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Published on 10/06/2021 11:54:05 AM | Source: ARETE Securities Ltd

Hold Polycab India Ltd For Target Rs. 1765 - ARETE Securities

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Revenue rose 43% YoY to INR 30374mn for the quarter, albeit on a lower base, with Wires & Cables (W&C) revenue growing 37% to INR 25441mn & FMEG revenue growing 89% to INR 3468 mn. B2C businesses (Domestic wires & FMEG) witnessed encouraging growth forming 40%+ of total revenue. Healthy pick up in infra & industrial project activities also drove contribution to revenue of W&C business from B2B segment. Exports contributed 4.5% to topline. Excluding Dangote order (execution of INR 0.1bn vs 3.2bn a year ago), export dropped 7% YoY.

Despite the company taking pricing action, gross margins dipped 520bps to 25.4% due to unprecedented increase in input costs, primarily copper & aluminium. Though on a sequential basis, gross margins improved 120bps to 25.4%. Cost saving initiatives & leverage benefits let to stable EBITDA marginat 13.9%. A&SP spend stood at INR 144mn as compared to INR 185mn in Q4FY20. Net profit stood at INR 2833mn, up 32% YoY. CAPEX for FY22 has been guided at INR 3bn primarily behind fans business capacity expansion as well as W&C business.

W&C revenue up 37% YoY to INR 25441 mn and FMEG up 89% to INR 3468 mn

Revenue rose 43% YoY to INR 30374mn for the quarter. B2C businesses (Domestic wires & FMEG) witnessed encouraging growth forming 40%+ of total revenue. Healthy pick up in infra & industrial project activities also drove contribution to revenue of W&C business from B2B segment. C&W revenue rose 37% to INR 25441mn& FMEG revenue rose89% to INR 3468mn. Exports contributed 4.5% to topline. Excluding Dangote order (execution of INR 0.1bn vs 3.2bn a year ago), export dropped 7% YoY.

EBITDA margin stable despite 520 bps drop in Gross

Margins EBITDA margin remained stable at 13.9% despite fall in gross margins aided by cost saving initiatives & leverage benefits. Despite the company taking pricing action, gross margins dipped 520bps to 25.4% due to unprecedented increase in input costs, primarily copper & aluminium. A&SP spend stood at INR 144mn as compared to INR 185mn in Q4FY20.Net profit stood at INR 2833mn, up 32% YoY.

 

Outlook & Valuation:

We fine tune earning estimates in the light of impact on profitability in W&C business as steep increase in input costs should take a while before it is fully passed on to the consumers. Also, rising contribution to revenue from FMEG business that has relatively lower profitability should also dilute profitability of the company as a whole. During FY21-23, Revenue, EBITDA & PAT are estimated to compound 19%, 20% & 16% respectively p.a.

Targeted increase in contribution to revenue from B2C business comprising of domestic wires & FMEG to nearly half of the company's revenue over the medium term from present 40% + should result into re-rating of multiple to its earning. Polycab is the leader in domestic W&C market with ~ 22% share of organised segments &has a cash surplus BS that should enable inorganic growth. On the back of substantial run up in the stock price in the last quarter, we downgrade the stock to HOLD from BUY with revised PT of INR 1765 (22x FY23E EPS).

Key Risk: Volatility in raw material prices& FOREX.

 

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