Thread on Polycab 🧵

Market cap: 21,000 crores
Revenues: 8,829 crores
P/E: 25.79
P/B: 4.69
ROCE: 30%
ROE: 23.28%

Here we go👇

The company is a market leader in a domestic wires & cables (W&C) segment with over 12% market share (18% organized market share);

Polycab manufactures the majority of its products in-house through 25 plants (4 for FMEG) across 7 locations;

Polycab is fast emerging as a B2C player given, strong potential in FMEG and Retail wires segment, sustained investments in brand building, and steadily increasing distribution network in the B2C mix;

A high degree of backward integration enables it to maintain full control over quality and supply chain, lower operational costs, and deliver products at competitive prices;

The contribution of B2C business increased from 30% since a few years ago to present 40%;

Since FY17, Polycab has spent c.3.5% of its annual B2C sales on A&P.

Increase in distribution reach:

Polycab focused on increasing its distribution network which has increased from 3,133 dealers in FY19 to present 3,650, of which 52% are exclusively for FMEG.

While 18% are common for both FMEG and Wires & Cables;

The 3,650 distributors serve over 137,000 retail touchpoints (up from 100,000 in FY18).

Increased channel financing coverage:

Having entered FMEG space only in 2014, channel financing remains only amongst high teens-

Compared to 60- 65% in Wires & Cables;

Polycab is now making investments in developing a new product pipeline with a focus on IoT and increasing its distribution reach;

Switchgear is a highly urbanized product which is yet to enter small towns and rural India in a major way, which signifies huge growth potential.

Polycab is well placed as it had acquired Datar Nouveau's manufacturing and technology capabilities;

Polycab is now focusing on changing the mix more towards a technology-focused premium offering; Pumps, Water Heaters, Air Coolers, Irons, Solar, Pipes, and Conduits contribute the remaining 15% of FMEG sales for Polycab;

The biggest USP has been the availability of products across SKUs; As channel checks suggest that at any given point of time,

Polycab (including its top 100 distributors) holds inventory worth Rs 20bn which can fulfill customer requirements at the earliest.

Over the years, Polycab has gradually increased the proportion of housing/retail wires (B2C) from 60% to the current 75% of wires sales (Wires contribute 45% of segment sales);

Rising sales of margin accretive wires business have helped in increasing segment margins from 7.4% in FY16 to 12.3% in FY20;

Manufactures several critical inputs in-house which allows it to provide a guarantee of quality, Service & short-notice supply, that few competitors can.
Service and short-notice supply, that few competitors can;

In order to control its supply chain, there is a high level of backward integration for key raw materials like aluminum rods, copper rods, and various grades of PVC, rubber, XLPE compounds, GI wire, and strip.

After successfully executing a large order from the Dangote refinery in FY20, Polycab is in the process of setting up its distribution network in overseas markets starting with Africa, the USA, the Middle East, and Australia;

Most of the 3,650 dealers catering to over 137,000 retail touchpoints have been associated for over 3 generations, many of whom are solely dependent on Polycab for their turnover;

Of the total 3,650 distributors, 30% exclusively cater to the Wires & Cables segment,

52% to FMEG segment while the balance 18% are common for both.

Polycab is looking to enter into special cables which are utilized in EVs and defense (currently imported), a high margin business.

A pilot project to drive semi-urban/rural reach:

To tap into this growing opportunity, Polycab has hired a consultant to develop an active distributor network in towns below the 5 lakh population;

The pilot project has been launched in 3 states,-

Wherein all Polycab products (FMEG or wires) will be available across key markets in those states;

Depending on the learnings from this pilot, it will be replicated Pan-India.

Polycab has incurred a CAPEX of Rs16.7bn over FY14-20, including plants for FMEG.

High Degree of backward integration:

All copper and aluminum-related materials required for making wires and cables, which form 65-70% of total RM cost (copper 50-55%), are manufactured in-house by Polycab.

Channel check takeaways:

👉Personal emotional bond with distributors,

👉With rising prices of key commodities by c.10-20% in the last 3 months (ABS up by 2x), Polycab hiked prices of Wires & Cables to the tune of 15-20% and FMEG products by 5-10%.

With an inflationary commodity price environment over FY16-20, Polycab’s gross margins improved by c.450bps due to improving business mix (Retail Wires, Exports, FMEG), and improving operational efficiencies;

Key commodity prices- Copper/ Aluminum/ Brent Crude have increased at a CAGR of 5%/ 4.5%/ 6.4% over FY16-20.

Company has maintained good ROE of above 15% in last 3 years.

End of thread 🧵


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