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Good morning, good afternoon, ladies and gentlemen, welcome to the Polycab India Limited Q4 FY 2020 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Gandharv Tongia. Thank you, and over to you, sir.
Thank you, operator. Good evening, everyone. Thank you for joining us.Before I start, let me quickly introduce. My name is Gandharv Tongia. And I sincerely hope you and your loved ones are healthy and safe.On this call, we shall discuss the Q4 and FY '20 results, which were approved in the Board meeting held today, videoconferencing. We will be referring to the earnings presentation, financial results and financial statement which are available on the websites of stock exchanges as well as investor relations page of our website. It can also be downloaded through the QR code given on Slide 12 of our earning presentation.Joining me today from the management team, we have our Chairman and Managing Director, Mr. Inder Jaisinghani; and our Director, Finance and Accounts, Mr. Shyam Bajaj, on the conference call.Let me now hand it over to our Chairman, Inder, for his comments.
Good evening, everyone. I hope you all are doing well.We achieved healthy underlying performance with improved profitability in FY '20. Polycab maintained its dominant position in wires and cables and continued to expand in presence in the electrical ecosystem. This year were marked with a strong business momentum despite significant headwinds. However, the outbreak of the COVID-19 pandemic and severe economical implications partly tapered growth. We are undertaking all necessary measures to ensure safety and well-being of our employees, partners; and support dealers and distributors, customers and communities across India. Our financial stability, in-house backward integration, wide distribution channels and quality human capital position us well to deal with all challenges and succeed.I now request Gandharv to take you through our earning presentations. Gandharv, please go ahead.
Thank you very much, Inder Bhai.Moving on to presentation with Slide 4. In the year ended 31st March 2020, our consolidated revenue growth has been healthy at 11% year-on-year, led by decent performance across segments. EBITDA grew by 19% year-on-year, and margin at 12.8% improved 87 bps year-on-year versus FY '19. Our staff cost at 4.1% of our sales were higher by 38 bps year-on-year due to adverse leverage and onetime credit in the base year. Advertisement and publicity spend was partly curtailed given the virus outbreak and remained flat at 1.2% of our sales.Our profit before tax grew by 34% year-on-year, driven by decreased finance costs, reflecting the lower borrowings compared to previous year. A detailed breakup of our other income and finance costs have been provided on Slide 16 of our earning presentation. Our profit after tax at INR 7.66 billion has been strong, up by over 53% year-on-year, partly aided by deduction in statutory income tax rate.Moving on to specifics of quarter 4 on Slide 5. Our revenue from operations at INR 21.3 billion declined by 14% year-on-year, reflecting severe impact of COVID-19. Excluding COVID-19 impact, sales could have been higher by approximately INR 6.1 billion, implying a potential 11% year-on-year growth in Q4 FY '20 based on our estimates. EBITDA excluding other income was INR 2.9 billion, up 20% year-on-year in Q4. EBITDA margin at 13.8% was higher on year-on-year basis, led by better product mix and contribution. However, I would like to reemphasize, as I did in previous quarterly earning calls, that the correct way to analyze our operating profitability will be on annualized basis, as several dynamics can be on quarterly margins. Historically, we have noted our annualized sustainable margins in wires and cable business typically tends to hover in the range of 11% to 13%. Our profit after tax is up by over 53% year-on-year, driven by decreased finance costs, reflecting the lower borrowings compared to previous year and lower income tax expense.Moving on to segment on Slide 6. Wires and cables, which is our largest business, grew by 19 -- grew by 9% year-on-year in FY '20 despite challenges. Domestic business environment continued to see sluggishness with prevailing weak economic condition coupled with falling commodity prices. The virus outbreak and subsequent lockdown in late March further impacted business, as that month is usually the busiest period from sales perspective. Consequently, overall wires and cables industry is estimate to decline by almost 14% in FY '20, with significant impact on unorganized trade. Higher sales through optical fiber cables and exports, which grew strongly on the back of a large order, offered some momentum. We are also seeing increasing traction in few developed geographies, for example, U.S.A. where our sales in FY '20 has increased almost 41x as against last year.The EBIT margin in this segment was higher by 26 bps year-on-year due to improved sales mix. The business in fourth quarter was significantly impacted due to virus outbreak in prices.Moving to FMEG on Slide 7. FMEG segment contributed almost 9.4% to our business in FY '20 versus 8% in FY '19. The FMEG's robust momentum was slightly halted by virus outbreak. 6% decline in Q4 [ tapered ] annual growth of this business to 30% year-on-year. Fans, lighting, luminaires continued to grow at healthy pace despite challenging marketing conditions, led by our distribution strength, in-house manufacturing ability and improved portfolio -- improving portfolio mix.Fans posted strong growth in months of Jan and Feb. Margins improved on the back of calibrated pricing actions. Lighting and lamps posted healthy performance with improved profitability led by our refined strategy. If subsidized -- if reducing price erosions in B2C lighting products continue, it could further support margins in this business. Growth in switchgears and switches continued to remain muted. Considering widespread fear and uncertainty around jobs and income, consumer sentiments have dwindled. While the pent-up demand is expected to bounce back as movement restrictions ease, some down-trading in the near-term seems imminent. We believe our strong distribution network, value and quality propositions put us in a sweet spot to gain from such developments. In the coming years, we will continue to build our new product pipeline, with focus on technology and energy efficiency.Moving