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Wired for growth

Market Leader in Wires & Cables: Polycab is the largest manufacturer of wires and cables in India and enjoys 22-24% market share in the organized market. The company has Pan India distribution network with 4,600+ dealers & distributors and 2,00,000+ retail outlets. Apart from this segment, Polycab also manufactures wide range of consumer electrical products like Fans, Switches, Switchgear, LED lights and Luminaries, Solar Inverters and Pumps. It has 23 manufacturing facilities across 4 locations.

Structural growth in Wires & Cables Industry: Polycab wires & cables business is the mainstay contributing nearly 87% of its overall business. We expect growth momentum to the back positive industry growth prospects. The wires & cables industry is expected to grow at a healthy pace on the back of increased government focus on housing sector, revival in private and government capex. Moreover, sunrise segment such as EVs, renewable energy, data centres, digital connectivity, defence among others will also provide new levers for growth.

FMEG business to continue its impressive run: Polycab forayed into FMEG business in FY14 and has seen an impressive run registering CAGR of 27% over FY18-22 and currently constitutes 10% of its overall revenue. We expect the FMEG business to register 20% CAGR over FY22-24E as company would leverage its pan India presence, brand equity and also increase its product portfolio.

Strategic initiatives to result in higher profitability: Polycab has undertaken three key initiatives to drive growth and higher profitability. Firstly, Project ‘Leap’ which focuses on a range of strategic themes and initiatives focused on growth, profitability and long-term capacity building for the organisation across B2B and B2C businesses. The company has targeted revenue of Rs. 200 billion by FY26 (Rs. 122 billion in FY22). Project ‘Shikhar’ has also been announced in Jan-21 which focuses on sales acceleration. Additionally, Project ‘Udaan’ is also undertaken as a strategic cost optimization initiative with a view to build a leaner organization.

Valuations: Put together, a positive industry growth outlook coupled with Polycab’s strong brand equity, healthy free cash generation and stable return ratios make it one of our preferred picks in the sector. We estimate Polycab to register a Revenue/ EBITDA/PAT CAGR of 16.2%/28.6%/31.1% over FY22-24E led by both wires & cables and the FMEG business. Hence, we recommend a Buy on the stock with a target price of Rs. 2,912 valuing the company at 30x FY24E EPS.

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