Ladies and gentlemen, good day, and welcome to Polycab India Q3 FY24 earnings conference call. As a reminder, all participants' 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 any assistance during the call, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gandharv Tongia, Executive Director and Chief Financial Officer, Polycab India Limited. Thank you, and over to you, sir.
Thank you, moderator. Good afternoon, everyone, and thank you for joining us. I hope all of you are staying healthy and safe. I am Gandharv Tongia, Executive Director and CFO at Polycab India Limited. On this call, we shall discuss the Q3 FY24 results, which were 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 on the investor relation web page of our website. Joining me today from the management team, we have our Chairman and Managing Director, Mr. Inder Jaisinghani, and our Head, Investor Relations, Mr. Chirayu Upadhyaya. Let me now hand over the call to Inderji for his comments.
Good afternoon, everyone. Before we get into the main agenda of this meeting, I would like to take a moment to discuss the company's perspective on some recent developments. In the last fortnight of the previous calendar year, the Income Tax authority conducted search operations at our manufacturing plants, facilities, and offices. The company has cooperated fully in their investigation. Since the conclusion of the search, to date, the company has not received any written communication from the IT department regarding the outcome of the search. The company's operations are running smoothly. The entire management team continues to work wholeheartedly to ensure that the company keeps up on the growth trajectory. The law will take its own course. We'll keep our stakeholders posted on the future developments. With that, I turn to the main agenda item.
In the midst of robust demand environment, our business has maintained strong growth momentum, achieving the highest ever quarterly revenues during the quarter. Moreover, we achieved the highest third quarter PAT, as well as the highest ever nine-month revenue and PAT in the history of the company. Our exceptional achievement highlight the robustness of our execution skill, skillfully employed through the utilization of our formidable market standing and advantageous market conditions. With this, I would request Gandharv to give you a flavor of the macro environment. Thank you.
Thank you, Inderji. Indian economy has demonstrated exceptional resilience in mitigating global uncertainties, a testament to the government's proactive measures and strategic initiatives. The underlying growth momentum is visible in strong GDP growth numbers, expansion in manufacturing and services PMI, robust credit uptake, real estate buoyancy, increasing steel and cement output, and higher tax collections. A steady pace of growth in digital payments and consumer goods output have also been noticed. Furthermore, we can observe that the increasing capitalization is coinciding with improved debt positions of the corporate sector. Thus, we believe that the stars are aligned for a pickup in CapEx activity. All the three elements of the CapEx cycle, housing, government CapEx, and corporate CapEx, are now firing, and potential for India economic growth appears promising with a synchronized momentum across these sectors.
Supply chain diversification, government strategic initiatives, along with production linked incentive schemes, is driving optimism across industries. Data on new project announcements indicate a notable surge in the chemical industry, metal industry, transport equipment industry, and construction materials, including the cement industry. The favorable momentum observed in the infrastructure, construction, and power sectors feeds into the demand momentum for cables and wires sector, which has direct linkage with the growth of these industries. The cables and wires sector performance has been robust over the past several quarters and appears promising for the next many years to come. Against this backdrop, let's delve deeper into Polycab's performance during the third quarter and the first nine months of the current financial year. I would now hand over to Chirayu to take you through the financial performance for the quarter.
Thank you, Gandharv. I would request everyone to refer to slide four of the earnings presentation. For the quarter ended 31st December 2023, our consolidated revenue grew by 17% year-on-year on the back of healthy volume growth in domestic wires and cables business. EBITDA grew by 13% year-on-year, with EBITDA margin at 13.1%. EBITDA margins were sequentially lower during the quarter on account of increase in advertising and commission spends, which doubled on a quarter-on-quarter basis to INR 9 crore. Advertising and commission expenses accounted for 2.1% of net sales in Q3, a notable increase from 1.1% in the previous quarter....
During the quarter, we partnered with the International Cricket Council to be the official partner of the ODI Cricket World Cup 2023, launched diverse branding campaigns across multiple media platforms, and engaged with influencers, including electricians, architects, contractors, dealers, and distributors to boost awareness among customers. For nine months, FY 2024, our advertising and promotion spends were at 4.2% of our B2C top line, in line with our guidance of advertising and promotion spends being in the range of 3%-5% of the B2C top line every year. A detailed breakup of the other income and finance costs has been provided on slide 17 of our earnings presentation. The company registered its highest third quarterly PAT of INR 4,165 million, a growth of 15% year-on-year. PAT margin stood at 9.6%.
Net cash position improved to over INR 18,000 million from INR 15,000+ million in quarter two, while working capital cycle at 51 days was within our comfort range of 50-60 days. On a nine-month basis, our revenue grew strongly by 27% year-on-year. EBITDA was up by 40%, while margin expansion of 120 basis points to 13.9%. Margin expansion was achieved through improved gross margin, resulting from strategic pricing revisions as well as favorable change in product mix. Profit after tax grew by 46% year-on-year, with PAT margin expanding 130 basis points to 10%. As mentioned in the opening remarks, our revenue, EBITDA, and PAT for nine months of the financial year are the highest nine-monthly numbers in the history of our company.