to Slide 8. Other segments, which is largely our EPC business, which is strategic in nature, witnessed healthy growth in revenue and profitability led by execution of profitable projects, though we expect margins in this business to remain in high single digits on annualized basis, which we believe is sustainable. During the year, Polycab, along with its consortium, undertook projects under BharatNet phase 2 projects in the state of Gujarat and Bihar and connected almost 4,700 gram panchayats or villages in a period of almost 10 months. Being an established leader in electrical manufacturing domain, we aim to replicate our project management skills and actively pursue large digital infrastructure projects, including smart cities, surveillance, BharatNet and digital village.Slide 9 highlights some of the key initiatives we undertook to help society and communities. I've discussed these. We have embedded a video showcasing various hygiene measures we have undertaken at our factories. I would urge you watch it if you haven't already.Slide 10 and 11. Though these are self-explanatory and provide color on business implication of COVID-19, let me just give you thoughts on how Polycab is traversing through such exceptional times and share our assessments of current situation.As you all are aware, COVID-19 poses a unique challenge and has impacted lives and livelihoods of people. Amid these defining moments, our priorities have remained the same. Safety of our employees and partners is foremost. Foreseeing the risk, we deployed our business continuity plan in mid-March. All office-based employees transitioned to work-from-home environment with little to no disruption. And following the government directives on nationwide lockdown, we had completely shut our offices and factories. Currently, all our factories have resumed operations with limited capacity and follow a stringent standard operating protocol. We are continuously monitoring the situation and will ramp up production on need basis. Our local and regional offices, warehouses in noncontainment zones are open. We are also in touch with our channel partners to extend support and help them in whatever way we can. Furthermore, we are generously supporting the community at large, and these are the times when they need help the most. Our company is not just contributing to various government and industry funds, we are directly helping society by donating ventilators to government hospitals, collaborating to set up quarantine facilities and distributing food packages and essentials to hundreds of employees every day around our factory locations and offices. Every Polycab employee donated 1 day of her salary or his salary to PM CARES funds. We aim to continue to extend our support even after normalization by coordinating and partnering with various NGOs.On the macro environment, the virus outbreak has caused significant economic disruptions, with heightened levels of uncertainties. Markets were already struggling with tight liquidity conditions, weak credit growth and slowing industrial production, amongst other waning macros; and the pandemic has further aggravated the stress. Volatile commodity prices was another headwind for our industry during the quarter. Nevertheless, currently we are surely seeing some signs of progress. Many infrastructure construction as well as real estate projects have resumed activities across the country or planning to do so immediately. We started billing in early May, and it has been progressing well. While it is much below normalized level at the moment, opening of markets is definitely helping. Most of our authorized dealers and distributors and retailers are currently operating. However, major dealers in metros are still facing issues due to restriction of movement and lockdown. While we are working on several projections and scenarios to prepare ourselves in such dynamic environment, overall we believe it will take at least 1 or 2 quarters before demand puts on a normal footing.During this period, we also focused on conserving and augmenting our liquidity position through judicious cost management deferring noncritical spend. From a financial position standpoint, we are quite comfortable. We have healthy cash balances and significant amount of unutilized credit lines. CRISIL has given us AA positive long-term rating and A1+ short-term rating.Having said that, I would like to recall one of the Einstein quote which I read recently -- and that's the opportunity you get when you are working from home. And that quote is, "In the midst of every crisis lies great opportunity," and I believe this quote is more relevant than ever. I feel the current one will also put forward plenty of opportunities for small and large businesses across sectors as COVID-19 transforms from the orthodox business models. What transformed has become the new norm and is likely to be a win-win for companies as well as employees in the longer run. This will not just require higher investment in IT infrastructure but also increased demand for high-speed digital connectivity in nonmetros and perhaps even in rural areas. The ongoing reverse migration may give a push to automation, and industries face labor shortage. And if the movement sustains, we may see alteration in conventional consumption pattern with more clusters of developed rural. Companies across the world have been fixated to China as a low-cost manufacturing base for a long time. COVID-19 will surely provide a fresh basis for them to reconsider and reorganize their global manufacturing footprint. This, along with government's impetus to indigenous manufacturing and Make India sales-relied economy, will create jobs and support industrial and infrastructure growth. Overall, we are very optimistic of our nation's robust outlook and long-term economic prospects.Quickly moving on to financials. Our fundamentals remain on course of improvement. ROCE, return on capital employed, for FY '20 stood at 26.4%. While underlying profitability has improved, as reflecting in better operating margins versus last year, ROCE seems optically lower on year-on basis due to the IPO proceeds reflected in FY '20. Adjusting for the current year, ROCE would have been about 150 bps higher.Our balance sheet remains healthy with over INR 1.6 billion of net cash as of March 2020 and debt-equity ratio at a mere 0.04x. Our working capital deteriorated due to inventory pile-up in anticipation of