Copper price worries for Polycab

Polycab India Ltd had a good result in the three months ended September (Q2FY23) despite the volatility in copper prices during the quarter. The metal is used in cables and wires (C&W) and this segment accounted for nearly 89% of Polycab’s revenue in the second quarter. The C&W sector transfers copper prices up or down immediately to consumers. Copper prices on the London Metal Exchange are down 30% from their March highs.

In Q2, Polycab’s consolidated revenue increased 10.8% year-over-year to 3.332 crore. This is mainly driven by moderate to high youth output growth in the domestic business and good traction in the export business. Furthermore, the outlook for the C&W segment is promising. But amid the fall in copper prices, it remains to be seen whether volume growth will continue into the third quarter.

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However, Polycab’s FMEG segment continued to face difficulties due to low demand. Plus, the high competition is a concern. In Q2, this segment turns red, at Ebit from profit 6 crore in Q1. Seasonality and the shift to new regulations by the Department of Energy Efficiency weighed on the fan segment in Q2.

“When expanding the FMEG business, one advantage is that the company can take advantage of its India-based wire and cable distribution network. However, FMEG product launches and their pricing will be key factors to watch out for,” said Nirav Vasa, analyst at Anand Rathi Share and Stock Brokers.

Meanwhile, to create operational efficiency and cross-sell opportunities, Polycab combined vertical fans with lights and lights and vertical retail wires with switches and gears. Investors will be watching for the benefits of this transition in the coming quarters.

So far in fiscal year 23, shares of Polycab are up 14.5% and 5.4% below their 52-week high. The continued volume growth will be the driving force for the stock. If volume momentum continues, it will translate into better performing leverage, which improves margins. In Q2, Ebitda margins increased by nearly 2 percentage points to 13%.

“Private capital spending (capex) appears to be reviving, with industry average capacity utilization at 74%. “With our strong market share in C&W (22-24%), we see Polycab as a beneficiary of an infrastructure revival,” said analysts at Jefferies India in a report on Oct. 19. floors / headlands / houses in India “. FY23, but respawn from FY24,” they said.

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