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Wires & Cables (W&C) revenue rose 44% YoY to INR 26280mn & FMEG 41% to INR 3429mn, leading to total Revenue growth of 48% to INR 31288mn for the quarter. In case of W&C business, topline growth was primarily price led with input cost increases getting passed to the customers. In FMEG, topline growth was equally split between volume & price increase.

Exports rose 12% YoY & contributed 8% to topline. Gross margins dropped substantially by 690bps to 21.5% due to unprecedented increase in input costs, primarily copper, aluminium & PVC. With fixed overheads getting absorbed on larger revenue base, EBITDA margin fall was lower in comparison to Gross Margin fall. EBITDA margin dropped 510bps to 9.7%. A&SP spend stood at INR 142mn as compared to INR 134mn in the corresponding quarter last year.

Net profit stood at INR 2005mn, down 10%. CAPEX during the quarter was INR 0.8bn &for FY22 has been guided at INR 3bn primarily behind fans business capacity expansion as well as W&C business. On QoQ basis, input costs increase was in mid single digit & price increases taken by the company were to the tune of low single digit resulting into sequential contraction of gross margins by 190bps.

W&C revenue up 44% YoY and FMEG 41% driven by pricing actions to pass steep input cost inflation

Revenue rose 48% YoY to INR 31288mn for the quarter. Growth in Cables as well as Wires Revenue was broadly uniform, Cables continued to witness more competitive intensity due to slightly suboptimal demand environment. Wires & Cables (W&C) revenue rose 44% YoY to INR 26280mn & FMEG 41% to INR 3429mn. Exports rose 12% YoY &contributed 8% to topline.

Gross Margin drops by a substantial 690 bps to 21.5%

Unprecedented increase in input costs, primarily copper, aluminium & PVC prices, led to a substantial 690bps fall in gross margins to 21.5%. With fixed overheads getting absorbed on larger revenue base, EBITDA margin fall was lower in comparison to Gross Margin fall. EBITDA margin dropped 510bps to 9.7%. A&SP spend stood at INR 142mn as compared to INR 134mn in the corresponding quarter last year. Net profit stood at INR 2005mn, down 10%. On QoQ basis, input costs increase was in mid single digit & price increases taken by the company were to the tune of low single digit resulting into sequential contraction of gross margins by 190bps.

Outlook & Valuation:

We revise earnings estimates in the light of gradual recovery expected in profitability of Wires & Cables business from here on. During FY21-23, Revenue, EBITDA & PAT are estimated to compound 24%, 23% & 20% respectively p.a.

Though working capital cycle has shrunk during the H1, we have not incorporated the same in our estimates. Polycab should further gain market share from the current ~ 22% with smaller players vulnerable to losing share in the current environment of steep inflation in input costs.

Recent appointment of consumer electricals & durables industry veteran Mr. Vivek Sharma as Deputy MD should result into further re-rating of the stock. Cash surplus BS should enable inorganic growth. We continue to maintain HOLD on the stock with revised PT of INR 2140 (25x FY23E EPS).

Key Risk:

* Volatility in raw material prices & FOREX

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