Ladies and gentlemen, good day and welcome to Polycab India Limited Q4 FY 2023 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, Chief Financial Officer, Polycab India Limited. 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, Executive Director and CFO at Polycab India Limited. On this call, we shall discuss the Q4 and full year FY 2023 results, which were approved in the board meeting held on Friday last week. We will be referring to the earnings presentation, financial results, and financial statements, which are available on the stock exchanges as well as Investor Relations page of our website. Joining me today from the management team, we have our Chairman and Managing Director, Mr. Inder T. Jaisinghani and Mr. Chirayu Upadhyaya, Head Investor Relations on the conference call. Let me now turn the call over to Inder Bhai for his comments.
Good afternoon, everyone. We concluded the financial year 2023 as a promising note, with several key achievements that have helped solidify our strong market position. The most notable of these achievements is our all-time high revenue and profitability, which is a testament to the hard working and dedication of our employees and management team. Throughout the year, we have demonstrated consistently in our business by paying more attention to our high power values. By prioritizing integrity, customer satisfaction, innovation, we have been able to differentiate ourself and build a loyal customer base. The combination of our solid market position and potential growth opportunities bodes well for our future success. I now request Gandharv to take you through our earnings presentation.
Thank you, Inder Bhai. Before I take you through the quarterly and yearly performance, let me give you a flavor of the macro environment. Despite a volatile global environment, India's economy remains resilient, with several high-frequency indicators showing sustained positive momentum. Key indicators such as manufacturing PMI, services PMI, and Eight Core Industries consistently remained above long-term averages. Growth momentum was visible in steel and cement output, GST collections, e-Way Bill generation, capacity utilization, and rising demand for electricity and travel. Double-digit credit growth, improvement in passenger vehicle sales, and downward trajectory of inflation indicate positive momentum for the economy. On rural front, sequential improvement in two-wheeler sales, along with robust revenue showing exhibits positive signs.
Specific to our sector, the government's continued focus on infrastructure through increase in budgetary allocation to an all-time high of INR 10 trillion at 3.3% of GDP augurs well for the cable industry. The residential sector being in its upcycle, with residential sales hitting 9-year high in calendar year 2022 and new project launches exceeding sales for the first time since 2013, exhibits extremely potent signs for the wires and FMEG industry. On the whole, we remain optimistic on the country's future growth as well as prospects for our areas of operations. Moving on to the presentation, please refer to slide number 4. For the quarter ended March 31, 2023, our consolidated revenue grew by 9% year-on-year on the back of strong growth in the international business.
EBITDA grew by 27% year-on-year, with EBITDA margin at 14.0%, a growth of 200 basis points year-on-year. The company registered its highest ever quarterly PAT at INR 4,284 million, a growth of 32% year-on-year and 19% quarter-on-quarter. PAT margin stood at 9.9%, an improvement of 170 basis points over that of the same quarter last year. The year was a remarkable one for the company, as we surpassed the revenue threshold of INR 140 billion for the first time ever, growing by 16% year-on-year. Achieving this growth in spite of a high base and lower commodity price environment is an exemplification of the kind of demand that exists in the market and the execution capability of the Polycab team to capitalize on this opportunity.
What is very important to note here is that the growth hasn't come compromising on the margins. Our EBITDA has in fact grown at a much higher pace than revenue growth at 46% year-on-year, with EBITDA margin at 13.1% and improvement of 270 BPS year-on-year. On the back of this, we have registered our highest ever quarterly PAT at INR 12,823 million, a growth of 52% year-on-year. Given that the commodity prices were on a downward trajectory this year, partly offset by the depreciation in INR versus US dollar, the strong growth this year is completely on account of robust volume growth in the cable business. Our net cash position stood at a strong at INR 18.9 billion against INR 11 billion same last year.
A detailed breakup of the other income and finance costs have been provided on slide 31 of our earning presentation. Moving on to slide 5. Herein, we have presented the key highlights for the year. I already talked about the improvement in EBITDA margins in spite of the volatile commodity price environment. During the year, we also continued to work on optimization working capital days, one of our key areas of focus since listing, successfully reducing it further to 50 days, a reduction of 11 days from last year. The reduction was achieved on account of improvement in channel financing penetration in the business. For the wires and cable business, the channel finance penetration stood at 83% during the year, up from 75% last year.
On trend of improvement in channel finance penetration since listing in the wire and cable business is presented on slide 11 for your reference. You may also compare our journey of improvement in working capital days over the past three years through slide 31 of the earnings presentation. A natural outcome of improvement in working capital days is an improvement in cash flow, leading to higher cash available for the business. As I mentioned earlier, the net cash on balance sheet increased by 72% this year over the last year. An important use of the cash available to the company other than for CapEx is to reward our shareholders through dividend payments.
