Cost pressures begin to weigh on Polycab

Growth was broadly uniform across cables and wires said the firm. A healthy growth momentum in the domestic distribution business along with exports growth of 12% y-o-y came in handy, though institutional business remains subdued.

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FMEG posted a strong rebound with healthy growth across segments and a two-fold growth in y-o-y sales of switchgears, solar and water heaters. Even as the growth momentum remains strong, rising commodity prices are posing a challenge and a few price hikes are inadequate to cover costs. In order to maintain growth momentum in a challenging and competitive environment and gain market share, the company has had to absorb some costs. This impacted margins that at 9.7% during the quarter were significantly lower than 14.8% a year ago.

Growth momentum is likely to remain strong, going ahead. The pick-up in real estate activities and economic recovery helped by unlock and vaccination, as well as the ongoing festive season, mean that sales growth is likely to remain strong. Analysts at Emkay Global Finacial Services have increased their revenue forecast by 6-13% for FY22-24, However, margins may still remain soft. On an annualized basis, the firm’s margins have generally ranged from 11-13% and the management expects margins to stay at the lower end of this curve during FY22. “We cut FY2022 EBITDA estimates by 10% to reflect near-term inflation but our FY2023-24 estimates largely remain unchanged” said analysts at Kotak Institutional Equities.