IGI Logo

Strong growth momentum to continue; reiterate BUY as we expect further re‐rating

Result Synopsis

Polycab saw strong growth in its core category of wires and cables which delivered 39% yoy growth. Growth was on back of strong traction in distribution B2C business; however institutional business growth was subdued on sequential basis. FMEG continued to face challenges in terms of supply and softer demand. Management expects strong growth momentum to continue in B2C and rebound in institutional business as capex activity has picked up across the industries. Further in its quest to gain market share, the company has launched a new sub‐brand Etira in the economy segment as it wants to be present across every price point. Given the strong traction, management is confident of achieving its said objective of Rs200bn revenue by FY26. We believe the company is well placed to attain its targets as itis focusing on increasing its distribution presence, new and innovative product launches and improving customer experience. The company looks well placed to keep gaining market share and grow faster than the industry, which should lead to continued re‐rating.   

We expect strong growth momentum to continue in the ensuing quarters; furthermore, increased distribution should now benefit company in gaining further market share. We estimate the company to deliver FY22‐24E revenue/EBITDA CAGR of 14%/22% respectively. Given the strong traction seen in B2C business, company should command higher multiple. We continue to remain positive on the stock and reiterate our BUY rating PT of Rs3,061 valuing it at 35x FY24 EPS. We believe the company will gradually close the valuation gap with peers as B2C traction improves further and margin headwinds recede.

Result Highlights

*Quarter summary – Polycab delivered higher than expected revenue growth led by strong traction in distribution led B2C business. Gross margins contracted by 326bps yoy, however it has contracted only 43bps sequentially.

*B2C business sees uptick – B2C business which had been impacted by inflation and uncertainty related to pandemic has seen strong rebound in the months of March and April. Management expects strong growth momentum to continue in Q1 as well.     

*FMEG – FMEG business recorded growth of 9.3% on yoy basis. Overall demand momentum in Q4 was albeit subdued largely attributable to broader inflation. The business also underwent realignment exercise to improve sales force efficacy and achieve distribution synergies.

*Working capital – Net working capital has improved to 68 days in FY22 vs 85 days in FY21. Company’s effort in reducing inventory and receivable are now bearing fruits resulting in lower working capital days.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer