Polycab India Limited (POLYCAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Polycab India Limited Q1 FY 2027 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. NianMaru, Chief Financial Officer, Polycab India Limited. Thank you, and over to you, Mr. Maru.

Good afternoon, everyone, and thank you for joining us. I hope all of you are staying healthy and safe. On this call, we shall discuss the Q1 FY '27 results. which were approved in the Board meeting earlier today. 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 Relations page of our website. Joining me today from the management team, we have our Head, Strategy and Investor Relations, Mr. Shashank Yagnick. I'm pleased to share that building on the momentum of last year, the company delivered another year of strong performance, underpinned by healthy revenue growth and profitability. Our performance reflects not only favorable demand conditions, but also the deliberate investment and strategic choices made over the past several years. The wires and cables business maintained steady momentum, leveraging its market leadership and execution capabilities, while the FMEG business continued its trajectory of steady improvement supported by a richer product portfolio and a wider customer reach. The progress we are seeing today is a direct outcome of our commitment to building a more agile, scalable and future-ready organization. We remain focused on operational excellence, disciplined capital allocation and enhancing customer value across every touch point. Looking ahead, we see significant opportunities across our markets. Our priority will be to accelerate profitable growth strengthen our brands, deepen the distribution and build the innovation and talent ecosystem needed to support the next phase of expansion. The global macroeconomic landscape continues to be shaped by ongoing geopolitical developments. The disruptions across energy markets and global trade routes, particularly around the Strait of Hormuz contributed to inflationary pressures during the first half of 2026. While oil prices have moderated from the peaks, which we witnessed in April, -- they continue to remain volatile. Given the fluid nature of the geopolitical environment, uncertainty around the energy prices, supply chains and global trade flows may persist in the near term. The IMF's latest outlook projects global growth approximately at 3% for 2026 supported by resilient economic activity and technology-driven investment cycle, while global inflation forecasts have been revised higher. The renewed energy shock has pushed every major central bank on to a firmer footing. The Fed held rates at 3.5% to 3.75% in June but turned notably more hawkish expecting rates to rise later this year. Our similar stance was seen by the Bank of England, which held the rates at 3.75%, and to gauge the impact of the U.S-Iran war. RBI had reported at 5.25%, taking a neutral stance, but flat a crude-driven inflation and rupee volatility as the key swing factors for its next move. Against the global backdrop, India remains one of the strongest performing major economies globally. While the external environment has become more challenging, India continues to benefit from robust domestic demand, public investment, healthy credit expansion and increasing private sector capital expenditure. Economic activity has remained resilient despite global volatility, reinforcing India's position as one of the fastest-growing large economies in the world. Government-led infrastructure spending, a broadening manufacturing base and sustained momentum in services continue to remain key growth drivers, while services and consumption are driving growth. The government CapEx is progressing well in the first 2 months of FY '27 at 2.51 lakh crore versus INR 2.21 lakh crore in April, May of last year, reflecting a healthy 14% growth. At the same time, the real estate sector and formalization trends across the economy remains supportive of medium-term growth prospects. On the investment flows front, -- although foreign portfolio flows were impacted by geopolitical tensions and global risk aversion, strong domestic institutional participation helped sustain market liquidity. Overall, -- while the global environment remains uncertain, India's structural growth story remains firmly intact. -- resilient domestic economy, strengthening investment cycle, a stable financial system and our continued policy focus on infrastructure and manufacturing provide a very solid foundation for sustained growth. We remain confident in the medium-term outlook for the Indian Irai and the robust demand environment, it continues to create for our business. Across the organization, our focus remains on execution experience translating strategy into outcomes and strengthening the foundation for long-term growth. Looking ahead, -- our priorities remain very clear, sustaining growth momentum, strengthening our competitive positioning and continuing to invest in innovation, talent and capabilities. I would now hand over to Shashank to take you through the financial performance for the quarter.

