In conversation with Gandharv Tongia, CFO, Polycab India Ltd

Armaan Madhani
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In conversation with Gandharv Tongia, CFO, Polycab India Ltd

An overall increase in construction and infrastructure activities combined with structural reforms introduced by the government has created a very conducive environment for infra-activity, responds Gandharv Tongia, CFO, Polycab India Ltd.

What is your outlook on India's Fast Moving Electrical Goods (FMEG) sector?

We are quite optimistic about the healthy long term growth potential of the FMEG sector considering the structural drivers like changes in demography, consumer behaviour, technology, urbanization and rising disposable incomes, which are in place. Most of the categories that we operate in are likely to grow at high single to low double digits over the next few years. Select categories like IoT/smart home products and solar are likely to witness even higher growth rates. This sector is also rapidly evolving with an increasing share of organized players and emphasis on branding.

The unorganized market, which makes up about 10-50 per cent across categories, has been on a steady decline and it is likely to continue with increasing consumer awareness, aspirations and availability of high-quality products across the nation. Increasing contribution from channels like e-commerce and modern trade will further help increase penetration and drive innovation. Polycab is one of the fastest-growing consumer electrical brands. Over the medium term, we aim to grow at over 2x of the industry while achieving a 12 per cent EBITDA margin supported by distribution expansion, portfolio augmentation across price points, better brand architecture and sharper go to market strategy.

What measures are you implementing to safeguard margins from cost pressures due to the unprecedented surge in commodity prices and supply chain challenges?

Our first line of defence to offset any input cost pressure is our robust hedging framework which provides a systematic way to pass on commodity inflation to the end customer. In the normal course of business, for our distribution driven business, we take periodic price hikes through a revision in the price list to pass on any inflation in our raw material basket to dealers and distributors. For a few other lines of business that are not driven by the price list, like for e.g. institutional B2B business, we hedge the risk through derivatives or price escalation clauses. Having said that, during these unprecedented times when pressure is also on the demand side due to pandemic and lockdowns, we are taking a calibrated approach to balance growth and profitability with a clear agenda of improving long term competitive advantage in the market.

Our comprehensive cost optimization program i.e. the ‘Project Udaan’ is also helping us eliminate all the bad costs from the system in a sustainable way. For us, supply chain challenges are largely mitigated through strong backward integration, alternation vendor sourcing and leveraging technology. 99 per cent of our revenue is from products manufactured in India and most of them are manufactured in house. This gives us good control over the supply chain and the entire lifecycle of the product. 

What is your earnings outlook for the upcoming quarters?

We have seen a decent broad-based recovery across our businesses and geographies in the last few months barring a few pockets like institutional business or logistical challenges faced in exports. Volumes across most of our segments are growing or have reached pre-pandemic levels despite high inflation suggesting positive consumer sentiments. Hence, if the economic growth momentum continues and assumes no severe impact of the third wave, if any, we believe the second half of 2022 is likely to be better than the first half, both in terms of top-line performance as well as bottom-line performance.

What are your growth levers?

From a macro perspective, in our B2B wires and cables business, an overall increase in construction and infrastructure activities combined with structural reforms introduced by the government like Production-Linked Incentive (PLI) scheme, National Infrastructure Pipeline, Revamp Distribution Sector Scheme etc, creates a very conducive environment for infra-activity and bodes well for demand. Emerging trends like the increasing share of electric vehicles and renewable energy will also be one of the key drivers for demand for wires and cables in years to come. In our consumer business, which includes FMEG and housing wires, we believe rising consumer incomes, aspirations and awareness will be crucial for the demand of our products. Technology-focused innovation will also be key to how consumers accept a brand, especially the millennials. From our company perspective, distribution expansion, portfolio augmentation, creating robust digital analytics and R&D capabilities, attracting the right talent, and strengthening brand connect with consumers and influencers, amongst others, will be key levers of our growth over the medium to long term.                              

Overall, our key strategic objective now is to focus on executing ‘Project Leap’ successfully. Project Leap is a multi-year transformational program aimed at having the right building blocks in place which will enable the company to achieve Rs 200 billion of the top line by FY26. It includes a range of strategic themes and initiatives focused on growth, profitability and long-term capacity building for the organization across B2B and B2C businesses. These initiatives or work streams will systematically become strategic focus areas during its period of implementation over the next 3 to 4 years. We are about eight months into the project and have partnered with global management consulting firm, BCG, who will help us drive this transformation. We have also set up a transformation management office comprising of people with diverse knowledge and capabilities across our businesses and functions who will be fully dedicated to the success of this program.

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