August 16, 2020 Initiating Coverage
POLYCAB INDIA LTD | Electrical Equipments ...... Connection Zindagi Ka
Polycab is India’s leading manufacturer of Cables & Wires with an 18% market share in the Rating Buy organised market with a phenomenal distribution reach spanning over 3500 dealers and distributors covering over 1.25lac retail outlets. With a highly diversified product mix, Cables & Current Market Price (₹) 867 Wires accounts for 85% of its ₹88bn Revenues and despite being a late entrant in the FMEG ( Fast 12 M Price Target (₹) 1,066 Moving Electrical Goods) segment, Polycab has been able to grow this business at a scorching Potential upside (%) 23 pace of 43% CAGR over the past five years despite operating in a highly competitive landscape.
Polycab has successfully transitioned its 20% ROE business from being a B2B business to a B2C business by leveraging its tremendous brand equity through innovative ASP strategies and CRM Stock Data programs. The combination of a multi-pronged growth strategy has enabled the company to FV (₹) 10 grow its profits at a CAGR of 37% over the last five years. We Initiate Coverage on Polycab after an extremely challenging Q1 due to the Pandemic with a BUY rating and a price objective of ₹1,066 Market Cap Full (₹ bn) 130 Market Cap Free Float (₹ bn) 22 Market Leader in Wires & Cables Business Polycab has a dominant market share in the wires & cables business with the largest 52-Week High / Low (₹) 1,182 / 525 manufacturing capacity of 3.7 million kms per year. Wires & cables is the major business segment 1 Year Avg. Dly Traded Volume (in lakh) 3 of the company with a contribution of around 84% to the total revenue. The company has grown BSE Code / NSE Symbol 542652 / POLYCAB the wires & cables business at a CAGR of ~9.3% for the last five years with the launch of a wide Bloomberg POLYCAB IN range of products under the power, control, instrumentation, communication, optical fibre and railway signaling categories. We expect the wires & cables business to further deliver higher growth and margins supported by an increasing capex by the government and private sector. Annual Report 2019-20
Fast Growing FMEG Business Click here Polycab India Ltd -2019-20 Polycab has been a late entrant in the FMEG business in the year 2013 with the launch of its switches & switchgear business. Since then, the company has expanded its product basket to include products such as fans, lighting & luminaries, water heaters among others. Polycab has Shareholding Pattern (%) grown this business at a CAGR of 43% for the last five years on the back of the strong brand (%) Jun-20 Mar-20 Dec-19 Sep-19 recall and distribution network. The company has successfully turned this business profitable at Promoter 68.55 68.58 68.60 68.69 an operating level within two years of the launch. FMEG business contributes around 9% of the company’s total revenue and is expected to further increase to mid-teen level. We expect this FPIs 4.51 4.89 4.64 3.75 business to continue to grow at a high teen percent for the next few years and capture a good MFs 2.58 2.82 3.17 4.22 market share. IFC 9.48 9.48 9.50 9.50
Strong Distribution Network and Brand Value Others 14.88 14.23 14.09 13.84 Over the years, Polycab has expanded its distribution network across India to cater 3,500+ distributors and 1,25,000+ retailers. The distribution network is evenly spread across Northern, Western, Southern and Eastern regions supported by 30 warehouses. Along with an extensive Price Performance (%) distribution network, the company has created a strong brand value through aggressive (%) 1M 3M 6M 1YR advertising and promotional campaigns. Polycab is constantly increasing its distribution network Polycab 8% 24% -19% 54% and also spending on advertising and promotions through multiple channels. Strong brand value NSE Nifty 5% 22% -8% 1% and extensive distribution network will help the company in launching new products. * To date / current date : 14-Aug-20
YE Mar 2018 2019 2020 2021E 2022E 2023E Polycab vs Nifty 50 Total Sales (₹ Cr) 6,770 7,986 8,830 7,527 9,314 10,495 Polycab NIFTY 50 EBITDA Margins (%) 10.8% 11.9% 12.9% 9.2% 13.0% 13.5% 250 PAT Margins (%) 5.3% 6.3% 8.7% 5.5% 8.6% 9.0% 200 EPS (₹) 25.35 35.39 51.16 27.70 53.47 63.24 150 P/E (x) - 18.50 14.56 31.57 16.36 13.83 100 P/BV (x) - 3.25 2.87 3.19 2.77 2.38 EV/EBITDA (x) 1.08 9.66 9.59 17.79 9.90 8.06 50
ROE (%) 15.27% 17.57% 19.96% 10.24% 17.07% 17.36% 0 ROCE (%) 25.46% 29.00% 26.81% 14.34% 23.29% 23.66% Aug-19 Nov-19 Feb-20 May-20 Aug-20
Meet Jain | [email protected] LKP Research +91 22 6635 1220 POLYCAB INDIA LTD | Initiating Coverage
Company Overview Polycab India Limited (‘Polycab’) is a manufacturer and supplier of wires & cables and FMEG products. The company’s product portfolio in the wires and cables segment includes power, control, instrumentation, solar, building, multi core, communication, welding, rubber, submersible flat & round, railway signaling, and specialty other cables. The FMEG segment includes electric fans, LED lighting and luminaries, switches, switchgears, solar products, water heaters and conduits & accessories.
Wires & Cables business is the major contributor to the company’s revenue with a share of ~84% followed by FMEG business. The company has also ventured into the EPC business in FY09 to provide turnkey solutions for power distribution and rural electrification projects. The EPC business provides a strategic advantage to the company’s wires & cables business.
Revenue Mix trend over the years
100.0% 2.8% 4.9% 3.5% 5.7% 6.6% Others* 95.0% 5.5% 3.4% 6.9% 90.0% 7.9% 9.3% FMEG 85.0% 91.7% 91.7% 89.6% 86.5% 80.0% 84.1% W&C
75.0% 2016 2017 2018 2019 2020
*Others includes EPC business Source: Industry, LKP Research
Polycab has the largest manufacturing capacity with 25 manufacturing facilities spread across 7 locations in India. Of the 25 manufacturing units, four units are for the production of FMEG products including a 50:50 joint ventures with Techno Electromech Pvt Ltd for the manufacturing of LED products and Trafigura Pte Ltd for the manufacturing of copper rods . The company recently purchased the balance 50% stake in Ryker plant from Trafigura Pte Ltd to make it a wholly-owned subsidiary. The company has backward integrated its operations by building manufacturing capabilities for all the key raw materials such as aluminum rods, copper rods, and various grades of PVC, rubber, XLPE compounds, GI wire and strip.
LKP Research 2 POLYCAB INDIA LTD | Initiating Coverage
Manufacturing Capability Location Product Capacity Halol/Daman Wires and Cables 3.7 million km/Year Roorkee Fans 3.1 million units/Year Nashik Switch and Switchgear 7.2 million units/Year Chhani Lights 18.2 million units/Year Waghodia Copper rod/Steel Wire 2,25,000 MT (Copper) and 60,000 MT (Steel) Padana Other Products 20,250 units/Year Source: Company, LKP Research
Polycab supplies its products to retail outlets through a supply chain network of dealers, distributors and warehouses. The company provides its products under brand. Polycab has a distribution network of more than 3,500 distributors and 1,25,000+ retails outlets evenly spread across all the regions in India. The company has 30 warehouses across 20 states & union territories to support its extensive distribution network for faster deliveries.
