Polycab India Ltd.vid.investmentguruindia.com/report/2019/May/Equirus... · 2019-05-03 · Polycab India Ltd. Absolute – LONG Relative – Overweight 32% ATR in 12 months April

Polycab India Ltd. Initiating Coverage

April 16, 2019 Analysts: Manoj Gori (+91-7574885496)/Dhaval Dama (+91-8128694102)

Wired for Growth

April 24, 2019 Before reading this report, you must refer to the disclaimer on the last page. Page 1 of 36

Polycab India Limited (PIL) Absolute : LONG

Relative : Overweight

Initiating Coverage Note 32% ATR in 12 months

Wired for growth — Initiate with LONG Cables & Wires

© 2019 Equirus All rights reserved

Rating Information

Price (Rs) 538

Target Price (Rs) 712

Target Date 31st Mar'20

Target Set On 15th Apr'19

Implied yrs of growth (DCF) 20

Fair Value (DCF) 378

Fair Value (DDM) 85

Ind Benchmark BSETCD

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 79,969

Free Float (%) -

52 Wk H/L (Rs) -

Avg Daily Volume (1yr) -

Avg Daily Value (Rs Mn) -

Equity Cap (Rs Mn) 1,486

Face Value (Rs) 10

Bloomberg Code POLYCAB IN

Ownership Pre-IPO Post-IPO

Promoters 78.9 % 68.7 %

Strategic Investors 21.1 % 14.5 %

Public 0.0 % 16.8 %

Price % 1M 3M 12M

Absolute - - -

Vs Industry - - -

Havells 0.9 % 10.0 % 37.7 %

KEI Industries 2.5 % 16.2 % -9.0 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (20E) 7.4 7.0 7.4 13.7

EPS (21E) 8.6 8.2 8.6 16.1

With an ~18%/~12% market share in the organized/total market, Polycab (PIL) is a leading

player in India’s wires and cables (W&C) industry. A robust distribution network, wide

product offerings, efficient supply chain management, strong manufacturing capabilities

and brand image have driven its success. Strong initiatives by PIL and favourable growth

dynamics should drive solid W&C business growth. PIL forayed into Fast Moving Electrical

Goods (FMEG) categories to tap the strong growth potential and transformed the business

from loss to profit-making in three years of operation; we expect volume-led growth to drive

a gradual improvement in this business. With growth levers in place, we initiate coverage

on PIL with LONG and a Mar’20 TP of Rs 712 set at 20x on TTM EPS of Rs 35.6.

Sound strategic initiatives, favourable industry dynamics to drive W&C division: PIL’s

strong positioning in the W&C space has been driven by distribution network expansion,

efficient supply chain management, a wide product portfolio and strong manufacturing

capabilities. We feel a wide product portfolio offers growth opportunities from multiple

sectors. Also, PIL plans to enter new categories which will fuel incremental volume

growth. We believe the company is well-placed to deliver double-digit value growth on

sustainable basis. We expect W&C revenues to increase from Rs 62.7bn in FY18 to Rs

92.4bn by FY22E, at a 10% CAGR.

FMEG biz turns profitable in only three years: PIL forayed into multiple FMEG product

categories from FY15 and was therefore required to invest behind manufacturing

capabilities, distribution network expansion and brand building exercises; this led to EBIT

losses during FY15 and FY16. However, the business attained breakeven in merely three

years (FY17) and turned profitable in FY18 with an EBITM of 3% (as per company

reporting), showcasing PIL’s strong focus on this space. Given the favourable base along

with strong initiatives, we expect the FMEG business segment to grow from

Rs 4.9bn in FY18 to Rs 9.4bn in FY22E, at an ~18% CAGR.

Strong manufacturing capabilities lead to stringent control over costs & quality: With

24 facilities in operation, PIL has built strong manufacturing capabilities in the W&C and

FMEG segments. Apart from strong control over costs, it has maintained stringent control

over quality. We visited five facilities in Halol and would like to highlight that PIL has strong

processes in place, which are well-supported by automated systems.

Return ratios, impacted by FMEG biz, to improve gradually: We feel entry into the

FMEG business could be a key reason behind PIL’s poor return profile. However, with the

FMEG business breaking even in FY17 and turning profitable in FY18, ROE/core RoIC have

improved from 11%/11% in FY16 to ~17%/13% in FY18. We expect a gradual expansion in

core RoIC to 15.6% in FY22E. Currently, our ROE estimates stand revised down to 15.5%

in FY22E due to limited visibility on future expansion plans and dividend policy.

Standalone Financials

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

Sales 67,677 76,579 85,173 94,362

EBITDA 7,358 9,274 9,746 10,843

Depreciation 1,320 1,606 1,681 1,868

Interest Expense 922 930 846 605

Other Income 630 464 674 818

Net Profit 3,706 4,609 5,289 6,156

Adj. Net Profit 3,706 4,609 5,289 6,156

Total Equity 23,494 28,103 37,060 42,497

Gross Debt 7,890 7,848 5,457 1,898

Cash 92 1,351 5,641 4,893

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

Earnings 24.8 31.0 35.6 41.4

Book Value 166 199 249 286

Dividends 0 0 2 4

FCFF 16.5 13.1 23.5 26.1

P/E (x) 21.7 17.4 15.1 13.0

P/B (x) 3.2 2.7 2.2 1.9

EV/EBITDA (x) 12.0 9.4 8.3 7.2

ROE (%) 17% 18% 16% 15%

Core ROIC (%) 13% 15% 15% 15%

EBITDA Margin (%) 10.9% 12.1% 11.4% 11.5%

Net Margin (%) 5.5% 6.0% 6.2% 6.5%

Polycab India Ltd. Absolute – LONG Relative – Overweight 32% ATR in 12 months

April 24, 2019 Page 2 of 36

Company Snapshot

How we differ from Consensus - Equirus Consensus % Diff Comment

EPS FY19E 31.0 - - There is currently no coverage for this

stock. FY20E 35.6 - -

Sales FY19E 76,579 - -

FY20E 85,173 - -

PAT FY19E 4,609 - -

FY20E 5,289 - -

Key Estimates:

In Rs. Mn FY16 FY17 FY18 FY19E FY20E FY21E

Sales 52,029 55,002 67,677 76,579 85,173 94,362

Sales growth (%) 11% 6% 23% 13% 11% 11%

EBIDTA 4,921 4,772 7,358 9,274 9,746 10,843

EBITDA margin (%) 9.46% 8.68% 10.87% 12.11% 11.44% 11.49%

PAT 1,865 2,321 3,689 4,609 5,289 6,156

PAT margin (%) 3.58% 4.22% 5.45% 6.02% 6.21% 6.52%

Risk to Our View:

• Macroeconomic slowdown can have a material impact on W&C business division

• Inability to scale up FMEG business division / lower than expected profitability

• Significant increase in WC requirement likely to impact return ratios

• Rise in competition can impact profitability

• Volatility in commodity prices could lead to RM cost fluctuations

Key Triggers

• Scaling up volumes in the FMEG business with improvement in profitability

• Foraying into new product segment in the W&C space

• Distribution network expansion

• Improvement in WC cycle

Sensitivity to Key Variables % Change % Impact on EPS

Raw Material Cost 1 % -5 %

- - -

- - -

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.4 % 1.0 13.4 % 3.0 % 2.4 %

- FY19E FY20E FY21-28E FY29-33E FY34-38E

Sales Growth 13 % 11 % 9 % 6 % 4 %

NOPAT Margin 6 % 6 % 7 % 7 % 7 %

IC Turnover 2.15 2.20 2.51 2.75 2.75

RoIC 14.7 % 14.6 % 17.5 % 19.4 % 19.2 %

Years of strong growth 1 2 10 15 20

Valuation as on date (Rs) 208 202 304 326 335

Valuation as of Mar'20 235 228 344 368 378

Based on DCF, assuming 20 years of 9% CAGR and 18% average ROIC, we derive our current

fair value of Rs 335 and a Mar’20 fair value of Rs 378.

Company Description:

Headquartered in Mumbai, Polycab is the market leader in the W&C industry. It

manufactures LT/HT/EHV power cables, control cables, house wires and industrial cables.

It has also ventured into consumer durables like fans, lightings, switches, switchgear and

electrical conduits. PIL is a backward integrated company with 24 manufacturing facilities

across India.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY18A FY19E FY20E FY18A FY19E FY20E FY19A FY20E FY18A FY19E FY20E FY19A FY20E

Polycab India LONG 538 79,969 712 31st Mar'20 24.8 31.0 35.6 21.7 17.4 15.1 166.4 2.7 17 % 18 % 17 % 0.0 % 0.0 %

Havells India REDUCE 752 470,262 668 31st Mar'20 11.1 13.6 16.7 68.0 55.2 45.0 59.7 11.1 20 % 21 % 23 % 0.5 % 0.6 %

KEI Industries LONG 415 32,782 560 31st Mar'20 18.6 24.4 31.1 22.3 17.0 13.4 77.7 4.1 27 % 27 % 27 % 0.2 % 0.3 %



Investment Rationale

Market leadership in wires & cables

PIL is the undisputed market leader of India’s W&C industry, with an ~18% market share in

the organized sector and a ~12% overall share. Its W&C business is more than twice the size

of its leading competitors (Exhibit 4-5).

A robust distribution network, wide range of product offerings, efficient supply chain

management and strong brand image are some of the key reasons for PIL’s success in the

Indian W&C space. We believe among PIL’s many strengths, efficient supply chain

management has been a key differentiator between the company and its peers.

For business diversification and to capitalize on strong growth opportunities in the Indian

FMEG segment, PIL forayed into the space by leveraging its distribution network. Currently,

it is present in fans, switches, switchgears, lighting & luminaries and pumps. As per PIL, new

categories complement its core product and enable it to offer a wide range of products in the

electrical space.

Exhibit 1: PIL has consistently led the market

Source: Company, Equirus Securities

While PIL forayed into FMEG categories in FY15 (7% of FY18 revenues), the W&C business

continues to be a dominant contributor to total revenues; we expect the trend to continue

over the medium term with the W&C segment forming a lion’s share of total revenues.

