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Strong volume; steep RM inflation impacts margins

~75%-80% of RM hikes passed on; demand commentary upbeat

* Polycab India (POLYCAB) reported strong revenue growth of ~46% YoY in 3QFY26, led by ~54% growth in the cable & wire (C&W) segment. However, steep RM cost inflation impacted the C&W segment’s margins. Adj. OPM (~25bp employee cost provisioning impact) was at 12.9% (-85bp YoY; -1.6pp vs estimates) and Adj. EBITDA was at INR9.9b (+37% YoY; inline). AD spends as a % of revenue rose 50bp YoY/70bp QoQ. Adj PAT was at INR6.5b (+42% YoY; in-line).

* Management indicated that domestic C&W revenue grew ~59% YoY, led by ~40% volume growth. Wire growth outpaced cable demand due to inventory stocking by channel partners in the rising RM cost environment. Institutional sales grew higher than channel sales in cable, reflecting strong growth in the projects business. The company has remained cautious in passing on cost increases to consumers, and has passed on ~75%-80% of RM cost inflation. Exports contributed to ~6% of revenue vs 8.3%/6.5% in 3QFY25/2QFY26.

* We reduce our EPS estimates for FY26E by ~3% on lower margin for the C&W segment, while we maintain it for FY27-FY28E. The stock is currently trading at 35x/30x FY27E/FY28E EPS. We value POLYCAB at 40x FY’28E EPS to arrive at our TP of INR9,600. Reiterate BUY.

C&W/FMEG revenue up ~54%/18% YoY; Adj. OPM contracts 85bp YoY to 12.9%

* Consolidated revenue/adj. EBITDA/PAT stood at INR76.4b/INR9.9b/INR6.5b (+46%/+37%/+42% YoY and +16%/in line/in line vs. estimates). Gross margin contracted 1.1pp YoY to 24.6%. Adj OPM contracted 85bp YoY to 12.9%. Ad spend accounted for 1.2% of revenue vs. 0.7%/0.5% in 3QFY25/2QFY26.

* Segmental highlights: C&W revenue rose 54% YoY to INR68.5b, and EBIT increased ~37% YoY to INR8.3b (in line). EBIT margin contracted 1.5pp YoY to 12.2% (est. 14.5%). FMEG revenue grew ~18% YoY to INR5.0b. It posted an EBIT of INR139m vs. a loss of INR128m in 3QFY25. EPC and other’s revenue declined ~15% YoY to INR2.8b, EBIT declined ~49% YoY to INR139m. EBIT margin declined 3.2pp YoY to 4.9%.

* In 9MFY26, Revenue/EBITDA/PAT stood at INR200.9b/28.3b/19.0b; up ~30%/46%/47% YoY. OPM expanded 1.6pp YoY to 14.1%. OCF stood at INR22.1b vs. INR8.7b in 9MFY25. Capex stood at INR10.8b vs. INR8.2b in 9MFY25. FCF stood at INR11.3b vs INR400m in 9MFY25

Key highlights from the management commentary

* Institutional sales outpaced channel sales during the quarter, with institutional contribution improving ~200bp QoQ, supported by strong traction in power, utility, and infrastructure-led project demand.

* Margins in C&W were under pressure during the quarter due to: 1) a sequential increase in copper (+~21%) and aluminum (+~11%) prices, 2) a gradual passthrough of RM price increase, and 3) an adverse mix from higher institutional sales and lower export contribution.

* Capex in 3Q/9MFY26 was INR3.4b/INR10.9b. Management reiterated its capex guidance of INR12b-16b till FY30 under Project Spring. Net cash in 3QFY26 stood at INR30.3b

Valuation and view

* POLYCAB reported strong revenue growth in 3QFY26, which was significantly above our estimates. However, RM cost inflation impacted the C&W segment's margins. Demand for C&W continues to be driven by increased government and private spending, along with real estate demand. Management reiterated that the current pricing strategy is aimed at supporting distributors, and as a result, the company has gained market share. In FMEG, the company reported its fourth consecutive quarter of positive margin and reiterated its goal to achieve ~8-10% margin by FY30E.

* We estimate a CAGR of 19%/23%/21% in POLYCAB’s revenue/EBITDA/PAT over FY25-28E. We estimate OPM to stand at 13.9%/14.4%/16.5% in FY26/FY27/FY28 vs. 13.2% in FY25. Cumulative FCF during FY26-28E is expected to be atINR42.1b, which will further improve its liquidity position (estimate net cash to be at INR29.8b in FY28E vs. INR30.3b as of Dec’25). We reiterate our BUY rating on POLYCAB with a TP of INR9,600 (based on 40x FY’28E EPS).

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