Polycab's record quarter hides a working-capital time bomb
Revenue and profit hit all-time highs, but management's own guidance points to a cash squeeze in the coming quarters.
The numbers
- Q1 net profit of ₹7.97 bn, up 33% YoY, on record revenue of ₹82.10 bn, up 39%.
- Wires & cables segment revenue grew 38% in the quarter.
- FMEG revenue jumped 68%, and its EBIT margin hit 8%.
- The working capital cycle compressed to 15 days in Q1.
Management's story
- Reaffirmed 1.5x market volume growth guidance through FY30.
- Set a wires & cables EBIT margin target of 11-13% for FY30.
- Set a FMEG EBITDA margin target of 8-10% by FY30.
- Said the working capital cycle would normalise to 45-50 days as the year progresses.
“We remain confident in our 1.5x market growth guidance through FY30”
— Polycab management
Where they diverge
The numbers scream strength, but management's own guidance plants a red flag. The Q1 working capital cycle of 15 days flattered the cash flow statement, but it is a temporary anomaly. Management expects it to normalise to 45-50 days, which will unlock working capital and pressure free cash flow in coming quarters. The record profit is real; the cash it generated may not be sustainable.
The full read
Polycab India delivered a record quarter, with net profit jumping 33% to ₹7.97 bn on a 39% revenue surge to ₹82.10 bn. The core wires and cables business grew 38%, and the FMEG division expanded 68%. The headline numbers are unambiguous, and management's confidence is high. The company reaffirmed its target to grow at 1.5 times the market through FY30. But the quarter's most important number was not profit. It was the 15-day working capital cycle, a temporary low driven by an uptick in letter of credit-backed payables. Management itself flagged that this is not sustainable and expects the cycle to normalise to 45-50 days as the year progresses. That move will tie up cash and pressure free cash flow. Polycab is a well-run business executing on its strategy. The export segment, however, is a weak spot. Exports fell 13% in the quarter due to geopolitical disruptions in the Middle East, a region that makes up 20-24% of export revenue. The company is betting on North America and Europe for growth, but the near-term outlook hinges on a volatile region. Polycab is a strong business with a clear strategy. The risk is that the cash flow statement in Q1 was an illusion, and the reality will reassert itself soon.
What we're watching
- The working capital cycle in Q2 FY27 to see if the move toward the 45-50 day target has begun.
- Export revenue trends, particularly from the Middle East, which accounts for 20-24% of export mix.
- The ramp-up of the ₹10,900 crore EPC order book over the next two quarters.