India’s cable giant dillema was over market share or profitability in Q3, absorbing commodity prices compressed margins to three-quarter low
The numbers tell two different stories. Revenue surged 46 percent. Margins crashed 300 basis points. Polycab India Limited’s December quarter results have exposed a fundamental tension in the organized cable manufacturing sector: when commodity costs spiral, who blinks first?
In Polycab’s case, the answer was strategic. The company reported consolidated revenue of Rs 76,361 million for the three months ended December 2025, exceeding consensus estimates by Rs 11,394 million or 17.5 percent. But EBITDA margin fell to 12.7 percent from 15.8 percent in the preceding quarter, missing consensus by 157 basis points.
The Commodity Shock
Copper prices on the London Metal Exchange advanced 21 percent during the September-December period while aluminium gained 11 percent. For a company where raw materials constitute approximately 75 percent of revenue, this represented a material input cost increase that demanded immediate response.
The response came, but not in full. “C&W EBIT margins contracted 150bp YoY/290bp QoQ to 12.2% due to i) sub-optimal pass through of cost inflation (75–80% passed on in Q3); ii) higher mix of low-margin institutional segment; and iii) lower mix of highest margin export segment,” Nuvama Wealth Management stated in its January 16 research report.
That 75 to 80 percent pass-through figure reveals the core of Polycab’s December quarter strategy. The company absorbed roughly 20 to 25 percent of commodity inflation rather than fully passing it to customers. “Margin fell (transient issue) on strategically deferred pass-through (only 75-80% passed) of elevated input cost to protect demand + adverse mix shift (lower exports + higher institutional sales) + INR depreciation,” PhillipCapital stated in its January 18 report.
The rupee’s depreciation against the dollar during the quarter added another layer of cost pressure. Gross margin fell 248 basis points sequentially and 111 basis points year-on-year to 24.6 percent, indicating the compression occurred at the foundational level of the income statement before operating expenses.
Volume Growth on Steroids
The incomplete cost pass-through coincided with volume expansion that substantially exceeded historical norms. The cables and wires segment posted domestic volume growth of approximately 40 percent year-on-year according to management commentary during the earnings conference call. “Domestic wires grew 70% YoY, reflecting significant market share gains amid pre-stocking by channel partners (rising copper prices induced channel partners to stock up),” PhillipCapital noted.
The pre-stocking dynamic represents a critical element of the volume story. “Wires channel inventory at 40-45 days (vs. normal 30 days) on pre-stocking” based on management’s remarks, PhillipCapital stated. Distributors and retailers accumulated inventory ahead of anticipated further price increases, effectively borrowing demand from future quarters to capture favorable pricing before full pass-through occurred.
Management indicated that “channel pre-stocking largely restricted to Wires only – does not expect slowdown in 4Q as seasonally strong” according to PhillipCapital’s notes. This suggests the inventory build primarily affected the wires category where copper content and price sensitivity run highest, while cables demand reflected more underlying end-user consumption patterns.
The cables and wires segment generated revenue of Rs 68,526 million, representing 88.3 percent of consolidated sales and growth of 54.0 percent year-on-year. EBIT for the division reached Rs 8,326 million but margin fell to 12.2 percent from 15.1 percent in the September quarter and 13.7 percent in the year-earlier period.
The Value Versus Volume Divergence
The gap between value growth and volume growth illuminated the commodity price impact on reported figures. “Value growth in Wires outperformed cables on rising copper prices, while volume growth was similar for both,” Jefferies stated in its January 16 report. “Wires value growth was 70% YoY due to higher copper content, while cables growth was 50% YoY,” the firm added, noting volume expansion of approximately 40 percent across both categories.
This means roughly half of the reported revenue growth in wires stemmed from commodity price inflation embedded in product pricing rather than physical volume expansion. The distinction carries implications for assessing underlying demand momentum and the sustainability of topline growth as commodity prices stabilize or decline in coming quarters.
Domestic revenue for the consolidated entity increased 59 percent year-on-year to approximately Rs 64,000 million while export sales grew just 5 percent to Rs 4,600 million. The international business represented 6.0 percent of total revenue, down from 8.3 percent in the December 2024 quarter. “International revenue grew 5% YoY in 3Q; exports largely from ex-US geographies like Middle East, Latin America, etc,” Jefferies stated, adding that “US remained weak due to tariff-related issues.”
Nuvama’s analysis attributed margin compression to three distinct factors, with the incomplete cost pass-through representing the largest component, followed by the adverse product and geographic mix shifts, and currency depreciation adding incremental pressure. The firm stated that “lower gross margin (250bp YoY) due to delayed pass through of steep increase in commodity prices (in order to ensure demand is not postponed), higher mix of lower-margin institutional segment and lower mix of highest margin export segment.”
FMEG’s Solar-Powered Profitability
The fast-moving electrical goods division provided a contrasting narrative to the cables business. Revenue reached Rs 4,998 million, representing growth of 18.1 percent year-on-year and 10.5 percent sequentially. The segment posted EBIT of Rs 139 million, equivalent to margin of 2.8 percent, marking the fourth consecutive quarter of positive profitability after an extended loss-making period through most of fiscal 2025.
“Solar business grew c.100% yoy on continued govt. incentives; other products performed broadly in-line with industry,” Jefferies stated. The firm noted that “solar business has high single digit margin” while observing that “FMEG Margin improved on rising scale and a favourable shift in product mix.” The solar category’s strong performance reflected government rooftop solar incentive programs at central and state levels that subsidize installation costs for residential and commercial customers.
“FMEG revenues grew 18% YoY, consistently outperforming industry growth,” Nuvama stated. “Solar business grew over 2x YoY, driven by strong uptake under central and state rooftop solar incentive schemes; remains the largest FMEG category,” the brokerage added. This means solar products now represent the single largest revenue contributor within the FMEG portfolio, surpassing fans, switches, lighting, and switchgear.
The Estimate Cuts
Some Brokerage firms adjusted earnings projections following the quarterly results, with the pattern revealing a consistent theme: higher revenue expectations alongside reduced margin assumptions. PhillipCapital increased fiscal 2026 revenue estimates by 3.3 percent to Rs 286,301 million and fiscal 2027 projections by 5.5 percent to Rs 334,757 million. The firm simultaneously reduced fiscal 2026 EBITDA estimates by 3.2 percent to Rs 39,851 million and fiscal 2027 EBITDA by 2.5 percent to Rs 45,282 million.
The revisions translate to fiscal 2026 EBITDA margin estimate of 13.9 percent and fiscal 2027 at 13.5 percent, down from prior projections of 14.9 percent and 14.6 percent respectively. Adjusted profit after tax estimates fell 3.4 percent for fiscal 2026 to Rs 26,993 million and 3.0 percent for fiscal 2027 to Rs 30,117 million according to PhillipCapital.
“We are raising FY26–28E EPS by 2–4% to reflect strong beat on revenue growth in the C&W segment,” Nuvama stated, though the firm’s EBITDA estimate changes showed more modest increases of 1.2 percent for fiscal 2026 and 3.2 percent for fiscal 2027. This implies Nuvama expects fourth quarter fiscal 2026 and full-year fiscal 2027 margins to improve from third quarter levels, offsetting the December shortfall through recovery in subsequent periods.
The bet on volume over margin produced 40 percent growth and a 300 basis point profitability impact. But the recovery in margins next onwards holds the key.