Polycab Has Created A Pan India Presence Some of the Marquee Customers
Polycab has a diversified customer base with no single customer contributing more than 10% of the revenue. The company’s top 5 customers contribute ~19% of the revenue and the top 10 contributes ~27% of the revenue. Polycab has catered to many marquee customers in sectors such as oil & gas, cement, telecom, power, chemical among others. The company has also established its presence in the export market by incorporating subsidiaries in the USA and Australia. Export business has increased to 12% of revenue in FY20 owing to a large order from the Dangote group for the cables & wires business. In Q1FY21, exports grew by 116% year on year excluding the Dangote order sales and contributed 10% of the total revenue. Going forward, the company has identified 10 geographies with a potential export opportunities and expects to maintain an export shares at ~10% of the total revenue.
LKP Research 3 POLYCAB INDIA LTD | Initiating Coverage
Investment Argument Market Leader in the Wires & Cables Business Polycab is India’s largest manufacturer and suppliers of wires and cables with a market share of ~18% in the organized market (~12% of the total market). The company has a wide range of products catering to a diverse customer base across industries. The product basket comprises of wires & cables such as power, control, instrumentation, solar, building, multi core, communication, optical fibre, welding, rubber, submersible flat & round, railway signaling, and specialty other cables. Polycab has continuously invested in innovation and expansion of its wires & cables business, which has helped them to earn a competitive advantage over its peers.
Diverse Range of Products
Source: Company, LKP Research
Polycab Commands a Larger Pie in Wires & Cables Business
12% Polycab KEI 7% Havells 32% 6% Finolex Cables 5% RR Kabel 4% V Guard 1% Other Organized Players 33% Unorganized Players
Source: Industry, LKP Research
The wires & cables business is the largest business segment which contributes almost 84% to the company’s top line. In FY20, the wires & cables business generated revenue of ₹7,590 Crs growing by 7.4% year on year. The growth in this business has been subdued in the month of March, 2020 owing to the Covid-19 lockdown in the last 10 days. Fourth quarter is the busiest period for the wires & cables business; the company has lost some of the crucial days owing to the lockdown. Considering normalcy in the month of March 2020, the wires & cables business would have grown in the range of 9-10% in FY20.
LKP Research 4 POLYCAB INDIA LTD | Initiating Coverage
Polycab has the largest wires & cables manufacturing capacity with facilities located in Gujarat, Maharashtra, Uttarakhand and the district of Daman. To maintain a smooth supply chain, Polycab has established multiple manufacturing facilities in strategic locations. The company has 25 manufacturing facilities in these locations of which 21 facilities cater to the manufacturing of wires & cables. Polycab has a total capacity of manufacturing ~3.7 million km wires & cables per year.
FY20 Revenue Share FY20 Margin Share
Others* Others* 7% 9% FMEG FMEG 1% 9% Wires & Cables 84% Wires & Cables 90%
Source: Companies, LKP Research, *Others include EPC business Along with being the major contributor to the company’s revenue, the wires & cables business also commands a higher margin than other business segments owing to its backward integration and better supply chain management. The wires & cables business earned an operating margin of 12.3% in FY20 increasing by 44 bps over FY19. To maintain full control over the quality, supply chain and operational costs, the company has backward integrated its manufacturing capability. Polycab has built manufacturing capacities for all the key raw materials such as aluminum rods, copper rods, and various grades of PVC, rubber, XLPE compounds, GI wire and strip. The company recently acquired the balance 50% of the stake in Ryker plant joint venture from Trafigura Pte Ltd making Ryker a wholly-owned subsidiary of Polycab. Ryker plant manufactures copper rod in Waghodia, Gujarat having a capacity of 2,25,000 tonnes p.a.
Polycab offers all the products in the wires & cables segment:
Power & Power Control Cables PowerCable Control & House Flexible and Industrial Cables incl. Player (LT/HT) (EHV) Instrumentation Cables Wires specialty cables
Finolex Cables Ltd √ √ * √ √ √ Havells India Ltd √ √ √ √ KEI Industries Ltd √ √ √ √ √ Polycab India Limited √ √ √ √ √ R R Kabel Ltd √ √ √ √ V-Guard Industries √ √ √ Source: Company, LKP Research, * Finolex Cables is present in control cables and not instrumentation cables
Being a market leader in the wires & cables industry, we expect Polycab to be a front runner in the enormous opportunity that lies ahead for the industry. The government is focused on making India self-reliant in the electronics industry with initiatives such as ‘Make In India’, ‘Atmanirbhar Bharat’ and ‘Production Linked Incentive Schemes (PLI)’. Also, the government has allocated ₹102 trillion towards National Infrastructure Pipeline covering infrastructure development projects such as Smart Cities, Housing for All, and rural electrification projects. With an increase in government spending on infrastructure, demand for the wires and cables industry will also increase.
LKP Research 5 POLYCAB INDIA LTD | Initiating Coverage
Strong Distribution Network Covering Pan India Polycab is truly an Indian company with market reach across all the regions. As of March 2020, the company has more than 3,500 authorized dealers/distributors which in turn sell the products to more than 1,25,000 retail outlets and other customers. The company has capitalized on its distribution network to rapidly expand its FMEG business within a few years of its launch. The company has now more than 1,750 dealers and distributors across India exclusively for FMEG products. Through the extensive network, the company can deliver its products within short period of time.
Evenly Distributed Across Region Agressive Push for FMEG Products
WEST SOUTH NORTH EAST Wires & Cables FMEG Common Distributors 120% 4,500 3,825 3,678 3,372 3,133 3,500 4,000 100% 17% 15% 16% 3,500 19% 19% 24% 24% 21% 21% 23% 80% 3,000 2,500 36% 44% 46% 50% 60% 31% 31% 31% 31% 31% 49% 2,000 40% 1,500 24% 24% 27% 26% 25% 1,000 45% 20% 39% 39% 32% 34% 20% 21% 20% 22% 21% 500 0% - 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Source: Company, LKP Research Polycab has 30 warehouses across 20 states and union territories and these warehouses are located near to their authorized distributors. This helps the company in ensuring timely and faster deliveries to their distributors.
Polycab has taken some key initiatives to further strengthen its distribution networks such as Project Bandhan and Project Josh. Project Bandhan is a Customer Relationship Management (CRM) program launched in April 2017 to gather data from retailers and electricians to better understand the needs of the end consumers. The collected data is used by the company to allocate resources more effectively and adopt target marketing which will help them to develop and launch new products. As of March 2020, Project Bandhan covered 1,35,000 electricians and 41,000 retailers. Project Josh was launched in 2015 which aims to increase the market share of the company in retail wires and FMEG segments in an organized manner. Project Josh requires the company to make five key modifications in the way the company manufactures and sells products. These five modifications are: 1. Place additional focus on pull marketing, 2. Be more customer oriented in terms of their products, 3. Anticipate changes and lead the industry, 4. Empower leadership among staff, 5. Undertake an approach to build lifetime relationships with the customers.
