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Strong topline growth: Polycab registered a strong topline growth of 42.1% YoY to Rs 3,889 Cr however declined by 10% sequentially on the account of high base. Revenue from domestic business stood at ~Rs 3,542 Cr (91.1% of overall revenue) while the international market witnessed exceptional growth of 88% YoY to ~Rs 345 Cr accounting 8.9% of the overall revenue. Amongst segments, Wires & Cables witnessed healthy demand in domestic as well as international markets with revenue of Rs 3,534 Cr, up by 46.3% YoY while it declined by 13.4% QoQ. Its FMEG segment revenue stood at Rs 315 Cr, reporting a moderate growth of 2.1% YoY/3.1% QoQ as the demand was subdued due to weak consumer sentiments.

Healthy volumes aid in margins improvement: Gross profit came in at Rs 1,060 Cr increasing by 49% YoY while it declined by 6% sequentially with a margin of 27.3% which expanded by 126bps YoY/117bps QoQ. EBITDA stood at Rs 549 Cr increasing by 76.3% YoY while it declined by 10% QoQ with a margin of 14.1%, an improvement of 274bps YoY and remained flat sequentially. The expansion of margins was supported by healthy volumes growth of ~50-60% YoY resulting in a better operating efficiency.

FMEG Business to witness gradual recovery on the margins front: Its FMEG segment revenue has grown at a CAGR of 6.4% over last 2 years however it has not transcribed into its margins as the segment has posted losses in recent quarters. In FY23, management had taken a strategic decision to rejig/overhaul its distribution channel which would gradually result in profitability. Given its historical implementation of strategies, we anticipate FMEG segment to turn profitable by the end of FY24 while the demand revival in the industry would further aid the growth.

Concall and other key highlights: 1) Cables grew at a higher pace than of wires, Cables & Wires mix at 72:28. 2) The company increased its international presence to 72 countries. 3) Switches business grew by 3.8x over last year on the lower base. 4) B2B business recorded remarkable growth, and the company aims to increase its presence in the under penetrated areas. 5) Geographical distributors split; 31% for North, 29% for South, 20% for West and East each. 6) Management indicated that the increase in working capital is temporary as it has increased its inventory in anticipation of high demand while suppliers may also undergo capacity maintenance. 7) Company is aggressively pursuing cross-selling opportunities to increase sales for Switchgear products. 8) FEMG business to witness gradual demand recovery from Q2FY24. 9) Robust real estate activities to keep the demand environment healthy for the company.

Outlook & Valuations: We anticipate Polycab to continue to be the industry lead in the organized Cables & Wires segment while its realignment of its FMEG distribution channel is expected to aid in margins and profit expansion gradually. Going ahead, it is in the process of entering into the Extra High Voltage (EHV) segment while it also looks to expand its presence in the international market; both these moves are expected to aid in the revenue growth for the company. Besides, it has strong brand equity, healthy free cash generation and stable return ratios, making it our preferred pick in the sector. We estimate Polycab to register a Revenue/EBITDA/PAT CAGR of 19.2%/25.1%/27.3% over FY23-25E. The stock has given strong move in last 1 year growing by ~2x and consequently is trading at a premium valuation, hence, we recommend Hold rating on the stock with a revised target price of Rs. 4,612 valuing the company at 33x on FY25E EPS.

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