Buy Polycab India; target of Rs 1247: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Polycab India

We estimate 13% and 24% CAGR in sales of B2C wires and FMEG which will increase sales contribution mix (currently at 40%) to ~50% over next 5 years. Increase in scale of operations and improved mix will improve FMEG margins by 600bps over FY20-23. We estimate Sales/PAT to grow at a CAGR of 16.7%/ 15% over FY21-23E led by 14.4% and 28.8% sales CAGR for wires and cables and FMEG segments and 30bps margin expansion led by scale/mix. We value the stock on SOTP basis and arrive at a target price of Rs1,247(derived PE of 18x FY23 EPS; W&C/ FMEG valued at 18x/ 25x). Polycab trades at 14.9x FY23 EPS, which is at a premium to Finolex/KEI (12.4x/11.6x), but at a significant discount to ECD players like Havells/Crompton (46.8x/ 35x). Steady increase in B2C mix will likely rerate the stock in long term. We initiate coverage with BUY rating.

Outlook

We initiate coverage on Polycab with a BUY rating and target price of Rs1,247 on SOTP basis.

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