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Healthy growth and margin expansion drive earnings beat

POLYCAB posted 35% YoY growth in Q4FY22 revenue to Rs39.7bn, 7%/11% above our/consensus estimates. Growth was aided by Wires & Cables segment (+40% YoY to Rs35.4bn) while FMEG growth was softer (+9% YoY to Rs3.8bn). To counter cost inflation, POLYCAB took single-digit price hike, thus, limiting the QoQ decline in gross margin to 40bps at 22.2%. Aided by operating leverage, EBITDA margin was 70bps above our/consensus estimates each, at 12% (+130bps QoQ, but down 170bps YoY on a high base). PAT grew 20% YoY to Rs3.2bn, 18% above our/consensus estimates each. To achieve FY26 revenue goal of Rs200bn, POLYCAB is expanding retail reach, diversifying product categories and has launched a sub-brand ‘Etira’ aimed towards economy range. It aims to achieve 12% EBIT margin in FMEG by FY26, while sustaining 11-13% margin in wires & cables. We continue to remain optimistic on POLYCAB’s future growth prospects and retain BUY rating with a revised target price of Rs2,965 (Rs3,000 earlier) based on 35x FY24E EPS, after a minor tweak in our estimates

Wires & Cables: Strong demand for housing wires aids growth

Wires & Cables sales grew 40% YoY to Rs35.4bn led by housing wires. In FY22, sales grew 42% YoY (~10% volume growth), with 50:50 split between wires: cables, led by 200bps market share gain to 22-24%. Export sales doubled YoY in Q4, and stood at Rs10bn in FY22, up from Rs7.6bn YoY. POLYCAB won Rs5bn BharatNet order for laying OFC cables in Tamil Nadu and will realize revenue over the next few years. POLYCAB has introduced ‘Etira’ brand in wires to cater to economy segment and it will be expanded across other product categories gradually. EBIT margin grew 130bps QoQ to 11.6% led by price hikes and operating leverage, while POLYCAB has margin target of 11-13%.

FMEG: Cost inflation led to subdued consumer sentiments

FMEG sales grew 9% YoY to Rs3.8bn as demand momentum was impacted due to cost inflation while POLYCAB also did internal restructuring of the segment. Fans, lights and switchgears reported healthy growth, but switches and solar category declined. In FY22, revenue grew 21% YoY to Rs12.5bn with sales mix of Fans (1/3rd of sales), switches & switchgears (15% of sales), lighting & luminaires (15%) and rest (37%). The share of premium products in total FMEG sales has risen to 16% in FY22 vs. 7% in FY21. POLYCAB aims to have a wider portfolio across all price range and enter adjacent categories with an aim to be among the top 5 players. EBIT margin was impacted due to cost inflation and stood at 2.8% (+100bps QoQ, but down 420bps YoY

Key concall takeaways: (1) Retail reach has expanded to 205,000 outlets. Ramping up focus on towns with 2 lac population, e-commerce and CSD. (2) Channel financing in Wire & Cable/FMEG at 70%/50%. (3) B2B-B2C mix for FY22 was 60%-40% (4) FY23E capex outlay at Rs3bn-Rs3.5bn (2/3rd for Cables & Wires and 1/3rd for FMEG).

Maintain BUY with a revised target price of Rs2,965

We expect POLYCAB to register 14%/23% revenue/EPS CAGR over FY22-24E. Healthy growth prospects, margin expansion in FMEG, improving balance sheet and FCF generation will aid valuation.

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