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Mixed results; expensive valuation

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

* Polycab’s consolidated revenue rose 20.8% YoY to Rs. 4,698cr in Q1FY25, supported by broad-based growth across its segments.

* EBITDA increased 6.3% YoY to Rs. 583cr, while margin contracted 170bps YoY to 12.4%. It was led by increased cost of sales and adverse revenue mix. Adjusted PAT decreased 0.9% YoY to Rs. 396cr.

* Polycab reported strong growth in its topline, driven by growth in the wire and cables business, supported by strong growth in the EPC business and a seasonally robust performance in the FMEG business. Going forward, demand for the company’s products remains robust on the back of strong focus on government and private capex and improving macroeconomic conditions. However, at the current price levels, we believe the stock is overvalued. Hence, we downgrade our rating from HOLD to SELL on the stock with a revised target price of Rs. 5,955 based on 36x FY26E adjusted EPS.

Growth across all segments boost topline

In Q1FY25, Polycab reported a revenue growth of 20.8% YoY to Rs. 4,698cr, on the back of steady revenue growth of 10.6% YoY to Rs. 3,857cr (external sales) in the wires and cables business. This growth is mainly driven by continued growth momentum in the housing sector and strong execution of infrastructure projects. Further, revenue growth was helped by 21.2% YoY growth (external sales) in the fast-moving electric goods (FMEG) business on account of robust demand for fans amid heatwaves in several parts of the country. Also, growth in the switches & switchgears and conduit & fitting segment remained strong on rising real estate demand. Moreover, other segments reported a revenue growth of 292.4% YoY (external sales), led by robust execution of the engineering, procurement and construction (EPC) order book.

Key concall highlights

* During the quarter, the international business declined 28% YoY. Contribution from international business to consolidated revenue was at 5.3% for the quarter.

* The management addressed the income-tax raids, stating no written communication had been received regarding the same; hence, leaving the financial impact uncertain.

Margin lowers on changing business mix

Earnings before interest, tax, depreciation and amortisation (EBITDA) margin decreased 170bps YoY to 12.4% led by rise in cost of materials (83.4% of revenue vs. 72.6% in Q1FY24). Also, shift in business mix towards low-margin segments impacted the margin; contribution from the higher-margin international business and domestic distribution business declined, while that from lower-margin EPC business increased. Adjusted profit after tax shrank 0.9% YoY to Rs. 396cr.

Valuation

Polycab, India’s market leader in wires and cables segment, has strong product portfolio and is well-positioned to capitalise on the government’s thrust on infrastructure. In addition, growth is expected to be supported by the expansion of the FMEG and EPC segment, led by the growing real estate sector and improving consumer confidence. Margins are expected to remain under pressure in the near term due to volatile commodity prices and changing business mix. Nevertheless, the stock is currently trading at 38.0x FY26E P/E, higher than its historical three-year average P/E of 31.1x. Hence, we downgrade our rating from HOLD to SELL on the stock with a revised target price of Rs. 5,955, based on 36x FY26E adj. EPS.

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SEBI Registration Number: INH200000345