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Published on 16/09/2019 3:09:38 PM | Source: HDFC Securities Ltd

Pick Of The Week : Polycab India Ltd - HDFC Securities

Posted in Broking Firm Views - Short Term Report| #HDFC Securities #Cables and Fibres #Trading Report #Polycab India Ltd

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“Connection Growth Ka”

Polycab India (PIL) is one of the largest manufacturer in the wires and cables industry in India. It’s an established player with history of more than two decades. In a highly competitive industry, Polycab has managed to grow its market share. In last 5 years, company has managed to double its revenue and profits have surged almost six fold. As a part of diversification and to leverage strong ‘Polycab’ brand it entered the FMEG product category during 2014. It is a relatively recent listing on bourses and we believe it is an excellent choice for a long term investor. We recommend Polycab India a BUY at CMP of Rs. 632 and add on decline to Rs. 601 for the sequential price targets of Rs. 698 and Rs. 750 over the next 3-4 Quarters.  

 

Company Profile:

Incorporated in 1996, Polycab India (PIL) is engaged in the business of manufacturing and selling wires & cables and fast moving electrical goods (FMEG) under the “Polycab” brand. With value market share of ~18% in the organised industry, PIL is one of the largest manufacturer in the wires and cables industry in India. Apart from wires and cables, the company entered the engineering, procurement and construction (EPC) business in 2009, which includes design, engineering, supply, execution and commissioning of power distribution and rural electrification projects. As a part of diversification and to leverage strong ‘Polycab’ brand PIL entered the FMEG product category during 2014. The FMEG product includes electric fans, LED lighting & luminaires, switches & switchgears, solar products and conduits & accessories. PIL has 24 manufacturing facilities in India of which four are dedicated to FMEG product categories. Company also has 3400 plus-strong pan-India network of authorized dealers and distributors; and the 100,000-plus retail outlets.

 

Investment Rationale:

* Leader in wires & cables Wide Distribution network

* Favourable industry dynamics

* Competitive edge

* FMEG to maintain robust growth momentum

* Robust Balance Sheet & Strong Return Ratios

 

View and valuation:

We have estimated 12% CAGR in Sales and 14% in Net Profit over FY19-21E. Blended margin of the company stood at 11.6%. Post fund-raising in the IPO in April 2019, Polycab has become a net cash company as of June 2019. Return ratios of the company are also in the north of 20%. PIL is currently trading at 13.7x FY21E Earning compared to industry average of around 25x, which is attractive given the strong fundamentals of the company. This wide discount could be because of it large presence in B2B segment. But now as company is focusing more on B2C segment and rising share of FMEG in the revenues, the discount should get narrowed. We recommend Polycab India a BUY at CMP of Rs. 632 and add on decline to Rs. 601 for the sequential price targets of Rs. 698 and Rs. 750 over next 3-4 Quarters.

 

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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475

 

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