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Polycab India Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤22nd Jan 26

Summary : Polycab delivered strong Q3 FY26 results with significant revenue and PAT growth, driven by robust domestic demand and strategic market share initiatives, despite commodity price inflation impacting margins.

Management Perspective positive : Management expressed 'immense pleasure' regarding leadership changes, 'strong confidence' in India's growth outlook, and is 'very optimistic' about Q4 performance. They are 'confident in the long-term potential' of FMEG and believe their strategy is 'working very well'.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 consolidated revenues grew 46% YoY, driven by Wires and Cables (W&C) and Fast Moving Electrical Goods (FMEG).
  2. EBITDA for the quarter increased 34% YoY, with margins at 12.7% (13% excluding one-off gratuity provisioning).
  3. PAT reached a record 6.3 billion, reflecting 36% YoY growth, with PAT margins at 8.3%.
  4. 9M FY26 revenues crossed INR 200 billion, with EBITDA and PAT growing 47% YoY.
  5. The W&C business saw 53% YoY revenue growth, with domestic W&C volumes up nearly 40%.

Future Growth Prospects

  1. Expect sustained growth in Q4 FY26 due to peak execution and yearly targets.
  2. FMEG segment targets 1.5x-2x industry growth and 8-10% EBITDA margins by FY30.
  3. Solar business, the largest FMEG category, is expected to continue strong growth.
  4. Healthy order book for international business is anticipated to translate into future revenues.
  5. Real estate market remains strong, supporting wires demand in coming years.

Management Insights

  1. Board approved redesignation of Mr. Bharat Jaisinghani and Mr. Nikhil Jaisinghani to Joint Managing Directors.
  2. India is a global outperformer with 8.2% Q2 FY26 GDP growth and strong domestic consumption.
  3. Strategic decision to pass on raw material price increases in a staggered manner to protect volumes and market share.
  4. Confident in the long-term potential of the FMEG segment, aiming for sustained growth and value creation.
  5. Project Spring guidance of investing INR 12-16 billion annually through FY30 is on track.

Signs of Skepticism

  1. Market share gains cannot be quantified until competitors release their results.
  2. Uncertainty about future commodity price movements makes margin forecasting difficult.
  3. Visibility on specific sector demand for cables is limited due to reliance on distributors.

Risk Factors

  1. Continued commodity price inflation (copper, aluminum) impacts profitability.
  2. Rupee depreciation contributes to higher input costs.
  3. US tariffs are a global overhang, impacting export performance.
  4. Staggered price pass-through leads to near-term margin pressure.
  5. Uncertainty regarding future commodity price movements.

Good To Know

  1. One-off gratuity provisioning of ~INR 219 million impacted Q3 FY26 EBITDA margins.
  2. Working capital cycle was 27 days, expected to normalize to 50-55 days in coming quarters.
  3. Capital expenditure for Q3 was INR 3.4 billion, totaling INR 10.9 billion for 9M FY26.
  4. Channel inventory for wires was elevated at 40-45 days, up from typical 30 days, due to pre-stocking.
  5. A&P investments are being strategically ramped up, with annual spend targeted at 3-5% of B2C top-line.

Key Drivers

  1. Robust domestic demand continues.
  2. Government capex drives growth.
  3. Solar business shows strong momentum.
  4. Market share gains expected.

Key Analyst Discussions

Competitive Environment

  1. Market share gains are expected, but quantification awaits competitor results.
  2. Industry growth for H1 FY26 was 15-16%, with Q3 likely closer to 20%.
  3. Company is operating at 2x the size of the second largest player in W&C.
  4. Initiatives like the Etira brand are driving market share gains in Tier 3-5 cities.

Market Trends & Consumer Behavior

  1. Robust demand from government and private capex, and a healthy real estate sector.
  2. Solar business grew over 100% YoY, driven by rooftop solar incentive schemes.
  3. Fans business was largely flattish due to a softer summer and channel inventory liquidation.
  4. Affordable housing segment is gaining momentum with lower borrowing costs.
  5. Q4 is generally the peak demand period across various industries for cables.

Financial Highlights

  1. Domestic W&C volume growth was approximately 40% YoY in Q3 FY26.
  2. EBITDA margins declined due to sharp commodity price inflation and staggered pass-through.
  3. Approximately 75-80% of commodity inflation was passed on within the quarter.
  4. Higher inventory levels are maintained in anticipation of strong Q4 demand.
  5. Q4 margins are expected to improve sequentially due to better operating leverage.

Product Composition

  1. Wires growth outpaced cables in Q3, increasing wires' share marginally.
  2. Wires revenue growth was 70% and cables 50% due to higher copper inflation.
  3. Typical cable and wire mix is 70:30, but wires share increased slightly.
  4. Exports generally yield higher EBITDA margins (around 15%) compared to domestic sales.
  5. Domestic cable margins are 9-12% EBITDA, while wires are 15-16% EBITDA.

Strategic Considerations

  1. A&P spend is a strategic call, particularly in H2, targeting 3-5% of B2C top-line annually.
  2. The company hedges inventory to maintain margin stability, pricing at a future date.
  3. Focus on Class 2 wires in Tier 1-2 cities is contributing to market share gains.
  4. Execution excellence under Project Spring drives superior market performance.
  5. Redesignation of Joint Managing Directors aims to steer sustained growth.