Exhibit 2: Wires & Cables dominates the revenue mix (FY18)


*excluding intersegmental revenues

Exhibit 3: Cables contribute a major share to W&C segment revenues (FY18)


12%11%

13%12% 12%

19%

17%18%

17%18%

0%

4%

8%

12%

16%

20%

FY14 FY15 FY16 FY17 FY18

Share of Polycab in total cables and wires industry (%)

Share of Polycab in organised cables and wires industry (%)

90%

7%3%

Wires and Cables

FMEG

Others

58%

42% Cables

Wires



PIL’s dominance in the India’s W&C space is exhibited by its revenues being more than double

the revenues of some leading brands like KEI, Finolex Cables and Havells India. Accordingly,

PIL continues to enjoy leadership position in the space.

Exhibit 4: Wires & cables revenues of major players (FY18) — PIL leads the way

Source: Companies, Equirus Securities

Exhibit 5: FY18 market shares of leading players

Source: Companies, Equirus Securities

A wide product portfolio, efficient supply chain management, strong distribution network,

effective marketing initiatives, strong manufacturing capability and high degree of

backward integration are some of the strong success pillars for PIL

Wide product portfolio, innovations — Key strengths

PIL’s wires and cables cater to vast applications, including house wires, power cables, and

communication cables and many others (Exhibit 7). PIL is one of the few players with products

across different categories of cables (Exhibit 6).

Over the years, the company’s R&D investments have led to innovations in its product range

and reduced dependence on external suppliers for components due to strong backward

integration. PIL roughly invests Rs 250mn annually (W&C + FMEG) behind its R&D to develop

new products or strengthen manufacturing capabilities.

Some of the innovative products include environmentally-friendly power cables, rubber

(elastomeric) cables and electron-beam irradiated cables which find application in

automobile, ship-building industry, mining, solar energy and rolling stock sectors.

Refer Exhibit 48 (pg 20) for growth drivers and product application for each of category

Exhibit 6: W&C offerings of players

Players Power &

Power Control Cables (LT/HT)

Power Cable (EHV)

Control Cables

House Wires

Flexible and Industrial

Cables

Apar Industries ⚫ ⚫ ⚫ ⚫

Finolex Cables* ⚫ ⚫ ⚫ ⚫ ⚫

Gupta Power Infrastructure

⚫ ⚫ ⚫ ⚫ ⚫

Havells India ⚫ ⚫ ⚫ ⚫

KEC International ⚫ ⚫ ⚫ ⚫

KEI Industries ⚫ ⚫ ⚫ ⚫ ⚫

Polycab ⚫ ⚫ ⚫ ⚫ ⚫

R Kabel ⚫ ⚫ ⚫ ⚫

V-Guard Industries ⚫ ⚫ ⚫

Source: Companies, Industry, Equirus Securities

*: Finolex Cables is present in control cables and not instrumentation cables

62.4

28.4 27.8 26.8

0

14

28

42

56

70

Polycab KEI Industries Finolex Cables Havells

(Rs bn)

11.9%

5.4% 5.3% 5.1%

1.3%

18.0%

8.2% 8.0% 7.7%

2.0%

0%

4%

8%

12%

16%

20%

Polycab KEI Industries Finolex Cables Havells V-Guard

Market Share in Total Industry Market Share in Organized Industry



Exhibit 7: Strong product portfolio comprises a variety of wires & cables

Power cables Building Wires

Control cables Instrumentation Cables

Optical Fibre Cable Flexible Wires

Solar Cables Other Cables


PIL’s strong supply chain management a key differentiator vs. peers

PIL has invested in strengthening its supply chain over the years. It consistently aims for faster

delivery to clients — a key focus area. PIL’s initiatives like Bandhan and mobile apps has led

to better forecasting of sales and efficiencies in production planning. Sales force automation

and Distributor Management System will further strengthen the company’s supply chain as it

will gain insights and data on secondary sales.

Channel Checks: Our channel checks with PIL’s distributors in several cities indicate that the company’s

supply chain efficiency is very high. Its order fulfilment is always on schedule and the fastest, which

makes it a preferred choice for distributors. While there is limited scope for product differentiation in

the W&C industry, PIL has set itself apart from its branded competitors by providing timely service to

distributors. This competitive advantage is an outcome of its efficient supply chain management.

Distribution network continues to expand with ample scope left for growth

PIL has a pan-India distribution network of 2,800+ distributors and dealers with a reach of

100,000+ retail outlets (Exhibit 8 & 13). The number of dealers and distributors has declined

over the years as the company discontinued direct supplies to smaller distributors and dealers,

who are instead serviced by larger channel partners. In terms of regions, the major share of

dealers is in the South followed by the North (Exhibit 9). Product-wise, the major share of

distributors and dealers is for the FMEG business (Exhibit 10).

For the W&C division, 80% of revenues are contributed by distributors while the remaining

20% from big institutional sales like L&T and others (Exhibit 11). B2C contributes ~35% of

revenues currently (Exhibit 12); PIL targets to scale up this proportion to 50% in the medium

term.



PIL has long-standing relationships with many of its channel partners and has undertaken

various initiatives (including BTL activities) to build this strong distribution network. Some of

these initiatives are outlined below:

Bandhan: Launched in Apr’17, Bandhan is a CRM programme that covers 66,000+ electricians and

25,000+ retailers. This initiative has helped PIL understand its end customers better, in turn leading

to better resource allocation, more targeted marketing and effective product development.

Project Josh: PIL launched Project Josh in 2015 with an aim to increase its market share in the FMEG

segment. It is implemented across 105 locations and has led to strategic shifts in manufacturing and

sales.

Sales force automation and Distributor Management System: PIL has launched a mobile app, Field

Assist, and a Distributor Management Software, which together track secondary sales (from

distributors to retailers). This helps PIL manage inventory more efficiently. The app is expected to be

rolled out across India by 30 Apr’19, as per the company.

Compared to its peers, PIL’s retail touchpoints are still lower (Exhibit 13) leaving ample scope

to expand through network. Going forward, PIL aims to strengthen its distribution network,

especially to penetrate smaller towns and reach more markets.

Exhibit 8: Consolidation of distribution network leads to a decline in total network


Exhibit 9: South region has the most distributors & dealers


Exhibit 10: FMEG business has more distributors & dealers


3,8253,678

3,372

2,873

0

900

1,800

2,700

3,600

4,500

FY16 FY17 FY18 9MFY19

20% 21% 20% 22%

24% 24% 27% 26%

31% 31% 31% 31%

24% 24% 21% 21%

3,825 3,678 3,372 2,873

0%

20%

40%

60%

80%

100%


East North South West

45% 39% 39% 35%

36% 44% 46% 48%

19% 17% 15% 17%

3,825 3,678 3,372 2,873

0%

20%

40%

60%

80%

100%


Wires and cables FMEG Common for wires and cables and FMEG



Exhibit 11: Distributors contribute a major share to revenues


Exhibit 12: About 35% of the business is B2C


Exhibit 13: Vast scope for network expansion for PIL (W&C + FMEG)

Source: Industry, Equirus Securities

Exhibit 14: Number of distributors of key players


80%

20%

Distributors

Institutional

65%

35%B2B

B2C

160,000150,000

100,000 100,000 100,000

25,000

0

40,000

80,000

120,000

160,000

200,000

BajajElectricals

Crompton Havells OrientElectric

Polycab V-Guard

1,000

3,0003,500

7,575

1,400

2,873

564

0

2,000

4,000

6,000

8,000

BajajElectricals

Crompton FinolexCables

Havells KEIIndustries

Polycab V-Guard



Strong mfg. capability + high degree of backward integration = competitive edge

PIL has 24 manufacturing facilities across India, of which 3 are for FMEG products. Stringent

quality standards allow it to maintain high quality and reliability across its product range.

Details of the manufacturing facilities, including their capacities, production and capacity

utilization rates are outlined in Exhibit 12-13. In addition to its own manufacturing units, PIL

has entered into two 50:50 JVs in FY18: Ryker Base Pvt Ltd (with Trafigura) and Techno

Electromech Pvt Ltd (with Techno) for manufacturing copper rods and LED lights/lightings

respectively.

Further, PIL has a high degree of backward integration, ensuring a reliable and consistent

supply of quality raw materials while reducing the risk and reliance on external procurement.

It manufactures various raw materials such as aluminum rods (for aluminum conductor),

higher size of copper rods (for required size of copper conductors for manufacturing wires and

cables), various grades of PVC, rubber, XLPE compounds, GI wire and strip (for armoring).

Exhibit 15: Manufacturing facilities spread across India

City Leased/owned Constructed Area

(sq. feet)

Annual Installed Capacity as of 31

Dec'18

Capacity Utilization FY16



Capacity Utilization 9MFY19

Wires and Cables

Halol Owned 5,648,268 2,124,115 kms 83% 84% 66% 67%

Daman Owned/Leased 1,742,550 1,412,148 kms 72% 75% 79% 69%

LED Lighting and Luminaires

Chhani Owned 64,001

LED batten 12,000,000 - 63% 13% 47%

Panel LED light 3,000,000 - 79% 30% 51%

LED flood light 300,000 - 33% 6% 17%

LED street light 480,000 - 20% 27% 43%

LED bulbs 2,400,000 - - 2% 48%

Switches and Switchgears

Nashik Leased 86,111 6,000,000 41% 69% 79% 69%

Fans

Roorkee Owned 85,000 2,400,000 11% 32% 56% 83%

Others

Padana Leased 77,403 20,250 - 28% 57% 82%

Halol/ Waghodia

Copper rods (Waghodia) Owned/Leased 217,750 - - - - -

Steel wires - - - - - - -

Aluminium and copper terminals Leased 161,270 - - - - -




Exhibit 16: Manufacturing facilities spread across India


Brand building initiatives have paid off

PIL has undertaken various Above-the-line (ATL) and Below-the-line (BTL) activities to build

its brand and increase brand awareness. It advertises through social media as well as

conventional media like TV and print media. Its TV campaign with actor Paresh Rawal was

launched in various regional languages. The campaign focused on lower power consumption

resulting in cost savings which has been well received by consumers. Besides ad campaigns,

it also does in-store promotions such as sales promotion, retail pop-ups and visual

merchandising.

PIL regularly engages and maintains good relationships with distributors. It incentivizes them

through its mobile application, Bandhan Star, which awards loyalty points to channel partners

based on their purchases. Also, PIL carries out various BTL activities and incentive schemes

for ‘influencers’ — an important brand-recommending channels.

In addition to the above, PIL also engages with its institutional customers through a dedicated

sales & marketing team. Its institutional clients include names such as L&T Construction and

government clients such as Konkan Railway Corporation Ltd.

