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Strong growth and stable NIM; expect the trend to sustain

Polycab reported strong Q1FY24 with revenue and PAT growth of 42.1% and 80%, respectively YoY. Key drivers were (1) strong institutional demand due to revival in infrastructure, real estate and capex cycle, (2) 88% growth in exports and (3) distribution rejig. We model Polycab to maintain strong earnings CAGR of 24.3% over FY23-25E led by healthy demand from B2B sectors and correction in commodity prices. We also model FMEG segment to revive in H2FY24. Improving maturity of value-for-money brand ‘Etira’ and premium brand ‘Hohm’ are likely to be DCF accretive events. We raise FY24-FY25 earnings estimates by ~9% to factor in strong Q1FY24 and commodity price correction. We maintain HOLD with DCF-based revised TP of INR4,100 (implied P/E: 31.4x FY25E; Earlier TP: INR3,400).

Strong growth and stable NIM; we expect the trend to sustain

Loan growth came in strong at ~4% QoQ / ~22% YoY and was broad-based across large corporate, mid-small corporate and vehicle segments. MFI loan growth, however, remains weak at 9% YoY (down 1% QoQ) though the bank remains confident of scaling this up to 18-20% YoY by FY24. Despite ~31bps rise in the cost of deposits, NIM was flat QoQ at 4.29% led by 22bps rise in yields on advances and better balance sheet management. We estimate 18- 19% YoY credit growth for FY24-25E, led by retail (better yielding) which should enable stable NIM YoY during the same period.

Slippages and GNPA continue improving trajectory

Gross slippages continue to improve (4th successive quarter) and came in at Rs13.76bn or 1.8% annualised. Slippages moderated QoQ for corporate (Rs430mn vs Rs2.64bn QoQ) and MFI (Rs3.7 bn vs Rs6.0bn) though increased for vehicle segment (Rs5.8bn vs Rs3.8bn), primarily on seasonality. We estimate slippages to moderate to ~1.8% for both FY24-25E vs 2.4% in FY23. We also see credit costs at ~1.3% for FY24-25E vs 1.6% in FY23.

Other highlights

As per the bank, promoters’ request for increasing their stake is pending before the RBI. At CET 1 of 16.4%, the bank is more than adequately capitalised. RWA density has reduced QoQ as select unrated exposure got rated and un-utilised limits ran-off. Key risk is higher-than-expected slippages

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