In line with the business growth, and as has been our trend since listing, we increased our dividend payout for the year to 23.5%, paying dividend of INR 20 per share, a 43% increase over INR 14 per share paid last year. The last but a very important highlight for the year is the strong growth achieved in international business, which registered a growth of 50% during the year to stand at INR 13.8 billion, contributing to 9.8% of the company's total revenues versus 7.6% last year. One of our goals within Project Leap was to achieve a top-line contribution of 10% from the international business. During the year, we expanded our global footprint to 70 countries.
On slide 12, we have presented the performance of our international business since listing, along with how we are continuously expanding our reach globally across more and more countries. With tremendous increase in spends globally in sectors such as renewables, oil and gas, and infrastructure, the company is confident of growing the international business further, strengthening our foothold in various international markets. Moving on to slide 6. As is visible in the first chart, the wires and cable business accounted for 89% of our sales during the year, with FMEG contributing 9% and other segment, which primarily comprises of the EPC business accounting for the remaining 2%. We will now go deeper into each of these business segment performance during the year. Please refer to slide number 10.
During the fourth quarter, the wires and cable business grew by 12% year-on-year on account of strong traction in international business to register its best quarterly sales ever. EBIT margins too came in strong at 14.6%, an improvement of 300 basis points year-on-year. For the year, the business registered a revenue growth of 17% year-on-year on the back of strong volume growth, both domestically as well as internationally. The domestic distribution business grew by 20% year-on-year, with volumes growing by an impressive 21% year-on-year. The outperformance was primarily on account of benefits realized through the merger of HDC and LDC verticals last year. Within domestic distribution business, cables grew faster than wires. We have given a zone-wide split of our distribution channel on slide 11 of our for your reference.
Special purpose cable business also gained momentum, with sales growing 1.7x over last year, mainly driven by the railways and defense segment. Profitability within the segment was robust, with EBIT margin at 13.1%, an improvement of 340 bps over last year. Overall, the demand environment for the wires and cable business continues to remain strong, supported by government measures and revival in private CapEx. The company will leverage its strong market position, largest distribution network, product innovation, ample available capacity created by investments ahead of the curve, and digitalization to capitalize on the market opportunity. Performance update on FMEG business is given on slide 14. The FMEG business had a soft year on account of the realignment of distribution channel exercise undertaken during the year.
As part of Project Leap to enable improved pace of future business growth as well as weak consumer demand due to continued high inflation. Revenues were flat year-on-year for FY 2023 and de-grew by 20% year-on-year in Q4 FY 2023. Segmental EBIT turned negative during the year, largely on account of higher A&P spend, the stock cost, and input costs pressures. If we look at individual categories, fan business was impacted in Q4 due to heavy channel inventory stocking done ahead of the transition to the new BEE norms in Q3. However, the channel inventory of non-BEE compliant stock has now been largely sold, with the new BEE compliant inventory primarily being sold today in the market.
Post the transition, the company introduced almost 40 new BEE compliant SKUs during the quarter, with 60% of them in the premium and super premium categories, in line with the company's premiumization strategy. Our new fan manufacturing plant in Halol is now operational, adding an annual capacity to produce 6 million fan units. The company will manufacture the TEW, that is table, pedestal, and wall fans in-house in Halol plant, in addition to manufacturing the ceiling fans. The switches business witnessed a healthy growth in Q4, growing 1.5 x year-on-year and 1.9x quarter-on-quarter as we reap the benefit of our in-house manufacturing plant that became operational mid last year.
With the distribution realignment completed, we are confident of improving top line and bottom line from fiscal 2024, and we are committed to achieve 10%-12% annualized EBITDA margin in this business by fiscal 2026. In our numerous interactions with investors analysts, we have been asked about the drivers of growth for the FMEG business to achieve our Project Leap goals. On slide 15, we have given the details of the key elements that will form the growth engine for our FMEG business going ahead. Our top line growth will be on the back of distribution expansion, product innovation, structured influencer management program, and investment in brand building. While the drivers for our bottom line growth will be premiumization strategy, higher focus on product categories with better margins, strong backward integration, and economies of scale. Let's dwell deeper into each one of them.
As I touched upon previous slide, for distribution expansion, we are already done with the redesign of our distribution channel, wherein we have moved onto a super distributor model of operation, whereby a super distributor supported by 8 to 10 sub-distributor will cater to demand from a cluster of towns. Through our acquisition of Silvan last year, we have improved on our R&D efforts for the FMEG segment, stoking innovation as well as product development and launches across price points to cater to customers from all segments. Going ahead, this is the positive outcome achieved through our structured influencer management program, which we piloted in select cities, will be expanded to more cities as well as across dimensions of influencers to improve brand awareness as well as increase sales.
Lastly, the company will increase its investment in brand building through higher spend for its ATL and BTL marketing activities in line with its larger FMEG peers. The company has tied up with Ogilvy for its A&P activities and Interbrand, and has already scaled up its efforts in this direction towards its sponsorship of the three major International Cricket Council events of calendar year 2023, namely the ICC Women's T20 World Cup, the ICC World Test Championship final in the UK, and the ICC Men's Cricket World Cup 2023 scheduled in India later this year. In FY 2023, the company's A&P spend, which are largely for the FME segment and wires, increased by 51% year-on-year to INR 1,244 million. The trend will continue in years to come as well.
