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EBITDA above estimate, but growth in C&W lower

* POLYCAB’s 3QFY25 revenue grew 20% YoY to INR52.3b (2% below our est.). EBITDA grew ~26% YoY to INR7.2b (+9% vs. est.) and OPM surged 65bp YoY to 13.8% (+140bp vs. est.) led by higher-than-estimated margin in C&W and lower-than-estimated loss in the FMEG segment. PAT grew ~11% YoY to INR4.6b (in line, as the EBITDA beat was offset by lower-than-estimated other income).

* The company shared guidance for the next five years under Project Spring. In the C&W segment, it intends to grow ~1.5x the market growth rate in core segments and aims to maintain an EBITDA margin of ~11-13%. The export share should be ~10%+ of revenue. In the FMEG business, it intends to grow 1.5-2.0x the market growth rate and aims to maintain an EBITDA margin of 8-10%. Under capital allocation, it guided a cumulative capex of INR60-80b and a dividend payout ratio of 30%+.

C&W revenue up 12% YoY (~5% miss)

* Revenue for the C&W segment grew ~12% YoY to INR43.8b (~5% miss), while EBIT increased ~8% YoY to INR5.9b (in line). EBIT margin contracted 60bp YoY (up 1.2pp QoQ) to 13.5% (est. 13.0%).

* Revenue for the ECD segment increased ~43% YoY. It reported a loss of INR128m (estimated loss of INR201m) vs. a loss of INR366m in 3QFY24. Gross margin expansion and improvement in operating leverage helped it reduce the segment losses.

* Revenue for the EPC business surged 3.0x YoY (+10% QoQ) to INR4.2b. EBIT increased 31% YoY (down ~12% QoQ) to INR447m. EBIT margin dipped 13.6pp YoY and 2.6pp QoQ to 10.7%.

* Overall gross margin stood at 25.7% vs. 27.0%/23.6% in 3QFY24/2QFY25. AD spending was 0.7% of revenue vs. 1.0%/0.6% in 3QFY24/2QFY25. Depreciation and interest expense increased 27%/55% YoY, while other income declined 65% YoY.

* In 9MFY25, revenue/EBITDA/PAT grew 24%/12%/4% YoY. EBITDA margin dipped 1.3pp YoY to 12.5%. The C&W segment’s revenue/EBIT grew 16%/ 3% YoY, while the EBIT margin contracted 1.7pp YoY to 12.8%. FMEG revenue grew 28% YoY, while the segment losses stood at INR408m vs. INR483m in 9MFY24

Highlights from the management commentary

* Demand for cables remained healthy. However, the downward trend in copper prices combined with the high channel inventory of wires at the beginning of the quarter led to a slowdown in the wires business.

* International business grew 62% YoY and 29% QoQ. Contribution from the international business to the consolidated revenue stood at 8.3% for the quarter and 6.6% for 9MFY25.

* In the FMEG business, fans continued a growth journey led by a premiumization strategy. The lights and luminaires segment registered strong volume and value growth, aided by festive demand as well as the execution of various strategic initiatives. Switchgears, conduit pipes & fittings, and switches too delivered healthy growth driven by sustained demand from real estate

Valuation and view

* POLYCAB’s 3Q operating performance was in line. However, C&W's revenue growth was below estimates. The C&W margin improved QoQ, led by the normalization of margin in the wires business and an increase in share from the international business. FMEG business also reported strong growth led by strategic initiatives.

* We have a BUY rating on the stock. However, we will review our estimates after the concall on 23rd Jan’25 (Concall Link)

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