Buy Polycab India Ltd For Target Rs. 8,000 By JM Financial Services
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. For all businesses, the outlook also appears robust, supported by macro tailwinds and capacity expansion in C&W, the right strategy and real estate demand in FMEG, and a healthy order book with large orders expected to open for bidding in EPC. We increase our FY26/27E EPS estimates by 3%, and maintain BUY with a revised target price of INR 8,000 (INR 7,900 earlier) 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. 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 bought-out 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 C&W business reported 33% YoY growth (domestic +34% YoY) aided by increased government expenditure, spend on infrastructure and rising commodity prices. C&W exports grew 24% YoY growth, over a weak base. Polycab’s 1Q C&W EBITDA margin also expanded by 210bps, one key driver of which, we believe, is the growth in exports. The FMEG business also saw sustained growth momentum with improved profitability. This vertical registered 18% YoY growth, +2x growth in solar offsetting a weak quarter for fans. The FMEG EBITDA margin stood at 4.2% vs. 1.7% YoY.
* Robust outlook in all businesses: Polycab seems to be in for exciting times with a robust outlook in all businesses. (1) In the C&W business, government expenditure is picking up and should aid demand for cables. Further, the increase in the market share of organised players should also continue as they augment their capacities and capabilities. In exports, Indian manufacturers continue to be preferred over Chinese suppliers given better quality and new capacities should place Indian manufacturers in good stead to compete globally. (2) In FMEG, relevant efforts on premiumisation, an improved product portfolio and promotion should drive growth and constant improvement in profitability, further supported by a macro tailwind in terms of real estate demand. (3) In the EPC business, the order book is strong at INR 80bn, executable over 3 years with several large orders expected to come up for bidding.
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SEBI Registration Number is INM000010361
