Polycab India hits new high; stock zooms 90% from January low

Polycab share price: The management believes the FMEG industry is poised to accelerate its growth in the FY 2024- 25, driven by steady urban consumption and improved prospects for rural demand.

Polycab share price news: Shares of Polycab India hit a new high of Rs 7,260, up  2 per cent on the BSE in Monday's intraday trade, on healthy demand outlook. With this, the stock of the fast moving electronic goods (FMEG) company has also recovered 90 per cent from its low of Rs 3,812.35, hit on January 11, 2024.

The company is India's largest manufacturer of wires & cables (W&C) and one of the fastest growing FMEG companies with a consolidated turnover of Rs 18,039 crore in FY24.

In the past two months, the stock has outperformed the market by surging 30 per cent after the company’s revenue grew by 29 per cent year-on-year (Y-o-Y) at Rs 5,592 crore in the March 2024 quarter (Q4FY24), on the back of a strong volume growth in W&C business. Profitability for the quarter crossed the threshold of Rs 500 crore for the first-time ever, as the company posted a profit after tax of Rs 553.5 crore in Q4FY24, a growth of 29 per cent Y-o-Y.

Earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin for the quarter improved by around 50 bps sequentially to 13.6 per cent, on account of better operating leverage and lower advertisement and promotion (A&P) spends. The margin, however, was down by 40 bps from 14.0 per cent in Q4FY23.

The company remains optimistic about the growth prospects of the W&C industry in the near to mid-term. The government’s continued emphasis on infrastructure creation, coupled with an uptick in private corporate investment, and buoyant business optimism could nurture a sustained revival in the investment cycle, which augurs well for boosting W&C industry growth in the near future.

"Besides, the current upcycle in the real estate sector will further boost the W&C industry demand. Furthermore, the shift towards renewable energy in India is another exciting development. India’s ambitious renewable energy goals are creating a lucrative market segment for specialised cables suitable for solar and wind power applications," Polycab said on its business outlook in its FY24 annual report.

Polycab said the company has increased its capex plans, having spent Rs 860 crore in FY24. It is also planning to spend another Rs 1,000-1,100 crore in the next three fiscal years each. Additionally, specific to wires, the company is strategically targeting the unorganised market, predominantly present in tier 3 to 5 cities of the country.

The management believes the FMEG industry is poised to accelerate its growth in FY25, driven by steady urban consumption and improved prospects for rural demand.

That apart, while acknowledging the shortcomings in the company's FMEG business execution, Polycab said it is embarking on a transition journey by establishing distinct product-focused units to enhance performance and drive growth. While this may lead to temporary stagnation in the segment's performance during FY25, the proactive measures under Project LEAP are poised to yield substantial long-term benefits, the company said.

Analysts at Prabhudas Lilladher expect revenue, Ebitda, and PAT CAGR of 17.9 per cent, 17.4 per cent and 16.6 per cent, respectively over FY24-26. This will be led by a strong domestic demand environment supported by the government's measures and revival in private capex and expected improvement in international business. FMEG segment reported impressive growth last fiscal on the back of a strong season, expected to continue in coming years, the brokerage firm said.

Robust C&W volume growth is expected to continue, given good government and private capex. EPC business is also on a strong growth trajectory. The company has increased the capex guidance to Rs 1,000-1,100 crore annually for the next three years.

"Polycab has successfully consolidated its leading position in the C&W industry by performing consistently. Going forward, a strong focus on government and private capex, a comprehensive product portfolio, scaling up of the FMEG business, and exports are key growth drivers. We envisage a 19 per cent/~18 per cent revenue/PAT CAGR over FY2024-FY2026, with a good RoCE of 31 per cent,” brokerage firm Sharekhan had said in its Q4 result update. The stock, however, is trading above the brokerage firm’s target price of Rs 7,040.