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Polycab, a prominent player in the wire and cable market, has reported outstanding results for the Q2FY24, achieving it's highest-ever profitability. The company experienced substantial growth across various regions, with particularly strong performance in North India. The primary driver of this growth was a remarkable year-on-year increase of approximately 27% in revenue from wires and cables. Furthermore, Polycab's international business segment contributed approximately 9.3% to its total revenue, expanding its global presence to encompass 76 nations. The company's operating profit exhibited remarkable growth, surging by approximately 42% YoY to reach Rs. 609 crore. Additionally, the operating profit margin (OPM) showed an improvement of 160 basis points year-on-year, reaching 14.4%. These improved margins can be attributed to enhanced operating leverage and an improved product mix. Considering these impressive financial results and the positive outlook for Polycab, we uphold our BUY rating on the company

Impressive quarter with all time high profitability:

Polycab continues to deliver remarkable results, posting a significant 27% year-on-year growth in its topline during the Q2FY24. The company's management has effectively maintained margins, evident in the 30 basis points QoQ and 160 basis points YoY expansion in the EBITDA margin, which now stands at 14.4%, even with higher advertising and promotional expenses in the range of 2.5-3%. Notably, the net profit surged to Rs 4.3 billion, a remarkable 59% year-on-year increase. Furthermore, Polycab's balance sheet remains robust, with a net cash position of Rs 15.3 billion at the end of Q2.

The company achieved robust growth of 28% year-on-year in cables and wires (C&W) volumes, driven by strong government capital expenditure and robust demand from the real estate sector. However, the performance of the Fast-Moving Electrical Goods (FMEG) business was moderate, influenced by declining sales in fans and lights due to weak consumer demand.

In summary, Polycab's impressive results highlight its resilience and its ability to leverage favorable market conditions, solidifying its position as a leading player in the industry.

Benefits of distribution realignment in FY24:

In FY23, the distribution restructuring initiative known as Project LEAP was successfully completed. However, this had an impact on the Fast-Moving Electrical Goods (FMEG) segment, primarily due to the launch of fan ratings and changes in distribution. Looking ahead to FY24, we expect to start reaping the benefits of this distribution restructuring, while also experiencing strong growth in the fan category. This growth will be driven by the clearance of non-BEE (Bureau of Energy Efficiency) inventory and increased sales of BEEcompliant products.

Management is confident about achieving profitable growth in the FMEG segment. This will be facilitated by the introduction of new models, premiumization efforts, and effective distributor management. Furthermore, the company maintains its target of achieving a 10% EBITDA margin by FY26.

Progress on new project "Project Leap":

The company initiated this strategic project with the primary goal of ensuring sustained growth, even in the face of challenging market conditions. This ambitious five-year plan sets a revenue target of approximately Rs. 200 billion by FY26, implying a compound annual growth rate (CAGR) of 18%. Encouragingly, the progress of this project suggests that it is progressing ahead of schedule, with a robust 26% CAGR in topline revenue from FY21 to FY23. This leaves only a 13% run-rate for the next three years, indicating that the target could be achieved well before the set deadline

Polycab's focus within this initiative centers on four key areas, enabling them to proactively seize opportunities and effectively navigate potential challenges in their quest for success.

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