Polycab Q1 Result Review - Strong Net Profit Beat; Earnings Upgrades Could Drive Valuations: Systematix

Systematix Research Report

Polycab India Ltd.’s large profit after tax beat (up 82% YoY at Rs 4 billion versus ~Rs 3 billion estimated) was driven by cables and wires division (volume/revenue up 50% plus/47% YoY, 14.8% Ebit margin).

Management expects strong traction in domestic cables and wires (on healthy public and private capex) and exports (Q1 revenue up 88% YoY) to sustain.

Fast moving electrical goods' soft results (Q1: flattish revenue, Rs 57 million Ebit loss) too should improve after channel rejig; 10% margin guidance by FY26 is intact.

Tracking strong results, management hopes to achieve Rs 200 billion revenue, ahead of its earlier guidance for FY26. Management has also raised Ebitda margin guidance to 12-14% from 11- 13% earlier.

Post strong Q1, we once again raise our FY24E/25E earnings by ~6%/8% each (post ~5% upgrade in June 2023) to estimate higher revenue and margins.

With sustained traction across divisions, we now project 17%/ 20%/ 22% compound annual growth rate in revenue/ Ebitda/profit after tax over FY23-25E (FY18-23: 16%/ 21%/ 29%), with return on invested capital of ~42%, return on equity of ~20%, and likely strong free cash flows.

‘Project LEAP’ provides comfort on Polycab’s long-term sustainable growth.

Polycab scrip has significantly re-rated since listing in April 2019, backed by consistent results and earnings upgrades. We stay positive on the cables and wires industry and remain inclined towards Polycab and KEI Industries Ltd., but with moderate return expectations in the near term.

Maintain 'Hold' on Polycab with a revised target price of Rs 4,449 (earlier Rs 3,768), based on 35 times FY25E price/earning (earlier 32 times).

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