What's even more remarkable is that our profitability for the first nine months of this year nearly matches the last year's full year PAT number. Moving on to slide six of the earnings presentation. During the third quarter, the wires and cables business grew by 18% year-on-year, with entire growth coming through volume growth. The domestic wires and cables business registered a volume growth of 20% plus, with both distribution and institutional business demonstrating robust performance. Institutional business growth outperformed distribution business growth, albeit on a much lower base. The growth of cable segment continued to be robust, driven by strong government CapEx, increased infrastructure activity, growing investments in renewable energy, and a pickup in private CapEx.
Wires growth on a year-on-year basis was soft during the quarter due to rising prices, pausing construction activities in certain states due to pollution concerns, and a slowdown in certain states due to state elections. In spite of this, wires registered healthy sequential growth during the quarter. These factors are transient in nature, and we anticipate that demand will improve in the coming months. The demand for residential properties in the country has not only demonstrated remarkable resilience but also grew tremendously, resulting into both launches and annual sales registering a 10-year high in calendar year 2023. During both calendar year 2022 and 2023, new launches have outnumbered new sales.
As the need for wires in a real estate project typically arises towards the end of the second year or early in the third year of construction, the launches announced over the past two years will now begin to generate advantages through a heightened demand for wires in the upcoming years. The international business grew by 22% year-on-year during the quarter, contributing 6.2% to the company's top line. For nine months of this financial year, the contribution from international business to the company's top line is at 8.1%.
While the past quarter has seen relatively muted growth, largely on account of transition to the distribution model in the U.S. and impact of the Israel-Hamas war on the trade route to Europe via the Red Sea, the company expects international business to exhibit strong performance in quarter four of this financial year as well as beyond. Segmented profitability for the wires and cables business remains strong, with EBIT margin at 14%, with higher end of our guided range. The sequential decline in margins of 70 basis points in quarter three of the financial year was on account of lower sales contribution from international business and higher advertising and promotional spends during the quarter. Polycab has been actively contributing to the nation building process for several years. During the quarter, Polycab supplied cables to various national projects spread across renewables, railways, power, infrastructure, defense sector, and many more.
The demand environment for the wires and cables business is expected to remain strong for many years to come. As per a recent report, India is likely to spend nearly INR 143 trillion on infrastructure in the current fiscal through 2030, more than twice the amount of about INR 67 trillion spent in the previous seven fiscals between 2017 and 2023. With strong demand momentum and new opportunities on the anvil, the company undertook CapEx of INR 636 crore in the first nine months of the financial year. With further CapEx planned in quarter four as well, the company will overshoot its guided CapEx for the year to incur INR 800 crore-INR 900 crore of CapEx in the current financial year. In FY 2025, the company expects to incur between INR 600 crore-INR 700 crore of CapEx.
Please refer to slide nine, slide number eight for an update on the FMEG business. FMEG business has registered a big growth of 15% year-on-year in Q3 of FY 2024, primarily on account of sustained witnessing consumer demand. Both major verticals of fans and lighting reported growth. While fan segment grew sequentially, it activated year-on-year degrowth on account of a higher base of the previous year due to the stock liquidation activities prior to the BW transition. On a positive note, premium and BLDC portfolio of the company is gaining traction, with almost 18% of the sales in the third quarter generated from this segment. The company launched 29 new SKUs in the quarter gone by, all of them in the premium and BLDC ceiling fans range. Further, the company plans to launch another 28 new SKUs in quarter four, again, in premium, BLDC and exhaust fan ranges.
The Silencio series of the BLDC fans launched by the company about three months back has been very well received. Available in six states currently, the company plans to launch the series in all Indian states within this quarter. With the fan season beginning from February onwards, the new launches are expected to add meaningfully to the FMEG sales for the quarter. The lighting segment continues its decline, driven by further pricing erosion. During the quarter, pricing correction was in the range of 5%-6%, on top of the 20%-22% pricing correction already witnessed in the previous 15-18 months. Festival-related demand too, was not as strong as originally anticipated. On the other hand, the switches and switchgears segment performed remarkably well, registering a year-on-year growth.
Segmental EBITDA for the FMEG business continued to remain in the negative territory during the quarter on account of higher advertising and promotion spend and higher fixed costs in the absence of scale. During the quarter, the company has done a restructuring of its B2C business, merging the FMEG vertical with the power business vertical under unified business unit head. After assessing the performance of the FMEG business in recent quarters, the company acknowledges that its execution has fallen short of expectations. Consequently, the company has devised a plan of action to address this issue. As the company implements these measures, we anticipate the business to take about four quarters to stabilize and be back on the growth path. Let's now move to slide number 10, which gives an update on our other businesses, which largely comprises of our strategic EPC business.
We locked revenues of over INR 2,000 million in quarter three, a growth of 118% year-on-year. Profitability grew by 189% year-on-year, with segmental margin at 17.2%. A new sustainable operating margin in this business is expected to be in high single digits over mid- to long-term. That was the financial update for the quarter and first nine months of the fiscal 2024. Thank you, and we are now open for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question may press star and one on the touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets while asking your questions. Ladies and gentlemen, we will wait for a moment while the questions queue assembles. The first question is from the line of Ms. Sonali Salgaonkar from Jefferies. Please go ahead.
Thank you for the opportunity. So my first question is regarding to the exports. You did mention some of the reasons why the exports have declined, on, as a percentage of sales sequentially. Could you give us a little more color into that and, how, as in on what factors do we expect the exports to recover going forward?
