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Strong delivery continues; gains market share further

Market share at ~25-26% of domestic organized cables & wires market

* Polycab India (Polycab)’s 4QFY24 performance was ahead of our estimates. It reported an EBITDA of INR7.6b (15% above our est.) led by higher revenue growth (12% above est.) and a better margin in the cables & wires segment (15.1% vs. estimated 14.3%). Profit stood at INR5.5b vs. est. of INR4.7b.

* Management believes that the company’s market share stands at ~25-26% of the domestic organized cables & wires market (vs. 22-24% in FY23). Rural demand has improved, leading to higher sales for FMEG products, which, along with an increase in private sector capex, should boost growth.

* We recently initiated coverage on Polycab with a BUY rating. We like the company due to its strong performance in the cables & wires segment, where it has a leadership position as well as strong margin delivery. We raise our EPS estimates by 5% each for FY25 and FY26, considering higher growth in FY24. Reiterate BUY with a TP of INR7,850 (premised on 50x FY26E EPS).

Revenue/EBITDA up 29%/25% YoY; cables & wires’ margin at 15.1%

* Polycab’s revenue was up 29% YoY to INR55.9b led by strong growth in all business segments. EBITDA grew 25% YoY to INR7.6b, while OPM was at 13.6% vs. 14.1%/13.1% in 4QFY23/3QFY24. PAT rose 29% YoY to INR5.5b. Ad spending stood at 0.7% of revenue vs. 0.6%/2.0% in 4QFY23/3QFY24.

* Revenue for the cables segment was up 24% YoY to INR48.6b, while EBIT rose 25% YoY to INR7.4b. EBIT margin was 15.1% vs. 15.0%/14.0% in 4QFY23/3QFY24. International business contributed 7.7% to the revenue vs. 12.5%/6.2% in 4QFY23/3QFY24.

* Revenue for the ECD segment increased 19% YoY, while EBIT loss stood at INR459m vs. a loss of INR70m in 4QFY23. Management indicated that Fans’ demand growth was better fueled by a new range of BLDC and premium fans. Revenue for the EPC business surged 4.6x YoY/2.2x QoQ due to improvements in government projects, while EBIT surged 7.1x YoY/5% QoQ.

* In FY24; revenue was up 28% YoY, led by 26% growth in cables & wires. EBIT of the cables & wires segment improved 40% YoY, while margin expanded 1.6pp YoY to 14.7%. Overall, EBITDA was up 35% YoY to INR24.9b, while OPM improved 70bp YoY to 13.8%. Profit rose 41% YoY to INR18b.

* OCF declined 9% YoY to INR13b in FY24 due to an increase in working capital requirements. RoE improved to 21.8% from 19.1% in FY23. Working capital days increased to 65 from 63 days in FY23, while working capital days including acceptances increased to 103 days from 94 in FY23.

Key highlights from the management commentary

* There are encouraging signals for rural demand improvement, which boosted sales of FMEG products. The EHV plant will become operational by end-FY26, and asset turnover should be 5-6x for this plant.

* The domestic cables & wires business reported a volume growth of ~30-40% in 4QFY24/FY24. It will continue to deliver 12-13% EBIT margin on a sustainable basis in the cables & wires segment. The margin can see a positive bias sequentially based on the product mix.

* The decline in international business was due to a transition in the business model undertaken by the company in its largest demand geography, the US. This transition will take another three to five quarters to stabilize. Business from other geographies will continue to show robust growth in this period.

Valuation and view

* We estimate Polycab’s EBITDA/profit CAGR at 15% each over FY24-26. We expect a cumulative FCF of INR16b during FY24-26, despite higher capex (INR10b each in FY25/26). RoE and RoIC are expected to be at 21% and 26%, respectively, in FY26 vs. an average of 16% and 17% over FY15-24.

* We reiterate our BUY rating on Polycab with a TP of INR7,850 (based on 50x FY26E EPS), considering a strong earnings CAGR, better return ratios, and a strong balance sheet (net cash of INR31b in FY26E).

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