YES Securities' research report on Polycab India
Polycab reported stronger than expected numbers led by healthy revival in domestic B2C segment and exports. C&W segment revenues declined 5% yoy; the decline was lower-than-expected on account of double digit growth in housing wires and 47% yoy growth in exports. However, domestic B2B segment declined 30-40% yoy due to slower execution in infrastructure projects. Excluding Dangote revenues (Rs440mn), exports jumped 400% yoy led by increasing presence in export market. Recovery in revenues is also aided by the strong increase in copper prices. FMEG growth of 24.7% yoy was quite higher than our expectations. Growth was led by improved pricing, superior product mix and strengthening of distribution network. EPC segment revenues remained weak as order inflow remained low and execution challenges persist. The company continues to witness demand recovery across major segments in October. We maintain our positive stand on Polycab post the Q2 results. The sturdy performance reported by the company in Q2 despite the challenges witnessed by the industry is quite encouraging. We believe the company would be able to gain market share in the FMEG segment as it keeps on investing into increasing reach, brand visibility and into new products. Polycab’s robust balance sheet and strong brand recall would allow it to invest into this business (R&D and A&P) and would accelerate market share gains in the FMEG space.
We believe valuation re-rating would continue led by the strong brand presence, robust balance sheet, healthy return ratios and increasing share of B2C FMEG business. Current valuations of 15.3x FY23E P/E appear reasonable. We maintain our Buy rating on the stock with a revised target price of Rs1,118 (20x Sept’ 22 P/E).
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