I think the Ryker divestment is well explained in last Concall:
“Ryker is our wholly owned subsidiary and what they would do is just toll copper cathodes to copper
rods and copper rods are then used for manufacturing of cables and wire. We are using broadly 1/3 of
this total capacity and that is where this particular capacity is underutilized”
The important thing is mgmt was very vocal about the scope of of backward integration when they the started JV and later bought the balance stakes. They explained many time about the importance of controlling the quality of copper rods.
Agreed. But not sure if quality control was sustainable at only 1/3 capacity utilization. And selling cathode rods is not their core competence, so there’s a benefit of the doubt that goes to the management.
Hoping we get more info in the next call.
Disc - Invested
Results:
Investor Presentation:
Earnings call presentation:
Press release:
Any reason for why the FMEG segment underperformed?
The presentation says the drop in profitability is due to higher ad and promotion spend. However there is no sales growth despite the higher spend.
QoQ Ebitda growth : -1%. Ebitda margin dropped from 5% to 1.8%
There is a mention of high raw material prices but W&C margins improved as they passed on the cost.
Snippets from Q3-FY22 earnings call
1- Overall highest ever top-line. EBITDA margins back to above 10% and will get to 11-13% range soon.
2- Margins still low because of high raw material cost and high A&P.
3- Cables did extremely well. Polycab is market leader on this. The demand scenario is robust with private investments pick up.
4- Wires also saw growth but not as good as cables. Please note that real estate projects need wires and other electrical goods near completion.
5- FMEG topline was only 10% up yoy, and PAT was lower. In December dealers started clearing their inventories fearing lockdown because of Omicron. Also the base last year was (possibly) high because of pent up demand (my thesis which could be wrong). On the base of FY20 it is still good topline growth.
6- At present the subdued demand started during mid-Dec because of Omicron scare has started receding.
7- Company has done great hiring from Havells, Panasonic etc to lead the FMEG business. The leaders are focused on executing LEAP.
8- Committed to doubling revenue from 9K crores to 20K crores from FY21 to FY26.
Overall take from me: Cables business is doing good. FMEG was possibly impacted because of Omicron, and Fans being the leading product (not needed in winters). Disclosure - invested.
Edit 1: Adding the audio call recording link here https://polycab.com/wp-content/uploads/2021/07/Polycab-India-Limited_Q3FY22-Earnings-call-audio.mp3
Cheers,
Krishna
The pickup in housing sector in 2021 will be very favorable for them in FY23, as the demand from real estate is backended in nature i.e. towards completion
Most importantly, they are investing heavily to acquire top talent. Some key names below. I give a lot of weightage to people/ human capital in my analysis.
Interview with Polycab CFO Gandharv Tongia: In conversation with Gandharv Tongia, CFO, Polycab India Limited - Dalal Street Investment Journal
Some categorized snippets from Q3 FY2022 Earnings Conference Call
Branding
During the quarter we launched several brand campaigns across TV, digital and social media platforms. Seminars and influencers meets helped improve awareness among B2B customers, electricians and contractors amongst others. We also initiated rural outreach program through mobile vans where we connected with customers in hinterlands. As the business environment normalises we will continue with our branding spends.
Exports
Export business contributed 8.1% to consolidated revenue but declined by 8% Y-o-Y largely on account of one large order in base year. Excluding that, the business posted a healthy 24% Y-o-Y growth led by Africa, Asia and Australia. We have put in considerable effort over the past two years in terms of new product development, getting approvals and penetrating new geographies. This is now materializing as we are seeing many repeat orders from large customers globally.
Contribution
Our focus on achieving double-digit contribution target over the medium term for this business remains intact.
On slide #7, our FMEG business grew by 11% Y-o-Y. O
FMEG
We have several FMEG products already available. We have fans and water heaters. We have lights and luminaries. We have switches and switchgears. We have conduit pipes. We have a bit of agro pumps and there are some adjacencies which are being explored, but nothing on the kitchen equipment side as of now.
Profitability in this business has been a bit volatile in recent past, but this is largely because of a blend of external factors like unprecedented commodity inflation, demand disruption coupled with a lot of internal changes in terms of creating the right team, right infrastructure, right GTM strategy, brand investment, etc., which aligns with our aspiration. We strongly believe this alignment is necessary to achieve the next leg of profitable growth in FMEG which gets us to the podium.