Thanks, Sonali. So, as I mentioned in the remarks, a couple of reasons contributed to the decline. First of them is that we are transitioning to a distribution-led model in the U.S. Now, whenever such a change is being made, in the initial few quarters, there are hits and misses that any company goes through. For example, one would like to know which are the faster moving SKUs and would like to stock those SKUs in the warehouse of the company. So we are undergoing that change right now. We are getting to know which are those fast-moving SKUs. Once we have that knowledge, we will then stock up on those units, and then the sales will recover. The second reason was the war, which is ongoing, between Israel and Hamas.
As a result of this, the Red Sea, which is the main route through which we supply our stock to the European region, that has been blocked. As a result, we had to take an alternate route. What this has done is that they have increased our delivery timelines from what would take initially three weeks; it now takes us six weeks to supply the same stock. As a result, what happens is that whatever business is done in the second half of the quarter, the revenue or profitability from the same will be realized in the subsequent quarter. So both of these were the primary reasons because of which the past couple of quarters have seen relatively limited growth.
But we are confident that quarter four, as well as the next financial year, the business will recover and that we will be able to show a good momentum on the forward.
Got it. Very helpful. Second question is regarding ad spends. You did mention that you're targeting 3%-5% of your B2C top line every year in terms of ad and promotion spends. So this quarter, that's Q3, would you say this was a bit higher due to the one-off because of the Cricket World Cup? Or do you foresee this as a sustained way of spending in terms of ad spends? And what is the kind of steady-state margins you expect?
Right. So, we will continue with our guidance of spending a advertising promotion between 3%-5% of B2C top line. Now, having said that, not all quarters will be similar in terms of spend. There will be few quarters which will be heavy and some quarters which will be light, and that will largely depend on the major events which are ongoing during that quarter. So this quarter was definitely one of the heavy ones. But largely, if you look at nine-month numbers for this financial year, the AMP spend that we've done would be about 3.2% of the B2C top line that we've done this year. So again, largely, I mean, everyone should look more in terms of yearly spend rather than any quarterly spends that we have done.
On that front, we will be within our guided range every year.
Understand. B2C is 35% of your overall sales, right, on an average?
It would have gone down because B2B has performed relatively better this year, so B2B versus B2C will be more towards 70/30 now.
Got it. Just last question from my side. This quarter, the other non-operating income at INR 71 crore seems to be a bit higher. Any specific reason or any one-offs in here?
So we had one-off income in the form of foreign exchange gain, but this is something which is because of currency movement and not something that will be a regular occurrence. This was a one-off.
Got it. Sorry, just one last question from my side. You mentioned that the cables growth was robust this quarter and wires demand was softer. Any particular reasons you are seeing? And the softer demand is year on year, right? You mentioned it's better Q-over-Q.
Yes. So wires did have good sequential growth. Last year, Q3 was the best quarter for us for wire growth. So as a result of that, the base was higher for this quarter, and as a result, the growth might seem a little lesser. But largely, I mean, the wires market is pretty strong, and we have registered sequential growth in wires.
Got it. Very helpful. Thank you so much.
Thank you.
Thank you. Our next question is from the line of Mr. Atul Tiwari from Citigroup. Please go ahead.
Yes. Thanks a lot for the opportunity, and congratulations on very strong execution in cables and wires. So my question is little off track, but I thought I would anyway go ahead and ask it, because most of the investors seem to have this question. So obviously, we have seen the similar, you know, tax search on many other companies listed in the past, and in most cases, it has been resolved, you know, and nothing much has happened to the company, et cetera. And most likely here, the same thing will happen. But what has worried people more in Polycab's case is the press release by Income Tax Department, even though the press release does not mention Polycab. So what is your take on this?
That this is slightly unusual and, you know, so, you know, what is your comment on this and, you know, how does it... does it worry you? Does it not worry you? Any color would be helpful.
Thank you. Thank you so much for your kind words. You know, as Inder Jaisinghani mentioned a while back, in the month of December, income tax officials visited our corporate office as well as few other offices and plant. And they conducted search, which is a typical Section 132 of the income tax search. As you know, search is a slightly longest process because a particular wing of the department is involved initially for search, and once they conclude their process, which generally takes around two months, in few cases, probably more than two months, they then provide that report to the assessing officer, and then assessing officer takes the final decision, and communicate to the communicate the final conclusion to the assessee. So this is what was what we experienced.
I am aware about the press release you are referring to. I am assuming the department followed its own set of processes, and that is why they released that press release. At this stage, since we haven't received anything from the department, we are unable to comment more than what Inder Jaisinghani has already covered in his opening remarks. And as he mentioned to the other investors as well, we continue to cooperate with the department, and and we are looking forward to maintain our focus on the growth and take the company to the new heights in the quarters and years to come.
Great. Thank you. Thanks. Very clear. And then the last question on the FMEG business. So, I mean, obviously, after the distribution rejig, you know, the environment has turned a little hostile for growth in that business. But if we, like, take out the environment part of it, are you happy with the growth that you are doing in the FMEG business? And because, typically from outside of the company, we are yet to see the results of the distribution rejig in the revenue growth numbers. So any comment on that would be helpful.
Sure, Atul. So, we will continue to take such steps, wherein we believe that such rejigs will help us in the business. While we definitely accepted that, yeah, the execution hasn't gone as per what we had planned out, and that is why we are now addressing this issue by taking different steps. What we are gonna be doing internally is that we have now segregated the business into two verticals, B2B and B2C. The B2B business is being taken care of by Mr. Bhushan Sawhney, but the B2C business will be taken care of by Mr. Ishwinder Singh Khurana. Mr. Ishwinder, he will have help from various deputy business heads, who will be again helping them with various product-level verticals. That is how we want to proceed on this matter.