Accordingly, PIL has stepped up its A&P investments, with total A&P spends increasing

from Rs 152mn during FY14 (0.4% of total net sales) to Rs 936mn in FY18 (1.4% of total

net sales).

Exhibit 17: Vast scope for network expansion for PIL (W&C + FMEG)


Exhibit 18: PIL advertisements across regional languages


Roorkee

Chhani

Halol

Daman

Nashik

Padana

Waghodia

Existing facilities

Under construction facility

152 426 579 581 936

0.4%

0.9%

1.1%1.1%

1.4%

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

0

200

400

600

800

1,000

FY14 FY15 FY16 FY17 FY18

(Rs mn) A&P Spends A&P Spends as a % of sales


April 24, 2019 Page 10 of 36

Robust growth in wires & cables division

PIL’s sharp focus on the W&C division has helped it grow the business at a robust 13% CAGR

over FY14-FY18. This was driven by a strong product portfolio, entry into new product

categories, continuous improvements in the supply chain system, distribution network

expansion and strong & sustainable marketing activities.

On the back of above-mentioned initiatives by PIL along with favorable growth triggers for

the W&C industry, we expect sustainable double-digit growth for the company in the years

ahead. This growth is likely to be further supported by GOI’s initiatives. Accordingly, we

expect W&C revenues to increase from Rs 62.7bn in FY18 to Rs 92.4bn in FY22E, at a 10%

CAGR.

Exhibit 19: Solid growth in W&C division over FY14-FY18



Margins improve, appear sustainable at current levels

Historically, PIL’s products were sold at a discount to comparable players like Finolex Cables.

Since FY12, the company has taken a number of initiatives to emerge as strong brand among

consumers and channel partners; these initiatives include complete change in key

management personnel, strong focus on new product categories and effective marketing

spends. Accordingly, the company has filled the pricing gap vs. peers, leading to margin

improvement. Also, some margin expansion has been led by entry into high-margin product

categories and further backward integration. Accordingly, we believe current EBIT margins

(as per company reporting) appear sustainable in the coming years.

Standalone EBIT margins (calculated excluding inter-segment revenues) have jumped from

5.7% in FY14 to 10.3% in FY18. We expect margins to improve to 11.6% in FY19E (9MFY19 EBIT

margins: 12.8%). Further, we expect margins to sustain at 11.1% going forward. Wire margins

stand at 14.5% and are higher than cable margins.

Exhibit 20: W&C margin profile



38,31943,787

52,63856,245

62,72467,992

75,449

83,598

92,382

0

22,000

44,000

66,000

88,000

110,000

FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E

(Rs mn)

2,1

98

3,2

88

3,8

97

3,9

69

6,4

58

7,8

98

8,3

83

9,2

89

10,2

65

5.7%

7.5% 7.4% 7.1%

10.3%

11.6%11.1%

11.1%11.1%

0%

3%

5%

8%

10%

13%

0

2,500

5,000

7,500

10,000

12,500


(Rs mn) Wires and Cables Wires and Cables EBITM (%)


April 24, 2019 Page 11 of 36

Rapidly scales up FMEG business

PIL forayed into the FMEG business in FY14 by launching the switches business. It further

diversified into fans, LED lightings and switchgear in FY15. With a strong distribution network

already in place for wires and cables, it was able to rapidly scale up the FMEG business as the

products were a part of the same ‘electrical’ ecosystem. The retail touchpoints for wires &

cables, switches, lightings, switchgear, fans and conduits are largely overlapping as electrical

stores often stock most of these product categories. Further, an established brand name

helped it to position itself in the ‘mass-premium’ category. PIL invested in brand building to

sustain this positioning.

A comparison of PIL and other FMEG players is shown in Exhibit 20.

Exhibit 21: Consumer Electric Durables Product offerings of Players

Players Fans Lightings Switches Switch-gears

Water Heater

Home App.

Kitchen App.

Bajaj Electricals ⚫ ⚫ ⚫ ⚫ ⚫

Crompton Greaves Consumer Electricals

⚫ ⚫ ⚫ ⚫ ⚫

Finolex Cables ⚫ ⚫ ⚫ ⚫ ⚫

Havells India ⚫ ⚫ ⚫ ⚫ ⚫ ⚫ ⚫

Orient Electric ⚫ ⚫ ⚫ ⚫ ⚫ ⚫

Philips India ⚫

⚫ ⚫

Polycab ⚫ ⚫ ⚫ ⚫ ⚫

Schneider Electric India

⚫ ⚫ ⚫ ⚫

Surya Roshni ⚫ ⚫ ⚫ ⚫ ⚫

TTK Prestige ⚫ ⚫

Usha International ⚫ ⚫ ⚫ ⚫

V-Guard Industries ⚫ ⚫ ⚫ ⚫ ⚫

Source: Company Website and Annual Reports, Industry, PIL RHP, Equirus Securities

Retail touchpoints almost double over the last 3-4 years

As mentioned above, distribution channel for most of the product categories overlap (W&C +

FMEG); consequently, PIL enhanced its focus to expand footprint by increasing retail

touchpoints from ~50,000 to ~100,000 (as of now) over the last 3-4 years. We believe that the

current touchpoints are significantly lower vs. players like Phillips, Havells and others, giving

the company ample headroom for growth. We believe that PIL’s major focus would remain on

smaller towns and cities.

Focus remains on A&P investments to emerge as a household brand in the FMEG space

PIL has increased its A&P spends from Rs 152mn during FY14 (0.4% of total net sales) to

Rs 937mn in FY18 (1.4% as a % of total net sales); these investments have been towards W&C

and FMEG business segments. We believe effective spends have yielded positive results for

PIL over the last three years, which might be one of the key reasons for retail network

expansion as well.

Changes model from outsourcing to in-house manufacturing

In the initial years, PIL followed an outsourcing business model for the FMEG business.

However, this had an impact on quality and led to inefficiencies in production planning. To

address these issues, management took a conscious decision to set up its own manufacturing

capabilities; this empowered the company to have a strong control over manufacturing

planning and tighter control over costs and quality. Accordingly, PIL has set up three

manufacturing facilities for the FMEG business with a plant in Channi (LED Lighting and

Luminaires), Nashik (Switches and Switchgears) and Roorkee (Fans).

As a result of these efforts, the FMEG business has grown at a 59% CAGR during FY15-FY18,

however off a favorable base. Accordingly, FMEG segment’s revenue contribution has started

inching up gradually from 3% in FY15 to 7% in FY18 (Exhibit 29).

Given the favorable base for the FMEG segment along with strong initiatives like brand

building exercises, distribution network expansion and enhancing manufacturing capabilities,

we expect the FMEG business segment to grow at an ~18% CAGR over during FY18-FY22E.

Accordingly, revenues are expected to grow from Rs 4.9bn in FY18 to Rs 9.4bn in FY22E.

Exhibit 22: FMEG business has grown at a whopping 59% CAGR during FY15-18

Source: Company, Industry, Equirus Securities

11

1,2291,981

3,384

4,943

6,097

7,234

8,273

9,440

0

2,000

4,000

6,000

8,000

10,000


(Rs mn)


April 24, 2019 Page 12 of 36

FMEG segment achieves profitability in mere 3 years of operation

The FMEG segment had negative margins in initial years as PIL invested in building the

business. The company invested in A&P and did incremental spends to build brand and emerge

as a familiar name to every household. During the same period, PIL built manufacturing

capabilities which weighed on profitability in the initial years due to lower volumes. This also

helped PIL to maintain strong control over costs and quality.

Besides, as most of the RM requirement for the FMEG business is similar to that for W&C, PIL

is able to realize economies of scale in procurement. This aids margins, especially since

margins are low in the FMEG business and have dragged overall margins. However, we expect

the FMEG margins to improve in the medium term as the business volumes grow. This also

bodes well for blended margins. Contribution of FMEG to overall margins is in single digits.

However, standalone segment margins have now turned positive as volumes have grown.

Going forward, we expect profitability to improve gradually for the FMEG business division on

account of higher volumes, in turn leading to efficiencies. Accordingly, we expect EBITM to

improve from 3% in FY18 to 6% by FY22E.

Exhibit 23: FMEG margins gradually improving


EPC & Others segment likely to continue at current operational levels

PIL has a small EPC business, which is a part of its Others segment. It primarily undertakes

EPC projects which have high contribution of wires & cables. As indicated by management,

PIL undertakes EPC projects wherein there is ~60% wires & cables work. We expect this

business to remain at current levels. Accordingly, we have modeled for flat growth for this

segment. This segment witnessed margin shrinkage in FY18 and we expect margins to sustain

at current levels going forward.

Exhibit 24: EPC & Others business expected to continue at current levels


Exhibit 25: Margin profile of EPC & others remains low vs. other business segments


-97 -202

35 150 185 307 455 566

-7.9%

-10.2%

1.0%3.0% 3.0%

4.3%

5.5%6.0%

-15%

-10%

-5%

0%

5%

10%

-460

-230

0

230

460

690

FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E

(Rs mn) FMEG FMEG EBITM

1,958

2,825

1,534

2,067

2,491 2,491 2,491 2,491

0

600

1,200

1,800

2,400

3,000


(Rs mn)

204 413 205 49 49 49 49 49

10.4%

14.6%13.4%

2.4% 2.0% 2.0% 2.0% 2.0%

0%

4%

7%

11%

14%

18%

0

100

200

300

400

500


(Rs mn) Others Others EBITM


April 24, 2019 Page 13 of 36

Transformation from a family run business to a professionally managed entity

In FY12, PIL hired a management consulting firm to develop its business strategy. This led to

restructuring of the business into autonomous ‘verticals’ or strategic business units (SBUs)

each managed by a management professional. The company recruited industry veterans to

autonomously run these business verticals. In 2012, it recruited Mr. Ramakrishnan Ramamurthi

who has more than three decades of experience and has previously worked with Bajaj

Electricals and Asian Paints. In 2018, PIL recruited Mr Manoj Verma who has previously served

in leadership roles with Orient Paper Industries and Crompton Greaves. Over the years, the

company has recruited ~500 professionals across its business divisions, thus transforming itself

from a family run business to a professionally managed organization.

