Buy Polycab India; target of Rs 950: ICICI Direct

ICICI Direct's research report on Polycab India

Polycab reported a satisfactory performance amid the Covid induced lockdown in Q1FY21 wherein it lost almost 40 days of its sales. Consolidated revenue fell 50% YoY in Q1FY21 led by a similar decline in revenue of its core business i.e. wire & cable. While cable demand remained muted throughout the quarter, the housing wire segment (~45% of total wire & cable segment) witnessed strong double digit growth in June led by pent up demand and pre-stocking due to price hike. Despite such a challenging scenario, gross margins increased ~50 bps YoY while EBITDA margin was at ~6% (down ~560 bps YoY), mainly due to low operating leverage. The management has indicated at demand improvement on a month on month basis post relaxation of lockdown. While the plant utilisation has reached 50-60% currently, the company reported a marginal growth in revenue for July 2020 (as on date). The company also increased its focus towards export markets and recorded export revenue growth of 116% in Q1FY21. The export revenue contribution to total topline increased to 10% in Q1FY21 vs. 2% in Q1FY20. We maintain our positive stance on the stock, considering Polycab’s strong fundamentals (that will help it to recoup its lost sales swiftly with a recovery in business activities) and stringent working capital management to reduce the risk on the balance sheet.

Outlook

We believe Polycab’s Q1FY21 performance was satisfactory despite such challenging demand conditions. Strong balance sheet, market leadership position in wire & cable business and profitable growth in FMEG segment in coming quarters would help drive the future growth of Polycab. We have revised our revenue, earning estimate up by 5% and 4% respectively for FY22E. We reiterate BUY with a revised TP of Rs 950 (valuing at 17x FY22E).

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