On the profitability side, we will focus on improving margins through premiumization of our offerings, leveraging on the brand building and product innovation efforts. Going ahead, we will have a greater focus on the product categories of switchgears and switches, wherein the competition is lower and hence margins are higher. In-house manufacturing and strong backward integration have always been our area of focus, and the same will start deriving benefits for us through lower cost and economies of scale in addition to better product quality and availability. Through our focus on all these strategic areas, we are confident of being able to scale up our FMEG business from FY 2024 onwards to improve its contribution share to overall revenue as well as improve its profitability to achieve our FY 2026 LEAP goal.
Moving on to slide 17, which gives performance details about our other business segments, which are largely comprised of our strategic EPC business. The segment witnessed a revenue growth of 22% year-on-year in FY 2023 to stand at INR 3,584 million, with EBIT margins at 12.1%. We expect the annual sustainable operating margin in this business to be in high single digit over mid to long term. Overall, the financial position of the company continues to remain healthy, with debt-to-equity ratio at a measly 0.02x and the business generating good cash flows. Key financials are available on slide 28-31 of the earnings presentation. That was the financial update for the quarter.
Let us talk about our key transformational project called Project Leap, which completed 2 years this month. As you all are aware, we embarked on this project post FY 2021, partnering with BCG to work on a range of strategic themes and initiatives focused on growth, profitability, and long-term capability building for the organization across B2B and B2C businesses, with a goal of achieving INR 200 billion of top line by FY 2026. Under the project, we have been working on various streams clubbed into 4 key strategic themes, namely customer centricity, go-to-market excellence, winning with new products, and set up of organizational enablers. We have made tremendous progress in each of these key areas over the past 2 years. I will take you through each of these topics one by one.
Under customer centricity, we have been redesigning our business operation, keeping the consumer's needs and convenience at the center. Keeping the same in mind, we had undertaken the merger of our HDC and LDC verticals last year, realizing the customer as well as distribution overlap between the two segments. Our robust performance during the year in the cable business was an outcome of this strategic maneuver. On similar lines, during the year, we undertook the merger of fans vertical with lights vertical and retail wires vertical with switches and switchgear vertical. We are confident of starting to realize the benefit of this merger through increased cross-sales and operational efficiencies from fiscal 2024 onwards. Being a largely distribution-driven business, we did not have a complete handle on our end customers.
We started deploying our own fleet on-street team to get to know our end customers, understand their needs, and thereby generate higher business from them. Through these efforts, direct quotes from Polycab have increased from 16% in fiscal 2022 to 34% in Q4 FY 2023, indicating a strong shift towards control over pricing, market dynamics, and direct dealing with customers. We have also initiated an integrated and structured approach for strategic key accounts across real estate, OEMs, and data centers, and special cable industries, making it easy to serve customers with custom or tailored solutions. Under the agenda of improving our go-to-market strategy, we have been focusing on enhancing our distribution reach in B2C business and increasing presence in white spaces for B2B business.
We expanded our reach to 146 under-penetrated cities for B2B business as well as onboarded 317 and 371 new distributors respectively for our retail wire and FMEG businesses. We have also identified distributors with the opportunity to cross-sell, as well as are working on activating distributors with low growth rate or degrowth by actively working with them. We are also strengthening our presence in alternate channels of sales, such as modern trade and e-commerce, to increase penetration in Tier 2 and Tier 1 cities. As part of winning the new product strategy, we have revamped our entire fans portfolio. With premiumization at core, we are focusing on more design and aesthetic-oriented product portfolio with fans up to five-star ratings. We have also changed our strategy for the switchgear segment with focus on gaining market share.
Following the same, we took price revision for 10 kA portfolio to ensure parity with the competition, as well launched new 6 kA MCB products. Following success of Etira wires, we have launched the Etira brand in the switches segment as well to capture the price-sensitive customer base. Overall, we have robust product pipeline across segments supporting our future prospect. On the setup of organizational enablers, we are pursuing structured distribution addition, planning, and monitoring with focus on technology to exemplify as well as simplify the entire process. We are also leveraging technology to manage the key cost drivers in the FMEG business to drive up its profitability. As I had communicated in our quarter two earnings call this year, we have set up a digital vertical focused on advancing our business initiative.
A digital console set up under the vertical is looking after the implementation of all the initiatives on the vertical through a detailed B2C and B2B digital roadmap. Towards the end of the year, we also upgraded our ERP technology to the latest version of Oracle. This will allow us to utilize relevant business insights in real time and deliver more accurate business decisions. On slide 20, we have presented the key themes and priorities for the company under Project Leap for fiscal 2024. We will be regularly updating our stakeholders of our progress on the same. Coming to a topic that is extremely important for us and which will form the bedrock of our business operations in the future, which is our ESG strategy. Polycab has finalized its ESG framework aligned with international ESG protocols, guidelines, and standards, along with the ESG charter.