Exhibit 26: Previous family managed structure


Exhibit 27: Current structure with professionally managed verticals


Inder Jaisinghani

(Purchase, Marketing, Finance)

Ajay Jaisinghani

(Production)

Ramesh Jaisinghani

(New projects)

Ajay T. Jaisinghani

Whole-Time Director

R. Ramamurthi

Chief Executive

Bharat Jaisinghani

Director – FMEG Business

Nikhil Jaisinghani

Director – LDC Business

Anil Hariani

Director - Commodities

Kunal Jaisinghani

Head – Agri Products

Shashi Amin

Pres. (Cables)

Suresh Kumar

Pres. (Strategy & HR)

Diwaker Bharadwaj

Pres. (Marketing Communication &

Packaging Development)

Anurag Agarwal

Pres. (Strategic Initiatives & New Biz)

Anil Shipley

Executive Pres. & CSCO

Gandharv Tongia

Deputy CFO

Manoj Verma

Executive Pres. & COO

Rajesh Mhatre

Pres. (Supply Chain)

Sandeep Bhargava

Pres. (Procurement)

Sanjeev Chhabra

Pres. (Treasury)

Vivek Khanna

Pres. (Accounts & IT )

Inder T. Jaisinghani

Chairman & MD

Shyam Lal Bajaj

CFO & Whole-Time Director

Ramesh Jaisinghani

Whole-Time Director


April 24, 2019 Page 14 of 36

Financial profile — Robust operating performance across verticals

Strong operational performance results in robust growth

Due to its sustained leadership in wires and cables, PIL grew its topline at a robust 15% CAGR

over FY14-FY18. We expect revenues to grow at an 11% CAGR during FY18-FY22E, in line with

the expected 10% CAGR for the W&C division as this segment contributes ~90% to overall

revenues. W&C segment dominates the revenue mix but FMEG contribution has gradually

increased over the years. We expect the FMEG business contribution to continue growing

further given expectations of strong growth in this business. Accordingly, we expect

standalone revenues to increase from Rs 67.7bn in FY18 to Rs 104.3bn by FY22E.

On the other hand, with improving profitability in W&C business division and the FMEG

business turning profitable, segment EBITDAM improved from 7.3% in FY14 to 10.9% in FY18.

We expect FY19E EBIDTAM at 12.1% and expect it to stabilize at 11.7% in FY22E. Hence,

standalone EBIDTA for the company has increased from Rs 2.8bn in FY14 to Rs 7.4bn in FY18,

which we expect to touch Rs 12.2bn by FY22E.

As a result of strong topline performance and improved profitability, PIL’s standalone PAT has

grown at a staggering 44% CAGR during FY14-FY18 (Exhibit 31), from Rs 854mn to

Rs 3.7bn in FY18. We expect PAT to grow at a 17% CAGR over FY18-FY22E with absolute PAT

likely to reach Rs 7.0bn in FY22E.

Exhibit 28: Robust growth in standalone revenues with 15% CAGR during FY14-FY18


Exhibit 29: W&C dominates the revenue mix*; FMEG gradually inching up



Exhibit 30: Improved margins over the years


38,329

46,97552,029 55,002

67,677

76,579

85,173

94,362

104,313

0

22,000

44,000

66,000

88,000

110,000


(Rs mn)

100%93% 92% 92% 90% 89% 89% 89% 89%

3% 3% 6% 7% 8% 8% 9% 9%

4% 5% 3% 3% 3% 3% 3% 2%

0%

20%

40%

60%

80%

100%


Wires and Cables FMEG Others

2,7

92

4,3

40

4,9

21

4,7

72

7,3

58

9,2

74

9,7

46

10,8

43

12,1

87

7.3%

9.2% 9.5%8.7%

10.9%

12.1%11.4%

11.5%

11.7%

0%

3%

6%

9%

12%

15%

0

2,600

5,200

7,800

10,400

13,000


(Rs mn) EBITDA EBITDAM (%)


April 24, 2019 Page 15 of 36

Exhibit 31: Staggering 44% CAGR in standalone PAT over FY14-FY18


ROE/ROIC to improve on strong profitability growth, rising utilization levels

PIL’s ROE has improved from ~12% in FY14 to 17% in FY18 due to robust growth driven by the

W&C segment and margin expansion. At the same time, core ROIC declined from 14.6% in

FY14 to 8.3% in FY17 but rebounded to 13.1% in FY18. We expect ROE to moderate to 15.5%

in FY22E whereas core ROIC to increase to 15.6% in FY22E as margins improve.

We expect CFO/FCFF to improve from here on with the trend likely to continue in the near

term as cash outflows from the company are likely to be minimal. We expect FCFF/CFO to

jump from Rs 2.3bn/Rs 3.5bn in FY18 to Rs 4.4bn/Rs 7.1bn in FY22E due to strong growth in

profitability (Exhibit 33-34).

Exhibit 32: Core ROIC to improve due to strong profitability and improving utilization


Exhibit 33: FCFF to grow from Rs 2.3bn in FY18 to Rs 4.4bn in FY22E


854

1,5711,865

2,321

3,689

4,609

5,289

6,156

7,022

0

1,500

3,000

4,500

6,000

7,500


(Rs mn)

11.9%

10.5% 11.0%

12.3%

17.0%17.9%

16.2%15.5%

15.5%

14.6%

11.2% 11.2%

8.3%

13.1%

14.8% 14.6% 15.0%

15.6%

0%

4%

8%

12%

16%

20%


ROE Core ROIC

2,627

507726

566

2,332

1,855

3,488

3,877

4,390

0

1,200

2,400

3,600

4,800


(Rs mn)


April 24, 2019 Page 16 of 36

Exhibit 34:CFO to grow from Rs 3.5bn in FY18 to Rs 7.1bn in FY22E


*FCFF = CFO + CFI + (Interest expense*(1- tax rate))

CFO = Profit before tax + Depreciation + Extraordinaries - Tax + (non-cash working capital of previous year - non-cash working capital of current year)

Net working capital days high but expected to improve with channel financing

PIL’s net working capital (NWC) days are higher than that of its peers. Although KEI Industries

has similar NWC days as PIL, KEI’s high NWC days can be attributed to greater contribution of

the EPC business (~20%) to the topline. It is noteworthy that Havells has negative NWC days.

PIL’s NWC days are higher as it did not avail channel financing. Going forward, we expect PIL

to avail channel financing, starting from the FMEG business. Accordingly, NWC days are

expected to improve in the medium term. However, we have not built any material

improvement into our estimates (only marginal improvement factored in). We do believe that

there are levers in place (channel financing, achieving efficiencies in receivable and inventory

days) which could have a material impact (positive) on NWC days.

Exhibit 35: PIL has high NWC days vis- à-vis its peers (FY18)

Polycab Havells KEI Industries Finolex Cables

Receivable days 68 15 108 23

Inventory days 73 73 59 65

Payable days 70 183 94 32

Net Working Capital days 72 -96 73 55


Exhibit 36: PIL’s NWC expected is likely to remain at current levels


3,357

1,541

2,210

2,831

3,519 3,619

4,801

5,672

7,123

0

1,500

3,000

4,500

6,000

7,500


(Rs mn)

8286

95 9692 94 93 93 92

0

25

50

75

100

125



April 24, 2019 Page 17 of 36

Peer comparison

The W&C and electrical consumer durables industries is largely dominated by domestic brands

which are operating across various product categories. Below are some of the key metrices

with comparisons between brands in the W&C and FMEG space (Exhibits 37-45).

Exhibit 37: Financials for FY18 and FY14

Players Revenue in FY18 (Rs bn)

Revenue CAGR

(FY14-FY18)

Operating Margins in FY18

(%)

ROE FY18

(%)

ROCE FY18

(%)

Apar Industries 58.3 5.9 7.3 13.6 26

Bajaj Electricals 47.6 4.3 7.3 9.3 14.2

Crompton Greaves Consumer Electricals 40.8 9.4 13 N.A N.A

Finolex Cables 29 5.2 18 14.5 23.5

Gupta Power Infrastructure 31.1 19.8* 5.4 13 13.6

Havells India 81.6 -1.5 13.2 24.2 24.5

KEC International 100.6 6.3 10.9 0.3 28.9

KEI Industries 34.7 20.8 10 27 23.2

Orient Electric 16.5 6.2 8.5 49.8 58.4

Philips Lighting India 33.2 1.1 8.8 26.1 59.4

Polycab 67.8 14.2 10.9 17.1 22.3

R Kabel 15.8 11.5* 11.4 - -

Surya Roshni 49.3 13 7.1 0.1 13.4

TTK Prestige 19.8 11.2 12.9 0.3 37.8

Usha International 23 7.4* 1.4 -54.8 3

V-Guard Industries Ltd 23.3 11.3 8.2 19.7 26

Source: Company Annual Reports, PIL RHP, Industry, Equirus Securities

* Financials are for FY17, CAGR is for FY14-FY17

Exhibit 38: Segmental Revenues for FY18

Players

Revenue from

Cables and Wires

(Rs Bn)

Revenue from ECD

(Rs Bn)

Revenue from

Cables and

Wires (%)

Revenue from

ECD^ (%)

Revenue share from

other segments

(%)

Bajaj Electricals Ltd N.Ap 22.3 N.Ap. 47 53

Crompton Greaves Consumer Electricals Ltd

N.Ap 41.1 N.Ap. 100 -

Finolex Cables Ltd 27.8 0.6 96 2 2

Gupta Power Infrastructure Ltd* 31.1 N.Ap 100 N.Ap. -

Havells India Ltd 26.8 41.7 32 50 18

KEC International 8.5 N.Ap 8 N.Ap. 92

KEI Industries Ltd 24.3 N.Ap 69 N.Ap. 31

Polycab India Limited 62.4 4.9 89 7 4

R Kabel Ltd* 15.8 N.Ap 100 N.Ap -

V-Guard Industries Ltd 6.8 5.7 29 25 51

Source: Company Annual Reports, PIL RHP, Industry, Equirus Securities

Segmental revenues stated above are taken directly for relevant segments, exclusive of inter-segmental

revenue, as published by respective companies in their annual reports or audited year ended quarterly

financials wherever required

*: Financials are for FY17


April 24, 2019 Page 18 of 36

Exhibit 39: FY18 ROE and ROIC profile of key players in wires & cables industry


Exhibit 40: FY18 asset turns of key players in wires & cables industry


Exhibit 41: FY18 EBIT margins of key players in wires & cables industry


Exhibit 42: FY18 Revenues of key players in wires & cables industry


17%

20%

27%

18%19%

13%

35%

15%

29%

19%

0%

8%

16%

24%

32%

40%

Polycab Havells KEI Industries Finolex Cables V-Guard

FY18 ROE FY18 Core ROIC

5.15

3.31

8.04

6.80

11.11

0.0

2.5

5.0

7.5

10.0

12.5


8.9%

11.2%

8.9%

13.4%

7.3%

0%

3%

6%

9%

12%

15%


67,677

81,386

34,58828,151

23,117

0

20,000

40,000

60,000

80,000

100,000


(Rs mn)


