Buy Polycab India Ltd For Target Rs. 7,900 By JM Financial Services
1QFY26: A beat on all fronts; maintain BUY
Polycab’s 1Q performance was a beat on all fronts. While 33% YoY growth in the C&W business was a key highlight, the FMEG portfolio also reported steady growth and improved profitability (revenue +18% YoY, EBITDA margin at 4.2%, +250bps YoY). The C&W business benefitted from increased government expenditure and rising commodity prices, while the FMEG business maintained its growth momentum owing to demand from real estate. Another key highlight was the ramp-up in the high-margin export business, +24% YoY. While 1Q was a very strong quarter for Polycab, we await more clarity on the sustainability of this performance and the way forward. The concall is scheduled for 12PM tomorrow (click here to register). We maintain buy with PT of INR 7,900 set at 42x Jun’27E EPS.
* 1Q an overall beat, PAT +50% YoY: 1Q revenue at INR 59bn, +26% YoY, was a 2% beat on our estimate and a 5% beat on consensus estimates. This was driven by strong growth in the cables and wires (C&W) and FMEG business. EBITDA rose 47% YoY to INR 8.6bn, (12/15% beat on our/consensus estimates) driven by strong revenue growth, lower operating expenses and an operating-leverage-led 210bps YoY expansion in margins (14.5%, +120bps higher vs. our and consensus estimate). In this quarter, project boughtout costs was lower at INR 1.8bn vs. INR 2.8bn YoY, which aided margins. PAT stood at INR 6bn, +50% YoY; 13% ahead of our estimate and a 16% beat on consensus expectations for the quarter.
* Strong revenue growth in C&W and FMEG: Polycab’s strong 1Q performance was driven by strong growth in both the C&W and FMEG businesses. The 26% YoY revenue growth was the result of 33% YoY growth in the C&W business and 18% YoY growth in the FMEG business. The EPC vertical saw a YoY decline of 28%. This was driven by higher government expenditure for wires & cables and steady demand for FMEG products.
* Domestic C&W strong, exports ramping up well: Further splitting Polycab’s 1Q segmental performance we note that, while the overall C&W business registered a 33% YoY growth, growth in the domestic C&W business stood at 34% YoY, coming off a decent base. This was aided by increased government expenditure and rising commodity prices. As far as C&W exports are concerned, this vertical registered 24% YoY growth, over a weak base wherein Polycab’s US distribution rejig has impacted export performance. Polycab’s 1Q C&W EBITDA margin also expanded by 210bps, one key driver of which, we believe, is the growth in exports.
* FMEG momentum continues; profitability improves as well: FMEG segment maintained its healthy growth momentum, rising 18% YoY, aided by steady demand from the real estate sector, which in turn aided growth in categories like lights, switchgears, switches, and conduit pipes and fittings. Owing to a weak summer, the fans segment witnessed a muted performance. However, this weakness was offset by the growth in solar products which emerged as the largest category within FMEG, growing >2x YoY. The FMEG EBITDA margin stood at 4.2% vs. 1.7% YoY.
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