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Wires & Cables drove the growth:

Polycab reported its Q3FY23 revenue at Rs 3,715 Cr registering a growth of 10.2% YoY, on the back of strong business and healthy volumes in wires & cables segments. Amongst segments, Wires & Cables segment accounts for 88.5% of the total revenue saw a growth of 11.4% YoY and a volumes growth stood at 18% YoY. Its Fast Moving Electrical Goods (FMEG) growth remained flat at 0.5% YoY due to challenging business environment, however on sequential basis it grew by 12% as distributors started restocking ahead of new energy norms.

Better operating efficiency:.

The company reported its gross profit at Rs 998 Cr registering a growth of 26.8% YoY and a gross margin of 26.9% with an improvement of 352bps YoY. It reported its highest quarterly EBITDA at Rs 504 Cr with a growth of 39.3% YoY and EBITDA margin of 13.6% with an improvement of 284bps YoY. Margins expansion was supported by better operating efficiency during the quarter despite high input cost and increase in A&P expenses.

Entry into EHV segment:

Polycab plans to enter in Extra High Voltage (EHV) cables through a technology know how agreement with a Swiss company “Brugg Kable” with a new facility in Halol, Gujarat which is likely to be operational from FY25, with this the company will enter into full range of cable offerings. The EHV segment has a market opportunity of Rs 4,000-5,000 Cr with few established manufacturer in India, allowing company to compete effectively and scale its business gradually.

Focus on high margin business:

Going ahead, the company plans to gradually increase revenue contribution from Switches & Switchgears as they are high margin business. Furthermore, the company plans to focus on brand building, new product development and premiumization to drive the revenue growth and margin expansion for it FMEG segment.

Key Concall Highlights:

1) Management highlighted it has strong order book in the export business and aims to generate 10% of the total revenue in FY23. 2) Management expects its FMEG segment to gradually improve its contribution to 10% by FY26. 3) To take price hike in Q4FY23 after completely switching to new energy norms.

Valuations:

Positive industry growth outlook coupled with Polycab’s strong brand equity, healthy free cash generation and stable return ratios makes it one of our preferred picks in the sector. We estimate Polycab to register a Revenue/EBITDA/PAT CAGR of 16.8%/25.3%/27.3% over FY22-25E led by both wires & cables and the FMEG business. Hence, we recommend a Accumulate on the stock with a revised target price of Rs. 3,146 valuing the company at 27x on FY25E EPS.

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