April 24, 2019 Page 19 of 36

Exhibit 43: FY18 Revenue growth (yoy) of key players in wires & cables industry


Exhibit 44: Number of distributors of key players


Exhibit 45: Retail touchpoints of key players


23%

33%32%

15%

11%

0%

7%

14%

21%

28%

35%


1,000

3,0003,500

7,575

1,400

2,873

564

0

2,000

4,000

6,000

8,000

BajajElectricals

Crompton FinolexCables

Havells KEIIndustries

Polycab V-Guard

160,000150,000

100,000 100,000 100,000

25,000

0

40,000

80,000

120,000

160,000

200,000

BajajElectricals

Crompton Havells OrientElectric

Polycab V-Guard


April 24, 2019 Page 20 of 36

Industry overview — Wires & Cables Industry

Indian wires & cables industry to register strong growth

The W&C industry in India includes power cables, building wires, instrumentation and control

cables, telecom cables (excl-OFC), elastomeric cables and other flexible and special

application cables used in various industrial sectors. This segment contributes 40-45% to

India’s electrical equipment industry.

In terms of volumes, the Indian wires & cables industry (including exports) has grown from

6.3mn kms in FY14 to 14.5mn kms in FY18, posting a ~23% CAGR over the period. The industry

grew at an ~11% CAGR in value terms, from Rs 346bn in FY14 to Rs 525bn in FY18.

Category-wise growth drivers

The industry’s key growth drivers include: (1) rural electrification, (2) investments in T&D

systems for modernization and increasing efficiencies, (3) rising demand for renewable power,

(4) GoI-driven infra projects such as Smart Cities Mission and metros, and (5) higher consumer

spending. Category-wise growth drivers for the industry are outlined in Exhibit 25.

Accordingly, industry volumes are expected to grow at a ~12% CAGR, from 14.5mn kms in FY18

to 26.2mn kms in FY23P, and industry size at a ~15% CAGR from Rs 525bn to Rs 1,033bn.

Exhibit 46: Indian W&C industry to see a 12% volume CAGR over FY18-23P


Exhibit 47: Indian W&C industry (based on manufacturer realizations) likely to grow

at a 15% CAGR over FY18-FY23P


Exhibit 48: Category-wise growth drivers for wires & cables

Power Cables

Investments in power T&D (~42% growth in FY19-FY23)

Capacity addition in solar and wind energy

Smart Cities Mission

Building Wires

Affordable housing scheme

Growing nuclearization of families

Investments in commercial and residential infra (~35% growth in FY19-FY23)

Elastomeric and Flexible Cables / Wires

Automobile industry growth & rising electrification investments in railways

Growing demand for household appliances and automobiles due to a revival in per capita income

Increased construction activity supported by growing infrastructure projects

Control and Instrumentation Cables

Industrial capex rising across industries such as auto, steel, oil & gas, power

Investment expenditure by Indian Railways and in other mass transit systems

Increased focus on automation in manufacturing and processing to monitor and control quality

Switchboard and Telecom Cables

Service and industrial sector growth increasing the need for data cables

Intercom and security system penetration in residential buildings

Smart cities project

Surge in internet users, with internet penetration as a percentage of total households reaching 60% by fiscal 2023


6.3 9.1 11.5 13.5 14.5 26.20

6

12

18

24

30

FY14 FY15 FY16 FY17 FY18 FY23P

(mn km) Size of the domestic cables and wires industry (mn km.)

346 413 415 467 525 1,0330

250

500

750

1,000

1,250


(Rs bn) Domestic industry size of cables and wires industry


April 24, 2019 Page 21 of 36

Share of organized sector to improve

The wires & cables industry is witnessing a gradual shift from smaller regional unorganized

players towards pan-India branded market players across categories. This shift is driven by (1)

greater complexities of products and technologies, (2) higher branding and promotions by

large players and (3) arrival of new entrants. HV and EHV categories have few unorganized

players owing to (1) technology and capital-intensive nature of the manufacturing process,

(2) stringent quality regulation of products and (3) established relationships of incumbents

with institutional customers. On the other hand, LV power cables and building wires are

expected to witness a stronger shift towards organized players. The organized-unorganized

price gap is likely to narrow down owing to structural reforms such as GST along with gains in

efficiency and cost structures.

Overall, the organized segment’s share grew from 61% in FY14 to 66% in FY18 and is expected

to touch 74% in FY23P. Organized players are set to grow at a ~17% CAGR (vs. ~8% for the

unorganized sector) during FY18-FY23P.

Exhibit 49: Organized players to grow faster than unorganized players


Healthy growth in exports turns India into a net exporter

During FY12-FY18, W&C exports grew from Rs 19bn to Rs 43bn at a ~15% CAGR, making India

a net exporter of wires & cables from FY16 onwards. Growth in exports was driven by an

improvement in process technology and capacities, thereby leading to diversification of

product offerings and widening scope of exports. Export demand for Indian wires & cables

was led by power transmission, oil & gas, cement & steel and infra sectors.

As Indian players continue investments in quality improvement and capacity expansion to

serve both domestic and international demand, steady growth in wires & cables exports is

anticipated. Growth in exports would also be aided by an improvement in global sentiment

and the resultant demand for infrastructure development. Africa, Oceania, Middle East and

Eurozone regions would drive Indian exports in the mid-to-long term. Accordingly, exports are

expected to grow to Rs 55bn-60bn in FY23P, at a 9-11% CAGR.

Exhibit 50: India now a net exporter of wires & cables


Exhibit 51: Exports to witness strong growth


61% 66%74%

39% 34%26%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P

Organized Unorganized

CAGR 13%

CAGR 17%

CAGR 7%

CAGR 8%

8

16

1013

1922

2931

35 36

43

19

2520 21

25 2528

39

3230

37

-11 -9 -10 -8 -7-3

1

-8

27 6

-15

0

15

30

45

60

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

(Rs bn) Export Import Net Trade

35 36 43 55-600

12

24

36

48

60

FY16 FY17 FY18 FY21P

(Rs bn) Export


April 24, 2019 Page 22 of 36

Modular Switches Industry

Modular switches to grow faster than traditional switches

Despite a real estate slowdown, switches have grown from Rs 30bn in FY14 to Rs 40bn in FY18,

at an ~8% CAGR. The switches industry is likely to grow well (to Rs 62bn in FY23P with a

healthy CAGR of ~9%) led by government initiatives for universal power availability and

affordable housing, rising disposable incomes and an upbeat macroenvironment in the mid-

to-long term.

Exhibit 52: Switches industry growing well


Consumers are opting for modular switches due to their easy availability at affordable prices.

At the same time, rising awareness for safety and better aesthetics of modular switches are

making them a preferred choice, especially in urban areas. Accordingly, volumes for modular

switches have outpaced those of traditional ones.

ASPs for modular switches are 4-5 times that of traditional switches, leading to the former’s

higher value share. While traditional switches have a higher volume share, the market is fast

shifting towards modular switches. Currently, about 61% of switches (by value) are modular

switches as against 56% in FY14; this proportion is expected to increase to 67% by FY23P.

Traditional switches are set to grow at a modest pace driven by rural demand given rural

electrification and affordable housing initiatives by GoI.

Exhibit 53: Modular switches to grow faster than traditional switches


Share of organized players to improve

Modular switches are largely manufactured by organized players which cater to urban

markets. In contrast, traditional switches are manufactured by unorganized players for

targeting price-sensitive small towns and rural markets. The share of organized players has

improved from 64% in FY14 to 75% in FY18 led by a preference shift towards modular switches

due to affordable pricing, higher safety and better aesthetics. Also, smaller players offer

contract manufacturing services to larger players, thereby becoming a part of the organized

segment. GST rollout has reduced the organized-unorganized price gap. This along with the

above factors would further shore up the share of organized players to 80% by FY23P.

Exhibit 54: Rising share of organized players


30 32 35 37 40 620

15

30

45

60

75


(Rs bn) Size of the domestic switches industry

56% 61% 67%

44% 39% 33%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P

Modular Traditional

64%75% 80%

36%25% 20%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P



April 24, 2019 Page 23 of 36

Imports of switches continue to be higher than exports

India’s imports of switches continue to be higher than that of exports, making India a net

importer. Imports have witnessed a big jump from FY12 onwards.

Exhibit 55: India is a net importer of switches


Lighting & Luminaires Industry

Domestic lighting & luminaire industry registers strong growth

Domestic lighting & luminaire industry comprises conventional lighting, LED lighting and

accessories. This industry has grown at a 10.5% CAGR over FY12-FY18, from Rs 142bn in FY12

to Rs 212bn in FY18, driven by a fast shift to LED lighting from conventional lighting catalyzed

by govt. initiatives like affordable housing and rural electrification.

Initially, LED lighting growth was driven by the institutional segment (Energy Efficiency

Services Ltd) due to higher prices. Retail sales however have picked up with the recent decline

in prices, better aesthetics, awareness on energy efficiency, and LED eco-friendliness.

Exhibit 56: Lighting & luminaire industry sees strong growth


Growth triggers for the lighting & luminaire industry in the mid-to-long term include (1) the

government’s affordable housing initiative, (2) rural electrification, (3) automobile industry

growth, and (4) an overall upbeat economic environment. Industry growth is expected to be

slower than that seen in the last five years as LEDs already enjoy good market penetration

Further, on account of longer LED lifespan, replacement demand is likely to be muted. The

industry is expected to grow at a ~7% CAGR to Rs 301bn by FY23P.