The ESG framework will be ingrained into the company's ethos with all business decisions taken now onwards focused on sustainability on the pillars of environment, social, and governance principles. On slides 23 and 24 of the earnings presentation, we have presented our ESG strategy and approach. The ESG material topics have been identified keeping in mind our business as well as its effect on the environment and the society as a whole. The ESG council, consisting of various functional heads, will be responsible for implementing the policies formulated under the framework with the help of ESG working group. The board, along with the CSR and ESG committee, will be responsible to monitor the implementation of the framework. We have taken various internal goals across different ESG material topics, we will be communicating the progress we made on each of those goals in our annual report.
We will also be looking to get an ESG rating from a well-known ESG rating agency during the current fiscal. While the company has always been aware and focused on carrying out its business in a sustainable manner, we believe the implementation of a structured ESG framework will enable us to build resilience in the business, transform culture, and create long-term value for all our stakeholders. To conclude, I would like to have a look at slide number 7, wherein we have given details of our performance on certain key parameters since listing. Company's revenue have grown at a CAGR of 15% over the four years, growing from INR 80 billion in fiscal 2019 to crossing INR 140 billion this year.
The remarkable growth has been achieved in a profitable manner, with EBITDA margin improving by 120 basis points from 11.9% to 13.1%. From a file INR 3 and INR 450 million net cash in hand in FY19 and negative cash prior to that, we have improved our cash flows, optimizing our working capital and reducing debt to have INR 18.9 billion of net cash on balance sheet as at the end of fiscal 2023. From being largely a domestic player, the company has evolved into an international player, being one of the top 15 wires and cable companies in the world, aiming to be among the top five in the near future. Our international business has grown 6x in the four years since the listing, to now contributing to 10% of the company's overall revenues.
Domestically too, we have seen healthy growth in our market share from 18% in fiscal 2019 to 22 to 24% in fiscal 2023. While we have progressed, we have also generated value for our shareholders, with Polycab being one of the leading value creators in the country, with market capitalization growing at a CAGR of 57% since listing and dividends growing at a CAGR of 63%. While we have made considerable progress in the past, we strongly believe in our future growth is going to be exceptional. The domestic as well as international business environment is conducive and the company is completely ready to capitalize on the macro opportunity to become one of the best success stories of the country. That was the update for the quarter and the year. Thank you. 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 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. Our first question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Sir, thank you for the opportunity. Team, congratulations on a great set of numbers and a wonderful and detailed presentation. A few follow-up questions from my side. Firstly, your operating margins for Q4 are very strong, growing both year-on-year and QOQ. Could you highlight which are the major factors driving such a strong operating margin?
Thanks, Sonali. Thank you so much for your kind words. I have Chirayu, also in the room. I'm going to request him to provide his inputs to your questions. Over to you, Chirayu.
Hi, Sonali. Operating margins have definitely been on the higher side of our guided range. This has been through better contribution of our exports business, as well as better margins made through some good orders received on our cables business as well. Combined for the two, we have been able to generate better margins towards the higher range of our guided guidance. If you look at the overall on a yearly level, our EBITDA margins from the cables and wires business were at 13.1%, again within our guided range. We expect that in the future as well, one should continue to look at the margins to be in the guided range as well.
Understand. If I may ask, what kind of operating margins does our international business, you know, register? If it has grown at 50% year-over-year and we are getting such good margins, then would really matter what is the operating margin we are working at.
Sonali, it generally depends on product to product. On certain categories, the margins are similar to what we make at a domestic level, while for certain product categories they are at 300-400 basis points higher. Depending on what the product mix is in that particular quarter, your margins from the international business will be.
Got it. My second question is regarding price hikes. Have we taken price hikes across any of the products in Q4, either cables and wires or fans? Fans, I mean, new BEE models, and what would be the quantum of that?
We have taken our price hikes in line with how the commodity prices have moved in the cables and wires business. This would be, again, this would be in the mid-single digits level. Again, on the fans business, when we've introduced the new BEE compliant products, again, the price hikes have been from low single digits to high single digits, depending on which product category we're in, averaging at mid-single digits for the entire portfolio.
Understand. Any guidance for CapEx for FY 2024?
Like we had guided, in our quarter three earnings call, we will be having CapEx of about INR 600 crore-INR 700 crore for this calendar year.
Understand. Last question from my side. Private CapEx remains a strong lever for your cables and wires business. Could you help quantify what is the industry capacity utilization right now? I do remember you had called out for about 73%-74% last quarter. Does it remain in similar range?
We don't have an updated data point on that as of right now, so we'll have to look at how the various companies give out the results, and maybe we'll be able to comment on that post that.
Sure. Thank you, and all the best.
