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Result Synopsis

Polycab continues to witness strong growth in its core category of wires and cables led by demand coming from the cables segment and strong traction in international business. Volume growth at 50-60% remains encouraging with cables continuing to outshine wires. Margins have surprised positively and is currently higher than the guidance on back of judicious price revisions and higher operating leverage. FMEG has remained subdued, however its key categories like Fans, Switches and conduit pipes have seen sequential growth. Company’s GTM initiatives and rejig in distribution network is done with, company now expects growth momentum to return as company is planning to launch new products and SKU’s and demand is set to return as interest rates have peaked. The company continues to focus on brand building, new product development, premiumization of offerings and influencer management program which will lead to industry leading growth. 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 well as increased distribution, premiumization and improving customer satisfaction will lead to industry leading growth. Also, now with distribution transition largely completed FMEG segment should see growth going forward. We estimate the company to now deliver FY23-25E revenue/EBITDA CAGR of 16%/20% respectively. Given the strong traction seen in distribution led business, company should command higher multiple. We have increased our earnings estimates of FY24 and FY25 by 14.7% and 14.3% respectively on strong Q1 performance resulting in PT of Rs4,505. We however downgrade the stock to NEUTRAL as stock has seen significant rally in past few days and would wait for some correction to make a fresh entry.

Result Highlights

* Quarter summary – Polycab has once again delivered strong performance in Q1 with revenue growing 42.1% yoy. Gross margin and EBITDA margin stood at 26.5% and 14.1% respectively expanding on yoy basis.

* Wires & cables – Wires and cables revenue grew 46.9% yoy as demand for cables continues to remain strong with company getting strong traction in the export markets. Margins improved sequentially led by higher operating leverage and judicious price revisions.

* FMEG –FMEG business saw muted growth of 2.1% YoY. Fans and Switches business recovered on sequential basis, while lighting business saw decline on back of price correction in the LED segment.

* Working Capital – Working capital has increased in Q1. The increase is largely on back of increased inventory of raw material as company has ordered higher inventory copper as its vendor is expected to undergo annual maintenance shutdown and demand trends for wires and cables continues to be robust.

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