Buy Polycab India Ltd for the Target Rs. 4,300 by Motilal Oswal Financial Services Ltd
Strong quarter; market share improves further
FMEG turns profitable; likely to continue its upward trajectory
* POLYCAB’s 4QFY25 revenue grew ~25% YoY to INR69.9b (in line). EBITDA rose ~35% YoY to INR10.3b (+7% vs. est.) and OPM surged 1.1pp YoY to 14.7% (+50bp vs. est.). PAT grew ~33% YoY to INR7.3b (+13% vs. our est., led by lower interest costs and higher other income than our estimate).
* Management indicated C&W demand remains strong, led by good demand from the real estate sector, improvement in corporate investments, and government capex activities. Margin expansion in C&W was driven by improved operating leverage, while the FMEG segment benefitted from a richer product mix and better absorption of fixed costs. Management maintains its guidance of long-term sustainable EBITDA margin of ~11-13% for C&W; while FMEG segment’s margin is expected to improve to ~8-10% in next five years.
* We raise our EPS estimates by ~4%/5% for FY26/27 as we estimate lower interest costs and higher other income, led by a sharp increase in net cash. The stock is trading at 38x/32x FY26E/FY27E EPS. We value POLYCAB at 40x FY27E EPS to arrive at our TP of INR7,250. Reiterate BUY.
C&W/FMEG revenue up ~24%/33% YoY; OPM up 1.1 YoY to 14.7%
* Consolidated revenue/EBITDA/PAT stood at INR69.9b/INR10.3b/INR7.3b (+25%/+35%/+33% YoY and in line/+7%/+13% vs. our estimates). Gross margin increased 20bp YoY to 25.5%. OPM expanded 1.1pp YoY to 14.7%. Ad spending was 0.4% of revenue vs. 0.7% in 4QFY24/3QFY25 (each).
* Segmental highlights: C&W revenue rose 24% YoY to INR60.2b (in line), EBIT grew 23% YoY to INR9.1b (~11% beat), and EBIT margin was flat YoY at 15.1% (est. 14.0%). FMEG revenue grew 33% YoY to INR4.8b. It posted EBIT of INR19m vs. loss of INR459m/INR128m in 4QFY24/3QFY25. EPC and others revenue rose 33% YoY to INR4.9b, EBIT grew 52% YoY to INR404m, and EBIT margin expanded 1.0pp YoY to 8.2%.
* In FY25, revenue/EBITDA/PAT grew 24%/19%/13% YoY. EBITDA margin dipped 60bp YoY to 13.2%. C&W revenue/EBIT grew 18%/9% YoY, while EBIT margin contracted 1.2pp YoY to 13.5%. FMEG revenue grew 30% YoY, while the segment’s losses stood at INR389m vs. INR942m in FY24. OCF increased 39% YoY to INR18.1b, aided by improvement in working capital. Capex stood at INR9.7b vs. INR8.6b in FY24. FCF stood at INR8.4b vs. INR4.4b in FY24. Net cash stood at INR24.6b vs INR21.4b as of Mar’24
Key highlights from the management commentary
* Domestic business grew ~27% YoY. Cable growth outpaced wire growth YoY, while wire growth outpaced cable growth QoQ. West region recorded the highest growth, followed by South, North and East.
* Export revenue is expected to increase year over year, as POLYCAB aims to generate 10% of revenue from exports in the next five years vs. ~6% in FY25. The contribution of US sales in total exports was in high-teens in FY25 vs. 40% in FY24.
* Working capital improved to 49 days in Mar’25, led by lower inventory days as some of the raw material purchases were in transit. It will normalize at 55-60 days. Capex in 4Q/FY25 was INR1.3b/INR9.6b. Cumulative capex over the next five years will be INR60-80b.
Valuation and view
* POLYCAB has reported strong revenue growth across segments. EBITDA margin expansion was led by profits in the FMEG segment and improved margin in EPC business on the back of better execution. POLYCAB remains market leader in the C&W industry, benefitted from continuous capacity expansion and a strong margin trajectory. In FMEG, the company’s strategic initiatives for talent acquisition, product development and brand building help it achieve profits. Though the upward trajectory of this segment needs to be monitored in the coming quarters.
* We estimate a CAGR of 16%/17%/16% in POLYCAB’s revenue/EBITDA/PAT over FY25-27E. We estimate the company’s OPM at 13.1%/13.6% in FY26/FY27 vs. 13.2% in FY25. Its cumulative OCF is expected to be INR45.1b over FY26-27, whereas cumulative capex is likely to stand at INR25.0b. Cumulative FCF generation over FY25-27 will be INR20.1b, which will further improve its liquidity position (estimate net cash to improve to INR33.0b vs. INR24.6b as of Mar’25). We reiterate our BUY rating on POLYCAB with a TP of INR7,250 (based on 40x FY27E EPS).
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