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Result Synopsis

Polycab continues to witness strong growth in its core category of wires and cables led by exports which registered 12% yoy growth despite high base and softening of copper prices. Exports and domestic distribution driven business continued its strong growth momentum, while institutional saw healthy growth on yoy basis. FMEG which is undergoing transition in terms of its distribution and GTM initiatives and subdued demand environment especially in Fans resulted in de?growth. Management expects transition in distribution to be completed by end of the current fiscal and strong growth momentum is expected to resume in FMEG starting FY24. Further in its quest to gain market share, company’s new sub?brand Etira in the economy segment has been doing well has recorded 100% CAGR in 1H on low base. We believe the company is well placed to attain its targets as it is focusing on increasing its distribution presence, introducing new and innovative products across the product categories, this along with investments in digital and backward integration would augur well for the company. 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 as company has been focusing on increasing distribution, premiumization and improving customer satisfaction.   Company has sustainably improved its working capital thereby improving its efficiencies. We estimate the company to deliver FY22?24E revenue/EBITDA CAGR of 15%/28% 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 Rs3,341 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 on back of healthy volume growth in wires and cables. Gross margins have expanded by 418bps yoy as company has not passed on entire benefit of lower commodity prices.

* Wires & cables - Wires & Cables business grew by 13% YoY despite healthy base. Domestic distribution driven business continued to see strong growth momentum, while institutional business saw healthy growth momentum on yoy basis. Exports business recorded growth of 75% on yoy basis led by demand from Oil and Gas, Renewables and infrastructure sectors from USA, Europe and Asia.

* FMEG – FMEG business de?grew by 12% yoy due to subdued environment, muted demand from rural segment and realignment in distribution strategy to improve long?term business growth under project LEAP. Fans business was affected on account of seasonality, inflationary environment and transition to the new BEE regulations. Switch business recovered from the lows of Q1FY23, posting 123% sequential growth.

* Working capital - Net working capital has improved to 44 days in Q2FY23 vs 54 days in FY22. Reduction in working capital is mainly on account of decrease in receivable days. The company continues to improve its working capital metrics.

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