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Last Updated : Apr 26, 2019 12:43 PM IST | Source:

Polycab India gains after Equirus initiates coverage with long call

With an around 18 percent/ around 12 percent market share in the organized/total market, Polycab (PIL) is a leading player in India's wires and cables (W&C) industry.

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Shares of cable and wire manufacturer Polycab India shares gained over a percent after Equirus Securities initiated coverage with long call and target price at Rs 712, implying 11 percent potential upside from current levels.

Key triggers behind the long call are scaling up volumes in the FMEG business with improvement in profitability, foraying into new product segment in the W&C space, distribution network expansion and improvement in the working capital cycle, the brokerage said.

The stock was quoting at Rs 643.20, up Rs 4.70, or 0.74 percent on the BSE, at 1159 hours IST.

With an around 18 percent/12 percent market share in the organised/total market, Polycab (PIL) is a leading player in India's wires and cables (W&C) industry.

A robust distribution network, wide product offerings, efficient supply chain management, strong manufacturing capabilities and brand image have driven its success, the brokerage said, adding strong initiatives by PIL and favourable growth dynamics should drive solid W&C business growth.

PIL forayed into fast-moving electrical goods (FMEG) categories to tap the strong growth potential and transformed the business from loss to profit-making in three years of operation. Equirus expects volume-led growth to drive a gradual improvement in this business.

"We feel entry into the FMEG business could be a key reason behind PIL's poor return profile. However, with the FMEG business breaking even in FY17 and turning profitable in FY18, return on equity/core return on invested capital (ROIC) have improved from 11 /11 percent in FY16 to around 17/13 percent in FY18. We expect a gradual expansion in core RoIC to 15.6 percent in FY22E," it explained.

Currently, its ROE estimates stand revised down to 15.5 percent in FY22 due to limited visibility on future expansion plans and dividend policy.

With growth levers in place, it initiated coverage on PIL with long and target price at Rs 712.

Risks to its call are macroeconomic slowdown, inability to scale up FMEG business division, lower than expected profitability, significant increase in working capital requirement, rise in competition.

Polycab India had debuted at 18 percent premium over its issue price of Rs 538 on April 16 after overwhelming response to its IPO.

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First Published on Apr 26, 2019 12:43 pm
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