Can we expect this 20% from U.S. to continue in the future, or has there been proper billing post 27th August to U.S.?
U.S. is a developing situation and very difficult to comment as of now. Hopefully ongoing trade negotiations get resolved by the end of November and we see a reduction in tariffs levied on us; based on that there may be changes in U.S. visibility going forward.
On demand - given strong domestic and export outlook, can volume growth of high-teens sustain in the remaining part of the year? What kind of growth are we building when increasing inventories?
We don't give yearly or quarterly guidance, so refrain from specific volume growth numbers. Q2 was hampered by an extended monsoon yet still delivered strong numbers; once monsoon is over, execution will pick up pace. With strong government spend in H1 and traction visible from the private side, the second half should continue to be a good affair.
On FMEG - with solar as the largest category, could you elaborate on margin profile of solar versus rest of FMEG portfolio? And what are the strategic levers beyond solar to drive margin from current low towards the 8-10% Project Spring ambition?
We don't give product-wise margins. Solar is profitable and will continue to be; switches, switchgears and conduits are also profitable. The fans segment has lower utilization that hampers operating leverage; scaling fans, gross margin expansion through premiumization, and increasing higher-margin switches/switchgears contribution are the three levers to take FMEG margins from current to 8-10% over the next 5 years.
On major players like Adani Group and Birla Group entering the market - how do you see competition evolving and do you expect margin pressure?
Both entry announcements happened around early this year and it will take time for them to enter. One player has given specific plans/timelines (1-1.5 years out, focus largely on wires) while the other has not given clear plans. Wires has always been an oversupplied industry where Polycab has competed with large and unorganized players and continued to gain market share, so the focus stays on its initiatives, products and geographies.
How big can the HVDC TAM be for the next decade?
Very difficult to quantify the market size for a specific cable type - we will have to see what kind of order contracts the government gives out and that is how we will get to know the TAM for HVDC.
You said you have already taken a price hike in October - is it possible to say what kind of price hike you have taken?
You can look at the movement of copper and aluminum along with the USD-INR movement in the previous month to this month and take the average; that is the increase that we would have taken.
On fans - with a BEE rating change in the offing, are you expecting pressure in pushing volumes and on margins for fans in Q3?
We did not see such pressure during the previous BEE change about 1 year 9 months back, so similar pressure is unlikely this time, though it cannot be guaranteed. We will see how next quarter pans out for competitive intensity or pressure on margins to liquidate inventory.
How much is Polycab targeting in SPC over the next 5 years and are margins 200-300 bps better in special purpose cables?
SPC orders are institutional and require product development plus multi-client approval which takes quarters or years; once done, scale-up is much faster and SPC will grow faster than other cables. But it is very difficult to quantify the SPC contribution five years out, and Polycab does not look at any one vertical's contribution in isolation.
On the 21% YoY sales growth in cables and wires, approximately how much would be volume? And could you categorize the breakdown between cables and wires?
The 21% revenue growth is on the base of high teens volume growth, with the remainder being value contribution. Both cables and wires registered strong revenue growth that was pretty much equal. On volume terms, cables grew a bit higher and wires a bit lower because of a very high base in Q2 of the previous year when copper prices spiked late September, leading to pre-emptive distributor stocking; even on that high base, wires registered double-digit volume growth.
On the EPC segment - given the time deferment between execution and order receipt for RDSS, how should we think about annualised revenue and margin profile of this segment going forward?
Through Q2, only the execution phase of RDSS with limited supply portion has happened. In Q3 and Q4, the cable supply portion within the RDSS contracts will kick in, leading to better revenue inflow. BharatNet project execution will also start from Q3 onwards, adding to both the top-line and bottom-line. So the second half should be much better as far as the EPC business is concerned.
What was the one-off component in EPC margins this quarter and could you quantify it?
The one-off was about Rs. 30 crores. Excluding that, EPC EBIT margins for the quarter would be around 10%, in line with the guided range for the segment. The one-off arose from a change in terms in one of the contracts.
Any update on the EHV segment given it is a strong demand driver going forward for the industry?
The EHV plant is on track to be commissioned by the end of next calendar year, so EHV sales benefits will only start being visible in FY 2028.
On growth in cables and wires - given the sharp rally in copper prices and channel checks indicating dealer stock-up, does this volume growth reflect that?
Volume growth is largely linked to fundamental demand, not copper movement. There may have been some inventory buildup in wires towards end-September but the same was the case at end-June and got liquidated quickly because fundamental demand stays strong. Government capex front-loading at ~38% of the yearly target plus green shoots in private capex support the volume growth, and the second half should remain strong.
What explains the margin in cables and wires - is it purely operating leverage or something else? And where are we on price hikes given the copper price rally?
Sequential margin improvement of ~40-50 bps in cables and wires is largely operating leverage; YoY it is a mix of operating leverage plus gross margin expansion. On pricing, 90% of business is via distributors with monthly price revisions, so the late-September copper uptrend was passed on in the first week of October. Average copper prices in the September quarter were largely flat YoY.
On wires and cables - this time top-line growth is at lower 19% with higher margins versus historically larger growth at lower margins. Did exports (with US front-loading) contribute to this margin? And what about exports from Q3 onwards to the US given it is high-margin?