Thank you.
Thank you. Our next question is from the line of Mr. Atul Tiwari from Citi. Please go ahead.
Yes, sir, thanks a lot. First of all, congratulations on very strong performance yet again. My question is on next year. Any, like, more definitive guidance for revenue growth in cables and FMEG for FY 2024?
Thanks, Atul, for the kind words. As you are aware, we normally do not give guidance on a yearly basis. We have given a guidance of about INR 200 billion of top line that we want to achieve by FY 2026 through our Project Leap. We are continuing to work in that direction. Depending on how the macro environment is panning out and how we are looking at our business, we expect double-digit growth of revenues next year as well.
Okay. for FY 2023, out of, say, INR 128 odd billion of revenue in wires and cables, any qualitative comment on how much of it is cables and how much it is wires?
Roughly, it is in the same range as last year, would be somewhere around the 70/30 range.
70% is cables, you mean to say?
Yeah.
All right. Within cables, how much will be like direct institutional sales that you guys are doing, and how much will be through dealer and distributor network?
Largely, we operate out through our dealers and distributors network, and broadly about 88%-90% of our sales normally happens through dealers and distributors network.
Okay, 80%-90% of 70%, because anyways the remaining 30% is wired through the dealers channel itself, right?
Right. Right.
Okay. Okay. Thank you. Thanks a lot.
Thanks, Atul.
Thank you. Our next question is from the line of Achal Lohade from JM Financial. Please go ahead.
Thank you for the opportunity. Congratulations for great performance. What I wanted to understand was, you know, in terms of the margin difference between cables and wires, is it possible to give some clarity? Would the margins be similar or they would be different for cables and wires?
Thanks, Achal. Thank you for the kind words. In terms of margins at an EBITDA level, cables and wires would have a differential of about 400 basis points. Cables would operate at about 10%-11% of margin range, whereas wires would be at about 14-15% of EBITDA margin range.
Okay. You know, in terms of the margin improvement, you called out that it is the international business which has driven this margin improvement. Is there any mix also which has driven this margin improvement for the fourth quarter?
Other than the international business, like I said, in the cables business domestically as well, we were able to get some orders which had better margins. That is how it has contributed at an overall level. The product mix has broadly been same, but otherwise, the cables has, like we've mentioned, cables has done naturally better than wires for this year.
Got it. Is it possible to get some idea about the metal consumption, the tonnage growth YoY for copper and aluminum put together?
As you are aware, the commodity prices as compared to last year have been actually on a decline. If you look at how the USD INR rate has panned out, it has more or less balanced the negative impact of the commodity price decline. If you look at, for us for the year, the revenue growth that we have achieved would more or less be through the volume growth, yeah.
Understood. Understood. Just last question, if I may. In terms of the raw material, what would be the split? Is it fair to say most of the cables will be aluminum while wires will be copper, so split for copper and aluminum consumption would be similar fashion?
It depends on the end product. We can assume that at the company level it's going to be 50/50. Wires, as you rightly highlighted, is predominantly copper. When it comes to cable, it has both cable as well as copper as well as aluminum.
50% will be copper, 50% aluminum at the company level.
That's right.
Understood right in the... Yeah.
Absolutely correct.
Just one more question, if I may.
Sure.
On the exports front, you know, you mentioned we are now exporting to more than 100 countries. Is it possible to get some color in terms of, A, what are the new countries you have added? B, are we there in terms of certification for these key markets in terms of all the certification in place, or there are wide spaces there as well?
We are now exporting to almost 70 countries. In terms of certification, every year we are making progress. One of the success story is U.S., where we have almost all the required approvals in place. Similarly, we have done that in other geographies, some part of EU, Australia, Latin Americas. We believe that every year we would be able to add additional geographies, but chunk of it should come from developed countries like U.S. and Australia and a bit of EU.
How much would be the contribution of these geographies at this point in time, Gandharv?
US would be around 50%, 50, 60%. Other countries would be in, ranging between 5% to 10%-12%.
Understood. Thank you. I have more questions. I'll come back in the queue.
Sure.
Thank you.
Thank you.
Our next question is from the line of Ravi Swaminathan from Avendus Spark. Please go ahead.
Sir, congrats on a very good set of numbers. My question is, sir, with respect to the cables and wires mix, which now is 70/30 is what you had mentioned. Is there a chance of wires increasing in proportion over the next 2-3 years? What is the kind of any ratio target that you have with respect to wire mix?
Wires being a better margin product, we are definitely focused on improving its mix into the overall cables and wires mix for the company. As you are aware, we are taking various initiatives on that side. We are doing much more brand building. You would have seen couple of, few of our commercials as well on the last quarter. We had also introduced the Etira brand for to look to capture the low economic segment. In this, we had also reintroduced our Green Wires category into the premium segment. We are actually doing taking a lot of initiatives to make sure that the wires segment grows at a faster pace.