Since implementation, the company has extensively increased the number of distributors and retailers across different locations. As of March 2020, Project Josh has covered 125 locations and developed a robust retail distribution network.
Polycab has recently launched first of its kind Polycab Experience Centers in Mumbai, Pune and Kerala offering a wide range of electrical products under one roof. These centers are aimed to increase the Polycab’s brand visibility of its wires and FMEG business.
LKP Research 6 POLYCAB INDIA LTD | Initiating Coverage
Looking at the distribution network of peer companies - KEI Industries has ~1,500 distributors network; Finolex has 380 distributors, ~4,000 dealers and ~40,000 retail touch points; Havells has the largest distribution network with ~9,500 distributors and 1,50,000+ retail touch points. Havells is a B2C company with 68% of its sales generating from the consumer durables business and only 32% is from wires & cables business, whereas Polycab’s 84% of the sales come from wires & cables business.
Players Key Product Segments Distributor Dealers / No of Retail Outlets*
Bajaj Electricals FMEG & EPC 1,000 /1,60,000 Crompton Greaves Consumer FMEG & Power Solutions 3,000+ / 1,50,000+ Finolex Cables Cables & FMEG 3,500+ / 40,000 Havells India Cables, FMEG & Others 9,500 / 1,50,000+ KEI Industries Cables & EPC 1,600 Orient Electric FMEG 4,000+ / 1,00,000 Polycab India Cables, FMEG and EPC 3,500+ / 1,25,000+ R R Kabel # Cables - Surya Roshni FMEG 2,000 / 2,00,000 Usha International FMEG & others 500 / 20,000 V-Guard Industries Cables, FMEG & Others 564 / 25,000-30,000
Source: Companies data, LKP Research EPC – Engineering Procurement & Contraction, FMEG –Fast Moving Electrical Goods; *Distributors/retail numbers are approximate, # data not available
Fast Growing FMEG Business Polycab forayed into the FMEG business with the launch of switches and switchgear segment in FY13. Since then the company has expanded its product range across fans, lighting & luminaries, solar products, water heaters and conduits & accessories. The company is focused on investing in new product launches every year to establish itself as a key player in the FMEG business.
The FMEG business has increased its revenue share from around 3.4% in FY16 to 9.3% in FY20 owing to new product launches and increasing penetration. FMEG business has been a catalyst in the company’s growth; the segment has grown at a CAGR of around 43% during FY16-20.
Consumer Electric Durables Product offerings of Players: Players Fans Lightings Switches Switchgears Water Heater Home app. Kitchen App. Bajaj Electricals √ √ √ √ √ Crompton Greaves Consumer √ √ √ √ √ Finolex Cables √ √ √ √ √ Havells India √ √ √ √ √ √ √ Orient Electric √ √ √ √ √ √ Philips India √ √ √ Polycab √ √ √ √ √ Schneider Electric India Pvt. Ltd √ √ √ √ Surya Roshni √ √ √ √ √ Usha International √ √ √ V-Guard Industries √ √ √ √ √ Source: Companies data, LKP Research,
LKP Research 7 POLYCAB INDIA LTD | Initiating Coverage
FMEG Business Has Been Growing Exponentially Since Inception
Company Growth FMEG Growth FMEG Revenue (₹ Crs) Revenue Share % 900 9.3% 10.0% 70.8% 800 7.9% 836 700 6.9% 8.0% 43.4% 600 5.5% 32.6% 643 6.0% 500 29.9% 400 3.4% 485 4.0% 300 338 14.0% 15.2% 200 10.5% 2.0% 6.5% 100 198 0 0.0% 2016 2017 2018 2019 2020 2017 2018 2019 2020
Source: Company, LKP Research The company has four manufacturing facilities dedicated to the FMEG products located in Uttarakhand, Maharashtra, and Gujarat. Polycab manufactures ~90% of the FMEG products in-house at their manufacturing facilities, which gives the company control over the quality and costs. Also, products under the FMEG segment require some of the similar raw materials which are required in the wires & cables business. Manufacturing products in-house will aid the company in negotiating better prices for raw material pricing and also save transportation costs. The industry is moving towards the asset light model by outsourcing the manufacturing process and focusing only on brand creation and sales. Polycab has a competitive edge over its peers as can be seen from their return rate (failure rate) of only 0.6-0.7% whereas the industry average return rate is around 4-6%.
Market Size As a % of Polycab's Polycab's Organized Market Leader/ Products Peers (₹ In Crs) FMEG Revenue Market Share % Penetration Market Share
Fans 8,000 40-45% ~5% High Crompton, Oreint, Usha, Havells Crompton - 25%
Lighting & Fixtures 10,000 20-25% ~2% Medium Phillips, Wipro, Syska, Crompton Phillips - 23%
Switchgears 21,000 High Havells, Legrand, Schneider Havells - 26% 15-20% <1% Switches 4,500 Medium Panasonic (Anchor), Legrand, Havells Anchor - 30-35%
Water Heaters 2,500 <5% <1% Medium Racold, Havells, AO Smith Havells - 17%
Source: Industry, LKP Research
Polycab is a late entrant in the FMEG business facing competition from the well established brands. However, leveraging its existing brand recognition and distribution network, the company has been able to scale up this business fourfold. Currently, the margins in the FMEG business are thin owing to higher focus on branding and sales along with lower volumes. Going forward, with increasing penetration of the products across the markets and higher sales volumes, the company’s margin is expected to improve owing to the economies of scale. Fans is the major contributor in the FMEG segment with revenue share in the range of 40-50% followed by Lighting & Luminaries in the range of 20-25% and Switches & Switchgears in the range of 15-20%. With an increase in product launches the company will de-risk its product basket from a few products categories.
There is a huge opportunity in the FMEG business and we expect this business to aid the company in establishing itself as B2C Company from B2B Company by commanding higher market share.
LKP Research 8 POLYCAB INDIA LTD | Initiating Coverage
Strong Brand Recognition Polycab has transformed itself as a B2C company from a B2B company over the years by spending aggressively on advertisements and promotions. The company sells all its products under the brand which resonates well with the target audience. The company’s products are promoted with a tagline ‘Connection Bachat ka, Connection Zindagi Ka’ which is well accepted by the audience as it resembles the Indian mentality of cost savings. With a distribution network of more than 3,500 distributors and 1,25,000+ retailers spread evenly across regions, the company can reach a wider audience for its products. Polycab is also actively engaged with its distributors and dealers to maintain good relationships and to ensure that they are adequately incentivized to promote and sell the company’s products. Polycab does this through regular one on one interaction with distributors and their mobile application, Bandhan Star, which awards loyalty points to the channel partners for every product they purchase from the company.
