ICICI Direct is bullish on Polycab India has recommended buy rating on the stock with a target price of Rs 855 in its research report dated May 04, 2020.
ICICI Direct's research report on Polycab India
The Indian wire & cable industry faced a challenging scenario in FY20 on account of weak demand from end users, liquidity issues and slower private infrastructure spend. This was further exacerbated by nationwide lockdown at the end of FY20. Despite such a challenging scenario, Polycab India posted robust revenue, earnings growth of 11%, 53% YoY with improvement in EBITDA margin (up 130 bps YoY) and decline in interest cost by 60% YoY. The core business of Polycab i.e. wire & cable (85% of revenue) has grown 7% YoY supported by execution of strong export orders. On the other hand, fast moving electrical goods (FMEG) segment of Polycab posted robust ~30% growth in FY20 (increased its share of revenue from 8% in FY19 to 9.4% in FY20) driven by portfolio augmentation and expansion of dealer networks. Further, while FY21E is likely to be a challenging year for the core business, the company’s focus on increasing export business (contribution in sales grew to 12.3% in FY20 vs. 3.1% in FY19) may limit the impact on its wire & cable business. Also, pan India dealer networks would help it to recoup lost sales and recover faster from H2FY21 onwards compared to competitors. We also believe better EBITDA margin, lower interest cost and lower tax rate would help drive profitability of the company by 17% from FY19-22E.
Outlook
We believe Polycab’s performance has remained robust in FY20 despite various challenges. Strong balance sheet condition, market leadership position in wire & cable business and profitable growth in FMEG segment would help drive future growth of the company.
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