Polycab’s initial public offering (IPO) price band was ₹533-538 a share. The ₹1,345 crore public issue was subscribed 51.96 times during its share sale on 5-9 April.
At the upper band, the stock trades at FY20 and FY21 price-to-earnings (PE) of 16 times and 13 times, respectively. With improving cash flows and balance sheet strength, Polycab will trade at a premium with wire and cable peers (Finolex and KEI), but at a discount to FMEG (fast moving electronic goods) companies (Havells, V-guard), said PhillipCapital (India) Pvt. Ltd in a report.
“Over the next two years, return on capital employed (RoCE)/return on equity (ROE) will be 23% and 15%, respectively, and operating cash flow will be ₹1,060 crore. We expect earnings compound annual growth rate (CAGR ) of 19% over FY19-21," it said in a note on 15 April. Funds raised through the IPO and operating cash flow of ₹1,400 crore over FY19-21 will help the company pay off debt in 2-3 years, PhillipCapital added.
According to Prabhudas Lilladher Pvt. Ltd, Polycab has a versatile product range in cables and wires, 2,800 distributors and over 100,000 retail touch points, a strong manufacturing base, and has diversified into the premium fast moving electrical goods (FMEG) segment with a presence in fans, lighting, switchgears and switches. “Although fast moving electrical goods are just 8% of sales, a strong brand would enable faster scale-up in the coming years. A recent export order of $137 million for an upcoming refinery is testimony to the quality and growth potential in the wires and cable business," said Prabhudas Lilladher in a report on 4 April.
It added that a steady increase in sales proportion of FMEG will re-rate the stock in the long term.
Over FY16-18, Polycab reported revenue, Ebitda (earnings before interest, taxes, depreciation, and amortization) and net profit CAGR of 14%, 24% and 42% respectively, with reported earnings per share (EPS) of ₹26.2 in FY18 and ₹25.3 for nine months of FY19.
Polycab is a leading player in wires and cable with 18% share of the organised market. Over the last 3-4 years, it has widened its product offering to fans, LED lighting, luminaries, switches, solar products and accessories.
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