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Continued growth momentum and stock price correction results in upgrade; Upgrade to ADD

Result Synopsis

Polycab has registered mid-teens revenue growth with wires and cables growing at 17% yoy, with entire growth been driven by volumes. Cables has continued to outperform wires with institutional business growth outpacing distribution business growth. Margins continues to remain strong remains higher than the management guidance of 11-13%. FMEG has remained subdued, with its key categories like Fans and lighting witnessing de-growth on back of poor consumer demand and further~5%-6% price erosion in LED price on top of ~20% price erosion that has been witnessed over past 15-18 months. Company has merged its FMEG and power business (which includes wires, switches & switchgears) verticals to increase the growth potential of the B2C products. The company continues to focus on brand building, new product development with focusing on new SKU launches and continuing its A&P spends in the range of 3-5% of the B2C sales. The company has overshot its capex for FY24 as it has been ahead of curve in increasing the capacities to tap the strong demand momentum. Polycab is well placed to benefit from strong demand coming from real estate and increased capex activity.

We expect strong growth momentum to continue especially in its core category of wires and cables as continued capex, increased in real-estate constriction and exports opportunity will benefit company immensely. Also, FMEG segment should start to pose double digit growth in FY26 as re-structuring will be behind them. We estimate the company to now deliver FY23-26E revenue/EBITDA CAGR of 71%/21% respectively. We have largely maintained our earnings estimates of FY25 and introduced FY26 with revenue and EBITDA growth of 15% each. Given the sharp correction in the stock price on back of news related to IT search and industry tail winds that company enjoys we upgrade the stock to ADD with PT of Rs4,951 valuing the company at 35x Sep’25 EPS.

Result Highlights

Quarter summary – Polycab has delivered inline performance in Q3 with revenue growing 16.8% yoy. Gross margin and EBITDA margin stood at 27% and 13.1% respectively. Higher A&P spends have resulted in contraction in EBITDA margin on sequential basis.

Wires & cables – Wires and cables revenue grew 16.8% yoy as demand for cables continues to remain strong with company getting strong traction in institutional sales. Margins improved on yoy basis led by favorable mix towards cables.

FMEG –FMEG business revenue de-growth 13.4% YoY. Fans and lighting witnessing de-growth on back of poor consumer demand and higher base of previous year on account of stock liquidation activities prior to BEE rating transition.

Working Capital – Net working capital on average basis has been steady. Company’s gross borrowings has reduced to Rs932mn vs Rs1427mn in Q3FY23.

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