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Punchy valuation amid continued strong performance; Downgrade to NEUTRAL

Result Synopsis

Polycab has once again delivered strong performance with revenue growing by 29.3% yoy (9% ahead of estimates), with volume growth 30-40%. Cables has continued to outperform wires with institutional business growth outpacing distribution business growth. Margins continues to remain strong remains higher than the management guidance of 11-13%. FMEG has grown by 17%, driven by Fans growth followed by switchgears. Exports has made strong come back with exports revenue growing 60% on sequential basis contributing 7.7% to the revenue. Company expects traction in international business to continue and is targeting exports to be 10% of the revenue. Other’s segment has seen strong growth led from execution from government’s RDSS scheme. POLYCAB has strong order backlog Rs50bn to be executed over next 3-4 years. The company is confident of strong demand to continue in the ensuing years and have increased capex outlay to Rs11bn each year for next 3 years vs earlier capex of Rs8bn. Majority of the capex will be towards wires and cables segment for specialty cables and will have asset turn of 5-6x which will take care of strong growth that will arise from Power, Infra, manufacturing and Real-estate sector. We expect strong growth momentum to continue especially in its core category of wires and cables as continued capex, increased in real-estate constriction and exports opportunity will benefit company immensely. Also, FMEG segment should start to pose double digit growth in FY26 as re-structuring will be behind them. We estimate the company to now deliver FY24-26E revenue/EBITDA CAGR of 18%/17% respectively. We have increased our earnings estimates of FY25 and FY26 by 6.8% and 7.3% respectively. We have also increased our target multiple to 40x vs 35x as we see strong demand for wires and cables to continue and margins continue to remain higher than the management guidance. We however downgrade the stock to NEUTRAL with PT of Rs6,466 from ADD as there has been sharp runup in the stock price in past one month. This stock should be bought on every correction.

Result Highlights

* Quarter summary – Polycab has delivered better than expected performance in Q4 with revenue growing 29.3% yoy. Gross margin and EBITDA margin stood at 25.3% and 13.6% respectively. Better product mix has resulted in sequential margin expansion.

* Wires & cables – Wires and cables revenue grew 19.3% yoy as demand for cables continues to remain strong with company getting strong traction in institutional sales. Margins improved on yoy basis led by favorable mix towards cables.

* FMEG –FMEG business revenue grew by 17.3% YoY. Fans and Switchgears has been growth driver for FMEG, while lighting witnessing de-growth on back of poor consumer price erosion on LED lighting.

* Working Capital – Net working capital on average basis has been improving. Company’s gross borrowings has marginally inched up to Rs898mn vs Rs730mn in FY23.

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