Aditya Birla Money has come out with its report on Polycab India. The research firm has recommended to "Subscribe" the IPO in its research report as on April 05, 2019
Indian cable and wire industry has grown at a CAGR of 11% over FY13-18 to`525bn and is expected to grow at a CAGR of 12% over FY18-23E on the back of focus on electrification of rural areas (as per CRISIL research). Polycab dominates the industry with 12% market share of the overall market and 18% share of the organized market. The growth in the past (FY14-18) has been in favour of organized market (13% vs 7% in unorganized market) and is expected to lead the growth going ahead too (17% over FY18-21E vs 8% for unorganized market). Polycab manufactures wide range of cables and wires which caters to most of the consumer needs viz construction, mining, infrastructure, metals, cement etc. It has also ventured into FMEG in 2014, manufacturing products
like fans, LED lighting, switches & switch gears, luminaries, solar equipment etc. which contributed 8-9% to the total revenue of the company. This segment is also expected to do well, given Polycab’s long standing relation with the distributors and strong brand recognition.Valuation and Outlook
Started as a trading business back in 1964, Polycab has transformed itself into the largest player in cables and wires industry which demonstrates promoters vision in identifying opportunity and addressing the same. Polycab being the largest player in cable and wire industry is a well-known brand in the industry with long standing relationships with suppliers as well as customers. It has also ventured into FMEG segment so as to leverage its brand and relationships developed over years and introduced “Josh” project which is aimed at scaling FMEG business. Its revenue, EBITDA and PAT has grown at a CAGR of 14.2%, 22.9% and 41.6% respectively over FY16-18 with its operating margins improving from 9.4% in FY16 to 10.9% in FY18 and 12.6% in 9M FY19. Its ROE has improved from 10.4% in FY16 to 15.8% in FY18. It is valued at ~`80bn on post issue basis implying PE of ~16.8x on annualized profits of 9MFY19 which is at ~15% discount to other listed players. We have SUBSCRIBE rating on the issue from Short Term perspective.
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