In Q2, Polycab’s consolidated revenue grew by 10.8% year-on-year to ₹3,332 crore. This was mainly driven by mid to high teen volume growth in domestic business and good traction in export business. Further, the outlook for the C&W segment is promising. But against the backdrop of falling copper prices, it remains to be seen if volume growth continues into Q3.
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However, Polycab’s fast-moving electrical goods (FMEG) segment continues to be plagued by subdued demand. Plus, high competition is a concern. In Q2, this segment turned red, at the Ebit level from a profit of ₹6 crore in Q1. Seasonality and transition to the new Bureau of Energy Efficiency regulations weighed on the fans segment in Q2.
“As it expands its FMEG business, one advantage is that the company can leverage its pan-India-based distribution network of cables and wires. However, FMEG product launches and their pricing would be a key factor to watch out for," said Nirav Vasa, analyst at Anand Rathi Share and Stock Brokers.
Meanwhile, to generate operational efficiencies and cross-selling opportunities, Polycab has merged its fans vertical with lights and luminaries and the retail wires vertical with switches and switchgears. Investors would do well to track the benefits of this transition in the coming quarters.
So far in FY23, Polycab’s shares are up 14.5% and are 5.4% below their 52-week highs. Sustained volume growth would be a trigger for the stock. If the momentum in volumes continue, it would translate into better operating leverage, which would aid margin improvement. In Q2, the Ebitda margin rose by nearly 2 percentage points sequentially to 13%.
“Private capital expenditure (capex) seems to be reviving, with average industry capacity utilization at 74%. Given its strong market share in C&W (22-24%), we view Polycab as a beneficiary of infra/capex/ housing revival in India," said analysts at Jefferies India in a report on 19 October. “FMEG traction could be tepid in FY23, but might revive from FY24," they said.
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