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

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

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"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.

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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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