Polycab has built its brand through a multi-pronged approach by advertising through various channels like in-store branding, retail pop-ups, print media, social media and television. Polycab has engaged with renowned Bollywood personalities such as Paresh Rawal for wires & cables, R Madhavan for lightings & luminaries, and Ayushmann Khurrana for switchgear and Salim Merchant for FMEG business. Also, the company has associated with India’s most popular sporting event – Indian Premier League (IPL) which has helped the company to reach out wider audiences across the country.
Polycab has been spending on advertisements at a rate of 1.2-1.4% of its revenue. On an absolute basis, spends has grown at a CAGR of 17% during FY16-20 from ₹58 Crs in FY16 to ₹108.7 Crs in FY20. Polycab’s spending is amongst the highest in the wires & cables industry followed by RR Kabel and Finolex Cables. As a percentage of sales,
RR Kabel ad spends is around 3% of its revenue followed by Polycab - ~1.2%. Havells has the highest ad spends in absolute (~₹400 Crs) as well as in terms of revenue (~3.8%) amongst all the electrical companies. To compete with the likes of Havells, Polycab will require increased spending on branding and promotions.
Increase in Ad Spends vis-a-vis Revenue
Ad Spends (₹ Crs) As a % of Sales 120.0 1.6% 1.4% 1.4% 100.0 1.2% 1.1% 1.2% 1.1% 1.2% 80.0 1.0% 60.0 0.8% 108.7 93.7 96.6 0.6% 40.0 57.9 58.1 0.4% 20.0 0.2% - 0.0% 2016 2017 2018 2019 2020
Source: Company, LKP Research
LKP Research 9 POLYCAB INDIA LTD | Initiating Coverage
Shift from Unorganized Sector to Organized Sector Wires & Cables Industry Over the years, there has been an increasing trend towards the organized sector with players
Unorganized Organized having a pan India presence from the regional or smaller players. The main reason for the shift can be attributed to the technological advancement and product complexities which are required 26% in the present times, implementation of GST, Covid-19 lockdown has forced distributors to stock 39% 34% reputed brand products to avoid inventory pile up and better product offering by organized players.
In the wires & cables business low voltage (LV) power cables are prominent among the 66% 74% 61% unorganized players while high voltage (HV) and extra high voltage (EHV) are catered by the large organized players owing to their capital intensive nature and technological complexities. 2014 2018 2023P The share of organized players has increased from 61% in FY14 to 66% in FY18 and is further expected to increase to a 74% level in the next few years. Source: Industry Estimates, Company. LKP Research A shift is also seen in the products under the FMEG business. Switches segment has seen an increase of organized share to 75% in 2018 from 64% in 2014 owing to a change in consumer preference towards more aesthetics and safety offered by the large organized players. Also, many smaller players are turning into contract manufacturing for larger players, thus becoming a part of the organized market.
The lighting segment is dominated by the many small unorganized players as the conventional lighting systems were easy to manufacture and required less capital. With the introduction of LEDs, a technologically advanced lighting system with higher manufacturing cost than the conventional lights, smaller players gradually lost their market share to the larger organized players. Also, owing to the benefits of using LED lights, demand from institutional segments along with government initiatives was a key factor in the success of LEDs. The share of organized sector increased from 30% in 2014 to 65% by 2018.
Fans industry has always been dominated by the organized players owing to a standardized mechanism. Many players in the industry resort to outsourcing the manufacturing process to the smaller players. Further shift towards organized players will be on account of change in the consumer preference towards branded products offering wide range of products with a higher aesthetic value and better safety. The share of the organized sector has increased marginally from 70% in 2014 to 75% in 2018. Polycab is one of the prominent players in the organized sector and will be benefitted from this shift.
Switches Industry Lighting Industry Fans Industry
Unorganized Organised Unorganized Organised Unorganized Organised
20% 20% 25% 20% 36% 25% 35% 30% 70%
80% 80% 80% 64% 75% 65% 70% 75% 30%
2014 2018 2023P 2014 2018 2023P 2014 2018 2023P
Source: Industry Estimates, Company. LKP Research
LKP Research 10 POLYCAB INDIA LTD | Initiating Coverage
Peer Comparison Polycab is in the business of manufacturing wires & cables, FMEG products such as fans, lighting & luminaries, switches & switchgears, water heaters, conduits and accessories. Polycab competes with other brands in each of these product verticals. Wires & Cables being the largest product segment, major competitors includes KEI Industries, Finolex Cables, RR Kabel, and Havells among others. Under the FMEG business, major competitors are other consumer durables brands like Havells, Orient, Bajaj electrical, and V-Guard among others.
Over the last five years, Polycab has grown its revenue at a CAGR of 14% outpacing the overall industry growth of ~11%. Havells is the largest company in the electrical industry; however, the share of wires & cables in its top line is only ~32%. Polycab is the largest company in the wires & cables business with a market share of ~18% of the organized market. Wires & cables business contribute around 84% of Polycab’s total revenue. KEI industries and Finolex cables have wires & cables as their major business segments.
Revenue Growth of Companies in last Five Years
12000 CAGR 10000 CAGR 5.6% 14.0% 8000 CAGR 6000 20.4% CAGR 5.0% 10,073 9,440
4000 8,830 8,116 7,986 7,594 6,770 6,130 5,500 5,202
2000 4,884 4,227 3,459 2,877 3,078 2,815 2,628 2,445 2,326 0 2,360 Polycab KEI Industries Finolex Cables Havells
FY16 FY17 FY18 FY19 FY20
Source: Companies Data, LKP Research
Polycab has backward integrated its manufacturing facilities to insulate itself from the raw material price fluctuations, inferior quality materials and supply constraints. This has helped the company in improving its margin profile over the years to the best in industry. Also, the company is enjoying the synergy within its wires & cables and FMEG segment owing to common raw materials. Polycab has consistently improved its EBIDTA margins from 9.4% in FY16 to 12.9% in FY20. Other players have struggled to maintain higher margins due to increasing competition from new players.
Polycab has Improved its Margins
16% 14% 12% 10% 8% 15.2% 15.0% 14.8% 6% 14.4% 13.3% 12.9% 12.9% 12.2% 11.9% 11.8% 11.0% 10.8% 10.5% 10.4% 9.8% 10.2% 10.2% 4% 9.4% 10.0% 8.7% 2% 0% Polycab KEI Industries Finolex Cables Havells
FY16 FY17 FY18 FY19 FY20
Source: Companies Data, LKP Research
LKP Research 11 POLYCAB INDIA LTD | Initiating Coverage
On the returns side, Polycab is the most efficient company with ROE/ROCE of 20%/27% in FY20 as compared to other players in the industry. Such high return ratios are on the back of higher margins, lower finance costs and prudent capital management.
Polycab has significantly reduced its debt over the last three years from ₹800 crs in FY18 to ₹157 crs in FY20. The reduction in debt was due to better cash flow management (average CFO to EBIDTA of 67% in the last three years) and improvement in the overall margins of the company. Apart from the external borrowings, the company has an interest bearing payables on its import of raw materials with an effective interest rate of ~4-5%. The overall interest burden on the company is very less with an interest coverage ratio of around 21.4x for the year FY20. Among its peers, Finolex Cables is a debt free company for the last three years with an average CFO to EBIDTA of 50+%.