While we implement all these changes, it will take us a few quarters, 3-4 quarters, to make all the changes and for the operations to again run back smoothly. That is why we believe that next 3-4, four quarters will be required for the business to stabilize and get back on the path to growth.
Okay, thank you. Thanks a lot!
Thanks, Atul.
Thank you. Next question is from the line of Renu Baid, IIFL Securities. Please go ahead.
Factories as well as dealer distributor level.
Ma'am, your voice is not audible. Could you please repeat?
My question is, can we quantify the revenue loss in the third quarter from the domestic business, largely due to the IT raids which we had across our facilities, factories, and also at the distributors? Because that would have definitely impacted the domestic housing wires as well as the domestic revenue offtake for us.
So Renu, definitely the end period of the quarter is the best period in terms of sales. But it will be difficult for us to quantify what loss would have been there. But I mean, there will be certain stage which generally happens during the distributor stock of your products, and that is something that would have just been postponed to the next month. So that we'll be able to recoup a part of it, I think. But it will be difficult for us to quantify on this.
Sure. Secondly, on the export side, can we share how has been the demand from U.S. markets other than Europe, which obviously has been impacted because of supply chain? But from U.S. and other pockets of world where we're also bidding in projects. And any order book value that we can quantify to share the visibility of the project-driven business in the export market?
So the demand continues to be good across other geographies, and we are trying our best to get as many orders as possible from various different geographies, getting access approved in various different geographies. So that continues to go on at our end. For U.S. specifically, as I mentioned, we are in the midst of a transition to the newer business model, and that is why there will be some more or the other, a bit of a slowdown that you are seeing right now. But in terms of demand, there hasn't been any impact visibly. We do have a good order book, but we don't disclose order books publicly, so that is not something that I'll be able to disclose on this call.
Rest assured, we have a pretty good order book for our export business.
Sure. And currently, at what level would be a factory utilization level for cable?
Cables and wires combined, the factory utilization would be between 70% and 75%.
Any clarity on the next leg of capacity expansion that we have beyond the next two years?
Yeah. So as of now, we've given our guidance for what CapEx we are incurring this year and next year. And we continue to incur CapEx in terms for expanding of our facilities. So even right now in this year, we've expanded our capacities for, both, cables. And that is something that we'll continue to do. But, for any guidance post, next two years, I mean, we'll have to wait for, a bit, more, couple of more quarters on that.
Got it. And lastly, on the FMEG business, you know, while the cables and wires has been a star performer for us, FMEG has been a bit of a drag. Can you quantify certain specific measures, which you have undertaken apart from change in the leadership, to turn around this business over the next four quarters, from that perspective?
So Renu, at this point of time, it will be difficult for us to give out all those points. Over the period of next few quarters, we will be detailing out all the initiatives we are taking in terms of operational changes, et cetera, and if there are any targets that we'll be taking in the future. But yeah, as of now, we wouldn't like to comment on.
But, does the frequent change in the leadership and the teams in the FMEG portfolio worry you? Because that has been one of the alarming factors for this business over the last two years. So does that disturb you in terms of the strategic priorities and the initiatives that you have been taking in this segment?
So Renu, as you know, we are in FMEG business since last 10 years or so, and we have had exits at the leadership level. But as we are one of the, you know, emerging challenging brand on FMEG, at times in life, you have to take a pit stop, reflect back and see what we need to do next, and that is what we have experienced in last couple of quarters. We practically have the entire blueprint in place. We have the leadership in place, and the second line under the leadership team is being recruited. I think at this stage, as Chirayu mentioned, we would not like to diverge everything what we are planning to, but just give us one or two quarters.
Hopefully, once the tire hit the road, probably we would be able to talk about that with greater details. But FMEG was and continues to be a focus area, and we firmly believe that this will add a lot of value to all of us at the company as well as to our stakeholders.
Sure. Thank you, team, and all the best.
Thank you.
Thank you. Our next question is from the line of Amit Mahawar from UBS. Please go ahead.
Hi, good afternoon. Amit Mahawar, I'm in Mumbai. I just have two broad questions. First is on the cable and wire business. Considering the demand environment we have, right, both from domestic and export markets, right on the variety you have in terms of offerings, especially in cables, you know, and the business, you know, profile going ahead, do you want to review and reassess and tell us the profitability, you know, direction for cable and wire business? I understand the growth is still going to be very strong, but any comment on profitability? That's my first question, Gandharv.
Sure. So, on cables and wires, we have always maintained our guidance in terms of EBITDA margins to be in the range of 11%-13%. We'll continue with that guidance. And, and again, on the scale front, we mentioned that if we are able to operate at a better scale, 12%-15% of EBITDA margin is something that we should be able to realize. As of now, we are operating at a small, a better scale, and we are seeing that our margins on the cables and wires business are around 13% also. So, but, until such kind of operational leverage is available to us, we'll be continuing to-- we'll be able to continue to operate at this margin range.
If you are putting numbers into your model, you should consider that 11%-13% as the guided range for this business.
