Buy Polycab India Ltd for the Target Rs.8,130 by Motilal Oswal Financial Services Ltd
Robust performance with strong volume growth
FMEG remains profitable despite seasonal headwinds
* Polycab India (POLYCAB)’s revenue jumped ~26% YoY to INR59.1b (~5% beat) in 1QFY26, led by robust volume growth in Cables and Wires (C&W). EBITDA rose ~47% YoY to INR8.6b (~16% beat), and OPM surged 2.1pp YoY to 14.5% (+1.4pp vs. our est.). PAT grew ~50% YoY to INR5.9b (~17% beat).
* Management indicated that C&W continues to deliver strong growth led by robust domestic demand and supportive commodity prices. It retains its long-term margin guidance of ~11-13%, considering geographical mix, volatility in commodity prices, capacity expansion, and expected rise in A&P spending. FMEG saw its second consecutive profitable quarter, led by premiumization, a better product mix, and operating leverage benefits. POLYCAB is confident of achieving its long-term targets of project Spring.
* We raise our EPS estimates by ~8%/3% for FY26/27 as we factor in higher revenue growth and margins. We also introduce FY28 estimates in this note. The stock is trading at 41x/36x FY26E/FY27E EPS. We value POLYCAB at 40x Jun’27E EPS to arrive at our TP of INR8,130. Reiterate BUY
C&W/FMEG revenue up ~31%/18% YoY; OPM up 2.1pp YoY to 14.5%
* Consolidated revenue/EBITDA/PAT stood at INR59.1b/INR8.6b/INR5.9b (+26%/+47%/+50% YoY and +5%/+16%/+17% vs. our estimates). Gross margin surged 2.3pp YoY to 26.9%. OPM expanded 2.1pp YoY to 14.5%. Ad spending accounted for 0.3% of revenue vs. 0.5%/0.4% in 1QFY25/4QFY25.
* Segmental highlights: C&W revenue rose 31% YoY to INR52.3b (~11% beat), and EBIT grew ~50% YoY to INR7.7b (~26% beat). EBIT margin surged 1.9pp YoY at 14.7% (est. 13.0%). FMEG revenue grew ~18% YoY to INR4.5b (in line). It posted EBIT of INR95m (est. INR44m) vs. a loss of INR28m YoY. The EPC revenue declined ~19% YoY to INR3.5b, and EBIT declined ~31% YoY to INR268m. EBIT margin dipped 140bp YoY to 7.7%.
* OCF stood at INR10.7b in 1QFY26 vs. an operating cash outflow of INR2.2b in 1QFY25, led by higher profitability and a reduction in working capital. Capex stood at INR4.1b vs. INR2.7b in 1QFY25. FCF stood at INR6.2b vs. a net cash outflow of INR5.1b in 1QFY25.
Key highlights from the management commentary
* In C&W, volume growth stood at 25%+ in 1QFY26. The cable contributed ~73- 74% to the segment’s revenues, while the balance was from wires. In the C&W organized market, the company’s market share was ~26-27% in FY25, with cables having a bit higher share at ~30% while wires had ~20% share.
* Every product category of FMEG experienced gross margin expansion. In this segment, the target is to grow 1.5-2.0x of the industry growth rate and achieve an EBITDA margin of 8-10% by FY30.
* Working capital improved to 43 days in 1QFY26 due to a temporary increase in payable days. Management expects this to normalize and revert to a long-term range of 50 to 55 days in the coming quarters.
Valuation and view
* POLYCAB reported higher-than-estimated earnings, led by 1) higher-thanestimated volume growth in C&W and 2) margin beat in both C&W and FMEG segments. The management remains optimistic about strong demand in domestic C&W, led by improving infrastructure spending, private sector investment, and an uptick in the real estate sector. Further, given the favorable global tariffs/policies, it believes that domestic players have an edge over Chinese players in most of the geographies in global markets. In FMEG, despite weak consumer demand, a shift towards premiumization has helped improve margins. Further, management aims to grow 1.5-2.0x that of the industry and achieve an EBITDA margin of 8-10% by FY30.
* We estimate a CAGR of 18%/21%/20% in POLYCAB’s revenue/EBITDA/PAT over FY25-28E. We estimate OPM to be at 14.2%/14.1%/14.3% in FY26/FY27/FY28 vs. 13.2% in FY25. Cumulative FCF over FY26-28E should be at INR42.4b, which will further improve its liquidity position (estimate net cash to improve to INR45.6b in FY28E vs. INR31.0b as of Jun’25). We reiterate our BUY rating on POLYCAB with a TP of INR8,130 (based on 40x Jun’27E EPS).
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