Polycab India likely to grow 15% next year: Inder T Jaisinghani, CMD

Inder T Jaisinghani, Chairman and Managing Director, and Gandharv Tongia, CFO, Polycab India, talks about Q3FY22 numbers, margins, cash in books, demand situation, CapEx, export markets and M&A opportunities among others during a candid chat with Swati Khandelwal, Zee Business.

Edited excerpts:

Q: How will you summarise the overall number? Input cost pressure is visible but from the point of view of the demand, how the quarter has been and what trends are visible for the future?

 Mr Jaisinghani: Demand is good in cable and wire. It was slightly low in Fast-Moving Electric Goods (FMEG) FMEG because of the pandemic, which is still there and it seems that it will end by February-end. Overall sale is picking up and the government's works related to infrastructure is going on in full swing. The building construction division of the housing sector is increasing at a good pace, although, the private sector is slightly slow the government's work is fast-paced. So, the business seems to be growing and will continue to increase and if the pandemic ends this year, I think, the growth will be huge next year.  

Q: Margins have declined due to the input cost pressure. Is there any scope to increase the prices and how margins will be protected in the future?

Mr Tongia: This was our best quarter and we did a business of around Rs 3,372 crore. There has been an improvement in the margins from the September quarter to the December quarter. EBITDA has improved by around 100 basis points (bps) and contribution margin has improved by around 70 bps. Whatever was the input cost increase, we have recovered it from our customers, so, you will see that the contribution margin has increased from September to December. We need to understand that there is a fall compared to the last year because at LME there was a fall in Copper. Historically, we have been working in the 11-13% EBITDA margin range and it seems that we will move to the same range next year. It should be at the lower end in the current quarter. At the same time, I would like to inform you that a lot of work is happening under 'Project Leap' that was started some six months ago with BCG. We want to make a top line of around Rs 20,000 crore in the next five years and we are working hard on this target of Rs 20,000 crore and we are also trying to increase our profit in it.  

Q: The company has cash of around Rs 240 crore at present. How do you plan to utilize it?

Mr Tongia: Currently, we have cash of around Rs 700 crore. Our annualised CapEx is somewhere between Rs 250-300 crore. Apart from that, some repayment is made to our shareholders through a dividend. If some cash is left then after keeping it in the war chest, we will provide it to the shareholders through degrades.

Q: Overall demand is looking good. Can you tell us about the pockets vertical wise you are concerned about? Also, how was the performance of retail and B2B segment in wires and cables?

Mr Jaisinghani: Basically, we need to be cautious in regard to the expansion of our network and we are working on the same. If the availability will increase then a lot of business is there. Our market share is very less in FMEG in the area where we are present. So, we have to increase our market share a lot, thus, we have to work very hard. Accordingly, we have hired BCA, a consultant, who is guiding us on how to grow the market in every sector. So, we are working hard and have got a full team for the purpose and going forward, it will be visible that our percentage of market share will increase.

Q: What kind of targets have you kept in terms of market share and by what timeframe? Also, tell us about the CapEx that will be lined up for the purpose?

Mr Jaisinghani: We have fixed a continuous CaEpx of Rs 240-300 crore for the next 3-4 years and where the investment should be made. Complete planning for the next five years has been traced and we have to just implement it. I feel, if we will expand our network then whatever target we have thought will be met together. We have created a team and we all are committed to increasing our network, product range, strengthening our supply chain, increase availability. So, we will have to work from all directions. We are new in FMEG and it is not that easy but we have planned it well and working according to the plans. We have a very good team, so, we want to see ourselves among the top three players in every product and increase our network.

Q: 8% of your revenue comes from exports. What are your targets in the coming years and which are the new geographies that are attracting you and you will enter there?

Mr Tongia: We want business up to 10% from export. In the last one-and-a-half year to two, we have penetrated many matured new geographies. We have our subsidiary in Australia, a lot of work is happening in the US. In addition to this, we also have some identified geographies. The idea is that we want to penetrate the market through local distribution and slowly and gradually increase exports contribution in our top line. In fact, 4-5 years back, exports contributed only 2-3% to our top line, this year is around 8% and is expected to reach 10-12% very soon.

Q: What is the e-commerce channel contribution to your revenue and what is its prospects ahead?

Mr Tongia: We do not have much meaningful contribution to e-commerce right now. We, recently, have hired a new team and are also understanding it with BCG and will slowly take steps forward. Our B2C business has more scope than e-Commerce. It seems that within six months, our work will excel in it further.

Q: You have explained the way cash will be used. But do you have any acquisition on the radar where you will focus?

Mr Tongia: M&A is our active agenda and we bought a Bangalore-based company, Silvan, in June 2021. It is an internet of things (IoT) based company. It will benefit us in our B2C business. We are seeing more companies in the same space where we will get technology, which will take to our consumers.

Q: What kind of war chest do you have for it, what would be the ticket size for it?

Mr Tongia: There is no identified target available at this time but as I have informed you earlier we have cash of around Rs 700 crore. The Rs 250-300 crore that is left after the CapEx will be used in the war chest or will be distributed to shareholders through dividends.

Q: What are your budget from the Finance Minister expectations as it is believed that the budget will be growth-oriented this time as well? 

Mr Jaisinghani: As far as the sector is concerned, the infrastructure development is good and should continue and there should be support to infra. Looks like India is in great need of infra. And the biggest one is as after China people are interested in India and are willing to open industries here. So, a lot of private industries will emerge and the government should support by providing additional incentives for people who are putting industries in India. A proper incentive should also be provided to export because its scope is huge as people are looking towards India. So, they have moved their face towards India after the COVID, so I feel, the government should give at least a good incentive for the exports and our export should increase accordingly. In addition, many countries are interested in India, which is good luck for it and I think the government should think about it.

Q: Input cost pressures are increasing. Is there any scope of price hike shortly to offset the pressure?

Mr Tongia: The distribution business in our cable and wire business revises its price every month based on two things (i) what changes have been made in Copper and Metal and (ii) the change in USD-INR exchange rate. It happens every month and will continue to happen and this is at the industry level. It is done by every big company. In the case of consumer business, we take price increases whenever it is required and have taken it in this quarter as well and if required then we will hike the prices in this quarter as well.

Q: You were talking about expanding your distribution network. What preparations have been made for it how many distributions do you have at present and where it will reach over some time to increase the market share? Also, tell us about the current order book situation?

Mr Tongia: We have around 4,100 dealers and distributors, 1.65 lakh retailers and I think that the number will be huge in the next five years and this will help us in making a top line of Rs 20,000 crore. Secondly, I would like to update you that we do not work based on an order book, we work based on dealer and distributor and 80% of our top line comes from our dealer and distributor. So, an order book is not necessarily a meaningful way to analyse our business. There is a continuous growth dealer and business growth and this is the right way to look at us.

Q: What are your expectations in the top line, bottom line and margins for the next year?

Mr Jaisinghani: Next year, we are eyeing a 15% growth and the bottom line will be increased by at least 1% or 100 basis points. 

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