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Muted consumer demand…dim outlook

Polycab India Ltd is one of India's largest wire and cable manufacturers, providing electrical solutions to households as well as industries.

• Polycab’s consolidated revenue rose 26.6% YoY in Q2FY24 to Rs. 4,218cr, led by robust volume growth in its domestic wires and cables business.

• EBITDA increased 42.7% YoY to Rs. 609cr and EBITDA margin improved 160bps YoY to 14.4%, supported by better operating efficiency and a more favourable product mix.

• A buoyant real estate sector and government initiatives have contributed to the robust growth of the wires and cables segment. Strong demand for its products and services, favourable market conditions, growth in its international business, and branding initiatives are expected to support the company’s profitability. However, a sharp rise in input costs, muted consumer demand, heightened competitive pressures and limited stock upside potential due to high valuation remain key risks. Therefore, with a cautious outlook, we downgrade to SELL rating on the stock with a revised target price of Rs. 4,473, based on 35x FY25E adjusted EPS.

Surge in wires and cables volume boosts revenue

Polycab’s consolidated revenue rose 26.6% YoY in Q2FY24 to Rs. 4,218cr, supported by significant volume growth in the wires and cables segment. Revenue of the segment rose a sharper 27.8% YoY to Rs. 3,805cr, owing to robust volume growth amid sustained demand, supported by government capex and an upbeat real estate market. Meanwhile, the international business contributed 9.3% to total revenue, with the company expanding its presence to 76 countries. Despite the persistent challenges in consumer demand within its core fans and lights divisions, the fast-moving electric goods (FMEG) business achieved an 8.2% YoY growth, driven by robust switchgears and conduit pipes & fittings sales. The ‘other’ segment, which primarily comprises the engineering, procurement, construction business, posted a sharper 95% YoY growth.

EBITDA margin expansion led by operational efficiency

EBITDA increased 42.7% YoY in Q2FY24 to Rs. 609cr. EBITDA margin widened 160bps YoY to 14.4%, primarily driven by operational efficiency and a more favourable product mix in the wires and cables segment. Despite the increase in advertising expenses, the FMEG business was able to control margin contraction, owing to a shift in mix towards higher-margin products. Profit after tax stood at Rs. 430cr, up 58.8% YoY.

Key concall highlights

• In terms of capital expenditure, Polycab is looking to invest Rs. 600cr to Rs. 700cr in each FY24 and FY25.

• Also, its extra high voltage facility is expected to be commissioned by end-FY26.

• The company introduced a new brand identity as well to reflect its innovation, technology, and sustainability focus.

Valuation The management expects demand for its wires and cables to increase because of the sustained sharp growth of the real estate sector and government initiatives. The company's continued focus on product development, brand positioning and pricing strategies should also benefit its FMEG segment. However, rising input costs, subdued consumer demand, and heightened competitive pressures remain concerns. Additionally, the company is trading at a high valuation compared to its 3-year forward P/E. Therefore, we suggest cautious outlook and downgrade to SELL rating on the stock with a revised target price of Rs. 4,473 based on 35x FY25E adjusted EPS

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