generally high demand in March and higher receivables on account of lockdown. However, we believe it will even out as market conditions improve. We will continue to work on our long-term strategic and structural initiatives like increased channel financing, inventory rationalization, debottlenecking of processes, increasing automation, augmenting supply chain operation with technology and building data analytics capabilities. In fact, this lockdown has granted us some additional time to provide extra thrust to these initiatives. I am sure it will help us reinforce our market positioning and thrive in times to come.On the distribution side, the pillar of our business model remained strong with directories of over 3,500 authorized dealers and distributors across geographies, indirectly serving over 125,000 retail outlets as of March 2020. We continue to enhance our key influencer connects through project Bandhan, which now has over 135,000 electricians and over 41,000 retailers onboard.That was broadly on the company performance. Now I wanted to share a couple of developments which took place after the period closing.First, I'm sure many of you may be aware of this. We bought out Ryker from Trafigura earlier this month. Ryker, as you know, was a plant which was initially envisaged and pursued our Chairman and senior management team to complete backward integration of all -- of our all key inputs. While the plant was shaping up, Trafigura had proposed to partner with us, and hence a 50-50 JV was created to build up a state-of-the-art facility which conforms to global production standards with minimal environmental impact. However, post Trafigura's recent global strategic decision to exit from value-add manufacturing businesses in India, where it is a JV partner, their 50% stake was offered to us and we decided to acquire it, making Ryker a wholly owned subsidiary of our company.The purchase consideration was around USD 4 million or INR 30 crores, and the transaction has now been closed. Ryker operations will be fully consolidated in PIL from this current quarter.The second development, which is more recent, Mr. Shyam Bajaj, who is our Director of Finance and Accounts and Chief Financial Officer, has tendered his resignation from his post of CFO with the closure of the business today onwards. And the Board has accepted it. Mr. Bajaj will continue to guide us and mentor us as company's Executive Director. This transition was in progress from last year or 2, in line with our company's company-wide succession planning process.To conclude, I would like to emphasize that our company, brand and fundamentals are well positioned to navigate through such extraordinary times. We will continue to operate with a high level of agility and responsiveness. Government stimulus, front-loading of various spends, structural reforms and regulation will certainly help the broader economy and consumer in near term. And we will work to leverage our strong business model and achieve sustainable, profitable growth over medium to long term.Thank you for -- all for joining us today. On this note, I hand over the session to the operator, and we will be extremely pleased to take your questions.
So shall we open the floor for question and answer?
Yes, please.
[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.
I just wanted to kick with you regarding the value and volume growth for this quarter in the wires and cable business. If you can share, it will be great.
Yes. So there'll be a couple of things which are relevant when we analyze companies in cable and wires industry. One is LME and ForEx has a significant bearing on the top line because most of the large players assume and pass it on to the end customer. And there is no risk which is retained. So if LME goes down or ForEx goes down, it impacts the top line or bottom line accordingly. The second thing is volume is not relevant because, if I talk about 1 kilometer of aluminum cable and 1 kilometer of copper cable, though that -- the unit will be same, which is 1 kilometer, but -- the value will be significantly different. Having said that, since the LME and ForEx have softened up in the current year in compared to last year -- yes. So what I was saying is this ForEx and LME have generally softened up in the current year, which indirectly indicates that there is an upside movement. The wire and cable business in the current fiscal has improved almost by 9%.
9% is the revenue growth you are telling or…
Yes, yes, revenue growth. It's revenue growth.
But volume growth will have been higher. I mean, though, we can't exactly calculate it given the drop in copper prices. So at least in Q4, it has been higher.
Yes. I think it's best not to compare the volume growth because it could be misleading, and that is where I feel that it's better to go by value. At best, for the purpose of analysis and evaluation, we may bring in additional factor of ForEx and LME, which has sensibly reduced in comparison last year and the current year, which indirectly means that the overall top line has increased significantly beyond what has been visible from the financial statement.
Got it, sir. And in terms of share of wires as a percentage of overall portfolio. So would it have gone up this year compared to last year? And if so, roughly how much is…
Yes. It has not significantly and will not change. Wires business is more or less flattish in the current year, but a -- but another element which is important to consider is the denominator would include the export business, which is like elephant in the room. So if I bring that amount into denominator, it would lead to an impression that buyer contribution slightly decreased, but if I normalize it, it continues to be in the same range.
[Operator Instructions] The next question is from the line of Aditya Bagul from Axis Capital.
First off, Inder Bhai, Mr. Bajaj, Gandharv and the entire team, congratulations on a good set of numbers. So sir, I have 2 questions from my end. One is, over a period of last 3 months, after the COVID has sort of broken out, what are the initiatives on the cost front that we are seeing? What is the change in the thought process there? So I just wanted to understand that. That's question number one. Question number two is can you talk a little bit more in terms of working capital, especially the payables and acceptances. Because as I see in your cash flow statement, that is the delta between '19 and '20.