Return on Equity Return on Capital Employed
30% 35%
25% 30% 25% 20% 20% 15% 15% 29.4% 29.0% 28.6% 23.9%
10% 23.3% 27.0% 26.8% 25.5% 25.0% 24.8%
20.0% 10% 23.2% 23.0% 18.8% 21.3% 17.8% 17.6% 17.1% 16.9% 16.3% 15.3% 16.7% 14.1% 5% 13.4% 5% 0% 0% Polycab KEI Industries Finolex Cables Havells Polycab KEI Industries Finolex Cables Havells FY18 FY19 FY20 FY18 FY19 FY20
Source: Companies Data, LKP Research
Gearing Ratio Operating Cashflow to EBIDTA
70% 160% 60% 140% 50% 120% 100% 40% 80% 30% 60% 141% 129% 58.2% 20% 40% 111% 43.5% 80% 22% 70% 8.7% 56% 56%
20% 50% 42%
10% 3.9% 34% 25.4% 3.0% 0.0% 2.2% 1.7% 17.3% 0% 0% -20% -3% Polycab KEI Industries Finolex Cables Havells Polycab KEI Industries Finolex Cables Havells FY18 FY19 FY20 FY18 FY19 FY20
Source: Companies Data, LKP Research
LKP Research 12 POLYCAB INDIA LTD | Initiating Coverage
Channel Checks As part of our Scuttlebutt Analysis through Channel Checks carried out with many Distributors across regions, we present our Key Findings below:
• Although the demand for Wires & Cables were adversely impacted during April on account of the lockdown, sales have shown an increase since then and are at 50% levels compared to the same period last year.
• In Eastern regions, industrial demand has picked up at a much faster space than the retail demand.
• Distributors have seen inventory pile in the month of March and April owing to the lockdown. May onwards sales has picked up gradually releasing some of the inventory.
• The Industry including Polycab has taken a price hike in the Wires & Cables segment owing to increase in Copper prices.
• Polycab came out as the most widely sought after brand in Maharashtra while RR Kabel was the preferred choice in Gujarat.
• FMEG products of Polycab are available at most of the retail outlets and are seeing good traction among consumers.
• Incentives provided to Distributors in the form of discounts and festive offers have helped arrest the decline.
• Distributors in Mumbai have seen a healthy volume growth during the last couple of years for Polycab products.
• Almost 65% of the Distributors avail of Channel Financing in the Wires & Cables segment and the cost to the company is in the range of 7-9% with the channel financing happening on a non-recourse basis.
• Channel Financing is a common practice among the wires & cables companies across the region.
• The distribution strength of Polycab has had a positive impact on its housing wires segment during the months of June & July especially in Tier-1 & Tier-2 cities as per our channel checks.
• In West Bengal, local brands such as Mescab is the major player followed by Finolex Cables and Polycab. However, Polycab is rapidly gaining market share in this region through its distribution network.
• Polycab has appointed distributors in way where no distributors compete with each other. Each distributors have their market coverage defined.
Recent Interview of Polycab CFO discussing about the competitive landscape and future plans going forward can be accessed through the below link.
Interview of Polycab CFO
LKP Research 13 POLYCAB INDIA LTD | Initiating Coverage
Financial Review Polycab has grown its revenue at a CAGR of ~11.5% for the last five years from ₹5,714 Crs in FY16 to ₹8,830 Crs in FY20. The growth has been on back of expansion of its distribution network, aggressive focus on branding & promotions and higher growth in the FMEG business. Polycab’s revenue comprises of three segment such as wires & cables, FMEG and EPC. Wires & cables business has grown at a CAGR of ~9% during the same period while FMEG has grown at a CAGR of ~43%. Polycab is expected to de-grow by ~15% in FY21 owing to the Covid-19 pandemic. However, we expect the company to grow its revenue at a CAGR of ~6% during FY20-23E on back of recovery in demand and growth in the FMEG business.
Polycab is expected to continue its Growth Tragectory
12,000 Total Revenue (₹ Crs) Revenue Growth % 30% 23.7% 25% 10,000 14.4% 15.5% 10,495 20% 9,314 15% 8,000 8,830 5.8% 7,986 12.7% 10% 7,527 6,000 6,915 10.6% 5% 5,714 6,047 0% 4,000 -5% -10% 2,000 -14.8% -15% 0 -20% 2016 2017 2018 2019 2020 2021E 2022E 2023E
Source: Company, LKP Research
On the margins front, Polycab has sussecfully improved its EBIDTA margins from 9.4% in FY16 to 12.9% in FY20 and is further expected to improve to 13.5% by FY23. Polycab has take certain cost management initiatives across its facilities to control unnecessary costs. Also, the company has launched its FMEG business which has a higher synergy with its existing wires & cables busines in terms of raw materials. The comapany has also set up multiple factories & warehouses near its distributors to save on transport costs. Currently, the margins in the FMEG business are very low at around 2%, however, with the increase in the sales volume and wider market reach the margins are expected to improve Polycab’s PAT margins have also improved by 512 bps from 3.6% in FY16 to 8.7% in FY20. Such a significant improvement is due to reduction in finance costs as the company has repaid majority of its borrowings, also, recently corporate tax rate cut has also added few bps gain in the margins. We expect the company to further expand its margins by 65 bps and 34 bps by FY23.
Consistent Improvement in Margins
EBIDTA Margin % PAT Margin %
12.9% 13.0% 13.5% 11.9% 10.8% 9.4% 8.7% 8.7% 9.2% 8.6% 9.0% 6.3% 5.3% 5.5% 4.2% 3.6%
2016 2017 2018 2019 2020 2021E 2022E 2023E
Source: Company, LKP Research
LKP Research 14 POLYCAB INDIA LTD | Initiating Coverage
The company’s return ratios has also improve over the years with continuous margin expansion, higher operating leverage and prudent capital management. The company’s ROE has improved by almost 1000 bps from 10.5% in FY16 to 20% in FY20. Polycab has one of the best return ratios among its peers.
Return on Equity Debt to Equity
0.44 0.43 20.0% 17.6% 0.34 15.3% 12.0% 10.5%
0.10 0.04
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Source: Company, LKP Research
Polycab has the highest working capital cycle amongst its peers such as KEI Industries, Finolex Cables and Havells. Havells has the best working capital management in the industry owing to its diversified product range. Polycab has started availing Channel Financing to reduce its debtor days which resulted in a decline in the overall working capital days from 94 days in FY16 to 83 days in FY20. Of the total distributors in the wires & cables business, 65% of the distributors avail channel financing, while in FMEG the number of distributors availing this is quite low. Even after availing the benefits of channel financing, the debtor days are still high at around 60 days indicating the higher share of non channel financing distributors and EPC debtors. Also,the inventory days have been rising for the last few years which needs to be controlled. For this, the company has recently appointed a reputed consulting firm to manage and streamline the company’s inventory management.