Thank you, Niyant. For the quarter ended June 30, 2026. We delivered another strong set of results, underscoring the resilience of our business model and the effectiveness of our execution strategy. Consolidated revenues grew by 39% year-on-year supported by sustained momentum across both our wires and cables and FMEG businesses. Operating performance remained robust during the quarter. EBITDA increased by 32% year-on-year and the margins stood at 13.8%, reflecting an improvement of approximately 70 basis points sequentially over the previous quarter. At the bottom line, we achieved our highest ever quarterly profit after tax of INR 7,967 million, representing a growth of 33% year-on-year. PAT margins for the quarter came in at 9.7%. Finance costs for the quarter were INR 800 million, while other income stood at INR 1,049 million. For a detailed understanding of these line items, I would request you to refer to Slide #17 of the presentation. Our balance sheet continues to remain strong with a net cash position of INR 39.9 billion. The average working capital cycle improved significantly to 15 days in quarter 1 financial year 2027, aided by a temporary increase in payable days due to the use of letter of credit for raw material procurement. As these effects normalize, we expect the working capital cycle to settle within our long-term operating range of 45 to 50 days. Capital expenditures during the quarter amounted to INR 3.2 billion reflecting our continued commitment to building capacity and strengthening future growth drivers. Let me now move to Slide 6 and discuss the performance of our Wires and Cables business. The Wires and Cables segment registered a healthy 39% year-on-year growth during the quarter. Within this, the domestic wires and cables business delivered an impressive 43% year-on-year growth supported by robust market demand, effective execution across key channels and favorable commodity-linked realizations. Volume growth for the quarter on a year-on-year basis was low to mid-single digits, which was on top of a very strong base of Q1 of last year. From a category standpoint, wires grew faster than cables during the quarter. Channel sales also outperformed institutional sales, highlighting the strength of our distribution network. Regionally, the West remained the strongest contributor, followed by North, South and East, reflecting the broad-based nature of our market presence across the country. Our international business witnessed a decline on Y-o-Y basis, reflecting the impact of near-term geopolitical developments. However, the underlying fundamentals remain strong and intact. We continue to maintain a healthy order book and remain confident of a strong recovery, supported by a positive long-term outlook. EBIT margins for the wires and cables business stood at 13.3%. Sequential margin improvement was driven by a favorable business mix and continued focus on operational excellence. Consistent with our Project Spring road map, we continue to maintain our medium- to long-term margin guidance of 11% to 13% for this business. Turning now to Slide #8 for our FMEG business. The FMEG segment delivered another outstanding quarter, recording 71% year-on-year growth with strong contributions across all product categories. This marks the tenth consecutive quarter in which we have outperformed industry growth rates, reinforcing the strength of our business model and execution capabilities. Solar business, our largest category within the FMEG portfolio continue to be the primary growth engine, delivering more than twofold growth year-on-year. The category continues to benefit from favorable structural trends, including the PM Surya Ghar Yojna, state level incentive programs and increasing consumer adoption of renewable energy solutions. We believe the long-term growth opportunity in this space is quite substantial. The rest of the portfolio, including fans, lighting, switches, switchgears, conduit pipes and fittings also delivered healthy growth. This was driven by continued strength in the real estate and construction sectors supported by our focus on product expansion, market development and deeper customer engagement. The profitability trajectory of the FMEG business also continued to improve, having turned profitable in Q4 of financial year 2025. The business has steadily enhanced earnings while simultaneously investing in people innovation, product development and brand building. EBIT margins for the quarter were 8%, very much in line with the milestones laid out under Project Spring, where we target EBITDA margins of 8% to 10% by FY 2030. Looking ahead, we remain optimistic about the long-term prospects of the FMEG segment. Our strategic priorities remain unchanged to grow at 1.5x to 2x of the industry growth, while progressively enhancing profitability. Ongoing investments in distribution reach, product innovation and brand strength will continue to drive support sustainable value creation over the coming years. Moving on to Slide #10 for an update on our EPC business. The EPC business reported revenues of INR 3,077 million during the quarter 1 financial year 2027, reflecting a year-on-year decline of 11%, primarily due to the timing and execution cycle of projects. Despite the lower revenue base, profitability remained healthy at INR 338 million, translating into a margin of 11%. Over the medium to long term, we continue to expect sustainable operating margins for the EPC business to remain in the high single-digit range. In closing, I would like to thank all our stakeholders for their continued trust and support. The quarter's performance reflects the strength of our diversified portfolio, disciplined execution and strategic investments across the growth platforms. With that, we conclude our prepared remarks, and we'll now be happy to take your questions. Thank you.

