Markets
Wires and cables biz to do the heavy lifting for Polycab India
Summary
Shares of Polycab have risen by 10% in the last two days with the stock scaling a new 52-week high of ₹4,325.15 apiece on Wednesday. Along with a solid Q1, the management commentary was also encouraging.Consolidated revenue climbed 42% year-on-year thanks to its robust wires and cables business. This segment clocked 50-60% volume growth in Q1, translating into a 47% rise in revenue to ₹3,534 crore. Although a low base has helped to some extent, the performance bodes well for the company’s overall growth outlook.
Shares of Polycab have risen by 10% in the last two days with the stock scaling a new 52-week high of ₹4,325.15 apiece on Wednesday. Along with a solid Q1, the management commentary was also encouraging.
Given the healthy performance in the last few quarters, the management said it will have to recalibrate timeline of its earlier guidance of achieving ₹20,000 crore in revenue by FY26.
“There is an increased possibility of Polycab meeting its revenue target much before FY26 on the back of robust execution by the company especially in the wires and cables business," said Harshit Kapadia, an analyst at Elara Securities (India). Polycab’s wires and cables segment formed about 90% of revenue in Q1, and the company is looking to capitalize on the strong demand environment here. It aims to introduce premium products and expand its presence in the international markets, which has a relatively better margin.
On the other hand, Polycab’s fast-moving electrical goods (FMEG) segment saw muted revenue growth of 2% as it was plagued by subdued demand. Here, the Ebit (earnings before interest and tax) margin remained in the red as fixed costs and advertising spends weighed on the measure due to lack of scale. Nonetheless, Polycab’s consolidated Ebitda margin rose by 274 basis points to 14% in Q1 led by price revisions, operating leverage and favourable business mix. The company intends to increase advertising spends in FMEG and investors would do well to follow margin trajectory.
Meanwhile, in the last one year, shares of Polycab have soared 91%. This can be attributed to its consistent and strong execution driven by better volumes and margins in the wires and cables business. Analysts at ICICI Securities expect Polycab to maintain a strong earnings CAGR of 24.3% over FY23-25 led by healthy demand from business-to-business sectors and correction in commodity prices. It foresees the FMEG segment reviving in H2FY24.
That said, the stock is trading at a valuation multiple of 38x its FY25 estimated earnings, showed Bloomberg data. After the steep rally, meaningful upsides could be limited from hereon.
