Prabhudas Lilladher has come out with its report on Polycab India. The research firm has recommended to "Subscribe" the IPO in its research report as on April 04, 2019
Market leader in Wires & Cables: Polycab is India's largest manufacturer of wires and cables (88% of sales) with an organized market share of 18% (12% overall). It is one of the most versatile player with presence across high value added segments like electrical, marine, oil & gas, telecom, nuclear energy, infrastructure etc.
FMEG holds huge growth potential: Polycab also manufactures & sells FMEG (8% of sales) such as electric fans, LED lighting & luminaries, switches & switchgears, solar products etc. Premium positioning, dedicated distribution and strong brand recall in cables & wires has enabled it achieve Rs5bn sales much faster than some of its peers.
Valuation and Outlook
We recommend “Subscribe” rating to Polycab given 1) leadership with most versatile product range in cables and wires 2) strong distribution with 2800 distributors and over 0.1mn retail touch points 3) strong manufacturing base 4) diversification into premium FMEG segment with presence in fans, lighting, switchgears & switches and 5) likely reduction in working capital due to channel financing. Although FMEG is just 8% of sales, strong brand would enable faster scale up in the coming years. Recent export order of USD137mn for an upcoming refinery is a testimony of quality and growth potential in wires and cable business. Over FY16-18 Polycab has reported Revenue/EBITDA/PAT CAGR of 14%/24%/42% respectively with reported EPS (Pre IPO) of Rs26.2 in FY18 and ~Rs25.3 for 9mFY19. The offer at 20.5x FY18 EPS in line with Finolex cables (20xFY18 EPS) but at significant discount to ECD players like Havells (68xFY18 EPS) and Crompton Consumer (44xFY18 EPS). Steady increase in sales proportion of FMEG will re-rate the stock in the long term.
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