Okay, Chirayu. I think I'm assuming and implying there's no change in the cost structure of Polycab, you know? Thank you. Second question is maybe, you know, if we could be helped on FMEG. First of all, I really appreciate and thank you, you know, the management for acknowledging the, you know, FMEG business growth path, where Polycab needs to do better. But from a two-year view, do you think, Polycab needs to be more aggressive and more passionate and more committed about FMEG business? Because that is the only segment where we have not had any significant inorganic path. You know, most of our competition has followed that, and for maybe new product or new market geography, that's on FMEG.
And, you know, what kind of rejig can we expect in the next 2-3 years in FMEG? Thank you, and maybe Sundarrai and Ganesh can also chip in. Thank you.
Thank you. So FMEG, for the FMEG business, we have been, and we continue to be very passionate. We have been taking various steps within Project Leap so that we should be, we are able to grow ahead of where the market growth is at. In terms of inorganic growth opportunities, we continue to evaluate such opportunities, practically every day. If and when we do have such opportunity, which is available at a valuation that is acceptable, we might even go ahead and, you know, go for this inorganic growth. But yeah, I mean, we continue to evaluate all our steps, both internal as well as, inorganic growth, so that we are able to, scale up the FMEG business and, grow ahead of the market business.
Yeah. Thanks, Chirayu, and good luck to the entire team and management. Thank you.
Thanks.
Thank you. Our next question is from the line of Achal from JM Financial. Please go ahead.
Yeah, good afternoon, team. Thank you for the opportunity. Sir, the question is, you know, in terms of volume growth, you mentioned about 20% of growth in volumes for domestic segment, in wires and cables. Possible to break it up in terms of cables and wires? Is it like cables has grown 30% and wires is kind of 9%-10% or something like that?
Cables would have definitely grown faster than wires, and wires, volume growth would have been single digits. To that extent, you can quantify the cable growth as well, which will be higher than that.
Understood. Secondly, you know, with respect to the pricing, you did mention that the higher margins are to do with the strategic price revisions and the product mix. Can you help us understand in terms of the price premium broadly? I know it will vary SKU to SKU, industry to industry, but is it fair to say that our premium price premium to the peers would be anywhere between 2%-5%? Would that be a fair assumption?
Yeah, that's a fair assumption.
Understood. Would that be true for both wires and cables, or it is more so for cables as we-
It would be true for cables. On wires, us and a couple of other large peers, we generally operate in similar price points.
Understood. You know, you mentioned about the capacity utilization 70%-75%. Was that for Q3 or was it for nine months?
Third quarter.
Third quarter. So, you know, given the SKUs what you have, is this the peak utilization or you can actually scale up, scale it up to 90%-95% as well?
So we can go as high as 95% in terms of utilization, but the idea is never to wait to reach that level and continue to do CapEx every year, so that we have enough and more capacities available to cater to the increased demand that is currently visible in the country.
Understood. And just last one, Chirayu. You know, you mentioned about the CapEx. What percentage capacity will it add to, you know? Will it be 10%, will it be 20%? You know, and, given the robustness of the demand or the outlook, could there be a possibility of any substantial revision to this, you know, just, you know, from a, from a next couple of quarter perspective, could there be a possibility?
So, we are doing expansion not only in domestic cables, but also OFC cables or cables for export or special purpose cables. So it will be difficult for me to right now give you what percentage growth in terms of capacity will be there for each of them. But definitely, as I mentioned, we wouldn't wait for us to reach 90%, 95% of utilization. We would want to be ahead of time and go ahead with that expansion. As of now, as again, we've guided, we will be incurring between INR 800 crores-INR 900 crores of CapEx this year. And next year, we expect to incur between INR 600 crores-INR 700 crores of CapEx. But, I mean, we are very dynamic at our end.
If there are enough and more opportunities which are available, to be captured, we wouldn't shy away from doing additional CapEx.
Got it. Thank you. I wish you all the best.
Thank you.
Thank you. Our next question is from the line of Praveen Sahay from PL India. Please go ahead.
Yeah, thank you for taking my question. So the first question is related to the wire and cable. How much, if you can quantify, how much is the wire contribution for a quarter and nine month? And also, in that, you had made a statement that's a pause in the construction and also the price hike has led to the lower growth for wire. So how much is the price hike in that?
So the price hike, I was referring to the copper price increase that has happened, if you look at last 4- 5 months. But in general, at our end, the price hikes as well as the price decrease that we've done on a net basis in Q3, the contribution from value increase or decrease was nil. The entire growth that we've been able to achieve is because of the volume growth.
Contribution, if you can give, third quarter and nine month?
We used to operate around 70-30 in terms of cables and wires mix. Because cables have grown faster this year, the cable contribution has gone up by a couple hundred basis points.
So is this for a nine-month, maybe, third quarter is lesser than that?
Similar story for the third quarter as well.
Oh, okay. One clarification related to the gain and loss on the reduction of investment, which looks little on the higher side for this quarter. So is that something one-off, and it will not come back in the coming quarters? Is it like that?
So there are a couple of line items. One was a gain from redemption of mutual funds that we've done. Again, that is something that we continue to do every quarter. We have very good cash on balance sheet. Depending on where we invest and when we believe that we are receiving the maximum returns, we continue to do the redemption. But it will be difficult to quantify whether this number is something that will be there every quarter or not. And again, the second line item was the exchange difference, the gain that we were able to realize because of a favorable movement in currency. And again, that is something we can't comment on, where the currency movement will be.
