Polycab India rides a strong demand wave | Mint

Polycab India rides a strong demand wave

 (iStock)
(iStock)

Summary

Adding to the optimism is the cable-maker’s confidence that it can meet the FY26 revenue target of 20,000 crore possibly ahead of time.

In the past one year, Polycab India Ltd’s stock price has nearly doubled, as the company’s earnings grew consistently. Adding to the optimism is the cable-maker’s confidence that it can meet the FY26 revenue target of 20,000 crore possibly ahead of time. Polycab plans to revise its revenue growth guidance in the upcoming quarters, it said in the September quarter (Q2FY24) earnings call.

Q2 was expected to be a good quarter, and it did not disappoint. Consolidated pre-tax earnings rose by 55% year-on-year to 557 crore and revenue stood at 27% to 4,218 crore. Polycab enjoys a market leadership position with 22-24% market share in the organized wires and cables (W&C) space. It is viewed as a beneficiary of the government’s thrust on infrastructure and momentum in private sector capex.

In Q2, contribution from W&C stood at 88% of gross revenue. Strong volume growth drove up revenue by 29% to 3,805 crore. The company cited government capex and strong real estate demand as key drivers of growth momentum.W&C saw earnings before interest and tax (Ebit) margin expand by 285 basis points to 14.6%.

However, the performance of the fast-moving electrical goods (FMEG) segment— which includes switches, fans and lights - was weak, reporting a loss of 6 crore at the Ebit level. Near-term outlook appears bleak. “While we foresee FMEG to remain subdued in FY24e, margins could improve from FY25e, with benefits from distribution revamp and economies of scale," said a report by Jefferies India.

Still, in view of the company’s consistent execution over past 4-5 quarters, Jefferies has raised the target price-to-earnings multiple of the stock to 38x, from 33x earlier. Jefferies foresees FY23-26 estimated earnings per share growth, at 28% compounded annually, to outpace the 19% mark seen over FY20-23.

But whether W&C growth sustains ahead needs tracking as valuations are not exactly cheap. The stock trades at 40 times estimated earnings for FY25. “There is no sign of a demand slowdown yet, though the upcoming elections do pose some risk," according to Kotak Institutional Equities. However, it finds current valuations “too rich for what is still predominantly a cables-driven story."

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