Thanks, Aditya. COVID has given us an opportunity to revisit almost everything. And we as a company, we are focusing on 3 or 4 key elements. And we started doing that slightly before pandemic outbreak in India, but we are continuing with that with greater focus. One is cost optimization, and this starts from 0-based costing in a few of our production as well as purchase initiatives. Second is the operational and manufacturing costs, wherein we want to review the costs which can be avoided. We have already carried out some evaluation and reduced costs in few of the line items, but we still believe that further cost optimization is possible. In a large organization, over the period, what happens is at times you start incurring some costs which are not necessarily adding value to your business. And that is why this particular crisis has given us an opportunity to revisit, and we will continue to do that and reduce the costs wherever possible. The second is augmentation of cash. Though we are supporting our dealers, and that is our prime focus, but -- at the same time, we are managing our cash to ensure that we have enough cash available. You would have already noticed that our gross cash as of March '20 is close to INR 280 crores or thereabout. And you will have also -- or you already know that dividend payout was also done in March. So after that, we are continuing with extra cash. So that's there. In few of the cases, we have been able to get some additional credit from our vendors without any additional costs that we have availed, but this is not necessarily significant. And the last thing, which is the fourth part of the initiative, is giving back to communities. This is around CSR. So these are the 4 activities on which we are spending a lot of time, and that remains our focus area.The second thing was around the working capital. There were 2 items which were always in our focus, but I think, after the IPO, we learned that from all the investors and persons like you. On inventory, we started our project with one of the management consultants. The objective was twofold. One is reduce the absolute amount of inventory which we are carrying on our books so that we can reduce the working capital involved. Second is, within that reduced amount, increase the number of SKUs. So you increase the availability and you reduce the amount, so you get a twin benefit. That project is progressing well. We have already achieved a bit of success, though it is not clearly reflected in March '20 numbers because of COVID and higher level of inventory, but that is progressing well. And we are happy with whatever we have achieved so far, and we will continue to further monitor and optimize it. The second part of working capital is our trade receivables. And as you can see in our presentation, the trade receivables are within the, overall, acceptable numbers. Having said that, we believe that channel financing, which we introduced almost 4, 5 years, will continue to help. And we will be able to further penetrate channel financing both in cable and wires, where it is hovering around 60%, 65%, to a higher number; and in FMEG, where it is in early double digit, to a greater number. Both of these initiatives, one on inventory side as well as on the trade receivables side, would help us in further improving the working capital.
Actually, what I was trying to understand was the delta between CF last year and the next year. And that essentially comes from payables and acceptances. So if you can give me the number of acceptances, that would be helpful.
So acceptances last year was around INR 803 crores, in FY '19. And in the current year, it's INR 816 crores. There are 2 important things we should consider when we are analyzing our acceptances and liabilities. Last year, because of Dangote, we have received almost INR 400 crore as advance, in FY '19, which we have adjusted against the supplies which we have done in the current fiscal. And between FY '18 and FY '19, there was onetime [ reclass ] of the finances arrangement which we have with our vendors which was sitting in our liabilities, which you can normalize when you are preparing your spreadsheet.
The next question is from the line of Atul Tiwari from Citigroup.
And first of all, congratulations on a pretty decent set of numbers. And congratulations to you, Gandharv, also on appointment as CFO. Sir, my question is on -- firstly, is on the export. So you have mentioned in the presentation that you booked about INR 7.5 billion of exports in FY '20. So 2 parts: How much of the Dangote order is left for execution for…[Technical Difficulty]
[Operator Instructions]
So sir, on exports, 2 parts. How much of Dangote order is left for execution? And beyond the Dangote order, what is the outlook on exports? Could you throw some light on some of the initiatives that you're taking to at least reach the similar level of export in FY '21? That is one. And the guidance for CapEx in FY '21: I saw that the company has done about INR 2.8 billion of CapEx in FY '20. So a rough breakup of that number. Where, what did you spend, et cetera.
Yes. Thanks, Atul. Thanks a lot for wishes to the management team, and thank you for wishing me. I think there are 2, 3 elements of your question. One is on the exports. So Dangote has -- we have done already probably INR 750 crore or thereabouts of billing in March '20. And around INR 200 crore or so is required to be billed in the current year, and we are progressing well there. The overall export is close to INR 1,100 crore. And we have received, in addition to Dangote, favorable support from countries like U.S. and which has increased significantly. You will be able to recall that in one of the earlier quarters' presentations I had mentioned that we are trying to get into a distribution business in few of these geographies, including countries like U.S. We have incorporated a trading arm, a new legal entity in the U.S., and that is progressing well. Globally, there is an almost $38 billion opportunity. This is available in exports. Because of this COVID pandemic, it looks like that shift from China would help countries like India, and that would -- in turn would be able to offer some support to our industry and large players in this industry. We are focusing on large geographies and identified set of sectors globally. And recently, whatever we are seeing, it is encouraging. Having said that, I don't think I would be able to give you an assurance at this stage that we will be able to get a similar number of Dangote, but I can certainly assert with export confidence that the management team is doing whatever is possible to further improve the export. And in medium terms, we believe that export can be almost 10% or thereabouts of our top line.The second element was around CapEx. We have invested almost INR 280 crore. Most of it has been invested in debottlenecking. Some are investment for export business because the certifications are different and wherein we need to have different set of machineries. A part for FMEG; for example, the facilities which are operating at higher capacities utilization level. And remaining is for regular upkeep. I am sure a few of the other participants will be interested in knowing what will be the CapEx outflow for the next year. Considering the uncertainty which we have, I think we will be very careful in spending CapEx. And at this stage, we can assume a number of INR 200 crore or thereabouts, but that will be monitored at a regular interval and very closely. And we will spend only when we have enough visibility on the business.
