Polycab reported a strong recovery in the business during Q2FY21 post easing of lockdown restrictions. Consolidated revenue fell ~6% YoY in Q2FY21 led by a similar decline in revenue of its core business i.e. wire & cable. While cable demand remained muted throughout the quarter, the housing wire segment (~40% of total wire & cable segment) witnessed strong double digit growth in Q2FY32 supported by good demand from semi urban and rural regions. Despite such a challenging scenario, gross margins increased ~180 bps YoY led by better mix. The EBITDA margin improved 266 bps YoY to 14.8%, also supported by lower other cost. The management has indicated at continuous demand improvement QoQ post opening up of the economy. The company also increased its focus towards export markets and recorded export revenue growth of 47% (excluding Dangote order) in Q2FY21. We maintain our positive stance on the stock, considering Polycab's strong fundamentals, strong business recovery, stringent working capital management to reduce risk on the balance sheet.
Valuation & Outlook
Polycab witnessed a strong business recovery in Q2FY21. Management commentary suggests even improved performance in H2FY21 vs. H1FY21. This along with focus on profitable growth (at elevated margins) in the FMEG business along with stringent working capital management are likely to improve RoCEs, RoEs, going forward. We revise our estimates upwards for FY21E and FY23 respectively. We also introduce FY23 estimates with revenue CAGR of 11% in FY20-23E led by FMEG business that is likely to grow at 17% CAGR, going forward. We reiterate our BUY recommendation with a revised target price of Rs. 1040/share (valuing at 17x FY22E).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Polycab_Q2FY21.pdf