Polycab has a strong CFO to EBIDTA ratio of more than 60%, which helps the company in enjoying better liquidity. The company has over the years reduced its debt considerably from ₹800 crs in FY18 to ₹157 crs in FY20. The company has utilized its proceeds from the IPO to repay majority of its debt in turn reducing the interest burden. Also, the improvement in the overall margins have aided the company in earning extra cash for expansion of its manufacturing capabilities and invest in research & development of newer products. Recent outbreak of Covid-19 has certainly impacted the company’s operations in the last quarter of FY20 and the first quarter of FY21 due to which there is a minor increase in the company debt. However, we expect the debt to decrease further with improvement in demand scenario.
IPO during April 2019 Polycab Got listed on 16th April, 2019. The company raised around ₹400 Crs through the IPO with an offer price of ₹538 per share. Polycab’s IPO was oversubscribed by 52x and was listed with a gain of 17%.
LKP Research 15 POLYCAB INDIA LTD | Initiating Coverage
Key Risks & Concerns Raw Material Price fluctuations and Supply constraints The key raw materials for the company are copper, aluminum, steel, PVC compound among others which the company sources it from domestic as well as international markets. Copper, aluminum and steel are commodity metals that are prone to price fluctuations on account of its demand and supply. PVC compound prices are dependent on crude prices which are affected by the global oil market. The total cost of copper, aluminum, steel and PVC compounds accounts for 56.82%, 18.27%, 4.75% and 13.60% respectively of the company’s total cost in FY18. The company passes on the price fluctuations of the raw materials with a one month lag to its customer and also hedges its raw material purchases. However, any further lag in passing the price changes or delay in procuring the raw materials can lead to an adverse effect on the company’s working capital, cash flows and margins. Scaling up the FMEG business is critical FMEG is a very competitive industry with many small and large players holding sizable market shares. Polycab has recently entered into this business and has been able to successfully scale up the operations on account of the existing distribution network. Margins in this business are very thin owing to competitive pricing, higher spending on branding & promotions and standardized products. Adverse impact on the company’s Brand Value Branding plays a significant role in the company’s success and growth in the industry as the products offered by the players are of similar nature with minor differentiation. The company spends aggressively on improving its brand value and garnering more market share. Brand value includes brand visibility, customer loyalty, distributor loyalty and customer experience. Any damage to the company’s brand value will significantly impact the company’s operations and growth. Slowdown in the Macro Environment Polycab derives majority of its revenue from the wires & cables business at around 85%. In the wires and cables business, the cables business is around 50-55% and wires business accounts for 40-45%. Demand for wires & cables is dependent on the government and private capex such as infrastructural spends, increase in residential/commercial complexes, defense spends, increase in manufacturing activities, etc. Any slowdown in the spending by the government and private enterprises can adversely affect the company’s performance and growth.
SWOT Analysis
Strengths Weaknesses Opportunities Threats
• Government initiatives • Market Leadership in • Price volatality of key raw to boost the demand for wires & cables business materials electrical equipments • Competitive Industry with including wires & cables • Backward intergrated • Higher working capital many players in organized manufacturing facilities cycle than its peers • Increase in per capita and unorganized sectors income leading to • Extensive distribution • Low entry barrier • Concentrated business demand for FMEG network Pan India resulting in entry of new with major product products and large players • Continous focus on segment contributing 85% product innovation of the revenue • Shift from unorganized to organized market
LKP Research 16 POLYCAB INDIA LTD | Initiating Coverage
Outlook & Valuation Polycab is a market leader in the wires & cables business and we expect the company to maintain this position going forward. The FMEG business of the company is also growing at a CAGR of 43% and is expected to maintain this high growth for the medium term. The growth in the wires & cables and FMEG business will be supported by the government’s initiatives in the infrastructure, power, housing and agriculture sectors. Also, Polycab has around 18% market share in the organized wires & cables industry and with a shift from unorganized to organized sector, Polycab can capture further market share. We expect the revenues and EPS for the year FY21 to degrow by ~14.8% and 46% respectively owing to Covid-19 lockdown in Q1FY21 and gradual unlocking of the nation for the rest of the FY21. Polycab has a strong brand equity and a distribution network which will help the company in recovering from the loss of operations in Q1FY21. The company is expected to grow its revenue and EPS by ~24% & 93% respectively in FY22 on account of lower base and higher growth in demand for the company’s products.
Polycab is currently trading at a P/E of 16x of its FY22E EPS of ₹53.28 and we expect the P/E of the company to expand to 20x on account of a gradual shift from B2B business to B2C business. In line with this, based on FY22E earnings, we initiate coverage on Polycab India Ltd with a BUY rating and a target of ₹1,066 valuing at 20x of its FY22E.
LKP Research 17 POLYCAB INDIA LTD | Initiating Coverage
Industry Overview Wires & cables industry comprises of power cables, building wires, instrumentation and control cables, telecom cables, elastomeric cables and other flexible and special application cables used in various industrial sectors. Wires & cables industry accounts for 40-45% of the electrical equipment industry, 8% of the manufacturing sector in terms of value and 1.5% of the overall GDP. The Indian wires & cables industry has grown at a CAGR of ~11% for the last five years and is valued at ₹583 billion in FY19. However, there was a decline in the industry by mid-double digits in FY20 owing to the sluggish economic environment, weak consumer sentiment, lower capex and impact of Covid-19 pandemic at the end of the year.
Factors driving growth across various categories of the cables and wires industry in India
• Investments in power transmission and distribution
Power Cables • Capacity addition in solar and wind energy • Smart City Mission
• Affordable housing scheme
Building/Housing Wires • Growing nuclearisation of families • Investments in commercial and residential infrastructure
• Automobile industry growth and increasing investments in railways for electrification Elastomeric and Flexible • Growing demand for household appliances and automobiles due to revival in per capita income Cables / Wires • Increased construction activity supported by growing infrastructure projects
• Industrial capex rising across industries such as auto, steel, oil and gas, and power. Control & • Investment expenditure by Indian Railways and in other mass transit systems Instrumentation Cables • Increased focus on automation in manufacturing and processing to monitor and control quality
• Service and industrial sector growth increasing the need for data cables Switchboard • Intercom and Security system penetration in residential buildings & • Smart cities project Ttelecom Cables • Surge in internet users, with internet penetration as a percentage of total households reaching 60% by fiscal 2023
Source: Industry, Company RHP, LKP Research
The growth in the wires & cables industry is associated with the growth in the infrastructure of the country. The government has launched various initiatives such as corporate tax rate cut, reforms in power, housing & agriculture sectors to boost the growth of the wires & cables business. The industry has been impacted due to the ongoing Covid-19 pandemic with low demand and the shutdown of manufacturing facilities in the month of April 2020. However, with the gradual improvement in the demand for rest of the FY21 and further growth owing to the factors mentioned above, the industry is expected to grow at a faster pace than the overall economic growth.