That is, of course, that is how we'll try to go in the future as well. In terms of target mix, we don't actually have target mix in terms of cables and wires, but we do look at B2B versus B2C mix that we want to achieve by FY 2026, which is 50/50. By B2B, I mean the cables business as well as the EPC business, and by B2C, I mean the wires business plus the FMEG business.
Got it. In terms of the entire cables and wires portfolio, any sense on the volume growth that would have happened, over the past 2-3 years? It will be very difficult for you, I mean, given many SKUs are there, but can you hazard a guess in terms of volume growth?
The volume growth has been good for the entire industry. While I wouldn't be able to comment on what it has been for the past 2, 3 years, as I don't have that data handy right now, but as I mentioned on my previous reply for this particular year, the entire revenue growth would have been more or less been through the volume growth. It would have been somewhere in mid to high teens of volume growth for the year.
Got it. Thanks.
Thank you. Our next question is from the line of Girish A. from Morgan Stanley. Please go ahead.
Hi, sir. A couple of questions. Thanks for the opportunity. Firstly, with me looking at exports, you know, how should we look at the outlook going into the future? Would it mean that from 10% year, would it continue to grow at higher clip? Would it be 12%-14% of your revenues going into the next 2, 3 years?
We continue to be very aggressive in terms of how we are looking at our international business. As Gandharv mentioned in his opening remarks, we are already amongst the top 15 cables and wires business in the world, and are looking to be amongst the top five in the future. For this particular year, the contribution of exports business was at about 9.8%. Within Project Leap, we had taken a target of achieving 10% of overall revenue through the international business. We would continue to try and achieve this or continue with this until FY 2026. As of now, we wouldn't want to revise any guidelines going ahead.
In terms of cables and wires, if I had to compare you to your peers like Havells and KEI, of course, the larger ones, would you say your margins in cables are probably slightly higher than their numbers?
Yes, I get. Great observation. I think on a call, I would not be able to talk about the margins of other large listed peers. I can certainly tell you that because of our quality as well as availability, in most of the SKUs, we enjoy premium. That is the reason why it is getting translated in a better bottom line.
Okay. Let me ask you differently. Would it mean that your wire margins are comparable, because your mix is lower at 30? Would you say that that is more or less comparable to peers?
Not all the peers, but a few of the large peers is comparable, and it would differ from geography to geography. Your experience in the western market in Lower Parel could be different from what happens in, say, in Delhi.
Okay. The final question is on FMEG revenue split. Can you help us with the FY 2023 split, please? Because that's something that you provide.
Sure.
any outlook on this for margins for FY 2024? Like, because, you know, the margins have been all over the place. How should we think about FY 2024?
Sure. For the FMEG part, broadly about 60% odd of the top line is contributed through our fans and lights and luminaires division combined. The switches and switchgears would contribute to about 15%-16% of the FMEG top line, with the pipes and fittings contributing to another 15%. The remaining would be through our other small businesses such as solar, agro pumps and so on and so forth. In terms of margin guidance, we have been vocal about us achieving about 10%-12% of EBITDA margin range by FY 2026. We are working in that direction. I'm pretty confident that we should be able to be there. The improvement in margins will be a gradual change that will be happening.
From this quarter or this year onwards, you'll start seeing our margins improve towards our targeted EBITDA margin of FY 2026, but I wouldn't be able to give you a specific number for this particular year.
Just one small question on pumps. I mean, are you moving in line with industry, and how is the industry trend being for FY 2023? I mean, I think some players like Crompton have taken a price cut. I mean, if you can just explain our positioning in terms of price points.
Are you talking about the fans portfolio specifically or how is it?
Pumps. I was referring to pumps.
The pumps portfolio is actually a very, very small business as of now, right now, as of right now. In that sense, price variations or the impact wouldn't be contributing much or making much differentiate to our top line of the FMEG segment.
Okay, thanks.
Thank you. Our next question is from the line of Shrinidhi from HSBC. Please go ahead.
Yeah, hi, and thank you for the opportunity, and congratulations on good set of number. I have one question on capacity utilization. Would it be possible to share company's capacity utilization in full year 2023?
Thanks, Shrinidhi. Capacity utilization for cables and wires would be at about sub 70% number. For FMEG, of course, it would depend to vary product and product device. Like power switches business, we have just started manufacturing last year itself. Switchgear has been operational, so that it would be operating at about 65%-70% of its capacity. We have pretty much a good capacity in other product categories as well. The thing about FMEG utilization is that our capacity utilization will never be a roadblock for us to grow because you can set up new capacity within the time period of a couple of months. Our capacity utilization will never be a roadblock for our FMEG growth.
Right. Second, if I look at condensed financial statement, there we talked about B2C revenue being flat YoY. Just wondering, is wires business was flat year-on-year for the company?
Yes, more or less it would have been flat. Low single digits. Yes.
