Buy Polycab India; target of Rs 1359: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Polycab India

We increase our FY21/ FY22/ FY23 earnings by (0.9%)/ 2.7%/ 4.4% and reiterate our positive stance on Polycab given 1) increased B2C mix (40% from 33%) 2) strong consumer demand 3) sustained improvements in FMEG margins and 4) distribution expansion. We remain positive on emerging growth opportunity given 1) pick up in renovation/ construction activities 2) distribution expansion 3) 29% 3Q growth in exports (ex Dangote) 4) gains from unorganized sector and 5) launch of IOT based ECD brand HOHM. Despite commodity headwinds, Polycab remains confident of sustaining/ improving margins in W&C & FMEG through 1) Cost savings initiatives 2) distribution expansion 3) changing mix 4) calibrated price actions and 5) gains from operating leverage.

Outlook

We estimate PAT CAGR of 18.1% over FY21- 23E. We value the stock on SOTP basis and arrive at a target price of Rs1,359 (derived PE of 18.8x FY23 EPS; W&C/ FMEG valued at 18x/ 25x). Steady increase in B2C mix will likely rerate the stock in long term. Reiterate BUY.

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