LKP Research 18 POLYCAB INDIA LTD | Initiating Coverage
Market Size of Wires & Cables Industry (₹ in Crs)
CAGR ~11% 52,500 46,700 41,300 41,500 34,600
2014 2015 2016 2017 2018
Source: Industry, LKP Research
Fast moving electrical goods (FMEG) is an emerging industry with products such as fans, lighting & luminaries, switches & switchgears etc. The industry is rapidly changing with the change in consumer preferences resulting in an increased spending on research & development to offer new and innovative products. This industry is characterized by intense competition within players in both the organized as well as unorganized sectors.
Electric Fans industry is estimated to be around ₹80 billion as of FY18. The electric fans industry is highly penetrated owing to its low cost and necessity. This industry is growing at a CAGR of ~6% for the last five years and is expected to grow at a similar rate for the next few years. Electric Fans are categorized into their type and use such as Ceiling fans, TPW (Table, Pedestal & Wall) fans, Exhaust fans and Industrial fans. Ceiling Fans account for the largest share of 69-71% of the total electric fans industry followed by TPW fans. Exhaust fans are generally used in the kitchens and bathrooms. The growth in this industry will be moderate; however, there is an increasing shift within the ceiling fans category from economic fans (priced upto ₹1,500) towards standard (priced between ₹1,500 to ₹4,000) and premium (Priced above ₹4,000) fans. This shift is due to an increase in the per capita income of the consumers resulting in the change in consumer preference towards aesthetics, quality and brands.
Fans Industry Mix in FY14 Fans Industry Mix in FY18
Premium Economy Economy 6% 43% Premium 40% 10%
Standard Standard 51% 50%
Source: ELCOMA, Industry, LKP Research Lighting & Luminaries industry is a highly fragmented industry with a large number of players in the organized as well as unorganized sectors. Lighting & luminaries industry comprises of conventional lighting, LED lighting and accessories estimated to be valued at around ₹212 billion as of FY18. The dynamics of this industry has changed since FY13 with the launch of LED lights. LED light are more powerful and energy-efficient than conventional lighting sources like GLS, FTL and CFLs. The lighting industry has seen an overall CARG of 10.5% over the last five years owing
LKP Research 19 POLYCAB INDIA LTD | Initiating Coverage
to the rapid adoption of LED lights. The government has also pushed the use of LED lights across the nation under various schemes like Unnat Jyoti by Affordable LEDs for All (“UJALA”) and Street Lighting National Programme. The lighting industry is expected to grow by 7% over the next few years owing to the increase in per capita usage of LEDs and an increase in the institutional sales of LEDs.
Lighting Industry Mix in FY14 Lighting Industry Mix in FY18
Accessories, Components & Control gears 4% LED Lighting 16% Conventional Lighting Conventional LED Lighting 76% Lighting 70% Accessories, 26% Components & Control gears 8%
Source: ELCOMA, Industry, LKP Research
Switches Industry is estimated to be valued at ₹40 billion as of FY18 growing at CAGR of ~8% over the last five years. The switches industry is bifurcated into traditional switches and modular switches. Modular switches are four to five time costlier than the traditional switches but offer higher aesthetic value, better safety and a wide variety. Modular switches have the larger pie in the switches industry in terms of value on account of higher realization. The growth of switches is dependent on the real estate sector and improvement in the power sector. The government’s push for electrification of India through initiatives like Saubhagya and DDUGJY will boost the demand for power in turn driving growth in the switches industry. The switches industry is expected to grow at a CAGR of ~9% for the next few years.
Switchgear industry is estimated to be valued at around ₹183 billion growing at a CAGR of 7% during FY14-18. Switchgear industry comprises of two segments; Low Voltage (LV) and Medium Voltage/High Voltage (MV/HV). LV segment includes products such as MCBs, DBs and RCCBs which are generally used in the residential and industrial sectors where power consumption is low. With increasing electrification across the rural and urban areas, the penetration of white goods is expected to increase, thereby increasing the demand for switchgears to protect these appliances from voltage fluctuations. The switchgear industry is expected to grow at a CAGR of ~8% for the next few years.
LKP Research 20 POLYCAB INDIA LTD | Initiating Coverage
Income Statement Particulars (₹ in Cr) 2018 2019 2020 2021E 2022E 2023E
Total Revenue From Operations (Net) 6,770 7,986 8,830 7,527 9,314 10,495
Revenue Growth % 17.9% 10.6% -14.8% 23.7% 12.7%
Expenses
Cost of Material Consumed (incl. changes in inventory) 4,833 5,375 5,627 4,796 5,907 6,656
Purchases of stock–in-trade 247 337 425 296 369 417
Project Bought outs and subcontracting cost 125 254 317 271 335 377
Employee Benefit Expenses 259 300 366 452 466 525
Other Expenses 577 767 961 1,016 1,025 1,102
Total Expenses 6,041 7,033 7,695 6,831 8,102 9,077
EBITDA 729 953 1,135 696 1,213 1,418
EBITDA Margin % 10.8% 11.9% 12.9% 9.2% 13.0% 13.5%
Other Income 64 64 93 87 106 119
Depreciation and Amortization Expenses 133 141 161 179 197 217
Share of loss of joint ventures (net of tax) 0.1 -2.3 -7.4 -5.0 -2.0 0.5
EBIT 660 873 1,060 599 1,120 1,320
EBIT Margin % 9.8% 10.9% 12.0% 8.0% 12.0% 12.6%
Finance Cost 94 117 50 42 51 57
Profit / (Loss) before exceptional items and tax 567 756 1,010 557 1,069 1,263
Exceptional Items ------
PBT 567 756 1,010 557 1,069 1,263
PBT Margin % 8.4% 9.5% 11.4% 7.4% 11.5% 12.0%
Tax Expense 208 256 244 140 269 318
Current tax expense for current year 218 295 248 140 269 318
Deferred tax 22.7 -32.0 -0.2 - - -
