Polycab India breaks the fall to gain 3%, says no I-T demand served yet

Since January 9, Polycab India shares have crashed over 28 percent

The Polycab India stock was trading three percent higher on January 12 morning, a day after crashing 21 percent in its biggest single-day fall, after the company said it had not received any written communication from the income-tax department regarding the outcome of search.

The stock crashed on January 11 after I-T department that searched over 50 company premises said it unearthed "unaccounted cash sales" of about Rs 1,000 crore.

"While the post search proceedings will take its own course, the company will continue to fully cooperate with the I-T department in this regard. There is no material adverse impact on the financial position of the company," the management said in an exchange filing.

Since January 9, when the tax evasion report first surfaced, the scrip crashed 27 percent as investors shunned the stock of India's largest cable and wire manufacturer.

Though the company has been dismissive of the claims, market watchers say the “corporate governance issue” could break the overvalued stock price further.

ALSO READ: Polycab January 11 crash costs MFs Rs 940 crore, FIIs Rs 1,885 crore

"We expect another 15 percent fall for Polycab India in the days to come, as institutional investors may resort to aggressive selling with the company's corporate governance issue coming under limelight," independent market analyst said Ambareesh Baliga said.

Analysts at Axis Capital have reduced the target price for Polycab India to Rs 4,300 from Rs 5,809, factoring in uncertainties due to the I-T raid.

"We have cut earnings per share (EPS) estimates by 2-4 percent to factor in disruptions due to I-T raid in FY24 and lower cable and wires margins. We believe a multiple de-rating is inevitable till the charges are proven otherwise," they wrote in a recent note.

ALSO READ: Polycab volatility to persist as short buildup indicates weakness, support at 3,600

When reports of tax evasion emerged on January 9, Polycab India told stock exchanges it had not received any communication from the I-T department.

Two days later, tax officials said in a statement a preliminary analysis suggested that unaccounted cash sales, cash payments for unaccounted purchases, non-genuine transport, and sub-contracting expenses was done by a wire and cable manufacturer group for suppression of its taxable income.

Without naming the company, the IT department said that it searched 50 premises of the group in December.

Amid uncertainty, Anil R, research analyst at Geojit Financial Services, said they were waiting further clarity and until then, the stock would underperform due to higher volatility.

That said, as narratives change over a period of time, market expert Baliga said that it might be a forgotten news in the next 4-5 months, depending on the complete conclusion of IT raids at Polycab India.

Krishna Apalla, Senior Analyst at Capital Mind also noted that the findings and outcome of the raid are what matter. “IT raids are rare but not uncommon. They keep happening regularly for companies like Manappuram Finance, Astral, Shree Cement etc to name a few in recent past. A raid alone should not be an issue but outcome is important. Three months from now, the stock can also bounce back to its previous highs and move on,” he wrote in a X post.

Financially, the company has been delivering strong revenue growth and profits. Polycab India’s revenue from operations grew 15.6 percent year-on-year (YoY) to Rs 14,107 crore in FY23 from Rs 12,203 in FY22. Profits, meanwhile, increased to Rs 1,282 crore in FY23 as compared to Rs 917 crore in FY22.

Majority of the Street continues to remain bullish on the stock as over 60 percent of 31 analysts that track the company have a ‘buy’ rating on the stock, while 6 have ‘hold’ recommendation. Among analysts, Jefferies has the highest price target on Polycab India of Rs 7,000 per share.

Since Polycab India listing in 2019, shares have delivered positive returns every single year, the most in 2021 and 2023 – 138 percent and 113 percent, respectively.

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