The FMEG on a two-year basis has recorded a 57% of growth in top line
EPC
On slide #8, other segment which largely comprises of our strategic EPC business witnessed a 21% Y-o-Y increase in revenue to Rs.745 million.
Ryker Divestment, reasons and future plans
While many of you may know this but just for the benefit of everyone I would like to highlight that during the quarter we divested our entire stake in Ryker Base which was our wholly owned subsidiary for an enterprise value of Rs.3.23 billion. Ryker played a strategic role in providing us high quality copper rods which are an input for manufacturing of wires and cables. It started as a JV but we had subsequently acquired the balance 50% stake when the other partner decided to exit. Consequently, the capacity became quite overwhelming and we couldn’t fully utilize this state-of-the-art facility with our own internal requirements.
Our limited experience and interest in metal business and a strong focus on optimal capital allocation also suggested it was prudent to divest. So after exploring various strategic options we believed this deal was a win-win proposition as we simultaneously executed a multi-year tolling arrangement with Hindalco which will ensure our operations and supply chain dynamics remain intact and we continue to deliver higher quality of products to our customers.
Talent udpate
Deepak has joined us recently from Tata group to lead the transformation management office under Project Leap. Tapas joined us from Havells to head our fans business. If you remember we had initiated few pilot projects to test the rural market.
In the last quarterly call, I had updated all of you that Mr. Vivek Sharma has joined us from Panasonic. He was the MD of Panasonic and after super annuation he has joined us as Deputy Managing Director. Tapas has joined us from Havells and he is heading our fans business. Similarly, there are other team members who have joined from other large companies like Crompton and other large B2C players. These management professionals with the help of BCG are in the process of revisiting and revising and revitalizing the product portfolio, GTM, geographical expansion and augmentation of dealers and distributors
CAPEX and cables & wires demand
most of the companies are going ahead with their capital projects despite the ongoing third wave.
Overall, availability of credit and softening of interest is also helping the housing sector and building sector, and as we go ahead it appears in the Q4 after omicron the overall private CapEx would help us in improving the top line of the industry as well as large players like us.
Affordability I think has been at multiyear high and it should get reflected in the demand for cables and wires business in the quarters to come
On the B2B side, as I mentioned a while back, the improvement in the demand is emanating from private CapEx. As I mentioned to Ravi a while back, institutional business has recorded 150% growth which is a meaningful number in our B2B business. On the dealer side, there are several sectors where we have seen uptick in demand, whether it is coming from real estate, infrastructure, renewable energy or manufacturing, but I would say it is broad based and it is coming from most of the geographies, so it is not that only one particular region of the country is contributing to the demand, it is coming from the all the geography and that is where we have been able to also record a decent volume growth even if we consider Dangote in the base.
There is no particular one industry or sector which is contributing to this demand. I would say this is largely broad based. I think the private CapEx spenders are not shying away from making the commitment and incurring the cost which is benefitting us in terms of the improved performance in the top line.
I would not say that we are not able to see an uptick in demand or there is a disconnect between the real estate revival as well as growth in our sector, but we need to look at this construction cycle in its entirety because a few of our products are used towards the end of the construction phase and that is where we will have to dive deep into the greater details of the cycle of real estate and correlate with our industry.
Raw material cost and price hikes
In our business on the B2B side particularly on the distribution business, we revise our prices generally on monthly rest after considering two variables; one is changes in metal prices of copper and aluminium. Second, is change in the foreign exchange rate of USDINR and which is what we have done in the current quarter as well. On the other side of business, which is institutional and export we generally do it on back-to-back basis. As you can see, between Q2 and Q3 there is almost 70 basis points improvement in contribution margin which means that we have been able to increase the prices slightly more than the actual increase in the raw material cost at the product basket level and as I mentioned to Ravi a while back we believe that in the quarters to come we should be able to improve our margins slowly and gradually. Atul Tiwari: Would it be the right characterization to say that most of the commodity price hikes have already been passed on and from hereon whatever price hikes you take it will kind of trickle down to the margin number and we will get to the more normal 11% to 12% kind of margin. Is that right characterization?