Other Tax Adjustments -32.1 -7.4 -3.4
Profit / (Loss) for the year 359 500 766 417 800 945
Pat Margins % 5.3% 6.3% 8.7% 5.5% 8.6% 9.0%
Non Controlling Interest 0.5 0.6 6.6 5.6 6.2 6.8
Profit/ (Loss) attributed to Owners 358 500 759 411 793 938
Source: Company, LKP Research
LKP Research 21 POLYCAB INDIA LTD | Initiating Coverage
Financial Ratios Particulars 2018 2019 2020 2021E 2022E 2023E Per Share data (₹) EPS 25 35 51 28 53 63 Cash EPS 35 45 62 40 67 78 BV/Share 166 202 259 274 316 367 DPS - - 10.00 10.00 10.00 10.00 Payout (%) 0% 0% 20% 36% 19% 16% Growth Ratios (%) Sales Growth 14.4% 15.5% 10.6% -14.8% 23.7% 12.7% EBIDTA Growth 51.9% 30.7% 19.1% -38.7% 74.2% 16.9% EBIT Growth 54.7% 32.1% 21.4% -43.5% 87.1% 17.9% EBT Growth 57.0% 33.4% 33.6% -44.9% 91.9% 18.2% PAT Growth 54.1% 39.5% 53.0% -45.6% 91.9% 18.2% Valuation Ratios (x) P/E 0.00 18.50 14.56 31.57 16.36 13.83 Cash P/E 0.00 14.41 11.88 21.79 13.03 11.16 EV/Sales 0.11 1.15 1.23 1.64 1.29 1.09 EV/EBITDA 1.08 9.66 9.59 17.79 9.90 8.06 P/B 0.00 3.25 2.87 3.19 2.77 2.38 Mcap/Sales 0.00 1.16 1.25 1.72 1.39 1.24 Working Capital Ratios (x) Fixed Asset Turnover Ratio 5.08 5.44 5.42 4.56 5.47 6.04 Asset Turnover Ratio 1.55 1.42 1.48 1.28 1.36 1.34 Inventory Days 98 128 116 120 106 101 Trade Receivables Days 73 67 66 66 66 66 Trade Payables Days 66 97 82 82 82 82 Profitabilty Ratios (%) EBITDA Margin 10.8% 11.9% 12.9% 9.2% 13.0% 13.5% EBIT Margin 9.8% 10.9% 12.0% 8.0% 12.0% 12.6% EBT Margin 8.4% 9.5% 11.4% 7.4% 11.5% 12.0% PAT Margin 5.3% 6.3% 8.7% 5.5% 8.6% 9.0% Return Ratios (%) ROE 15.27% 17.57% 19.96% 10.24% 17.07% 17.36% ROCE 25.46% 29.00% 26.81% 14.34% 23.29% 23.66% Liquidity & Leverage Ratios (x) Current Ratio 1.58 1.50 2.02 2.33 2.37 2.55 Interest Coverage Ratio 7.05 7.48 21.39 14.32 21.92 23.05 Net Debt/Equity Ratio 0.73 0.52 0.32 0.13 0.09 0.01 Financial Leverage 1.89 1.98 1.55 1.45 1.46 1.44 Gearing Ratio (%) 42.1% 31.8% 23.0% 10.1% 6.9% 0.4% Source: Company, LKP Research
LKP Research 22 POLYCAB INDIA LTD | Initiating Coverage
Balance Sheet Particulars (₹ in Cr) 2018 2019 2020 2021E 2022E 2023E Equities And Liabilities Shareholders’ funds Share capital 141 141 149 149 149 149 Reserves and surplus 2,206 2,706 3,688 3,920 4,535 5,295 2,348 2,847 3,836 4,069 4,684 5,444 Non-Controlling Interest 4.05 8.43 15.00 20.58 26.82 33.60 2,352 2,855 3,851 4,089 4,711 5,477 Non-current liabilities Long term Borrowings 159 89 11 5 3 - Other Financial Liabilities - - 30 26 32 36 Long term Provisions 10 16 26 22 27 30 Deffered Tax Liabilities (Net) 55 23 17 17 17 17 Other Longterm Liabilities 18 26 17 15 18 20 242 154 101 85 97 104 Current liabilities Short-term borrowings 569 103 111 111 111 111 Trade payables 922 1,520 1,354 1,139 1,404 1,582 Other Financial Liabilities 139 178 132 89 105 118 Short term Provisions 38 21 24 20 25 28 Current Tax Laibilities (Net) 82 167 119 119 119 119 Other current liabilities 105 630 269 229 283 319 1,854 2,619 2,009 1,708 2,049 2,279 Total 4,448 5,628 5,962 5,882 6,856 7,860 ASSETS Non-current assets Fixed assets Tangible assets 1,194 1,272 1,387 1,409 1,463 1,495 Capital work-in-progress 136 193 241 241 241 241 Right of use assets - - 34 34 34 34 Intangible assets 2.7 3.5 1.7 0.3 - - Investment accounted for using the equity method 31 29 25 25 25 25 Financial Assets: Non-current investments 0.14 - - - - - Trade receivables 88 135 166 142 175 197 Long-term loans and advances - 5.1 5.3 5.3 5.3 5.3 Other fiancical assets 6.1 0.9 1.4 1.2 1.5 1.7 Non-current tax assets (net) 32 11 19 19 19 19 Deffered Tax Assets (Net) 0.0 - 1.0 1.0 1.0 1.0 Other non-current assets 31 54 30 26 32 36 1,522 1,704 1,912 1,904 1,997 2,056 Current assets Inventories 1,366 1,996 1,925 1,674 1,823 1,957 Investment - - 40 40 40 40 Financial Assets: Trade receivables 1,291 1,334 1,434 1,222 1,512 1,704 Cash and Cash Equivalents 8.2 179 172 214 286 359 Other Balances with Banks 2.4 138 109 509 809 1,309 Short-term loans and advances 15 21 24 24 24 24 Other financial assets 18 70 144 123 152 171 Other current assets 225 187 201 172 212 239 2,926 3,924 4,050 3,978 4,859 5,804 Asset classified as held for sale 0 0 - - - - Total 4,448 5,628 5,962 5,882 6,856 7,860
LKP Research 23 POLYCAB INDIA LTD | Initiating Coverage
Cash Flow Particulars (₹ in Cr) 2018 2019 2020 2021E 2022E 2023E
CASH FLOW FROM OPERATING ACTIVITIES
Profit / (Loss) before Tax 567 756 1,010 557 1,069 1,263
Adjustments For
Depreciation and Amortization 133 141 161 179 197 217
Finance Income (2.7) (12.8) (27.0) (36.5) (55.8) (84.9)
Finance Costs 94 117 50 42 51 57
Share of Loss of JV (0.1) 2.3 7.4
Other operating activities 54 102 (33)
Working capital changes (342) 305 (622) 260 (190) (159)
Less: Income tax paid (140) (181) (301) (140) (269) (318)
NET CASH GENERATED BY OPERATING ACTIVITIES (A) 362 1,230 245 860 802 976
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditure (183) (281) (289) (200) (250) (250)
Changes in Investment 6 (136) 6 (400) (300) (500)
Other investing activities (10) 9 21 37 56 85
NET CASH GENERATED / (USED) IN INVESTING ACTIVITIES (B) (188) (408) (262) (563) (494) (665)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Issue of Share Capital include related expenses - (9) 355 - - -
Proceeds from exercise of share under ESOP Scheme - 11
Changes in Borrowing (79) (565) (119) (35) (6) (3)
Interest paid (94) (78) (43) (42) (51) (57)
Dividend paid (including DDT) (17) (3) (179) (179) (179) (179)
Other financial activities 0.5 3.8 (13.4) - - -
NET CASH GENERATED / (USED) IN FINANCING ACTIVITIES (C) (190) (651) 11 (255) (235) (238)
Net Change in Cash (A+B+C) (15) 171 (7) 42 72 73
Cash & cash equivalents at the beginning of the year 23 8 179 172 214 286
Cash & cash equivalents at the end of the year 8 179 172 214 286 359
Source: Company, LKP Research
LKP Research 24 POLYCAB INDIA LTD | Initiating Coverage
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