Multiple growth drivers could keep Polycab rally going despite valuations

At current price, company is trading at a steep 47 times its FY27 earnings

The stock of the largest cable and wire company Polycab has been hitting its all-time highs and gained 11.5 per cent over last month and 39 per cent over a three-month period.

 

In comparison, the benchmark Nifty 50 is up about 2-4 per cent during this period.

 

Despite the sharp gains for the stock, brokerages have upgraded it on structural growth drivers, market share gains and margin expansion. At the current price, the company is trading at a steep 47 times its FY27 earnings.

 

The company has increased its market share by 12 percentage points over the last five years to about 31 per cent in the domestic organised cable and wire sector.

 

In addition to demand uptick from power, infrastructure and real estate, what has helped it to rake in the gains is manufacturing scale which is twice that of peers, a robust portfolio of 10,000 stock keeping units (SKUs) and a vast network of dealers and distributors.

 

For Jefferies Research, Polycab remains a key conviction pick led by consistent market share gains. The brokerage has hiked its target price to ₹10,920 from ₹9,770 and considers the company a power proxy play given expansion in the infrastructure sector.

 

Among the triggers is a strong order book in the revamped distribution sector scheme (power) and BharatNet (rural broadband) infrastructure projects.

 

The order book from these two projects is ₹11,300 crore and is expected to add about ₹1,800-2,000 crore to revenue in FY27.

 

Given multiple growth drivers, Motilal Oswal Research expects revenues and operating profit to rise 22-23 per cent over FY26-28. Analysts led by Sanjeev Kumar Singh of the brokerage said, “Despite near-term challenges, demand remains strong, while ongoing capacity expansions position the company to capitalise on the upcycle and sustain growth.”

 

The brokerage has a buy rating with a target price of ₹11,950. 

 

Traction in the fast moving electrical goods (FMEG) sector is another trigger as the company is expected to sustain breakeven at the operating profit level. The segment has now been profitable for five consecutive quarters with segment margins coming in at 2.7 per cent compared to a loss of ₹38.9 crore in FY25.

 

Within the FMEG space, solar was the growth driver as it registered a 3.5 times growth year-on-year (Y-o-Y) and is now the largest and fastest growing FMEG category.

 

Recovery is also led by premium fans, B2C switchgears and switches. Equirus Securities says that the 8-10 per cent margin goal still looks aspirational, but FMEG has structurally shifted from being a drag to a compounding lever.

 

The key monitorables in FY27, according to Manoj Gori of Equirus Securities, are export recovery, margin gains in FMEG towards guided range, and margin resilience in its core wire and cable business.

 

With ₹6,000 -8,000 crore capex queued under the company’s multi-year strategic roadmap, Project Spring and scaling up of extra high voltage cables, the runway stays long, they added.

 

The brokerage does not see any execution challenges for the company.

 

Going ahead, Kotak Research expects the growth outperformance to continue with the scale-up of exports, operationalisation of the new EHV cable unit and higher focus on fast-growing segments such as data centres, electric vehicles and defence.

 

Polycab, according to the brokerage, deserves a higher target multiple than its peers, considering its superior growth profile, return ratios and free cash flow generation.

 

While it has raised its target multiple to 33 times June 2028 estimates to align with its long-term industry forecasts and broader pecking order within the space, it has maintained a sell rating given expensive valuations.