Okay. In that way, if you look at 2023 versus 2022, we overall cable business grew by about 17% odd, largely led by cables. Mix was actually unfavorable, and despite that, margins have kind of expanded. Is it fair to say that the underlying margins have improved for both cable business as well as wires business because despite unfavorable mix, margins have gone up?
Yes, that would be a correct observation.
Right. Okay. Thank you for answering my questions and all the very best.
Thanks, Shrinidhi.
Thank you. Our next question is from the line of Rahul Agarwal from Incred Capital. Please go ahead.
Hi. Thank you and good afternoon. Congratulations for a very strong year. Commendable job again at Polycab to meet investor expectations. You know, two questions largely. First is, you know, copper was volatile in the quarter. We've seen two listed players reporting, and they haven't seen such a strong wire growth, neither on, you know, and obviously not on cables. I understand LDC, HDC merger, you entering new states, but you know, I understand exports helping out. Purely from an India perspective, what is driving Polycab's outperformance? Because, you know, whenever we are doing channel checks, we are hearing more competition on wires. We are hearing more fighting between south and north getting into south, western players getting into more east. Just getting a bit difficult to understand.
Of course, you have mentioned a lot of building blocks like four themes, five themes on why Polycab is doing great and how your consultants have helped you out. What could be like a top two reason for Polycab to beat, you know, industry growth on cables?
Rahul, probably I would guide you to look at our corporate presentations where, wherein we have given the economic moats that works very well for the company. We have highlighted about four to five different economic moats that have helped Polycab to be the largest cables or wires and cables business in the country and continues to be the primary growth driver for us. First of all, it's because of our largest distribution channel that we have. The distribution, we have been working with the same distributors for almost two to three decades now. We, for some distributors, we have also been working for the second or third generation of this. As you are aware within India, the relationship with your distributor is very important.
That is some, that is one of a unique advantage that the company enjoys. Second is, your, the number of SKUs that the company has. As you're aware, we are perhaps the only company on the continent to manufacture each and every type of cables that can be manufactured. If you look at any particular infrastructure project, there will be requirement of about 50-60 different types of cables. Polycab is the only company that is able to provide all those different types of cables. Of course, as an, as a developer or as an, guy with a project, you would prefer to go to one single guy and get all your cable requirements rather than to go to 2-3 different guys to get all your cable requirements. This is the second advantage.
Third is we have been working very well on our digital enablers. We have reduced our turnaround time of providing our products to our end dealers or customers to almost less than 24 hours. What does help over here is that this reduces the amount of inventory that the dealer or distributor has to maintain at his end, and hence it improves his margin. That is why the dealers and distributors love to work with us. These are 3 to 4 different economic moats which the company has, and that is the reason now why Polycab has been able to perform so well in the cables business and continues to do so.
Got it. Just follow up on this was, you know, on wires. We hear, you know, a lot of other brands being pretty aggressive. We're hearing Ducab entering India as well on wire. Just wanted to understand your thoughts on competition on wires. Like, do you expect Finolex, KEI, RR Kabel, Apar, V-Guard? You know, most of these companies have been saying that, you know, their wire market shares have been improving. What is your thought on this?
I think it would be unfair to say that there is no competition in any business. We are confident of our quality and availability, and our numbers since listing are, in a way, a testimony of our performance. We have no concerns on the competition and we'll continue to up our game year after year.
Lastly, on working capital, should we expect more improvement? That's the last question. Like, we are already at 50 days. Should we expect anything more or we are at optimum level?
I mean, for the purpose of modeling, it's best to continue with a number between 50-55 days. We will of course attempt to further improvise. You know, in our business we have to always maintain a fine equilibrium or balance between availability and optimized inventory levels. That is where I believe for the purpose of modeling, we should assume a number of between 50-55.
Perfect, Gandharv. Thank you so much. Best wishes and have a good year, fiscal 2024.
Thank you so much for your kind words.
Thank you. Our next question is on the line of Venkatesh Balasubramanian from Axis Capital. Please go ahead.
Yeah. Thank you for the opportunity. The first question is on the cables and wires business, the international part of the business. Can you throw a little more light, what is the kind of sales which you do there? Is it more international sales as B2C sales or is it more B2B?
Venkatesh, largely we do B2B sales. We are also in the process of improving our distribution network in all the geographies that we are present in. We are taking incremental steps, starting from our largest geographies and would continue to do so in our other geographies as well.
Okay.
We supply each and every different types of cables that are required. Largely, we are seeing better demand from the renewables, oil and gas, and infrastructure sector. These are the sectors which are driving growth for us.
What I was trying to understand is the B2B part would be to large industries, it would be to large conglomerates, builders. How does the sale happen? Is it happening through a distributor or you're dealing with these guys directly?
It's a mix of both. We started with large supplies to large institutional or EPC parties. Over the period of last two and a half years, slowly and gradually, we have started setting up our distribution arms. We very recently signed up for the warehouse in the US, and slowly and gradually we are moving towards distribution. This is akin to what we did in India in the last 10, 12 years. We were more like a distributor-driven business in last 10, 12 years and moved to a distribution-led business. This is what we believe we should replicate in the exports arena as well. Every quarter we are improving our contribution of distribution business to our overall international business.