And sir, very quickly, what was the gross debt number on the balance sheet as of FY '20 end, gross debt number?
Gross debt number is around INR 157 crore in FY '20. In comparison to FY '19, it was around INR 272 crore.
The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Two questions from my end. So firstly is on the EBITDA margin side. You kind of said that, the average range, we should be typically looking marginally anywhere about 11% to 13%. If you look at it directionally, even in this year, we've been improving on margins side. Incrementally, is the -- first of all, are we assuming the share of buyers increase in the year FY '21? Anything on that, please? What should be the margin outlook?
I think sustainable margin in our business, considering the overall proportion of cable and wires, is anywhere between 11% to 13%. You are right, Prashant, that in the current year the actual margin is slightly higher, but if I go by the historical trend, it has generally hovered between 11% to 13%. And I think for your modeling purposes it's better to assume those numbers because in such a situation you will be left with positive surprises, hopefully.
Okay, okay, but in that case, what could have actually aided the margin in this year, if you could probably highlight that? Because we've seen a significant increase in gross margin numbers.
Well, it's because of 2 key reasons. One is a change in the mix has helped us in improving our margins. As I explained a while back, the overall composition of domestic and export as well as some new products have changed this composition. The second thing is we have taken some pricing actions, as I was talking about, for FMEG and other businesses. So this is mainly because of change in mix and some pricing actions which we have purposely taken during the course of the year, which has helped in improving the overall margin.
What was the pricing action taken, sir? If you can probably read on that.
Yes. That was a pricing action to improve the overall realization for a few of the product categories; for example, as I mentioned about FMEG business in the case of fans; and in the case of a few of the other products in cable and wires.
No. I didn't ask -- the content. What is the content of price increases?
Yes. I would prefer not to talk about it, especially as it's sensitive information for the industry, but suffice to say that it is a combination of both pricing as well as change in mix.
Okay. The second question is on the overall mix in the cables and wire business. While about 35% to 40% of the business is now wires, you do have a proportion which is to -- services to the industry and also with -- some part of it may be the government as well. How does that take the seat in the year 2021 in the wake of probably CapEx and all activities being lower? How does the overall thing change for us in the year 2021? Could you give some sense on that? And that's it for me.
Yes. So I actually talked to it a bit in the opening remarks. I think 2 things which are important in this current year. One is what will be spend by the government and private CapEx in the current year and which is dependent on several factors. Including the most important factor is whether there's a cure for this pandemic. If we'll get a cure for pandemic today as well as government starts spending today, the growth would be phenomenal, but if any of these activities happened a quarter or 2 quarters down the line, it would have impact on the performance of all the companies in India, including our company. So that's a combination. We believe, between a quarter or 2, we should be able to come back to the normal demand level. And from there, I don't think there will be any challenge.
Have you already come -- I mean how much different is it in terms of utilization maybe at this point of time? As well as any concern that is typical due to the [ pandemic ].
Yes. So in the first 40 days, there was hardly any activity, though we resumed our operations slowly and gradually after the year-end, but because of lockdown and consider the fact that almost all the markets were closed, there was hardly any other significant activity. After that, we have seen a decent traction, particularly in B2C business and demand from rural or Tier 2 or Tier 3 accounts.
[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment.
Sir, I [indiscernible] Ryker in terms of the gross margin possibility. And what will be the dividend payout policy for the company?
Pritesh, I missed your first statement. Is it around Ryker capacity?
Yes. So the acquisition that we did, the JV in which we took up our stake to 100%, eventually when the plant becomes operational, what will be the benefit to the gross margins of the company?
