion-10 billion next year as well, given what growth we're talking about. You alluded that you will spend, you look at new categories to get into or some kind of M&A. That's the first question. Secondly, anything on the FMEG EBIT margins is still tracking pretty low for the year as well as for the quarter. Anything you'd like to state for fiscal 2023?
Third is on the significant reduction I can see on inventory debtors and creditors across. Though the net working capital is, you know, almost the same YOY. What is really happening here? I'm sure BCG is working very hard here, and this was a very high priority area for us. Please comment there as well. Thank you so much.
On M&A, you know, when we embarked on this project, Project LEAP, we said that we have to do several things. What we decided is we'll split the entire project into 24 work streams. Then we picked up few work streams as year one priority and then few work streams for our year two priority and so on. M&A and evaluation of each adjacent product category, we decided that we'll take those up in the second year. As we embark on the second year of project, I expect by September quarter, we should be able to give you additional color what we should be doing.
You're absolutely right that a business that good is generating fair amount of cash, and it's better to use that cash to meet the growth ambitions of the company and by that means, improve the shareholder return. On FMEG margins, this quarter, of course, there was some pressure of inflation. At the same time, we got into this realignment because, you know, what got us to INR 1,000 crore will not necessarily take us to, just to say a number, say INR 5,000 crore, right? We have to change the strategy, and this is what we did. We ensured that we have right leaders in place. We have hired, for example, functional leaders from another peer company.
Suppose we have hired another veteran from Panasonic who was superannuated as MD of Panasonic to lead our FMEG or B2C business. We have done fair amount of investment both on the process and an enabler side, as well as on the capability side, and which is getting reflected in this year's margin. As I mentioned a while back, we are confident on 12% EBIT margin in FMEG business by fiscal 2026. This year we should be able to further improve on the existing margin levels. Third is the working capital. Your observation is absolutely correct. It is a focus area and will remain a focus area. If you split the working capital in two broad categories, one is receivables and second is inventories.
On the receivables, we have been able to further improve our channel financing penetration. Cable and wire, give and take two percentage points, we will be around 70% of channel financing. In FMEG, we have almost touched 50%, and which is helping us in reducing our receivable number of days, and these facilities are without any recourse. On the inventories, we have been able to optimize. Now, the game is to balance the availability so that you are able to meet the requirement of the customer and optimize the inventory. We will continue to work on this, and that is where, of course, you know, BCG is helping. The leaders we have hired recently, they are also spearheading these initiatives.
To give example, we hired someone as Head of Logistics, almost 8 months back, Vipul Aggarwal, from another peer company, and he is doing a fantastic job on optimizing the inventory levels and improving the, you know, overall delivery time to the end customer.
This is the base, right? Will that continue going forward, right?
On channel financing, you know, on cable and wire we are already at-
Net working capital, yeah.
Sorry, I missed that. May I request you to please just repeat?
On net working capital, is this the base going forward? I mean, we'll just improve from here, right?
Yes. Absolutely.
Okay. Just lastly, you answered the question partly saying fiscal 2023 CapEx, where do you wanna spend? Could you help me understand where you spend the capex? Just broad areas where you spend.
Sure. Yeah, let's split this in two parts. Around 2/3 will go for our regular cable and wire business, and 1/3 for FMEG. On 2/3 part of it, most of it will go for building capabilities and capacities for export markets and for the product categories where our utilization are very high and we need to put in additional facilities. That's one portion of that 2/3. The second one is on backward integration, and third is maintenance CapEx. On the remaining 1/3 in FMEG, most of it will go for additional capacities which we need to build. For example, for switches we don't have in-house factory, so we will set up that. There are a few product categories where our utilization is fairly high. We'll have to have capacities there. A part of it will also go for preventative maintenance.
Thank you so much. Best wishes for fiscal 2023. Thanks.
Thank you so much.
Thank you. The next question is from the line of Atul Tiwari from Citi. Please go ahead.
Yes, thanks a lot and congrats on very good set of numbers. Sir, just one question. How much has been the broad price hike taken over, say, past 12 months, you know, across cable and wire and FMEG?
As a result of this price hike, are you seeing any sign of either demand slowdown or downtrading in any part of your portfolios?
On cable and wire, you know, the fourth quarter, we would have taken a price hike of mid-single-digit%, and the inflation was also in the single-digit% range. Progressively, we have been able to improve our EBITDA margin. If you remember, you know, in the first half we faced a bit of challenge on maintaining contribution as well as EBITDA margin. After that, things have improved. Third quarter was completely better than the first half, and the fourth quarter was better than the third quarter. On FMEG also a mixed bag. There was bit of pressure on contribution margin in the first half of the year, but after that, we have been able to take price hikes there as well.
