Accumulate Polycab India; target of Rs 950: Dolat Capital

Polycab is an established player in the wires and cables business with more than 5 decades of experience and is a market leader with more than 12% share. Polycab has been improving its mix over the last few years from a relatively commoditized cable and wire business to making inroads in the FMEG (Fast Moving Electrical Goods) segment, which currently contributes 9.4% to the revenue mix. Over the last 4 years, its cable business has grown at a ~9% CAGR while the FMEG business has grown at ~43% CAGR though from a low base, resulting in a profit CAGR of 37% over the same period. It has backward integrated to manufacturing copper rods, which helps it have control over quality and timing of manufacturing. It targets to grow the FMEG business majorly though inhouse manufacturing and expanding distribution.

While the business environment in FY21 is impacted by the pandemic, we expect it to bounce back in FY22 with a YoY profit growth of 28%. We value the company at 18x FY22E, giving us a TP of Rs.950 and recommend buying it on dips. We also expect the stock to get rerated in line with its mix changing from being 35% B2C to 50% B2C over the medium term.

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