Again, so that is, you can consider it as a one-off, and we'll have different trajectory every quarter on that one.
Mm. Great, thank you. The last question on the export. So YOY side, if I look at, there is a good, growth, even the contribution is lower. The growth is on the YOY side for the export is good. And, also in the press release, you had said that the company anticipated a healthy performance, in the business in the Q4 and beyond. So is that, a reflection that you have a very strong order book, fair to say that?
Right. So as I mentioned, we do have a pretty good, pretty strong order book for us on the export business. And again, as I mentioned, there is some form of delay that happens when we are right now supplying our goods to the European region. So again, that postponement of sales has something, is something that played out this quarter. So both of these combined, we expect that Q4 and beyond should be good for the export business.
Thank you for answering my questions. All the best.
Thanks.
Thank you. Our next question is from Srinidhi from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity. Just one question from my end. So the increase in the CapEx guidance, may I ask what is really driving this increased CapEx? And which product category this CapEx is going?
So Srinidhi, because of the better opportunities that we are seeing across all the sectors, we believe that we should be doing this additional CapEx ahead of time so that we have enough and more capacity available to capture this demand. Again, we are doing it across all the different types of cables. So as I mentioned, domestic cables, OFC cables, cables which we are exporting, special purpose cables, et cetera. So, against all of this, and again, and also the EHV plant that we are looking. So all of this combined, we are doing this additional CapEx.
Right. And the second question, if I may. One of the drivers for superior margins you have been alluding for recent quarter has been superior product mix. May I ask to give more color on this aspect?
So, when you look at domestic cables, there are two different types of cables: HDC and LDC, high density and low density. LDC cables are generally better margin cables, and we've been able to improve our mix more towards LDC, so LDC has grown faster. Even in exports, there are different types of cables which occur towards different margins, and we've been able to change the mix more towards those products which help us make better margins. So both of these combined has helped us on the margin.
Right. Thank you for answering my question, and all the best.
Thanks, Srinidhi.
Thank you. Our next question is from the line of Ashish Jain from Macquarie. Please go ahead.
Hello, hi everyone?
Yeah, Ashish .
Yes, yes.
Yeah, so Chirayu, I have two questions. One is, which is actually adding, how fungible is it across products now, or is it been dedicated for a particular type of product?
So, for example, the facility which is there for OFC will be utilized only for OFC. The facility which is used for manufacturing cables, which are exported, again, that is not fungible. But, within the domestic cables, we have that fungibility available.
Okay, okay. And second, my second question was, you know, on this FMEG business. So why, given we are now thinking of restructuring the business or to, you know, rework, what are the rationale behind ramping up advertising costs so much in this quarter? Because clearly next quarter is a lot of opportunity dollars coming in infrastructure. Or is it like more tinkering kind of stuff that we are doing? Or are we looking at major revamp of how we do the FMEG side?
So Ashish, the advertising and promotion spends are not only done just for the FMEG business, it also is done widely for the wires business. So again, we have to continue to spend on that part. And again, advertising and branding activities are not something that we can stop for one year, start next year, whenever we want to ramp up that business. It is something that has to be done continuously. That is how we will continue to be in the minds of the customer. So, and hence, we will continue to do this AMP spends 3%-5% of B2C top line every year.
Right. And FMEG, are we kind of looking at a major revamp of what we are doing? Just to understand what is the target to change or planning to change in that.
Ashish, I'm sorry, you were not audible. In FMEG, what are we looking to do?
No, I'm saying FMEG, what are the main... Like, what are we looking to change, really? Because this has been a work for us for the last two, three years also, and again, we are coming back and trying to do some, revolve of that. So what is, as we're trying to do different now is what I would say.
As Gandharv mentioned, a few minutes back, we are right now in the initial part of that process of making all these changes. Give us couple of quarters time. Once we have all of this warmed up, we'll be out with a detailed information of what exactly are we trying to do differently and what exactly we have done to date.
Got it. Got it. Okay. Thanks, and that's all.
Thank you, Ashish.
Thank you. Our next question is from the line of Mr. Alok Deshpande from Nuvama Institutional Equities. Please go ahead.
Yeah, congratulations on a good set of numbers. Two questions from my side. One, you know, in the next 12-18 months, we have, you know, a couple of your peers coming up with new capacities in cables. I just wanted to understand that, have you, in the past, ever seen that when new capacities come up in the sector, it has, impact on pricing? And do you see, a situation where, you know, it can, because of the added capacity in the market, it can impact, your pricing, especially in cables?
So yeah, Alok, you are true. Over the next 12-18 months, we'll be seeing a lot of our peers adding capacity. Historically, what has been our experience is that while there might be some pricing revisions or that would be done, but they are not material in nature. In general, the industry has always acted rationally. There has never been an irrational pricing that any peer has undertaken, and we believe that that is something that will continue to happen in the future as well. Anyways, the demand momentum in the country in the various infrastructure and the various sectors is so strong that you know, more capacities are needed from all manufacturers domestically. So we don't believe there's going to be any irrational competition to gain market share build.
Alok, are you there?
Yeah, yeah, yeah, understood. So, I just one question on FMEG. What are the two, three product lines which you think, you know, where you need to sort of rework the most within FMEG in terms of either their current sizes or where you think the maximum potential is?
