Polycab India makes strong debut; settles 22% higher over issue price

Polycab India shares made a strong stock market debut, ended at Rs 655, a 22 per cent higher against its issue price of Rs 538 per share on the BSE.

The stock of wires & cables manufacture opened at Rs 633, up 18 per cent against issue price on the BSE. It touched high of Rs 668 and a low of Rs 630 on the National Stock Exchange (NSE) in intra-day trade on Tuesday. A combined 25 million equity shares changed hands on the counter on the NSE and BSE today.

“The company has shown strong listing gain of around 22 per cent. However, we expect further upside in stocks considering its reasonable valuation compare to its peers. Further, Polycab’s market leadership position in wires & cables segment, diversified product portfolio, strong distribution network & brand recall and proven financial track record are the key positives,” said Amarjeet Maurya, AVP – Mid Caps, Angel Broking.

The company's Rs 1,345-crore initial public offering (IPO) had got an overwhelming response and was subscribed 52 times. The issue received bids for over 916 million shares against the total issue size of 17.6 million shares, as per the exchange data.

The reserved portion for a non-institutional investor has been subscribed 110 times and qualified institutional investors by 92 times, while retail investors part is subscribed 4.65 times, data shows.

The IPO includes a fresh issue of equity shares of up to Rs 400 crore and offers for sale by promoter group & investors of up to 17.6 million equity shares.

The net proceeds from the fresh issue would be utilised in funding the working capital requirements of the company to the tune of Rs 240 crore. An allocation of Rs 80 crore will be made towards repayment of certain borrowings availed by the company and rest for general corporate purposes.

Polycab is India's largest manufacturer of wires and cables (88 per cent of sales) with an organized market share of 18 per cent (12 per cent overall). It is one of the most versatile players with presence across high value-added segments like electrical, marine, oil & gas, telecom, nuclear energy, infrastructure etc.

Analysts at Prabhudas Lilladher had recommended “Subscribe” rating to Polycab given leadership with most versatile product range in cables and wires, strong distribution with 2,800 distributors and over 0.1 mn retail touch points, strong manufacturing base, diversification into premium FMEG segment with presence in fans, lighting, switchgears & switches and likely reduction in working capital due to channel financing.

“Polycab’s revenue and profit after tax clocked 17 per cent and 35 per cent CAGR, respectively over FY15-18, while margin expanded to 10.7 per cent in FY18 from 9.2 per cent in FY15. Wires and cables industry is expected to see sustained demand driven by multiple favourable factors, and we expect growth momentum to sustain, going ahead as well,” analysts at Reliance Securities said in an IPO note.

Assuming moderate revenue growth of 12 per cent CAGR through FY19-21E, the company is valued at 11.3 times FY21E earnings, which appears to be justified considering its business model, steady growth and healthy return ratios, it said.