Published on 27/01/2021 11:59:07 AM | Source: Yes Securities Ltd

Update On Polycab India Ltd By Yes Securities

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3Q investor call takeaways

FMEG delivers stellar growth, high input cost affects Gross margins

* Our View – We believe strong cash generation and sustainable improvement in working capital are key catalysts in multiple re‐rating for the stock apart from increasing B2C business. We believe multiple re‐rating for Polycab is likely to continue as company is able to deliver sustainable improvement in return ratios with continued market share gains.


* Macro Indicators ‐ Broad based recovery across regions, B2C demand has sharply recovered with sentiment improvement, construction activity has picked up, private sector investment has picked up resulting in pickup in B2B business.


* Business updates – B2C categories continued to see strong traction, while B2B has seen improvement on QoQ basis. A&P Spends were higher on IPL related expenses. Commodity price increase continue to post challenges.


* Wires and Cables – Grew 6% yoy, domestic wires post double digit growth, while cables business remained flat. Instructional business was muted. Distribution led business continued to see handsome growth. Export business declined on high base of Dangote order. Margins in wires and Cables is likely to remain in range of 11‐13%


* FMEG – FEMG continued its growth trajectory. It faced high competition, unavailability of product, supply and logistics issues in Q3. Demand of lighting product remained upbeat on back of festive season. Switchgear and switches have seen growth on back of home improvement. FMEG has seen margin improvement on back of change in product mix and cost rationalization. Company is on track to achieve high single digit margin in next 2 years. East has seen higher growth, with market share gains in Fans.  


* HOHM – HOHM is the new brand of Polycab which consist of premium IOT based products will be available on online platform from next month. Margins are expected to be better than the base products. All these products will be manufactured in‐house.


* Working capital – Working capital has seen improvement on higher channel financing and increasing in payables. Company is confident of further improving its working capital by reducing inventory levels and keeping payable at optimal level. Reduction in working capital has led to strong cash generation.


* Gross Margin – Gross margins have impacted on back of rising commodity prices. Complete cost of commodity price increase have not been passed on, it is likely to be passed on in calibrated manner.


* Distribution – Company has 4000 dealers/distributors catering to 1,50,000 retailers and distribution enhancement program is on track. Focus will be on increasing experience centers


* Cash Generation – Cash generation will be used as company required capex for getting into Defense and Railway sector. It will be also used to improve capability for getting more exports orders.

* New product category – Company will continue to focus on existing product categories as there is huge scope of increasing share in FMEG.


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