Yes. So this plant is already operational. In fact, it got operationalized in the first quarter of '19/'20, and this is as part of our backward integration. It is helping us improve it. One is we are able to ensure that we are getting the quality of the copper which is required to give the quality of -- in a qualitative product for which we are known for. So we import copper from the overseas market in cathode form and convert the copper in this particular facility into rods. And from rods, we drop cables and wires. And since it is done fully in our supervision and in our control in our manufacturing locations, we are able to ensure quality. So that is already being done. The acquisition which we have done has given us some additional capacity. The plant capacity is almost 225,000 tonnes. And generally speaking, our requirement is around 75,000 to 1 lakh tonne, and there is some additional capacity which is available. Having said that, the 225,000 tonnes capacity can be achieved only over the period because this plant got operationalized only 4 quarters back. So we are working to ensure that we are able to optimally utilize the plant. The second thing is the arrangement between Ryker and Polycab will be on [ drop off ] basis and wherein there is no significant impact which is expected on the gross margin of the company, but certainly, because of better quality, we will be able to reduce the copper content and which will help us in optimizing the cost of goods sold.The second question, I think, is around the dividend. We have our stated dividend policy which considers the internal and external sectors. You will be able to recollect, in FY '19, we had distributed almost 10% of our profit. And in this year, we have already done an interim dividend payout in March, and this is slightly lower than the last year. We will continue to pay dividend after considering the cash which is available with us, the business performance of the period and the cash which is anticipated to be kept with the company for future needs.
Sir, I missed it. You said 10% payout you have done in '19 and 10% payout you've done in FY '20. So as of now…
It's slightly higher than FY '20. The EPS is around INR 50. And the dividend which we paid was INR 7. If I include the dividend distribution tax, it is around 13%, 14%.
But you do not have a policy or, say, a formulated policy that I will pay out 25% minimum. You do not have that type of a policy, right?
We have a formulated policy wherein the decision-making is left to the Board of Directors, which provide for qualitative factors which are required to be considered. We don't have a policy wherein we have a quantitative metrics saying that 25% or 20% is required to be paid out, but we certainly have a policy where we have qualitative factors which are required to be considered. And on that basis, Board of Directors recommend dividends for approval to the shareholders.
The next question is from the line of from Sonali Salgaonkar from Jefferies India.
Sir, my first question is regarding resumption. So of our overall sales, how much percentage is accounted by urban or Tier 1 cities? And in the opening remarks you mentioned that some of our shops have opened in the orange and the green zones. So currently, what kind of utilization or demand offtake are they currently working at?
Yes. So Sonali, that's an interesting one, and we were also internally discussing and deliberating what is the best way to define urban and rural. And we are still trying to get to a definition which is acceptable. Internally, we have analyzed and we feel that our rural penetration is not necessarily very significant. And in the recent few weeks, we have seen an uptick in demand from the rural economies. Having said that, I think most of dealers and distributors in noncontainment zones are operational, but the key cities where -- from where we get our sales are still in lockdown. For example, a city like Bombay or Thane. And that is where, although the quantity or the quantum of outlets operational are significant, there is a still challenge in the overall utilization in terms of throughput.
Got it, sir. And my second question is regarding the supply side. Sir, you mentioned that many of you factories have resumed operations. Sir, currently what percentage of utilization are you operational at? And secondly, what is the kind of inventory that we have in the channels, considering that the first 40 days of the lockdown of -- had almost 0 demand? That's it from my side.
Yes. So inventory in channel has now -- as of now while we are talking, has reduced significantly. There were certainly certain pockets, slightly higher inventories because they had some inventories in anticipation of higher sales in the month of March, but that has been liquidated to a great extent already. And there is no significant inventories generally still available in the channel. That was one thing. Sorry. I missed the second part of it, Sonali. What was the second part?
Sir, your supplied -- in your current factories, what percentage of utilization are you currently operational at?
Yes. It's fairly low at this stage because there is no point getting into production where we don't have enough demand. And as you could imagine, there -- the large cities in India are still in lockdown and that has bearing on the overall sales, but we are totally ready, in case if there's a demand, to supply. And this government restriction on -- and social distancing have also slightly impacted in few of our factories the overall utilization because we can have only few identified number of employees in a particular shift. But we are -- if there is an increase in demand, we are already geared up to meet that demand.
And you do not foresee problems with the migrant supply labor issue in the coming quarters.
No, no, no. We don't anticipate any significant challenge. As you already know, Sonali, we have presence in Gujarat as well as in Daman and where we are not witnessing any significant migration of the laborer. So that is not a challenge. And on the raw materials side we -- and which -- we have a very healthy supply chain, and we are not witnessing any challenges from raw materials. So labor and raw materials is not a significant challenge for us.
The next question is from the line of Naval Seth from Emkay Global.
Two questions. First, on the emphasis on automation. So if you can give some numbers on what can be the CapEx to be spent on automation and probably what can be the leverage on the margins from that going forward or whenever it is fully implemented?
Yes. So Naval, if you look across the globe, automation is key, artificial intelligence, automation and technology. And we would like to replicate something similar in our factories. We were probably the first one to start with automation, and we implemented robotic arms for managing our warehouse in Halol. And if I'm not wrong, we were the first one in the industry -- though the automobile industry was using it, in our industry we were the first mover in that direction. The automation which I've talked about is being worked on as of now by this management team of the company, and probably, in quarters to come, I will be able to give you additional details. Like any other automation, it is going to certainly help us in improving the quality of our products as well as would help us in reducing the costs and involvement of manual labor.
Sir, is it fair to assume large part of cost reduction would be on employees?
No, no, no.
