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Strong B2B demand; Model strong growth momentum in FY24-25

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)

Q1FY24 performance

Strong earnings momentum continued for Polycab in Q1FY24 as it posted revenue, EBITDA and PAT growth of 42.1%, 76.3% and 80%, respectively YoY. EBITDA margins improved 270bps YoY due to weaker commodity prices and prudent price revisions.

Cables and wires outperform; FMEG remains muted

Cables and Wires reported 46.9% revenue growth YoY whereas FMEG reported muted revenue growth of 2.1% YoY. Weak consumer demand impacted performance of FMEG. Others segment grew 53% YoY due to revival in infrastructure, real estate and capex. Exports reported healthy growth of 88% YoY due to strong order book and geographical expansion.

Strong institutional demand to drive growth

We model growth momentum in domestic business to remain strong due to (1) distribution rejig, (2) strong institutional demand and (3) likely revival in FMEG in H2FY24. We also model revival in fans business as the inventory of non-rated fans is largely over in trade. We also model value-for-money brand ‘Etira’ and premium brand ‘Hohm’ to be value drivers with improving maturity of these brands

Retain HOLD

We model Polycab to report PAT CAGR of 24.3% over FY23-FY25E and RoCE> 20% over FY24-FY25E. We revise our DCF-based TP to INR4,100 (implied P/E 31.4x FY25E) to factor in strong Q1FY24. We believe the stock price upside is limited at current valuations (31.4x FY25E). Maintain HOLD.

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