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Polycab India new target price: Mumbai-based domestic brokerage Nuvama has increased wires and cables manufacturer Polycab India’s target price to Rs 8,340 from Rs 7,700, implying an upside of over 25 per cent. The brokerage, however, has maintained its ‘Buy’ rating on the scrip.
“We believe the raw material (RM) price volatility may have a momentary impact while the medium-to-long term story stays intact. We are baking in revenue/Ebitda/PAT compound annual growth rate (CAGR) of 17 per cent/19 per cent/17 per cent over FY24–27E, lifting target price to Rs 8,340 (from Rs 7,700), valuing the stock at 48x (unchanged) and rolling forward to Q2FY27E earnings per share (EPS),” Achal Lohade, Harshit Sarawagi and Sayam Vanigota of Nuvama said in a note.
On the bourses, Polycab India scrip has risen 4 per cent in the past month while it has gained 37 per cent in the last six months. On Thursday, September 5, the Polycab India stock settled a little over 1 per cent lower at Rs 6,645.35. In comparison, BSE Sensex settled 0.18 per cent lower at 82,201.16 levels.
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Meanwhile, here are the key factors behind the increased target price:
Strong demand
Polycab has shown impressive growth in recent quarters, with revenue, earnings before interest, taxes, depreciation and amortisation (Ebitda), and profit after tax (PAT) showing CAGRs of 18 per cent, 21 per cent, and 29 per cent respectively from FY19 to FY24, analyst at Nuvama noted.
The company’s cables and wires (C&W) segment has led the industry with an 18 per cent CAGR over the same period, and this growth, analysts believe, is expected to continue due to strong demand and upcoming capital expenditures.
While the FMEG segment, which includes switches, lighting and fan, has faced challenges and incurred losses, analysts believe a turnaround is expected by FY26 due to product realignment, new product development, and selective price increases. Notably, the FMEG segment revenue grew at 15 per cent CAGR over FY19–24 despite unfavourable conditions.
Although exports, which account for 38 per cent of FY24 revenue, have been weak due to market transitions, they are expected to recover considerably by FY26.
“Raw material volatility is not a major threat to profitability in exports due to the pass-through mechanism. Polycab continues to enjoy a price premium of 200- 500bp (depending on categories) over peers in the domestic segment,” Nuvama added.
Expanding market share
Analysts pointed out that Polycab has consistently increased its market share, currently holding around 25-26 per cent of the organised market. The company's focus on power cables (LT/HT) and control cables, which have strong demand, positions it well for future growth.
Additionally, Polycab is set to achieve the Project LEAP goals ahead of the FY26 timeline. The management is now planning its next five-year strategy, considering the robust growth in the cable industry and expected FMEG turnaround.
The company further plans to invest Rs 1,000-1,100 crore annually in capex over the next few years, up from Rs 860 crore in FY24, to meet demand and further expand its market share.
Sustained dominance and growth
Polycab India, analysts believe, will continue to gain market share on the back of product portfolio expansion (e.g. EHV) coupled with industry consolidation (as smaller/regional players struggle to add significant capacity on capex/working capital challenges).
“Polycab tends to focus on the medium-to-long term horizon to achieve business growth, making it a long-term sustainable player in the segment,” analysts said.
On the downside, potential risks for Polycab include a slowdown in government and private capital expenditure, which could impact the company's growth. Additionally, ongoing weakness in consumer markets could further strain the FMEG segment. Another concern is the major drop in copper prices, which may lead to reduced revenue growth.
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