Okay. Second question is on channel inventory, what you mentioned that, it has come down significantly. So what outlook -- as you stated, that demand would normalize in 1 to 2 quarters, but when would your primary sales start through the channel, as inventory has started to reduce meaningfully now?
It has already started. Primary sales has already started while we are talking. The only thing is it's not necessarily meeting your -- my expectation, but that's a reality of the environment today where almost all the companies which probably not -- which are not in essential sector are probably underutilized.
Okay. Lastly, any outlook, if not -- or guidance on policy, but any sense on what kind of revenue decline industry can see because demand is going to normalize in H2 only. So FY '21, what kind of revenue decline we can see in cable and wires for the industry?
I think, Naval, we'll have to wait for 2 things to happen. One is we'll have to wait for lockdown. We are still in the lockdown 2.0, and we don't know what will happen on 1st of June. So we'll have to probably wait for a quarter to come up with a point of view, but certainly first half will be impacted. And all the companies are trying their level best to reduce the impact, and we are no exception to that too and we are also trying to do that.
The next question is from the line of Rajesh Kothari from AlfAccurate.
Congratulations for a good set of numbers in an otherwise a little bit challenging environment. My first question is on your distribution strategy in the global markets, if you can a little bit elaborate on that and whether therefore you'll be also making the new round of CapEx as and when your distribution strategy comes in force. Second question is with reference to the B2B versus B2C. Do you think probably for next few quarters you might see a little bit stronger B2C versus B2B because there might be delay in projects completion or some delay in the handover from the developers to the actual users and therefore that will result into the further delay in the ramp-up?
Yes. Thank you. So on the first part of the question, on the distribution and the export market. There is no significant amount of CapEx which is anticipated because all these companies which have been incorporated will continue to act like trading up and will not require any CapEx. The second part is around -- so before I get to the second part, let me give you a broader perspective. The projects, though, we are seeing, are getting delayed, but there is another important element which is already present in the minds of large construction contractors, infra project developers, that they would like to recover or make good of this loss which they have already incurred in terms of time lost by of almost 3 to 4 months. And they would like to immediately start the projects, and there will be a bit of a pent-up demand. And all the large projects which were announced in last year or were anticipated are likely to get into execution this year, there will be some loss, but not necessarily everything will be shelved. As of now, I am not aware of any of the large projects getting shelved. It's quite possible that they have not taken decisions in terms of time lines, but none of these have been shelved. And in the case of large projects, almost 1% to 2% of their construction costs or their total project costs is generally for cable and wires. And we have visibility on few of these sectors and the projects which are going to help. So it's not necessarily that only B2C is going to give us support. I still believe that B2B should be still, and the rest will continue to help our company. Having said that, [Audio Gap] through digital go-to-market strategy as well as in Tier 2 rural would have some level of higher level of support and which is what we are trying to leverage. These are challenging as well as developing times. And we feel that will probably slightly change the overall mix of the composition of our sales, but we'll have to probably wait for a quarter or 2 before we conclude our thoughts on that.
[Operator Instructions] The next question is from the line of Alpesh Mehta from Motilal Oswal Asset Management.
Sir, I understand that copper prices would have corrected significantly this quarter. So what could be the inventory loss we have booked in our P&L this quarter?
Yes. So that's an interesting one. Globally, when metal is procured, for example, copper and aluminum, it comes with embedded derivatives, which provides an opportunity for -- to the buyer to fix the price at a later date which is subsequent to the procurement date. And because of it, we don't carry any risk of inventory. So whatever movement in LME has happened has not impacted the company. Generally speaking from a business model point of view, the movement in LME as well as ForEx is a pass-through which is generally passed to the end customer on a monthly basis.
Great. And sir, I'm just trying to understand that, if you have these offsetting contracts in terms of derivatives, how can we -- I see that your unitary costs have also come down in terms of the materials we have consumed. I've seen a significant reduction in your costs as well. So what then is -- I'm just trying to connect these 2 dots.
Well, if you see our quarterly P&L as well as the year P&L. Let's talk about the year P&L first. The cost of goods sold looks like that it has reduced a bit, but an element of subcontracted costs which used to sit in FY '19 in cost of goods sold is actually sitting in subcontracting costs now because, earlier, the Ryker facility was not available with us and we used to procure copper rods from the end customer -- or from the end vendor. And that is why the procurement cost was slightly higher, whereas now since we have our own manufacturing facility, the subcontracted cost or the cost which is paid to Ryker is sitting in our other operating expenses. So if you normalize with that, it is not a significant difference between FY '19 and FY '20.
Okay. So sir, is it a fair way to understand that the gross margin expansion we have seen could be as a result of reclassification of this?
One element is that reclassification. Second is what I explained in response to an earlier question, is because of improvement in sales price realization. We have launched a few new products where we have been able to realize a higher price. And you will have noticed that the sales mix in terms of export and domestic as well as new products by optical fiber cable has also changed the overall mix of sales in the current year, and that has also helped us in improving the sales realization and thereby improving the contribution margin.
Got it, sir. And sir, what could be the impairment on receivables we have booked for the full year for this year?
