Published on 5/04/2019 5:29:33 PM | Source: SPA Securities Ltd

IPO Note - Polycab India Ltd By SPA Securities

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Founded in 1996, Polycab wires is in the business of manufacturing and selling wires and cables and fast moving electrical goods ("FMEG") under the "POLYCAB" brand. They manufacture and sell a diverse range of wires and cables and the key products in the wires and cables segment are power cables, control cables, instrumentation cables, solar cables, building wires, flexible cables, flexible/single multi-core cables, communication cables and others including welding cables, submersible flat and round cables, rubber cables, overhead conductors, railway signaling cables, specialty cables and green wires. In 2009, they diversified into the engineering, procurement, and construction ("EPC") business, which includes the design, engineering, supply, execution, and commissioning of power distribution and rural electrification projects. In 2014, they diversified into the FMEG segment and the key FMEG are electric fans, LED lighting and luminaires, switches and switchgear, solar products and conduits and accessories. Polycab's Revenue/EBITDA/Profits have been grown at CAGR 14.31%, 23.8% and 41.7% respectively From FY16 to FY18

Investment Rationale

Market leader in wires and cables in India & diversified business

Polycab is the largest wires and cables manufacturer in India, in terms of segment revenues, with a market share of approximately 18% of the organized wires and cables industry and approximately 12% of the total wires and cables industry in Fiscal 2018. (Source: CRISIL Research). Company's established customers include institutional clients such as L&T Construction and Konkan Railway Corporation Ltd. and other global leading brand companies.


Strong distribution network

Polycab has wide distribution network across India which enables them to roll out new products more quickly and gives them a competitive advantage over their competitors. As at December 31, 2018, their distribution network across India, comprises 2,800 authorized dealers and distributors. The company supplies their products directly to their authorized dealers and distributors who in turn sell their products to over 100,000 retail outlets in India.

Manufacturing facilities with backward integration

Polycab manufactures their products within their manufacturing facilities, which were set up to address the specific needs of innovation, quality and availability. Their manufacturing facilities are accredited with quality management system certificates.


Strong and established brand & experienced management

Polycab is an established manufacturer of wires and cables and other electrical products, and they sell their products under their "POLYCAB" brand. Company's management team has collectively many years of entrepreneurial and managerial experience in the electrical products industry and also possesses an extensive network of customer relationships and a deep understanding of the operations, pricing strategies, business development and industry trends.


Continue to expand FMEG business

Their FMEG business has potential for future growth. CRISIL Research expects the switches industry in India to grow at a CAGR of approximately 9% to INR 62 billion by Fiscal 2023.


Outlook & Valuation

Polycab India Limited is undisputed market leader in wires and cables with highest market share of 18% in organized segment. Apart from this, it is focusing on building significance presence in electric goods segment which will further support growth. Company has a strong distribution network of 2800 dealers and distributors in India and it is emerging as a big brand. Company has been outperforming in last three years as its net profits have grown by 41.7% CAGR from FY16 to FY18 it has also reduced its debt to equity ratio from 0.4x in FY16 to 0.3x in FY18.The government initiatives and better prospects in electrical goods will be added triggers for potential business growth. Indian wire and cable industry is expected to grow at 15% CAGR by FY23. Company is going to invest 1100 crores for capacity expansion which will lead to increase in production of wire and cables. We believe that company will put more effort in improving their FMEG business in future. At the upper price band of INR 538, the issue is priced at FY18 P/E of 20.5x while the other listed peers Havells India limited, KEI industries limited and Finolex cables limited trades at FY18 PE of 70x, 22.4x and 21.4x respectively. We recommend SUBSCRIBE to the issue based on strong industry growth trends, leadership position & healthy financials.


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