Exhibit 57: Comparison of LED, CFL and incandescent bulbs

LED bulbs CFLs Incandescent bulbs

Life expectancy (hours) 25,000 8,000 1,200

Power required (W) 8–10 14–18 60

Hazardous materials None Mercury None


3 2 2 3 46 7

8 8 9 96

8 811

1822 23 22

24 2628

-3-7 -6 -8

-14-16 -16

-14-16 -17

-20-30

-15

0

15

30

45



142 168 187 202 212 3010

70

140

210

280

350


(Rs bn) Size of domestic lighting industry


April 24, 2019 Page 24 of 36

LEDs to dominate lighting industry

Historically, conventional lighting sources contributed a major share to the lighting industry.

However, the adoption of LED lighting has gained traction in recent years due to (1) a decline

in LED chip prices by 60%, making it viable to manufacture LED lights, (2) government

initiatives to replace FTL, GLS and CFL with energy-efficient LEDs and (3) growing awareness

on eco-friendliness and energy efficiency of LED lighting. The government aims to replace

700-800mn GLS and 30-35mn street lights in the long term. It has also enforced a ban on 100W

GLS sales.

Although the initial cost of LEDs is higher than incandescent bulbs and CFLs, LEDs are more

energy efficient and have a longer lifespan, making them cheaper over their entire lifespan.

Nevertheless, due to higher initial cost of LEDs, their penetration is higher in urban areas vis-

a-vis rural areas. However, govt incentives such as UJALA and DDUGJY are likely to increase

adoption of LEDs in rural areas as well. The share of LED lighting has improved from 16% in

FY14 to 69% in FY18 and should touch 86% by FY23P.

Exhibit 58: LED lighting to improve share


Share of organized sector to improve

The conventional lighting industry has been fragmented due to the presence of many regional

players on account of (1) low entry barriers in terms of technology, (2) absence of quality

standards, and (3) inability of branded players to scale up distribution across India. However,

with the introduction of LED lighting, market dynamics started changing. Organized players

started gaining share as (1) LED technology required large investments, (2) institutional

demand and government initiatives drove penetration and (3) BIS quality norms and BEE mark

required stricter quality adherence, thereby limiting competition from the unorganized

sector. Further, recent GST introduction is likely to reduce the organized-unorganized price

gap, boosting share of the organized sector. The organized sector share has improved from

~30% in FY14 to ~65% in FY18 and is expected to increase further to ~80% by FY23P.

Exhibit 59: Organized sector gaining share in LED lighting and luminaires market


77%

26%

9%

8%

4%

5%

16%

69%

86%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P

Conventional Lighting Accessories, Components, Control Gear LED Lighting

30%

65%

80%

70%

35%

20%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P



April 24, 2019 Page 25 of 36

India remains a net importer of lightings and luminaires

India’s imports of lightings and luminaires increased from Rs 2bn in FY08 to Rs 11.3bn in FY18

whereas its exports jumped from Rs 0.5bn to Rs 5.5bn during the same period. This has led

India to be a consistent net importer of lightings and luminaires.

Exhibit 60: India’s imports of lighting &luminaires continue to be higher than exports


Switchgears Industry

Modest growth for switchgears

LV switchgear demand arises from residential and industrial segments largely driven by MCBs,

DBs, RCCBs and other products. Residential segment demand was muted due to a slowdown

in the sector owing to (1) subdued demand, (2) demonetization and (3) introduction of RERA.

Demand from the industrial sector was low due to a slowdown in capacity expansion plans.

MV/HV switchgears, having applications in power distribution stations and sub-stations with

high voltage requirements, also experienced subdued demand due to problems roiling

discoms. As discoms suffered from financial distress and closure, demand for switchgears was

impacted. Accordingly, the domestic switchgear industry grew at a ~7% CAGR, from Rs 139bn

in FY14 to Rs 183 bn in FY18.

Exhibit 61: Switchgear industry experienced modest growth


LV switchgears to grow faster than MV/HV switchgears

LV constituted 67% of switchgears in FY14, and its share increased to 70% in FY18 on account

of better growth than MV/HV (Exhibit 39). Going forward, LV switchgears are expected to

continue growing faster than MV/HV switchgears on account of (1) an increase in residential

demand due to the govt.’s affordable housing initiative, (2) an increase in industrial demand

driven by the expected capex cycle, and (3) infrastructure development leading to demand

from railways and metro segments.

Some other key trends in this space include the following: (1) Rising preference for modular

devices. (2) Government initiatives like Saubhagya and DDUGJY to boost demand for power,

thereby leading to demand for switchgear. (3) Rising safety awareness is boding well for

branded players. (4) UDAY scheme would help rejuvenate stressed discoms, thereby leading

to demand for MV/HV switchgears.

LV switchgear demand from real estate and industrial sectors is expected to be higher than

MV/HV switchgear demand from discoms. Accordingly, LV is expected to grow by ~11% CAGR

whereas MV/HV by ~5% during FY18-23P (Exhibit 62).

0.5 1

.9

1.7 2.7 3.7 4 4.3 5 5.1 5.2 5.5

2 2.8

2.7 4

.1 5.2 6 6

.7

9.1

16.4

12.7

11.3

-1.5

-0.9 -1

-1.5

-1.5 -2

-2.5

-4.1

-11.2

-7.5 -5

.8

-16

-8

0

8

16

24



139 144 150 171 183 2860

70

140

210

280

350


(Rs bn) Size of the domestic switchgear industry


April 24, 2019 Page 26 of 36

Exhibit 62: LV switchgear to continue dominating the switchgear market


Organized players dominate the switchgear industry

The switchgear industry is largely technology-intensive, making it difficult for unorganized

players to be competitive. This has led to entry barriers for small players and substantial

dominance by large players. Unorganized players are limited to less technologically- intensive

products such as distribution boards and switching devices. Further, norms laid down by CEA

require large investments for adherence to rigorous technical standards. Due to these reasons,

organized players have gained market share, from 86% in FY14 to 90% in FY18; this is further

expected to touch 92% by FY23P.

Exhibit 63: Organized players have captured major market share


India becomes a net exporter of switchgears

India’s switchgear imports during FY08-FY11 increased drastically, leading it to become a net

importer. However FY12 onwards, India started exporting MCBs, boards, panels and consoles,

and turned into a net exporter.

Exhibit 64: Indian exports jump FY12 onwards to make it a net exporter of switchgear


While an improvement in global sentiment bodes well for India’s switchgear exports, they are

expected to grow at a moderate rate of 3-4%.

Exhibit 65: Switchgear exports to grow at a modest rate


67% 70% 75%

33% 30% 25%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P

LV MV/HV

CAGR ~8%

CAGR ~11%

CAGR ~5% CAGR ~5%

86% 90% 92%

14% 10% 8%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P


CAGR ~8.5% CAGR ~10%

10.9 13.7

14 1

7

20.9 2

6

30.3

36.2

36.5 39.3

38.6

9.7

14.2

15.9 18.3 21 22

20.4

20.4

22 23.1

31.4

1.2

-0.5

-2.0

-1.3

-0.1

4.0

9.9

15.8

14.5

16.3

7.2

-12

0

12

24

36

48



36.5 39.3 38.6 41-4533

35

38

40

43

45


(Rs bn)


April 24, 2019 Page 27 of 36

Fans Industry

Fans industry growing at a steady pace

Based on the product type, the fans industry can be classified into four categories:

• Ceiling fans

• Table, pedestal, and wall (TPW) fans

• Exhaust fans — typically used in kitchens and bathrooms

• Industrial fans

Of these four categories, ceiling fans are the largest category contributing 69-71% of the

industry. Although overall fans volumes faced a setback in the past few years due to a real

estate slowdown, growth has been driven by rising demand for premium products (decorative,

energy-efficient and custom-made fans). TPW fans have greater demand from rural areas than

urban areas on account of their portability, which helps avoid multiple fan purchases. On

account of the government’s universal electrification initiative, rural areas have better

electricity supply and has aided growth of TPW fans. TPW fans constitute 19-21%, while

exhaust and industrial fans 4-6% each of the total fans industry.

Exhibit 66: Ceiling fans dominate the overall fans industry (as of FY18)


Due to the factors mentioned above, the fans industry has grown from Rs 63bn in FY14 to

Rs 80bn in FY18 (~6% CAGR), and is further expected to grow to Rs 111bn by FY23P (~7% CAGR).

Given the high base of ceiling fans, volume growth is expected to be moderate. However,

growth will be driven by premium products.

Exhibit 67: Fans industry to grow by ~7% CAGR over FY18-FY23P


Premium ceiling fans to continue growing in high double digits

Based on the pricing, ceiling fans can be classified as below:

• Economy (priced up to Rs 1,500)

• Standard (priced between Rs 1,500 to Rs 4,000) and

• Premium (priced above Rs 4,000)

During FY14-FY18, premium fans grew at a ~21% CAGR and improved their market share from

5.8% to 10% (Exhibit 68). This growth was driven by improving disposable incomes, evolving

consumer preferences and greater electricity availability. Accordingly, premium products are

expected to grow by ~22% CAGR over FY18-FY23P.

70%

20%

5%5%

Ceiling fans

TPW fans

Exhaust fans

Industrial fans

63 67 71 75 80 1110

25

50

75

100

125


(Rs bn) Size of the domestic fans industry


April 24, 2019 Page 28 of 36

Exhibit 68: Premium ceiling fans gaining market share


Changing industry dynamics

The fans industry is witnessing various shifts in product demand. Key trends are as below:

1. Energy-efficient products gaining traction

GoI’s National Energy Efficient Fans Program (NEEFP) provides 50-watt fans through EESL at

Rs 1,150 per unit on upfront payment, or at a total of Rs 1,200 if taken on EMI. The EMI is

adjusted against consumer electricity bills. As of Aug’18, about 1.98mn fans have been

distributed, leading to energy savings of 770MWh and cost savings of Rs 2.6mn per day.

BEE’s Super-Efficient Equipment Program (SEEP) aims to improve adoption of super-efficient

appliances by offering financial stimulus at key intervention points. For ceiling fans, this

program has targeted 50% higher efficiency than the currently available models by financially

incentivizing manufacturers to produce super-efficient fans and sell them at a discount. SEEP

aims to promote super-efficient 35W ceiling fans as against 70W ones which are currently

popular in the market.

2. Improving realizations driven by value-added products

Manufacturers are adding innovative features to fans, aiding realizations. Some such

innovations include silent fans, dust-free fans and fans with remote brushless direct current

(BLDC) motors. Some of the latest features being added to fans include temperature sensors

and Wifi/mobile app control. While the penetration of these products is currently low, it is

expected to rise in the future owing to increasing disposable incomes and evolving

preferences, especially among the younger generation.