So the expected credit loss method, which is required in Ind AS, that has been followed. The carrying provision is around INR 157 crores. And the P&L debit will be around -- I'll have to check that number. Just give me a minute, but the closing balance is around INR 157 crore of provisions. And provision during the year will be around -- roughly speaking if I round it off, around INR 10 crore, INR 12 crore.
[Operator Instructions] The next question is from the line of [ Anand Lai ] from Unifi Capital.
My question ties with the previous participant's. So after this change of approach whereby the cost gets shifted to other expenses and hence gross margin is better, is it fair to assume that going forward the gross margin will be in the vicinity of 66%, 68% and it won't cross 70% from here on?
No. I think I mentioned that in my opening remarks. In our company, the EBITDA margin and contribution margin are best to be viewed and analyzed on an annualized basis. And that is why I would urge you to analyze on a -- on 12-monthly basis and not take out a particular quarter as a base.
And just trying to understand. If the business were to resume normalcy post June, let's say, from last 3 quarters, how do you see the volume offtake year-on-year, assuming normalcy would resume from the last 3 quarters and the first quarter without sure.
Difficult to comment because of too many uncertainties, and most of them are beyond the control of the company. It's difficult to give you any quantified number at this stage.
[Operator Instructions] The next question is from the line of Viraj Mehta from Equirus PMS.
Yes. Sir, just one question. If we look at last full year, with -- in our cash flow, it shows that we have written a -- written off roughly 75 crore of receivables from our channel partners. For this lockdown, do you see any significant jump in this number going forward, as in a onetime hit that you may face because of this?
Yes. So let me just clarify. What you're referring to write-off is actually not write-off. It's a provision. And that is a provision which is required to be submitted under Ind AS on the basis of, by and large, historical trends. And our company over the period has been able to improve the penetration of channel financing, but that has been done over the period, so the correct way of looking at it is what is the actual write-off. And if you noticed the financial statements, which are available on the balance -- on the website of the company as well as NSE, the write-off is [ really INR 14 crore ].
Okay, okay, but do you see any trend change in that this year because a lot of your distributors were locked down for 2 months? And they would face a lot of credit crunch. Do you see any significant deviation from that this year?
I don't expect that to happen, considering whatever we know. Both of our dealers and distributors are with us since last 30, 40, 50 years. And these are partners with significant, good financial track record; and we don't expect any challenge. And the second thing which is very important and I would like to highlight is that -- because of duplication, that almost 65% to 70% of our sales is [ due to ] channel financing, where we have no risk. And this is -- and it's the same number in FMEG is almost 15%, 20%. And this is important when we're analyzing the health and the quality of the trade receivables.
The last question is from the line of Chintan Sheth from Sameeksha Capital.
Gandharv, congrats for the appointment as CFO. I then have one thing: I am just looking at the quarterly other expenses. It has jumped quite a bit from 160-odd crores quarterly run rate to 195 crores. Any one-off or any extra spend we have done? And how do we need to look at it? That's the one -- first question. Second is on the export side, if you can break it up, the wire and cable revenue. I think we have booked around 180 crores, 190 crores this quarter. If that is correct, then we have seen domestic revenue declining around close to 20%. So just to clarify on that export figure.
Yes. So there is no one-off in the other expenses, except one particular element of unrealized foreign exchange gain and loss. And the details are available in the financial statements which have been uploaded on the website. When we are comparing the top line movement, I think there are 2, 3 elements which are required to be considered. One is what is the movement in average LME and ForEx in FY '18/'19 vis-à-vis FY '19/'20. And there is a reduction in weighted average between the 2, and that is where the overall sales number has improved. That is one. The second thing is, though exports have supported us in the current year, but -- there was a bit of softening in few of the markets for cable as well as wire. If I talk about [ distributional ] sales in Western markets, it was slightly soft in the current year because of a couple of reasons. One was the base year was significantly better because of new large projects. And second is there was a bit of softness in West. Having said that, in all the other regions we have been able to improve our top line growth. AIMA, which is the body for the manufacturing association in this particular industry, has computed a de-growth of 14% in the current year. And the assumption is that the organized sector has probably de-grown by high single digits, but unorganized sector has significantly de-grown probably in high double digits. And considering that, the overall performance of the company, after excluding export also, is positive.
Okay. And the other segments, any projects -- the order book is flat to be executed in the coming year? Or we will see some moderation because the execution has been quite strong in FY '20.
Is that in relation to cable and wire or for EPC…
No, in EPC business, yes.
Yes, EPC. We continue to have the healthy order book, but as I mentioned in earlier calls, EPC business for us is a strategic business. And we are very choosy in terms of execution of such contracts. On normalized basis, we expect this to be in the range of around 5% to 6% of our top line. Only exception could be optical fiber cable business if we get some profitable contracts for that, but otherwise, generally speaking, the annualized number should be around 5% to 6% of our overall top line.
I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us today. Thank you for your time as well as interesting questions and perspectives. We sincerely hope that you all remain healthy and safe in the coming times. And with that note, we take your leave.Thank you very much.
Thank you. On behalf of Polycab India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.