[Operator Instructions] The first question comes from the line of Andrea Joshi with ICICI Securities.

Yes. Congrats to entire team for posting for a solid result. Sir, 2 questions from. If you can indicate the price hikes and volume growth in this quarter on a year-on-year basis. And now considering the copper prices, how do you see the pricing working out for Q2, that is question number one. And secondly, in terms of accounting, as you alluded to earlier, the acceptances have gone up considerably and which is included in payable days. So if you can quantify the actual creditors, the creditors or exponent creditors for CapEx? And the third, the actual acceptances. And as the acceptances are part of payables, whether the interest cost on the acceptances is booked through the expenses lines? Or is it included in finance cost, just as an accounting require that clarification.

So Anirudh, thank you. I think in your 2 questions you had 4, we'll try and answer try and attempt to all answering all. So firstly, on the copper price. And in fact, the volume and price growth in this quarter. So I think I can give you volume growth trajectory, which is put together cable and wire grew from about low to mid-single-digit volume growth. . But we must note that the Q1 of last year, our volume growth was very, very strong. We had a base of about 26% volume growth cable and wire put together, where again cables was high. and wires was again north of 20%. So on that base, this time, we've recorded low to mid-single-digit kind of overall cable and wire business growth. where, again, this time, like we mentioned in the earlier part of the conversation, where wires has outpaced cables. Okay. And on the copper price, I don't see we have any guidance on that for quarter 2. We will continue to focus on business and price will, of course, be something that we can't control. It's like you are aware, we are -- it's a cost-plus model, right? So whatever is the cost, we'll pass it on, and we'll continue to focus on the business, right? So that is, I think, the first question. Second question, I'll just briefly address by saying that -- so while acceptances have gone up, I think the goods are still in transit. So hence, if you look at typically the way we operate, the inventory is usually on a higher side, say around 100, 110 days, right? Using LC to get payable days around, say, 80, 90 days. And it's only a play of that. And if you look at receivables, you must be aware, our business happens 90% through channel, right? And majority of that, again, comes from channel finance. So our receivables are always low. But typically, considering the other parts of the business, including EPC, we believe our receivables are usually within 20 to 30 days. So if you put together these 3 pieces, you will always figure that we are somewhere around the average range, we guide is 45 to 50 days. But this time, we were on the better side, and we ended up with 15 days in this quarter. right? I think more details into it. We can, of course, take it offline.

Okay. Sure, sir. This is very helpful. And once again, congrats to the team. Thank you.

Next question comes from the line of Sonali Salgar with Jefferies.

And congratulations to the team for such a strong performance. My first question is a little strategic in nature. It would be nice to hear your thoughts on the upcoming data center opportunity or an opportunity in optic fibers that you see? And my second question is in terms of the exports. Now we understand that 13% decline, was it largely because of Middle East? And how do we foresee the coming quarters?

Thank you so much, Sonali, for these 2 questions. So firstly, on the data center opportunity, I think it's a very big opportunity. We are hopeful that material translation should happen from estimates to reality. Today, I think the installed base is somewhere around 1.6 gigawatts. We've read reports where the estimation is somewhere around 8 gigawatts to 16 gigawatt or 18 gigawatts. So we estimate that 1 megawatt translates into around INR 3.5 crore worth of cables with 50% to 60% being conventional and the balance being optical fiber. So a sizable chunk of demand can come from data center. It's just a matter of timing. Definitely a INR 20,000 crore, INR 25,000 crore market is there, but that's over a period of maybe 6, 7, 8 years. We have -- through our distribution channel, we have supplied majority chunk of the conventional piece in the existing installations. I think we've called out earlier publicly that in the data centers of Vodafone Idea in Mohali, Pune and South of India, we've supplied the cables. So we continue to focus on that market. It's a dedicated focus area for us. And that, of course, is one such chunk of demand center, which can actually explode and create another layer of demand for cable and wire put together. So I think we definitely expect this to pick up in a bigger way. And like I mentioned, the opportunity could actually be from 8 gigawatts to 16 to 18 gigawatts and that to over a period of 5 to 8 years. We need to see how it translates into reality. Okay. And on the second part, which was exports. So like you rightly mentioned, the Middle East got impacted in the month of March and certain geographies in Middle East continue to be impacted. But I'm happy to state that we have seen a good amount of momentum coming back in exports. Today, we have a very healthy order book. Our -- the U.S., Europe and Latin America put together -- order book. Happy to state that even in Q1, we could do about 20%, 24% kind of a business from Middle East, which again came from countries like Oman, Saudi and UAE put together. Okay. And North America continued, I think the contribution from North America was somewhere around 45%, 50% in our Q1 turnover. And of course, Europe was about 18%, 20%. So broadly, we've seen we're pretty broad-based. Last year, we were happy to add 10 new geographies in our global footprint. And today, we believe that all of that is going to pay rich dividends in the time to come.

