Polycab IPO: Information Analysis

The IPO season has picked up in Dalal street, once again. Following the successful listing of Chalet Hotels and the recent closing of Metropolis Healthcare, the latest entrant to the party is Polycab Wires & Cables. Incorporated in 1996, this Mumbai-based company is involved in manufacturing and selling cables & wires and fast-moving electronic goods (FMEG), comprising electric fans, LED lightings and luminaries and switch gears, under the brand name 'POLYCAB'. In the country's Rs 52,500-crore cables and wires industry, the company has already made a name for itself, with a market share of 12%. At present, POLYCAB has 24 manufacturing facilities located across three states and one union territory. It enjoys a pan-India presence on the back of a network of 2,800 authorised dealers, who enable the company to reach out to almost 100,000 retail outlets. In addition to having an installed capacity of 35 lac km for cable and wire production, the company entered into a tie-up with Techno in 2017 to manufacture LED lighting products. In 2016, it formed a 50:50 partnership with Trafigura, a commodity trading company, to set up a production facility of copper wire rods in Gujarat. In 2009, the company undertook an EPC in power distribution and rural electrification. However, this business is no longer its focus area because of unstable margins. In FY18, its cable and wires business accounted for around 89 per cent of the total revenue, while its growth-driver, FMEG segment, contributed around 7 per cent. Strengths Superior dealer network: With a pan India dealer network of 2,800 dealers and 20 warehouses, the company is able to sell its products in 100,000 retail outlets. It helps POLYCAB maintain its dominant market share in the cable and wires industry and cross-sell FMEG products. Backward integration: The company is moving ahead with a backward integration by doing a 50:50 tie-up with Trafigura to set up a 225,000-MT manufacturing facility with the intent to produce copper wire rods. As revealed by its management (source: Wire & Cable India), this plant would exceed the company's requirement for copper and leave around 1,00,000 MT/year rods available for the rest of the market. Brand recognition: As a well-known cable and wires brand, POLYCAB has maintained its brand name over the years. Recently, it has roped in famous actor Paresh Rawal to promote its energy and money-saving green cable & wires and other products through an innovative ad campaign. The ad is being telecast during Indian Premier League matches. Weakness High dependence on key raw materials: The company's realisation and profitability in the cable and wires business are highly dependent on copper and aluminium commodity prices, which together account for roughly 75 per cent of its total raw material costs and are denominated in dollars. High working capital requirements: The company is reliant on short-term borrowings to run its operations smoothly. As of FY18, the working capital requireme