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Strong growth momentum to continue with improving institutional business; reiterate BUY

Result Synopsis

Polycab saw strong growth in its core category of wires and cables which registered 48% yoy growth (32% volume growth, 16% price increase). Growth was broad based across segments and markets; with institutional business seeing improved performance. FMEG continued its strong growth momentum aided by favorable base, led by growth in Fans, conduit pipes and solar business, however switches saw decline due to supply challenges 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, company’s new sub-brand Etira in the economy segment has been well accepted and has grown 2x sequentially on low base. 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 it is 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 rerating

We expect strong growth momentum to continue in the ensuing quarters as company has been focusing on increasing distribution, premiumization and improving customer satisfaction. We estimate the company to deliver FY22-24E revenue/EBITDA CAGR of 14%/22% respectively. Given the strong traction seen in distribution led 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 its margin in FMEG starts improving.

Result Highlights

? Quarter summary – Polycab delivered higher than expected revenue growth led by strong traction in distribution business, with improvement in institutional business. Gross margins have expanded by 152bps yoy on softer commodity prices.

? Wires & cables – Wires & Cables business saw a strong growth of 48% YoY. The growth was broadly uniform across cables and wires, with domestic distribution driven business sustained its strong growth momentum, institutional business improved its performance.

? FMEG – FMEG business recorded growth of 59% on yoy basis with lighting, switchgears and pump continued their strong growth momentum, Fans, Conduit Pipes and Solar business posted healthy growth. However, switches saw a decline due to supply challenges

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