Got it. Very clear. Thank you for the detailed answers and all the best to the team. .

Next question comes from the line of Pulkit Patni with Goldman Sachs.

Just 1 question. This is on the BharatNet project. given how steep price increases have been seen in the fiber side, -- how do you see the profitability of these projects panning out over the next couple of years? And also, we've seen that overall, the EPC revenue has been quite weak. Any particular reason that's impacted this revenue? So just that question.

Sure. Thanks Pulkit -- and the high fiber prices. So happy to state. I think the strength of our procurement is such that we've been able to secure the fibers for the execution period which is next 2 to 3 years. So there is a INR 4,500 crore execution piece of the contract of INR 8,000 crores overall, right? So within that, whatever is the fiber piece, so overall supply portion is around 30% of the overall value. correct, so now for that portion, we've already secured the fiber. So hence, we are technically not exposed to the high fiber prices that are happening today and completely appreciate the fact that the fiber prices are obviously on the uptick. But we've secured our fiber, Hence, we are not exposed or not impacted. And profitability, like you mentioned, hence, we've always guided that [indiscernible] which again forms part of our EPC business, the expected estimates are supposed to be high single digits, right? This quarter, if you believe we've delivered EBIT of 11%, but we estimate that from a long-term perspective, it should be high single digit. And also I think since you mentioned that EPC has taken a hit in this quarter, I would say EPC business is the nature of business wherein you shouldn't see on a 2- to 3-month basis. These are all milestone-linked payouts, right? So if the milestone happens, say, after a period of 5 months, then possibly revenue recognition will happen in second quarter and not in the first quarter. So that is the only way. Otherwise, materially, if you see on a full year basis, you will not see hopefully a dip. Okay. And just I think 1 more, you had a question on...

Next question comes from the line of Akshay Katani with UBS.

Congratulations on great results. Sir, how should we look at full year volume growth? Like Q1, you highlighted low to mid-single-digit volume growth on a high base again will have a high pace. Q2 will have a slightly, I would say, moderate base and then these becoming favorable in quarter 4. So how should we look at full year volume growth for Polycab this year?

So Atul, thanks for your question. So see, I think best way to look at it is look backwards -- so if you look at Q4, we didn't have -- I think the industry didn't have significant volume gains. Q3 was maybe 40% for us. So similarly, quarter-on-quarter, you will have different volumes. But I think we've always guided that we'll do 1.5x of market growth, right, which is, I think, mix of both volume and value. So as long as there is growth in the volumes or growth in the market, we'll definitely do better than the industry growth rate. That is the only guidance we can give, right? But if you look back, I think, like I mentioned, overall full year FY '26, we did 18% volume growth. right? So I think over a period of 10 to 12 months is a good time to look at a trend, 2 to 3 period, I mean you'll have only 2 to 3 dots. You will not be able to draw a trend line. So I think 10 to 12 months is a good period. I think over maybe 2, 3 next quarters, you will see a trend, and you should definitely see 1.5x of market growth.

Got it. And second question, sir, on the growth this quarter, you highlighted why have outperformed cable growth this quarter. So does this imply market share gain for Polycab in wire segment? And how much it will be the market share if you can quantify it?