Any sign of demand slowdown or downtrading by customers in any of the portfolio as of now?
No, no. There's some bit of inflationary challenges in few of the product categories, but it is not broad-based. In fact, if you are eligible, if your product is meeting the specification and requirements of the customer, practically they won't challenge on demand.
Okay. Yeah. Good to hear. Thanks a lot.
Thanks a lot.
Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.
Yeah, good afternoon. Thank you for the opportunity. My first question was, you know, in one of the answers you mentioned that 25% is the price increase and about balance is the volume increase in both FMEG as well as cables and wires business. Have I understood it right?
Partly right. It's the other way around.
You're saying 25% is the volume growth and 15% is the price increase in both the segments.
Out of the total increase, 25% is because of volume and the balance 75% is because of price.
Okay, number two is it possible, like you mentioned in terms of volumes for FY 2022, and I presume FY 2021 was kind of a low base. If we were to look at in terms of volume CAGR for last five years, would it be possible to put a number? Would that be mid-single digit, high single digit, mid-teen? Any number? Ballpark number?
It would be slightly incorrect for me to give that number to you. I don't have that handy. I can give you know, a color on this. My sense is, our number would be significantly better than the industry number for the-
Okay.
You may want to cut last 3 years, last 5 years.
Yes, yes. That part I completely agree. What I just wanted to check is the aggregate growth, volume growth. The second question I had in mind is, you know, in terms of the pricing, you know, for cables and wires specifically. You know, in terms of pricing our product, is it the margin percentage or it is rupees per unit, maybe per meter, per kg, anything? If you can give some color.
It's percentage margin.
It's a percentage margin. Okay. You know, which brings me to the next question. You know, if copper prices and aluminum prices were to normalize to earlier averages, how would that impact in terms of, A, the volume and the margin? This is a hypothetical question, but just a color in your perspective on the same would help.
As I mentioned, it's a percentage margin. Irrespective of the fact whether top line goes up or down because of increase or decrease in input cost, we would be able to maintain the margin. Historically in cable and wire, we have hovered between 11%-13%, and we should be able to maintain that.
Got it. This is very helpful. Thank you so much, and all the best.
Thank you very much.
Thank you. The next question is from the line of Chetan Gindodia from AlfAccurate Advisors. Please go ahead.
Hi, Gandharv, and congratulations for a great set of numbers. Just two questions. Firstly, you said that the volume growth is 25% of the growth of this year. 40% was the you know revenue growth for wires and cable, so it kind of implies the volume growth. You know, this seems kind of underwhelming considering in the major building material players building players are seeing kind of 20% volume growth for this year given the real estate buoyancy. You know, just wanted to understand why has been the volume growth low and any reason for this? And do you expect this to improve going from here?
You know, the volume growth cannot be directly linked with the real estate. You know, our products are introduced at the different phases of the construction, and that is not an apple-to-apple comparison. As far as the future is concerned, as I mentioned a while back to another participant, that we are inching towards INR 20,000 crore of top line by FY 2026, and we will continue to outpace the industry growth.
Okay. Just lastly, wanted to understand on the payable days, so, you know, so whatever gains we have achieved from reduction in inventory days and receivable days, we have kind of given that away by, you know, decline in payable days. So, you know, what has really led to the decline in payable days? Because, you know, of this our ROCE not improving. So just wanted to understand what has led to the movement in payable days.
Yeah. I think that's a great observation. You know, we import copper. Copper is the biggest or most significant raw material. If we talk about our cable and wire business, we import copper from overseas market. In the last year, in the fiscal 2022, during the course of the year, we realized that because of logistic challenges, we should have alternate options available in the form of domestic supply. In domestic market, generally speaking, it is on cash and carry basis. You get supplies by making advance payments. As against the import area now, where you get, you know LCs, which could range between 90 days to 180 days. Which is what we have done in the current year, which has impacted the payable days.
Having said that, I don't think that will continue in future in the similar proportion. Of course, we will continue to have some supplies from domestic market, but in the form of cash versus LC, we should be able to get LC option from both the suppliers, domestic as well as import, and we should be able to go back to our regular payable days once we get to that arrangement, both with the international suppliers as well as with the domestic suppliers.
Okay. Got it, Gandharv. All the best to your team.
Thank you very much.
Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, Gandharv. Thank you for taking my question. My first question is on the FMEG. You know, when we look at your last 5-6 quarters, it's pretty much stuck, you know, in the top line of INR 340-350 crores on an average. When I look at your annualized number, the industry saw last year a huge pent-up, you know, your growth is just about 21%, and I'm assuming there must not be any or let's say a very less volume growth in that, to be honest. You started saying that volume growth is in the double-digit, even in FMEG. That's not adding up given what other consumer companies are saying, minimum category price hike is in the range of 15%-16% on an annualized basis. What's going really wrong there in FMEG?
Are the products what we have launched are not able to scale up? You know, if you can throw some light on that, because I'm not comparing you with the other players. You're so small in the industry because your growth should look way higher. You know, and that's also not happening even if you look at the, you know, Q4 numbers. That's my first question, if you could throw some light on that.
Yeah. No, absolutely. Your observation is correct. You know, our business underwent realignment exercise to improve sales force efficacy as well as to achieve distribution synergies, which has hampered temporarily our growth. We have also identified the need to change the overall operational model because what got us to INR 1,000 crore will not necessarily take us to, say, I'm just throwing a number, to INR 5,000 crore. We also had fair amount of change at the leadership level in our B2C business. At the same time, I must acknowledge this is momentary. For the next quarter onward and later in the current year, we should be able to bounce back.
If I were to give you additional color, for example, because of switches, we had some supply-side issues, because of which we, though we have taken the correct direction in the form of setting up a new facility, it has impacted our top line and bottom line performance for the year gone by. It's a mix of everyone. We have, you know, our action plan in place. A part of it has already been implemented in the form of new leadership, in the form of product innovation. To give you an example, we launched BLDC fan, which can be operated with the help of remote. Chintan a while back talked about Etira brand, which has been launched. The corrections are being taken. We should be able to bounce back.
As I mentioned a while back, we are confident to achieve INR 20,000 crore of top line, including for FMCG and retail, and a 12% EBITDA margin by fiscal 2026.
Secondly, just on cable and wire, though you talked about in the starting, I think everyone got confused that there is a 25% volume growth, but I think you clarified saying that it's a 10% volume growth. 25% of the overall revenue is the volume growth. The 10% volume growth, can you attribute some segments where it has come from? Because despite so much commentaries being spoken about, there is a phenomenal growth across industry, capacity utilization of private industries are so high, the volume growth is still about 10%. It will be helpful to understand where actually the growth is coming from and are you looking this volume growth at least a 10% growth even for FY 2023.
Is that the base number you're working with on the volume side? That's my last question. Thank you.
To give you answer on this 10% type growth or 25% of total increase top line, it is broad-based product by product. If I were to give you a flavor of cable and wire, it would range between 35% to 40-45% across all geographies. For example, in the case of wire, we witnessed a growth of almost 60% in southern market. In the case of flexible or LT PVC cables, we registered a growth of almost 60% in northern market. To give you a broad, big picture across product categories and regions.
As far as future is concerned, I would probably take you back to our ambition of INR 20,000 crore of top line by fiscal 2026, and we are committed to maintain the momentum and improve further as we go along.
Thank you, Gandharv. Thanks a lot.
Thank you so much.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks for the opportunity. On the Etira brand, basically, if we see most of the durable companies, they operate with one brand only, considering limited surplus for brand building activities. All the variants, be it economy, mid-price or even the premium, are introduced with the same brand itself. Why we have gone ahead with basically a new brand, Etira itself, at the low end of the market. And also, will Polycab and Etira brands both operate in the same markets, then there is a risk of cannibalization. Will they operate in completely different geographies? What is the plan on Etira brand? Yeah, that is the question.
Sure. Getting to the specific question, we engaged Kantar to conduct the brand study for us. We are also working with Ogilvy on our marketing side of it. They are the agencies for marketing for us. When we were going through the you know, product portfolio optimization exercise, we realized that in few of the product segments we don't have products available at the right price point or at all the price points. That is when we thought of Etira. Etira is slightly different product with slightly different product specification to meet the requirement of the customers who are cost-conscious without compromising, of course, on quality, and with a focus on different geographies.
Etira would probably cater the requirements of Emerging India, where all government led supplies which are required to be met by the dealers and distributors, where not necessarily they want to spend more money and at the same time they don't have higher expectation in terms of quality. For example, on the green wires, we have better specification, but it's slightly more costlier, which can be said is a like a premium variant of the regular retail wires. Whereas Etira is on the economy range or just sub-economy range product.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Gandharv Tongia for closing comments.
Okay. Thank you everyone for taking out time and attending this call. We would be happy to attend your questions. You can always reach out to me or Chintan or you can write to us at investorrelations@polycab.com. Thank you for your confidence in us. Take care. Bye-bye.
Thank you. On behalf of Polycab India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.