In all fairness, we are the largest manufacturer of cable and wire in the country. We are the market leader, price leader and of course quality leader. I think we have acted like a market leader in the current quarter. We have taken the price hike which was required to be taken to ensure that we are able to offset the input cost. It is quite possible that a few of the market participants have followed what we have done. There could be some aberration where the market participants or peers have not necessarily followed what we have done, but by and large we have taken the price hike which we felt was necessary to offset the increase in input cost.
for the dealers and distributors we reset or revise our list price on a monthly basis and that is what we have done, even in the current quarter, almost all the increases in the input cost had been passed on to the end customer. For the exports as well as institutional businesses generally it is on a back-to-back basis and that is where we have been able to pass on the input cost increase as well to the counterparty or to our customer.
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Project Leap Update
On a long-term view, you know this already Atul that we are working on Project Leap with the help of Boston Consulting Group and there are several enablers which are in place. Once those levers are used we should be able to improve our profitability both for B2B and B2C, however, it will take a while to fully achieve the true potential of these levers.
The new professionals who have joined the organization as well as the current leadership team totally focused on only one initiative or agenda which is Project Leap. The objective is to achieve Rs.20,000 Crores of top line, improvement in profitability, and there are several enablers to achieve this vision. For example, improvement in our dealers and distribution base, improvement in GTM, expansion and penetration of the geographies where we do not have meaningful presence, improved exports, but if I were to summarize and give you input in a single statement it is only Project Leap agenda which is what being targeted by all of us in the leadership team of Polycab
Premiumization
Premiumization is an important focus area as part of Project Leap. We are working on several elements. One is to ensure that we have the right product available in our product portfolio to meet the premiumization. Second is we should have right GTM and dealers and distributors who can cater to the end demand or end consumer, and that has helped us in slightly improving the overall contribution of premiumized product to our top line. Fan is hovering between 25% and 30%. Purocoat fan which was internally innovated has also helped us in improving the overall premiumization agenda within the fan business, and similarly for lighting we have recorded a growth in premiumization on downlighters and others Hohm, Silvan and Smart – these are the areas where we are still working. I would expect that in the next fiscal and that too in the second half of the next fiscal we should have some meaningful numbers coming to our P&L through Hohm and Silvan IOT, and that remains a focus area for us. Overall, the idea is to have a balance of premiumization as well as regular products so that we have right EBITDA and EBIT margins in the B2C businesses and we are able to improve the margin from the current levels to almost 12% by FY2026.
Profitability targets
As far as better profitability is concerned, we are targeting to get to around 12% of margin by FY2026 and we are taking all the required steps to achieve that. The second is on capital allocation. Slowly and gradually we are increasing utilization of our factories in FMEG as well as in cables and wires. If I were to illustrate this with the help of one example is fan business where our existing facility is almost being fully utilized. We are in the process of setting up another facility which should be operational sometime in the Q1 of the next fiscal and that will also help us in augmenting the top line as well as the profitability. So, we will continue to make efforts to improve the profitability of the B2C business and ensure that our assets are sweated to get better returns.
This conference call speaks volumes about the vision & the honest approach of the company…top class resources acquisition shows their confidence and intent for growth…just brilliant.
The only concern…promoter shareholding decreased by 0.21% in Dec’21 quarter…
good report to understand the market, trends, and long runway for growth…
Are they predicting more fall from here??
Q3 FY22 concall observations.
fully committed to Project Leap agenda whereby we want to double our revenue in five years, fiscal 2026, which would mean that Rs.9000 Crores of top line of fiscal 2021 would be Rs.20,000 Crores by fiscal 2026, and it will come from all the businesses both B2B and B2C. : Polycab
Clarification sought from Polycab regarding this news.
Why didn’t they disclose the same to exchange?
the value of the contract entered by the Company with
‘Tamil Nadu Fibernet Corp’ was below the prescribed threshold limit which required to be
disclosed to the Stock Exchanges under Regulation 30 of SEBI (Listing Obligations and
Disclosure Requirements) Regulations 2015.
This threshhold limit is decided by the company suo-moto or is it prescribed by exchanges?