Okay, we'll have to obviously wait for other results to also get public, right? Only then we can comment on that. And typically, we do this market share analysis or exercise typically, again, at a period of after a 10- to 12-month period, like last year, in last quarter, in fact, we updated that overall, we've gained 3% to 4% market share. I think quarter-on-quarter, it may not be true because this should not be cyclical, right? I mean it should be at least structural gains, which can again appear only after 8, 10 months. And of course, after peers have also declared the results.

Next question comes from the line of Ravi Swaminathan.

Numbers. I would like to double-click on the volume growth opportunity from the cable segment. How was the performance from transmission side this time? And how do you see the visibility, especially from solar side? Is there a possibility of further growth that can be there from that particular subsegment -- and similarly, with respect to demand from Infra and industrial, how it was in the first quarter? And how is it likely to pan out? Are we seeing a recovery in demand from both infra and industrial side?

Thanks, Ravi. Thanks for that question. So I think I'll just reiterate. So basically, our 90% of our business happens through channel. So majority of the times we don't get to know who's the end customer, okay? But of course, we have some estimates and assessments, where we -- I can give you some color. Not every quarter, you will have a particular sector contributing. But overall, if you see, our sales -- thanks to being the largest player in the cable and wire industry, our sales are very broad-based. So it will be across the spectrum of demand. I'll just cite a few numbers, Ravi, and thanks for pointing this out that what is the traction in T&D space. See, overall generation side, I'm sure we are all happy with the developments that are happening on renewable generation, right? I think 55, 56 gigawatts were added in the last financial year. I think under the national generation adequacy plan of government, I think by FY '36, we have to reach somewhere around 120-odd gigawatt, where 70% of that has to come from renewable -- so today, solar is maybe around 150 gigawatt. It has to go up to almost 500 gigawatt plus. So substantial generation. Maybe I think north of 50, 60 gigawatts every year will continue, right? So all of that will, of course, translate into significant cable demand. Second piece is the transmission and distribution. So if you look at period of FY '20 to FY '25, the average transmission line capacity addition was around 15,000 circuit kilometers. Okay. Now that has to substantially go up to about north of 20% -- north of 20,000. So estimates are 20,000 or 21,000 circa kilometers should be the average for period of FY '20 to FY '30. Now this year, again, Central Electricity Authority, CEA has predicted that at least it will be 17,000 circa kilometers in this financial year. Okay. So all of these are very, very good positive signs. I'm happy to state that 2,000 circuit kilometers has already been executed in April and May months. So we don't have a number for June, but 2 months has already seen 2,000 kilometers getting added. So it's a very real execution which is visible. Even the MNRE budget for last year, they were able to pump in INR 24,000 crores. So against their budget estimate, the actual spend was about 90-plus percent. So all of these are very, very healthy signs. If you look at the the capacity addition plans of the transformer companies, they are pretty robust. If you look at CG Power, ABB, Siemens, Hitachi, they have very sizable capacity addition plans. All of them are targeting the huge T&D pickup that is going to come. And of course, AI and data centers are further going to propel this demand. So we are very positive, Ravi. I think that's going to continue. Also on the private side, I think you mentioned -- so thanks to again a distribution reach, we are able to aggregate demand at Tier 2, Tier 3, Tier 4 markets, our distributors are able to cater to that demand. We've been fortunate to be able to cater to sizable private demand. And on a broad-based basis, we expect that demand to kick in even strongly now. that government budget is strongly focusing on logistics, railway, corridors and stuff like that, which will further create the right environment for private CapEx to pool in okay? We have seen that the BSC 500 companies ex-BFSI, we've seen that they have committed somewhere around INR 11.6 lakh crore for next 12 to 18 months in capacity enhancements and new CapEx, okay? And majority of them are going into industries like metals, semiconductors, manufacturing and even renewable. So if all of that comes through, I think majority of these will translate into very strong demand for cable and wire, and we are yet to fully see the potential from defense, EV charging infrastructure, data centers, we can create another layer of demand altogether. So I think from a demand side, we are reasonably assured. I think India is at a very sweet spot. And not just for this year, I think, Ravi, for the next 2 to 3 years, we are very positive about the demand.