So Alok, we are focusing a lot on switches and switchgears products within the FMEG business. We believe we have enough and more potential to be one of the big player in those product categories. Over the past one and a half years, we've set up in-house manufacturing as well as expanded manufacturing capacities wherever we were required. We are working on price setting strategy, wherein we are trying to have our presence across price points. We are trying to improve our distribution channel and trying to enter as many geographies as possible. We are even trying to do a lot of cross-selling between wires and switchgears.
So through all of this, we believe we should be able to do a much better on switches and switchgears in the future than what we have done in the past. The contribution from those two product categories will increase as a percentage of the FMEG sales in the future.
And Chirayu, any sense you can give us on what that contribution is? Ballpark, currently, is it very low or is it becoming meaningful? You know, any color on that?
So as of now, combined switches and switchgears would contribute in mid-teens to the overall FMEG top line.
Understood. Understood. Thanks a lot for your responses, and all the very best.
Thank you, Alok.
Thank you. Our next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
... Hi, thank you for the opportunity. Chirayu, my first question is on the wiring cable segment. So the segment's revenue has grown by 17%, and you said volume has grown by 20%, right?
The wires and cables standalone has grown by 18%, and the entire growth has been achieved through volume growth.
So just wanting to understand, copper prices have risen in that quarter, so was there a bigger contribution from something like an Etira wire, which is probably a lower margin component in the product basket?
So Etira wires are not lower margin products. Etira, on Etira, we make similar margins to our other product categories. Etira is something that we've introduced couple of years back, and that is something that we introduced to capture the unorganized market, largely tier three to five towns of this cities of the country. Etira is seeing pretty good penetration in these geographies, and we believe that going ahead, I mean, the contribution from Etira wires will continue to increase. But on the margin profile, they are similar to other wires that we have. There is no they are not of lower margin.
Understood. In my second question, Chirayu, is on the EHV facility. Where are we on that? Are we on track to commission it by fourth quarter of FY 2026?
We have guided that the EHV manufacturing plant will be operational by late FY 2026, and as of now, we are on track with the timeline.
Understood. Lastly, in terms of the FMEG, especially lighting, while I understand volume erosion, value erosion was there, what about the volume? Did it pick up in quarter two, or has that also been drag?
So around the Diwali festival, there was a bit of a pickup, but it wasn't on the expected lines. So again, if you look at year-on-year basis, still the volume would have not been in the growth.
Understood. Lastly, one more question, Chirayu. While I understand that in quarter three, the amount of ad spend was high, obviously because of the one-off that World Cup spend was there, then is it possible for you to quantify as to, because of those ad spends, what is the kind of revenue that we've seen through happening after that?
Sorry, what do you want me to quantify?
So in terms of the ad spend that you did during the World Cup season, how has that, you know, positively impacted your sales? Is it possible to throw some color on that? Because the ad spend was very high, right? So are we seeing those kind of sales that we anticipated because of this ad spend that we did?
So, Natasha, these are very initial days. As I mentioned, this is something that we have to do every quarter of every year. Definitely, we are seeing that level of improvement in terms of visibility and, capturing of the mindset of customers. So now customers are pretty much or very well aware of all the product categories and, that we have on the FMEG, offering. But again, I mean, it will be very, very difficult to quantify what exactly has those ad spends translated to in terms of sales. This is something that will continue to help us in the long run, and we'll continue to spend, every year on advertising and promotion, in, in the, on the 3%-5% things that we've guided for.
All right. Thank you so much, Chirayu. All the best.
Thanks, Natasha.
Thank you. Our next question is from the line of Abhijit Akela from Kotak Securities. Please go ahead.
Yeah. Good afternoon. Thank you so much for taking my questions. First, just on the revenue growth and margin profile. So I mean, this quarter was a bit soft on the back of you know, whatever issues we've discussed. But next quarter, should we expect an acceleration in terms of growth, growth, and maybe margins versus these levels?
Right. So, Abhijit, we believe the second half of this year will be better than the first half of this year. That is something that we have guided, and we believe that will continue to happen. It will, it will be again, very difficult to quantify that, and we never give out yearly guidances. So, we will be again, diverging from, that practice. But, as I mentioned, the second half should be better than the first half of this.
Okay. On the EHV CapEx with Brugg Cables, could you just quantify how much of CapEx has already been incurred on that project?
So as at this point of time, we wouldn't like to give out the details of this CapEx. Still, the plant becoming operational is still quite far away. So, when we are near to that time period, we'll be able to quantify, we'll be quantifying the CapEx that we've incurred and the various other parameters in terms of what revenue expectations we have and so on, so forth.
All right. And then just to clarify the FMEG merger with power, is that with the power cable business? And so, you know, what exactly is sort of the thought process underlying that?
So power vertical comprises of wires, switches, and switchgear. It's not, it has no relation with the cables. Cables is what we call internally is more B2B in terms of what I mentioned in terms of different verticals. So this will be a merger of wires, switches and switchgear, with the other FMEG product categories, which are fans, lights, and other appliances.
Okay, understood. Fine. Just one last thing from my side. The, you know, main allegation made in the press release by the PIB was regarding the, you know, unaccounted cash transactions. So would you like to formally sort of deny that, you know, either the company or the promoter group is involved in any such, you know, cash transactions?