Okay.
Thank you. Sorry to interrupt, Mr. Venkatesh. May we request that you return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you. Our next question is from the line of Abhijit Akela from Kotak Securities. Please go ahead.
Yeah. Good afternoon, and thank you so much for taking my questions. Congrats on a great performance again. Just on the margin, outlook for wires and cables. We've been saying 11%-13%, and yet in the last couple of quarters we've been significantly ahead of that. Was there some sort of maybe, you know, temporary benefit arising because of falling commodity prices? Is that the reason why we are sort of, maintaining this, guideline? Should we sort of realistically expect a higher margin, you know, trajectory in FY 2024 as well?
Abhijit, we have been guiding 11%-13% margin range for our cables and wires, and that is what we achieved at an yearly level. Of course, at quarterly level, there might be some or the other volatility because of different product mix that we might be able to achieve in a particular quarter. Overall, you should consider it 11%-13% as the EBITDA margin range for the cables and wires.
Okay. Sure. Also just one other thing. For the fourth quarter, is it possible to just give us a split of domestic growth between, say, volumes and prices year-on-year?
If you, if you are looking at our cables and wires distribution channel sales, the volume growth would be at about 21%, versus a revenue growth of 17%. You could say the value growth was negative, but the volume growth is something that took the revenues higher.
Yeah. Those numbers are for the full year, right, Chirayu? For fourth quarter, how much would it have been?
For the fourth quarter, the volume growth would be in high single digits.
Okay. Got it. Thank you so much, all the best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is from the line of Alok Deshpande from Nuvama Institutional Equities. Please go ahead.
Yeah. Thank you. Congratulations on a great set of numbers and a great year. Two questions from my side. Firstly, this working capital improvement that has come through. Now considering that, you know, going forward, we'll be doing, you know, more B2C, how do you expect this working capital trend to go ahead in terms of FY 2024-2026? That is one. Secondly, in terms of your goal of 20,000 crores revenue in 2026, what are the other metrics that you are looking at in terms of where you think the margins would be or, you know, where do you target your international business to be by that year? That's my two questions.
Sure. Thanks, Alok. In terms of working capital cycles, as Gandharv mentioned in his previous comments, that one should consider 50-55 days to be the ideal working capital days going ahead as well. In terms of our FY 2026 leap goals, other than the INR 200 billion of top line that we want to achieve, if you look at our margin guidance, on cables and wires, we continue to guide between 10%-13% of EBITDA margin range. On the FMEG segment, we have guided a 10%-12% of EBITDA margin range that we want to achieve. On the international business, our aim is for the international business to contribute to about 10% and higher to the overall top line. That is where we'll continue to work.
Okay. There is no revision for the international business share as that number is already close to where you are currently, right?
That's right, Alok. As of now, we don't want to give any revised guidelines on any of our FY 2026 Leap goals.
Okay. Understood. Thank you so much.
Thank you. Our next question is from the line of Praveen Agrawal from Prabhudas Lilladher. Please go ahead.
Thank you for taking my question. My question is related to the merger of HDC and the LDC vertical. Can you give some color how much of the volume growth we had achieved with this and the margin improvement in the financial year FY 2023?
Praveen, we did the merger of the two verticals in FY 2022 itself. In that sense, whatever growth in terms of volume, value, whatever is we achieved this year has been because of the merger of the two verticals. We wouldn't be able to carve out what has been the difference that the vertical has been able to achieve. Yeah, otherwise, that is how we should look at it. In terms of margins, of course, like I said, international business doing well has contributed to better margins in a particular quarter. The wires business doing well has contributed to better margins in a particular quarter. Overall, if you look at on a yearly basis, we have been within our guided range for the cables and wires.
Yeah. Just to clarify on the special purpose cable, there also there is a good growth in the financial year. How much is the contribution and is that institutional business?
The special purpose business has actually been quite well, growing at about 1.7x from what we did last year. Again, that too is a good margin business to have. As far as its contribution to overall revenue is concerned, it could still be in a small part of the overall mix. That is, we would continue to look to improve it going ahead. I'm sorry, what was the second question that you had?
Is that other institutional business even have a higher margin? Because you are dealing with the railway and the defense-
Right.
For this special purpose.
SPC would be an institutional business. Yes.
Thank you. Thank you for clarification.
Thank you. That was the last question of our question -and- answer session for today. I would now like to hand over the conference to Mr. Gandharv Tongia for closing comments. Over to you, sir.
Thank you everyone for taking out time for this conference call. In case if you wish to reach out to us, please write to us at investor.relations@Polycab.com. We would be extremely happy to attend your queries. Thank you. Have a nice day ahead. Bye-bye.
Thank you. On behalf of Polycab India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.