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Healthy topline growth, however, EBITDA margin a slight miss!

Robust performance: Polycab India revenue came in at Rs 4,340 Cr, registering a growth of 16.8% YoY/2.9% QoQ primarily led by its core Cables & Wires business. Domestic distribution and institutional business reported robust growth with revenue contribution of 93.8% to Rs 4,071 while international business revenue contribution stood at 6.2% to Rs 269 Cr. PAT was Rs 417 Cr, up by 15.2% YoY while it declined by 3.1% sequentially with a PAT margin of 9.6%.

Mixed margin performance: Gross profit grew by 28.5% YoY/28.1% QoQ to Rs 1,283 Cr, benefitting from stable raw material prices as a result gross margin expanded by 269bps YoY/148bps QoQ to 29.6%. The stable raw material prices was offset by increase in other expenses (mainly due to rise in Advertising spends) impacted the operating performance. As a result, EBITDA was Rs 570 Cr, up by 13% YoY while it declined by 6.5% sequentially with a margin of 13.1% which contracted by 44bps YoY/132bp QoQ.

Cables & Wires: Cables & Wires (C&W) volumes grew by 20% YoY with Cables growing at a double digit rate while Wires grew in a single digit range. C&W Revenue grew by 16.8% YoY/2.6% QoQ to Rs 3,904 Cr, driven by healthy demand from Infrastructure & housing development as well as pickup in private capital expenditure across sectors aiding the growth. Its segmental EBIT came in at Rs 547 Cr, up by 19.2% YoY and marginally declined by 1.2% sequentially.

Underperformance in FMEG business: The weak consumer demand sentiments towards FMEG products like Fans, Switches and Switchgears impacted the segment as it de-grew by 13.4% YoY/10.2% QoQ to Rs 296 Cr. Consequently, its EBIT losses extended further to Rs 37 Cr from Rs 2 Cr in the same period last year. We anticipate this segment to continue to underperform due to seasonality as well as muted business environment.

Outlook & Valuation: Given Polycab’s leadership position in the industry and consistent addition of capacity, the favorable demand momentum from infrastructure and power sector would enable the company to continue to post healthy double digit volume growth. The monetization of its Extra High Voltage (EHV) business by FY26, will unlock further growth levers for the company making it a complete cables & wires company. Factoring this, we estimate its revenue/EBITDA/ PAT to grow at a CAGR of 20.7%/26.2%/26.7% over FY23-FY26E and recommend Buy rating with a target price of Rs 5,268 valuing the company at 30x on its FY26E EPS.

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