Yeah. So as I mentioned a while back, Abhijit, we haven't received anything from the Income Tax Department so far. You know, whatever filings we were supposed to do, clarifying our position, we have already done that to the stock exchange. And since we haven't received anything from the department so far, the operations are going on, and at this stage, there is no incremental data points which are available on which we can, or which we should, on which we should provide our comments.
... Okay, got it. Thank you so much, and all the best.
Thank you.
Thank you. Our next question is from the line of Mr. Rahul Agarwal from Incred Equities. Please go ahead.
Yeah. Hi, good afternoon. Thank you so much for the opportunity. Firstly, you know, on this entire episode, whatever has happened, I just want to clarify, and I think the previous participant was also looking for the same answer. Purely from a Polycab perspective, I don't, you know, I am not bothering much about what Income Tax thinks. But from your own perspective, in terms of your own internal processes, you know, there were three, four things which were mentioned about, you know, subcontracting expense, logistics, and, you know, sales. The distributors and dealers obviously are free to do whatever wrong they want to do in life. But from Polycab's perspective, from internal process perspective, could you highlight certain steps or certain things which you have done over the years to get your, you know, larger distributors and dealers not to engage into such activities?
Because, you know, I've did some checks around this. My sense is there are other companies, and peer sets who are also listed, who have actually gone ahead so much that they've involved their bankers also to ensure that distributors, dealers are part of the same agreement when they do channel finance, and they are also going through a lot of, strictness and compliance. So just from that perspective, that's my first question: If you would highlight your own internal processes of those, you know, the channel not getting into such activities, please?
Thank you, Rahul. You know the industry, and of course, the company. We are the pioneer as far as channel financing is concerned. We do almost 80%-90% of our business through dealers and distributors, and out of them, probably 80%-90%, and in few of the businesses, more than 90% of the business is done through channel financing. Most of it is without any recalls. And what you are narrating to is what we actually introduced to the industry, and we are very happy and glad that they're continuing with the same. On the ethics and governance, we have been extremely, extremely cautious and fully compliant. You know about the pedigree of the compliances we have, right from the board structure to the auditors to so on and so forth.
Since all the audit reports are already in public domain, I don't think at this stage we need to offer any additional comment. As I mentioned to the previous participant as well, that we haven't received anything from the Income Tax Department in terms of the conclusion on the first proceedings. As and when we receive any intimation from the department, we'll proactively come back to the stock exchange and notify. Since we haven't received anything, I don't think it requires any further deliberation at this stage.
Sure, sure. So, you know, obviously they'll come back with a notice if they have any issues. But from your side, could we assume as shareholders, that from your side, all the standard practices are being followed and there is... Whatever the allegations are made are completely false? Can I make that statement?
You can certainly make all the statements. I am saying that I haven't received any. We haven't received anything from the department. As and when we receive anything from the department, we'll be happy to review that, peruse that, and comment on that. As far as our compliance are concerned, I've already explained as a response to previous answer, that we are the pioneer as far as channel financing is concerned in the industry. We have been following that, and we are very confident of our governance and processes.
Perfect. Just two smaller questions. On FMEG, since your the guidance is essentially that it will take another four quarters to stabilize this business because of lot of internal changes is going to happen, should we expect revenue growth next year, or is it going to be similar to what we saw fiscal 2024, 2023, and 2025 will look similar?
So, Rahul, you know, our FMEG business, we have had, you know, difficulty in actually realizing the potential in last few quarters of FMEG business, and that is why we have decided that for next four quarters, we will probably do what we wanted to do and implement it in a manner which is acceptable to all of us internally. I would request you to give us a couple of quarters, so that we are able to implement what we intend to implement, and then we'll probably give you more guidance on FMEG. Any which way, you know, in terms of the contribution of top line of FMEG to the total business, at this stage is not necessarily very material. So if you can give us a couple of quarters, I think that would be a great time.
Got it. Lastly, on this CapEx, I think multiple questions have been asked. You know, essentially, what we all are looking for is to understand where the capacity is getting increased. Now, obviously, from your perspective, it's getting increased across products. For us, sorry. For us, you know, I understand EHV is something which you don't want to disclose too early in the cycle. I understand that. But if you could elaborate a bit on whether it's volume-wise or revenue-wise, like what kind of revenue increase should we see in terms of your investment done today, and which are these products? It will help us all understand this CapEx better. So any effort is towards that. Whatever guidance you can help us understand on this call will be really helpful. Thank you.
Sure. So, Rahul, let's do it this way. I think it's a very good observation, and thanks for highlighting that. Allow us time to come back to you with a more holistic picture on the impact of the current CapEx and the planned CapEx on the top line and bottom line, and we'll probably provide more color in our subsequent calls. But, broadly, what Chirayu earlier alluded to, our thought process is not to get to 90% or 95% utilization, and before that, we should be able to add the capacity. But I have taken a note of your suggestion. We'll come back to you in the subsequent call, and I'll attempt to provide you additional color.
I really appreciate that, and, thanks for answering all my questions. Thank you. All the best.
Thank you so much.
Thank you. Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Gandharv Tongia for closing comments.
Thank you so much for taking out time. We know that these are, for many of us, difficult times for the company. Since the time of listing, you have supported us. We are looking forward to your support. We never, ever, did anything which would put anyone in a wrong spot, and we are confident on our compliances. We look forward to come back to you in the next quarter and provide you additional update. Thank you, and have a great day ahead.
Thank you. On behalf of Polycab India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.