3. Replacement demand gaining momentum

Home improvement cycles in urban areas are shortening on account of rising disposable

incomes and changing consumer preferences. This has shored up replacement demand,

especially in premium and economy fans.

4. Govt. initiatives for universal electrification to improve rural penetration

Govt. initiatives like DDUGJY, Saubhagya and UDAY aimed at universal electrification are

expected to drive rural demand for fans. Accordingly, the base and economy segments of

ceiling fans as well as TPW fans are expected to witness greater demand from rural areas.

Organized sector to improve market share

On account of the standardized nature of fans, there are many organized as well as

unorganized players in the industry. Over the years, consumer preferences have shifted

towards quality and branded products. Therefore, the market share of organized players has

increased from ~70% in FY14 to 75% in FY18. Further, with GST rollout, the price gap between

branded and unbranded products is expected to reduce. This would further increase the share

of organized players to ~80% by FY23P.

Exhibit 69: Organized sector steadily gaining market share in fans


43% 40%34%

51%50%

46%

5.8% 10%20%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P

Economy (< Rs 1,500) Standard (between Rs 1,500 to Rs 4,000) Premium (> Rs 4,000)

CAGR ~4%

CAGR ~4%

CAGR ~21% CAGR ~22%

CAGR ~5%

CAGR ~5%

70% 75% 80%

30% 25% 20%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P


CAGR ~7%

CAGR ~8%


April 24, 2019 Page 29 of 36

India continues to be a net exporter of fans

India’s fan exports have grown from Rs 1.0bn in FY08 to Rs 3.4bn in FY18 whereas imports

have grown from Rs 0.8bn to Rs 2.9bn; during this period, India has largely been a net exporter

of fans (barring FY11-FY14). India was a net importer during FY11-FY14 due to a jump in

imports of pedestal fans. Thereafter, it again turned a net exporter on the back of healthy

ceiling fan exports.

Exhibit 70: India is a net exporter of fans


Water Heaters Industry

Indian water heater industry growing steadily

The Indian water heater market has been smaller than other consumer durable markets due

to low product penetration on account of seasonal demand, high energy costs, irregular

electricity supply in rural areas, and availability of cheaper alternatives like cooking stoves

for heating water. However, the industry has grown from Rs 12bn in FY14 to Rs 18bn in FY18,

at an ~11% CAGR. It is expected to grow to Rs 32bn by FY23P, at an ~10.5% CAGR.

Exhibit 71: Indian water heater industry to witness healthy growth


Some of the key trends in the Indian water heater industry are:

1. Rising disposable incomes & electricity availability to be key growth drivers

The penetration of water heaters has been low on account of high energy costs and availability

of cheaper substitutes like cooking stoves and fireplaces. However, with government

initiatives for universal electricity along with rising disposable incomes, the adoption of water

heaters is expected to rise. Rising affordability of water heaters would further drive growth.

2. Product development with enhanced features to improve penetration

Manufacturers are adding new features (Wifi control, automated temperature adjustments,

leak detection) to water heaters in order to differentiate products from solar and water

heaters. These developments are expected to drive growth in the mid-to-long term.

3. Energy-efficient products to improve demand

BEE’s Standards and Labelling Programme included water heaters as a mandatory appliance

in Jul’15. This has led manufacturers to produce more energy-efficient products, in turn

reducing energy costs and improving demand for water heaters.

1.0

0.9 1

.2

1.2 1

.6 1.9

2.4 2.6 2.7

3.2 3.4

0.8

0.7 1

2

2.4

3.5

2.6

2.5 2.6 2

.9

2.9

0.1 0.2

0.2

-0.7

-0.8

-1.6

-0.2

0.1 0.2

0.2 0

.5

-3

-2

0

2

3

5



12 13 15 16 18 320

8

16

24

32

40


(Rs bn) Size of domestic electric water heater industry


April 24, 2019 Page 30 of 36

Organized players to gain market share

Organized players have improved their market share from ~57% in FY14 to ~62% in FY18. With

rising disposable incomes and a shifting preference for branded and quality products,

organized players are expected to improve their share to ~70% by FY23P. Further, the

introduction of GST is likely to reduce the organized-unorganized price gap, thereby

catalyzing a shift towards branded players. Key market players are AO Smith, Bajaj

Electricals, Crompton Greaves Consumer Electricals, Havells India, Racold Thermo, Venus,

and V-Guard Industries.

Exhibit 72: Organized players gaining share of water heaters market


India a net importer of water heaters

India’s imports of water heaters have been significantly higher than exports, making it a net

importer in this category. Except for FY15, India has been a net importer of water heaters in

the last decade. Exports are set to grow at an 11-11.5% CAGR over FY18-23P to touch Rs 0.3bn

in FY23P.

Exhibit 73: India remains a net importer of water heaters


Exhibit 74: India’s water heater exports to grow at a healthy rate


57% 62%70%

43% 38%30%

0%

20%

40%

60%

80%

100%

FY14 FY18 FY23P


0.1

5

0.2

0.0

3

0.0

4

0.0

8

0.0

9

0.1

2

2.8

5

0.1

5

0.1

8

0.1

9

0.0

6

0.2

6

0.5

2

0.5

9

0.8

5

1.5

4

1.7

5

1.8

4

1.5

5

1.7

6 2.1

3

0.0

8

-0.0

6

-0.4

9

-0.5

6

-0.7

7

-1.4

5

-1.6

4

1.0

1

-1.4

-1.5

8

-1.9

4

-3.0

-1.6

-0.2

1.2

2.6

4.0



0.15 0.18 0.19 0.30.00

0.07

0.14

0.21

0.28

0.35


(Rs bn)


April 24, 2019 Page 31 of 36

Government Initiatives

GoI’s initiatives and schemes launched in the past 4-5 years have significantly buoyed demand

for wires & cables and electrical consumer durables. Exhibit 53 outlines some of these

initiatives.

GST rollout

GST has reformed India’s complex tax structure into a simple model by subsuming multiple

national and state level taxes into a single tax rate. Further, input tax credit has helped avoid

the cascading effect of taxation as only the value-added part gets taxed. Since input tax

credit is available only on goods and services wherein GST has been paid, this has led to a

push by major players to register their suppliers and vendors with GST.

The initial GST rate on most consumer durable categories was higher than the effective pre-

GST rate. However, the revised GST rates are lower than the effective pre-GST rates (includes

VAT of 5-14.5% and Excise of ~10%). This is expected to lower the price differential between

organized and unorganized players, thereby helping organized players improve market shares.

Exhibit 75: Revised GST rates lower than effective pre-GST rates

Segment Pre-GST effective

tax rates Initial GST rates Revised rates

Fans 24.50% 28% 18%

Switches 15% 28% 18%

Electrical wires 15% 28% 18%

Water heaters 24.50% 28% 18%

Lightings 24.50% 28% 18%

LED lights and fixtures 15% 12% 12%

Switchgears 22% 18% 18%

Source: Industry, CBEC, Equirus Securities


April 24, 2019 Page 32 of 36

Exhibit 76: Key government initiatives

Initiative / Scheme Aim Description

Unnat Jyoti by

Affordable LEDs (UJALA)

• To provide energy-efficient appliances at subsidized

rates and to minimize electricity consumption

• To replace 770mn incandescent bulbs with energy

efficient LEDs in the residential sector across 100

cities by Mar’19

Previously known as Domestic Efficient Lighting Programme (DELP) scheme, UJALA was launched in 2015. It provides high-

quality LED bulbs at a concessional rate of Rs 70. As of Apr’19, the govt. has distributed ~350mn LEDs across India. Annual

domestic production of LEDs increased from ~3mn LED bulbs in 2013 to 62mn in 2015

Deendayal Upadhyaya

Gram Jyoti Yojana

(DDUGJY)

• To provide continuous power supply to rural India Ministry of Power has sanctioned 921 projects to electrify 1,21,225 un-electrified villages, intensive electrification of 5,92,979 partially

electrified villages and provide free electricity connections to 39.75mn BPL rural households. Launched in 2015, this scheme is set to

boost power demand in rural India, esp. in the agriculture sector.

Street Lighting National

Programme (SLNP)

• To replace 14mn conventional street lights in India

with smart LED variants by 2019

As of Apr’19, conversion of 8.7mn street lights has been converted. With infrastructure development, the usage of LED bulbs is

set to rise in urban and rural areas.

Ujwal Discom Assurance

Yojana (UDAY)

• Financial turnaround of state electricity distribution

companies (discoms)

As of Apr’19, almost all states (except Odisha and WB) have joined the scheme. Rs 2.3tn of bonds have been issued which has

helped reduce debt and interest burden of discoms. This has also helped improve operational performance for example AT&C

losses have reduced to 19.7% from 24.6% in Mar’15.

Sahaj Bijli Har Ghar

Yojana (Saubhagya)

• To provide free electricity connections to all

households in rural areas and poor families in urban

areas

As of Mar’19, 99.93% of 26.04mn targeted households have been electrified under this scheme. This Rs 163bn scheme has funded

the last-mile connectivity.

Pradhan Mantri Awas

Yojana (PMAY)

• To provide ‘Housing for All’ by 2022 Under PMAY (Urban), GoI aims to construct 20mn households by 2022, and has completed construction of close to 0.8mn

households out of the 5mn sanctioned and 2.9mn grounded for construction, as of Jul’18. Under PMAY (Gramin), GoI aims to

construct 30mn households by 2022, and has completed construction of close to 4.3mn households out of the 8.6mn sanctioned,

as of Jul’18. Although the scheme’s progress is slow, it is expected to gain momentum over the next five years and result in a

significant increase in the number of households. This is in turn expected to boost the demand for electrical products.

SMART cities mission • To develop 100 smart cities from FY17 to FY20, to

meet the infrastructure and services expectations

of citizens

The central government will contribute Rs 5bn per city in a phased manner and the rest will be funded through state

governments, debt, PPP and other means. SMART cities will have key elements such as assured electricity supply, underground

power network, efficient urban mobility and public transport, affordable housing, and energy management, including streetlight

control and monitoring systems. The focus on energy efficient lighting is expected to boost demand for LED lighting products.

Affordable housing in smart cities will drive demand for household electrical products.



