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Business News/ Markets / Mark To Market/  Polycab’s Q3 was decent, but rising input costs are a worry
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Polycab’s Q3 was decent, but rising input costs are a worry

Investors should watch the focus on infrastructure in the Union budget in terms of triggers for the Polycab stock

The company is amongst the leading wires and cables manufacturers in India and is also growing its range in FMEGPremium
The company is amongst the leading wires and cables manufacturers in India and is also growing its range in FMEG

Demand revival for cables and wires from key sectors helped Polycab India Ltd’s December quarter results. Polycab is among the leading wires and cables manufacturers in India and is also growing its range in the fast-moving electrical goods (FMEG) segment. Last quarter, its FMEG sales saw strong growth momentum. Exports did well, too.

“Polycab reported good performance across segments, leading to healthy revenue growth along with stable margins despite commodity headwinds leading to 20% y-o-y growth in net profit, which is slightly better than estimates," said analysts at Sharekhan.

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Cables and wires’ revenues grew 6% y-o-y on a high base, helped by some revival in demand from the construction and realty sectors. Polycab said rural demand momentum is strong. Further, improving sentiments boosted retail demand, and rising market share in the B2C segment helped. Peer, Havells India Ltd, saw 27% growth in cables, albeit on a lower base.

Better prospects
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Better prospects

Meanwhile, Polycab’s FMEG segment is shaping up well, growing 41% y-o-y in Q3. The demand environment for electrical equipment was strong, which was evident from the growth registered by larger equipment peers. Havells and Crompton Greaves Consumer Electricals Ltd clocked 31-46% y-o-y growth in sales from electrical consumer durables. A shift from unorganized to organized is helping the firms, leading to market share gains.

Rising input costs, however, are a worry. True, Polycab’s operating margins were flat. This was supported by lower other expenses, improved product mix, and price hikes, point out analysts. “Even as benefits of price hikes taken during Q3 are likely to reflect going ahead, a sustained spike in input costs creates a near-term challenge," said analysts at Edelweiss Securities Ltd.

Thus, even though growth has rebounded and forward prospects remain firm, the Street may be watchful on profitability improvement going ahead. Investors should watch the focus on infrastructure in the Budget in terms of triggers for the stock. Demand for wires and cables could see further improvement if infra activities get a boost.

Polycab has indicated that there is some improvement in private sector investments, which bodes well for demand.

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ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 26 Jan 2021, 07:42 PM IST
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