However, spot sales through distributors and stock-keeping units (SKUs) yield fast payment. Spot sales result in a speedy clearance of pipeline inventories, thus improving business sentiment.
“Being a retail-focused company, we have reduced our institutional sales to 3-4 per cent in wires and cables. We sell branded products to retail counters. Hence, we will not focus on business-to-business (B2B) or institutional sales because payment comes after four-six months,” said Mithun Chittilappilly, managing director, V-Guard Industries. Other manufacturers have reduced direct supplies to institutions.
After rejuvenating the brand and product packing, V-Guard has engaged Frost & Sullivan to develop a robust manufacturing system supported by 250 service centres in the country. This is the first company to introduce three-layer wires in India. With an estimated revenue of Rs 2,500 crore in FY19, the company plans to enhance its manufacturing capacity through greenfield projects.
Institutional buyers approach manufacturers directly to negotiate pricing and payment terms for their large infrastructure projects. For housing and urban infrastructure projects, companies
get discounts on bulk supplies from SKUs or distributors directly.
“Our dependence on institutional sales is limited. Most of our institutionnal sales is done by distributors. We supply to large and reputed EPC (engineering, procurement and construction) contractors and our payments are secured by appropriate commercial contracts. These could include letters of credit, discounting facility, etc. We have steadily improved our position vis-à-vis debtors,” said Ramakrishnan Ramamurthi, chief executive, Polycab India. Manufacturers of branded wires and cables change prices fortnightly, depending upon variations in raw material prices.
Given the government’s increasing focus on infrastructure development, the demand for wires and cables is likely to remain robust in coming years.
A recent CRISIL Research study has found the Indian cable and wire industry has grown at a compound annual growth rate of about 11 per cent by value in the last five years to reach Rs 52,500 crore in FY18. In general, the industry’s earnings go in tandem with prices of key raw materials, mainly copper and aluminium. In value terms, CRISIL Research expects the industry to grow by a CAGR of approximately 15 per cent and reach an estimated Rs 1,033 billion by FY23. Meanwhile, rising copper prices have prompted manufacturers to raise prices of their products, which they revise every 14 days.
“We follow a policy of purchasing copper on the London Metals Exchange average of the month of consumption. This means while we buy copper physically at the beginning of the month, it will be at a provisional price. LME pricing is used for the whole month, on average, to determine the final price to be paid at the end of the month. This way we are with the market in terms of pricing. Similarly, for sales, we pass on the increase or decrease in the copper LME to the end customer by changing our list prices,” Deepak Chhabria, executive chairman, Finolex Cables, said.