Buy Polycab India Ltd For Target Rs.2,012 - Yes Securities
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Re‐rating to continue on increasing visibility in B2C business; maintain BUY
Result Highlights
* Quarter summary –
Polycab delivered better than expected revenue growth of 43%, with strong growth across its B2C product portfolio. Gross margins contracted by 519bps yoy on higher commodity prices. Cost control measures have restricted contraction of EBITDA margins.
* B2C business delivers strong growth –
B2C business delivered strong growth with FMEG registering growth of 89%, highest among peers. Wires, which is a B2C business has sustained its growth momentum delivering superior growth.
* Market share –
Polycab now commands market share of 20‐22% in wires and cables in the organized wires and cables market vs ~18% in FY19.
* Working capital –
Net working capital has marginally deteriorated to 85 days vs 83 days in FY21. This increase is on account of higher inventory which has resulted due to higher copper price
Valuation and view –
4Q saw growth across B2C product categories with FMEG registering strong growth which was the highest among peers, while housing wires continues its strong growth momentum from Q3. Contribution from B2C business has now reached 40.2% in FY21 from 32.6% in FY20 as Polycab has been focusing on enhancing its dealer/distributor network. Its dealer/distributor count has increased by 17% yoy, while its retail reach and influencer program has grown by 32% and 33% respectively.
Polycab is fast transforming itself into strong B2C player and expect the trend to continue in future as well with increase in its distribution presence. We expect strong growth momentum to continue in B2C followed by gradual recovery in B2B business; furthermore, it is looking at five‐year vision Project Leap where it plans to double its revenue to Rs200bn by FY26E. We estimate the company to deliver FY21‐23E revenue/EBITDA CAGR of 15%/16% respectively.
Considering a strong execution track record, 5‐year vision plan and increasing proportion of B2C business, we increase our target multiple to 28x from earlier 25x and maintain BUY with TP of Rs2,012. Polycab still trades at a significant discount to players like Havells, Crompton which should continue to narrow gradually.
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