April 24, 2019 Page 33 of 36

Key Management Profile

Mr Inder T. Jaisinghani, Chairman and Managing Director

Mr Jaisinghani has been associated with the company since its beginning. He has worked in

various functions including sales, marketing, production and other support functions. He is

serving in the current position since 2014 and has previously served as Chairman and

Director from 1997 to 2014.

Mr Ajay T. Jaisinghani, Whole-Time Director

Mr Jaisinghani has been serving on the board as Whole-Time Director since 2014. He was

previously a Director during 2006 to 2014. He has worked in the areas of sales, marketing,

production and other support functions.

Mr Ramesh T. Jaisinghani, Whole-Time Director

Mr Jaisinghani has been working with the company since its beginning. He is serving as a

Whole-Time Director since 2014. Previously, he served as a Director on the board. He has

experience in sales, marketing, production and other support functions.

Mr Shyam Lal Bajaj, Chief Financial Officer and Whole-Time Director

Mr Bajaj has been serving as the CFO since Sep’18 and has been serving as a Whole-Time

Director since 2016. He has previously worked with Vedanta Limited, Hindustan Zinc Limited

and Sterlite Technologies. He is a qualified Chartered Accountant and also hold a bachelor’s

degree in Commerce from Rajasthan University.

Mr Ramakrishnan Ramamurthi, Chief Executive

Mr Ramamurthi has been associated with the company since 2012 and has been serving in

the current role since May’18. He has more than 3 decades of experience and has previously

worked with Bajaj Electricals and Asian Paints. He holds a Post Graduate Diploma in Business

Management from XLRI, Jamshedpur and a bachelors’ degree in science from Osmania

University.

Mr Bharat A. Jaisinghani, Director - FMEG Business (non-board member)

Mr Jaisinghani has been associated with PIL since 2012 and serves in the current role since

Oct’18. He has experience in sales, marketing, production and other support services and

plays a key leadership role in the company. He has pursued masters in operations

management from the University of Manchester.

Mr Nikhil R. Jaisinghani, Director - LDC Business (non-board member)

Mr Jaisinghani has been associated with PIL since 2012 and serves in the current role since

Oct’18. He has experience in sales, marketing, production and other support services and

plays a key leadership role in the company. He holds a master’s degree in business

administration (MBA) from Kellogg School of Management, USA.


April 24, 2019 Page 34 of 36

Standalone Financials

P&L (Rs Mn) FY18A FY19E FY20E FY21E Balance Sheet (Rs Mn) FY18A FY19E FY20E FY21E Cash Flow (Rs Mn) FY18A FY19E FY20E FY21E

Revenue 67,677 76,579 85,173 94,362 Equity Capital 1,412 1,412 1,486 1,486 PBT 5,746 7,201 7,893 9,188

Op. Expenditure 60,319 67,305 75,427 83,519 Reserve 22,082 26,691 35,574 41,011 Depreciation 1,320 1,606 1,681 1,868

EBITDA 7,358 9,274 9,746 10,843 Networth 23,494 28,103 37,060 42,497 Others 1,519 0 0 0

Depreciation 1,320 1,606 1,681 1,868 Long Term Debt 7,890 7,848 5,457 1,898 Taxes Paid 1,393 2,593 2,605 3,032

EBIT 6,038 7,668 8,065 8,975 Def Tax Liability 829 872 963 1,022 Change in WC -3,673 -2,596 -2,169 -2,353

Interest Expense 922 930 846 605 Account Payables 9,145 10,351 11,512 12,754 Operating C/F 3,519 3,619 4,801 5,672

Other Income 630 464 674 818 Other Curr Liabilities 2,656 3,063 3,407 3,774 Capex -1,714 -2,360 -1,880 -2,200

PBT 5,746 7,201 7,893 9,188 Total Liabilities & Equity 44,015 50,237 58,399 61,946 Change in Invest 60 0 0 0

Tax 2,057 2,593 2,605 3,032 Net Fixed Assets 11,799 12,553 12,752 13,084 Others -125 0 0 0

Recurring PAT 3,706 4,609 5,289 6,156 Capital WIP 1,354 1,354 1,354 1,354 Investing C/F -1,779 -2,360 -1,880 -2,200

Extraordinaires -17 0 0 0 Investment 1,929 1,929 1,929 1,929 Change in Debt -788 -43 -2,391 -3,559

Reported PAT 3,724 4,609 5,289 6,156 Inventory 13,559 14,686 15,634 17,321 Change in Equity 0 0 4,037 0

EPS (Rs) 24.8 31.0 35.6 41.4 Account Receivables 12,698 14,267 15,168 16,546 Others -1,098 43 -277 -660

DPS (Rs) 0.0 0.0 2.1 4.0 Other Current Assets 2584 4096 5921 6819 Financing C/F -1,886 0 1,369 -4,219

CEPS (Rs) 35.5 44.0 46.9 54.0 Cash 92 1,351 5,641 4,893 Net change in cash -146 1,259 4,289 -747

FCFF (Rs) 16.5 13.1 23.5 26.1 Total Assets 44,015 50,237 58,399 61,946 RoE (%) 17% 18% 16% 15%

BVPS (Rs) 166.4 199.0 249.3 285.9 Non-cash Working Capital 17,040 19,636 21,804 24,157 RoIC (%) 14% 15% 15% 15%

Sales Growth (%) 23% 13% 11% 11% Cash Conv Cycle 91.9 93.6 93.4 93.4 Core RoIC (%) 13% 15% 15% 15%

PAT Growth (%) 59% 25% 15% 16% WC Turnover 4.0 3.9 3.9 3.9 P/E 21.7 17.4 15.1 13.0

EPS Growth (%) 59% 32% 9% 16% FA Turnover 5.1 5.5 6.0 6.5 P/BV 3.2 2.7 2.2 1.9

EBITDAM (%) 11% 12% 11% 11% D/E 0.3 0.3 0.1 0.0 EV/EBITDA 3.6 2.7 1.9 1.5

PATM (%) 5% 6% 6% 7% Net D/E 0.3 0.2 -0.0 -0.1 EV/Sales 0.4 0.3 0.2 0.2

Tax Rate (%) 36% 36% 33% 33% Interest Coverage 6.6 8.2 9.5 14.8 Div Yield(%) 0.0% 0.0% 0.4% 0.7%


April 24, 2019 Page 35 of 36

Historical Standalone Financials

P&L (Rs Mn) FY15A FY16A FY17A FY18A Balance Sheet (Rs Mn) FY15A FY16A FY17A FY18A Cash Flow (Rs Mn) FY15A FY16A FY17A FY18A

Revenue 46,975 52,029 55,002 67,677 Equity Capital 1,412 1,412 1,412 1,412 PBT 2,343 2,672 3,596 5,746

Op. Expenditure 42,634 47,108 50,230 60,319 Reserve 14,841 16,379 18,528 22,082 Depreciation 975 1,111 1,274 1,320

EBITDA 4,340 4,921 4,772 7,358 Networth 16,253 17,791 19,940 23,494 Others 1,499 1,746 807 1,519

Depreciation 975 1,111 1,274 1,320 Long Term Debt 5,454 7,942 8,443 7,890 Taxes Paid 598 1,188 1,002 1,393

EBIT 3,366 3,810 3,497 6,038 Def Tax Liability 282 385 942 829 Change in WC -2,678 -2,131 -1,844 -3,673

Interest Expense 1,077 1,473 652 922 Account Payables 9,797 10,687 13,514 9,145 Operating C/F 1,541 2,210 2,831 3,519

Other Income 54 335 751 630 Other Curr Liabilities 1,465 1,690 2,508 2,656 Capex -2,030 -2,390 -2,690 -1,714

PBT 2,343 2,672 3,596 5,746 Total Liabilities & Equity 33,253 38,496 45,348 44,015 Change in Invest 207 -108 110 60

Tax 772 807 1,275 2,057 Net Fixed Assets 8,224 9,844 11,126 11,799 Others 67 -15 -107 -125

Recurring PAT 1,571 1,843 2,319 3,706 Capital WIP 1,792 1,317 1,649 1,354 Investing C/F -1,756 -2,513 -2,687 -1,779

Extraordinaires 0 22 2 -17 Investment 634 1,034 1,827 1,929 Change in Debt 1,330 2,155 650 -788

Reported PAT 1,571 1,822 2,318 3,724 Inventory 9,046 9,799 15,173 13,559 Change in Equity 0 0 0 0

EPS (Rs) 10.6 12.5 15.6 24.8 Account Receivables 10,810 13,253 11,724 12,698 Others -1,172 -1,749 -841 -1,098

DPS (Rs) 0.0 0.0 0.0 0.0 Other Current Assets 2514 2800 3568 2584 Financing C/F 158 406 -191 -1,886

CEPS (Rs) 18.0 21.1 25.5 35.5 Cash 233 449 281 92 Net change in cash -57 103 -46 -146

FCFF (Rs) 3.6 5.1 4.0 16.5 Total Assets 33,253 38,496 45,348 44,015 RoE (%) 11% 11% 12% 17%

BVPS (Rs) 115.1 126.0 141.2 166.4 Non-cash Working Capital 11,107 13,474 14,443 17,040 RoIC (%) 11% 12% 10% 14%

Sales Growth (%) 23% 11% 6% 23% Cash Conv Cycle 86.3 94.5 95.8 91.9 Core RoIC (%) 11% 11% 8% 13%

PAT Growth (%) 84% 19% 24% 59% WC Turnover 4.2 3.9 3.8 4.0 P/E 50.9 42.9 34.5 21.7

EPS Growth (%) -8% 13% 24% 59% FA Turnover 4.7 4.7 4.3 5.1 P/BV 4.7 4.3 3.8 3.2

EBITDAM (%) 9% 9% 9% 11% D/E 0.3 0.4 0.4 0.3 EV/EBITDA 5.4 5.3 5.7 3.6

PATM (%) 3% 4% 4% 5% Net D/E 0.3 0.4 0.4 0.3 EV/Sales 0.5 0.5 0.5 0.4

Tax Rate (%) 33% 30% 35% 36% Interest Cov 3.1 2.6 5.4 6.6 Div Yield(%) 0% 0% 0% 0%


April 24, 2019 Page 36 of 36

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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Polycab India Ltd.vid.investmentguruindia.com/report/2019/May/Equirus... · 2019-05-03 · Polycab India Ltd. Absolute – LONG Relative – Overweight 32% ATR in 12 months April

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