In the past three months, the stock has outpaced the market by surging 71 per cent on strong September quarter results (Q2FY20) and inclusion in MSCI Global Small Cap Index with effect from November 26, 2019. In comparison, the S&P BSE Sensex was up 9 per cent during the same period.
In Q2FY20, Polycab’s net profit more-than-doubled to Rs 194 crore, on the back of strong revenue growth. It had logged profit of Rs 90 crore in the year-ago quarter. The bottom-line got an additional boost on the back of lower tax rates due to re-measuring of deferred tax assets/liabilities. The company’s revenue during the quarter grew 24 per cent year-on-year to Rs 2,242 crore driven by strong growth across segments.
Analysts at ICICI Securities believe organic growth in core business coupled with lower interest outgo (owing to loan repayment through proceeds from fresh issue) would drive profitability of the business, going forward. The brokerage firm likes Polycab for its market leadership position in cables & wire (C&W) category with strong growth in its fast moving electrical goods (FMEG) business, going forward.
Brokerage firm Indsec Securities and Finance initiate coverage on Polycab with ‘hold’ rating and target price of Rs 1,018 per share.
Analyst believes Polycab’s growth prospects are bright and it is well equipped to capitalize on any boost to the industry. The company’s robust distribution network also instills confidence. Given its market leadership position, healthy margin profile, its net cash position and its foray into the FMEG industry, we believe Polycab should command a premium over pure W&C peers.
Meanwhile, foreign portfolio investors (FPIs) have increased their stake in Polycab by more than 1 percentage points since listing. FPIs holding in the company rose to 3.75 per cent in September quarter from 3.33 per cent at the end of June quarter. They held 2.49 per cent stake as on April 15, 2019.