Next question comes from the line of Achal Lohade with Nuvama Institutional Equities. .

Sorry. So 2 questions. First, in terms of the volume growth, if you could call out base quarter number for cables and wires separately? You mentioned that wire has grown faster than cables in this quarter. So is there any remnant of channel stocking, which has kind of helped in this quarter end towards June 1? That's my first question.

So Achal, maybe let me address the first question. So which is the volume split between cable and wire. So wire is, like I mentioned, outpaced cables, wires was high single-digit growth again, at the cost of reiteration, I'm repeating that our volume base of last year, Q1 was very, very high. Cables was almost north of 25%. Wires was north of 20%. So on that base, our wires recorded high single digit. -- cables was low to mid-single digit.

Got it. And in terms of channel stocking, how is the channel stocking at this stage for wire and also cables?

Very good way to look at it is the movement in copper and aluminum, right? So if you see in June specifically, I think it has plummeted. -- both aluminum has gone down by maybe 18%, 20% I mean, from point to point, right, 1 of June to 30th of June. And if you look at even copper has gone -- has substantially come down. So it had almost gone to almost INR 14,000 and then it came down to INR 13,100, 13,200 , right? So I think as soon as price tends to go up, the stocking happens. If price comes down, destocking happens. That's the usual trend in the channel and which is consistent anytime. And hence, the answer to your specific question is that the stocking did not happen to the expectation. Of course, there is some stocking that happens because of a quarter end or a month end. But the -- compared to the regular estimate of a typical quarter, it was definitely impacted by the plummeting of raw material prices.

Fair to say that the channel stocking is suboptimal? Would that be fair as to look at it?

For us -- so again, here, suboptimal is very difficult for me to, let's say, on record pointing that, in our case, typically, the stocking is healthy stocking say, maybe about 20, 25 days, right? That may not be true for other peers because we are able to replenish them faster. So yes, but we are expecting below expectation is a better way to put it. .

Fair point. Secondly, in terms of the margin. Now if I look at the mix in cable and wire, mix will be in favor of virus in this quarter? But the margin improvement Q-o-Q. So any -- and I think we -- ideally, the margin should have seen improvement -- further improvement. So I was just curious, is there any one-off or any cost escalation, et cetera, which has kind of impacted the Q-on-Q improvement in the margin?

No. Achal, I'll just put it this way, that it's a factor of 4 things, typically in case of us for defining the margins. And one is the export contribution in the overall business, right? This quarter, again, the effect of West Asia gradually phasing out or at least, I don't know, at least till last week, it was the effect was reducing or going in the right direction of resolution. So but this quarter, of course, had an impact on exports. So exports didn't contribute meaningfully. Second is the split between wires and cables. Now wires was obviously higher. So that of course, uplifted or supported our margins. Second is the channel versus institutional. So channel was higher and hence, also that supported the margins. But the fourth, again, being the operating leverage. So exports contribution and the operating leverage possibly didn't go in the right way. So all of this comes together, then definitely, we are able to at least supports our margins in a good way. But at the same time, also, Achal, I would put it that based on our long-term or medium- to long-term guidance of 11% to 13% under Project Spring, we definitely want to operate there, and we are -- we believe that this is again a healthy range. Of course, all 4 things coming together will play a role in our defining the margins.

Perfect. Just 1 last question. In terms of the U.S. exports, if you could talk about the distribution revamp, where are we? And what kind of pickup are we seeing? And what was the growth in U.S. exports on a Y-o-Y basis?

So let me put it this way. This year -- this quarter, the mix from -- mix of exports, U.S. was again 50%, okay? And overall, we've seen a dip in exports overall. But North America continues to be a large contributor to our overall exports. And second thing is on the setup. I think setup is more or less complete. We had appointed market reps, and that process is complete. I think we have shown the right seats. There's a very healthy order book, specifically from U.S., and we anticipate under a very healthy inquiry bank as well. So these 2 put together gives us enough confidence that in the coming quarters in this financial year, we should see a sizable pickup in U.S. exports and overall exports also will definitely show a good uptick.

[Operator Instructions] Next question comes from the line OF