Wires & Cables actually grew 21% YoY this quarter on a very high base where last year saw 23% growth and domestic actually grew 28% YoY in Q2. Margin increase reflects operating leverage plus business mix change; YoY exports mix is not very different (QoQ better). Polycab operates exports through institutional channels rather than distributors, so unlike peers, there was no pre-stocking due to tariffs - it is execution of the existing order book.
Can you break the export sales geography-wise?
It is a mix across all 6 continents. The U.S. would be close to around 20% of exports, with the other geographies of Europe, Middle East, Australia and South America also contributing to growth.
One peer mentioned EHV plant facing issues with non-availability of technicians for vertical lines. Is Polycab facing any such issues or delays in commissioning?
Polycab is not facing any such delay in acquiring technicians and is pretty much on track.
On margins - given delivered numbers imply 16%+ EBITDA margin while you continue to guide for lower margins, is there anything specific helping these extra margins which may not be sustainable?
The 11% to 13% margin guidance is a 5-year guidance, not a near-term quarterly view. Currently traction is very good with high utilizations, so we could deliver at the higher end or perhaps even better. But longer-term 5-year guidance has to be conservative, which is what we have done.
On industry demand-supply and capacity - any stress emerging in pricing? Is the price premium sustained or is there moderation?
We are not seeing any particular increase in competitive intensity, which is visible in the gross margin we are delivering. Our pricing premium versus other industry players continues as it is, and we don't expect any material change in the near-to-mid term.
On FMEG fans - players like Atomberg outsource contract manufacturing while Polycab does everything in-house. What was the rationale?
The Polycab brand is considered superior in cables and wires for quality, and we did not want to dilute it on FMEG products, so manufacturing in-house lets us control quality. It also gives a better handle on availability versus outsourcing, plus there is manufacturing synergy since the same raw materials (copper, steel, plastic) and scale benefits from cables and wires lower FMEG manufacturing cost.
On gross margin in wires and cables on a YoY basis - what has driven the strong expansion versus the base quarter when there was heightened competition in wires and copper inflation/stock-up has happened again this quarter?
Last year's competitive intensity in wires was triggered by a copper spike in just 3-4 days at quarter-end; this year copper rose over a longer period so peers behaved differently and wires margins were good. Internal initiatives - selling more Class 2/premium wires and better gross margin SKUs in cables - helped along with operating leverage.
On hedging - given embedded contracts, gradual copper movement benefits unhedged peers but doesn't really benefit Polycab. Is that the right way to think about it?
Hedging is a tool to maintain margin, not improve it. Sometimes it helps margins, other times it decreases them, but the aim is a relatively stable margin profile. We will continue to use hedging irrespective of copper, aluminum or USD-INR movement.
What is your current capacity utilization in the wire and cable segment?
Utilization will be in mid-70s.
On Etira, Maxima and Suprema wires - how are they doing in Tier 2 and Tier 3 cities?
Etira (introduced ~3-3.5 years back) targets Tier 2/3/5 cities and competes actively with unorganized players. Suprema, Primma and other ranges are more premium and used in metros and Tier 1 cities. Class 2 wires sales have shown very good traction, and overall wires has registered 20%+ growth each quarter for the last 4-5 quarters with all ranges panning out well.
On HVDC as an opportunity till 2035 - is HVDC similar to EHV cable or completely different? Is Polycab pursuing it?
The EHV plant being put up will be utilized only for the EHV opportunity. As of now, Polycab is not looking at HVDC - very limited projects in the country require HVDC cables, no domestic player has the technology, and current cables for those projects are imported. In the next few years it may be an area to develop or acquire technology for, to gain over the longer period.
Anything Polycab is catering to the defense sector?
Polycab caters to defense via a special purpose cables vertical. The key is developing defense-specific products and securing approvals from end customers - Polycab has worked on this for 2-3 years and is now consistently improving supply. Going forward, defense cables should be a developing area with good growth as Polycab is an approved player.
On capex of ~Rs. 750 crores in H1 with plans of ~Rs. 1,500-1,600 crores for the year - can you spell out exactly what capacities are being added?
Capex is done every quarter and capacity additions don't necessarily map to recent spend - plants take time to be commissioned. Last two years saw ~Rs. 850 crores and ~Rs. 960 crores; this year capex will be Rs. 1,200-1,600 crores, mix of brownfield (1-1.5 years to come up) and greenfield. Spends are across cable types including EHV, HV, MV, LV. The incremental revenue potential is roughly 4x to 5x the capex with a 1.5-2 year lag.
How is the mix between wire and cable versus others within capex?
Capacities are largely fungible - the same capacities can be used to manufacture any type of cables or wires depending on demand and product mix, so there is no fixed split.
Can you give the order book breakdown for RDSS and BharatNet as of today?
RDSS order book currently stands at Rs. 33.5 billion. BharatNet, since execution begins next quarter onwards, is similar to last quarter and excluding GST stands at about Rs. 80 billion.
Is there any kind of price cuts that you are seeing?
As of date there are no price cuts. In fact, in the previous quarter, the industry actually took price hikes. Next quarter will depend on the demand environment.
Can you quantify the special purpose cable opportunity, current contribution and how much capex over the next 2-3 years can go towards it?
Within special purpose cables (SPC) Polycab caters to defense, automobiles and railway coaches. SPC currently contributes low single digits to overall cables and wires but can be one of the fastest-growing verticals given investments in those sectors. As a rule of thumb, applying ~2.5%-3% of capex committed in those sectors gives the cables demand sizing.