Polycab reported a healthy Q3FY21 performance with consolidated topline and PAT increasing ~12% and 19% YoY, respectively. Growth was largely driven by B2C category products (~40% of overall topline). The fast moving electrical goods (FMEG) segment reported healthy growth of 41% YoY to Rs. ~306 crore while wires & cable business segment growth came in at 11% YoY to Rs. 2407 crore. On the wires & cable business, while housing wires continued their strong momentum led by distribution expansion & pick up in renovation works, cable demand remained sluggish owing to lower offtake by institutional clients. On the FMEG front, strong revenue growth is attributable to strong rural demand, better product mix and price hikes during the period. According to the management, higher government expenditure on infrastructure and construction activities would help in revival in the cable business going forward while growth momentum of FMEG business is likely to continue on a low base. On the cost front, the company witnessed a sharp rise in input prices (in the range of 15-50%), which was passed through partially. Polycab would take a further price hike in the coming quarter to pass on inflationary pressure to maintain operating margins. As on 9MFY21, the balance sheet remained strong with net cash position at Rs. 1333 crore along with improvement in the working capital cycle.
Valuation & Outlook
We believe a revival in the government's infra spending along with focus on profitable growth of FMEG business would help improve RoCEs, RoEs, for the company, going forward. We roll over our valuation on FY23E and reiterate our BUY recommendation with a revised target price of Rs. 1385/share (earlier TP of Rs. 1040), valuing at 17x FY23E.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Polycab_Q3FY21.pdf