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Polycab India - Q1 FY22 first cut - YES Securities

Posted On: 2021-07-22 07:10:06 (Time Zone: UTC)

B2B business recovers, while B2C business faces transient operational challenges

- Result summary - Revenue grew 93% yoy (14% below estimate), while gross margins contracted 390bps on higher commodity prices. EBITDA grew 142% yoy with EBITDA margin of 7.4%. EBITDA margin expanded by 152bps yoy as cost saving initiatives were more than offset by unfavorable operating leverage and input cost volatility. PAT declined on account of one off gains in base quarter.

- Cables and wires: Cables and wires revenue grew by 97.2% (7.1% below estimate). Cables outperformed Wires in Q1 partly on account of relatively favorable base. Distribution as well as Institutional business grew more than 2x of last year as measured lockdowns with ongoing construction activities helped. Sharp correction in copper prices in June temporarily impacted the trade sentiment, particularly the primary sales of retail wires. Exports business grew 12 % YoY. Its contribution to overall revenue improved sequentially to 6% in Q1FY22 vs 4.5% in Q4FY21. The growth was driven by Asia, Australia, UK and Africa. Profitability was impacted by raw material inflation and adverse operating leverage.

- FMEG: FMEG business saw growth of 39% yoy, with EBIT loss of Rs143mn. Fans grew in healthy double digits however lockdowns in April and May, which are key summer stocking periods, hurt the momentum. Premiumization trend continued. Lights business grew with higher emphasis on augmenting portfolio across price points. Switchgears saw strong growth however switches remained subdued. Solar and Conduit pipes saw healthy traction. Adverse operating leverage affected profitability.

- Others: Others segment which comprises of EPC business grew 19% yoy with stable EBIT margin on account of muted project execution.

- Other Highlights: Net working capital has inched up to 73 days vs 63 days in FY21 largely on higher inventory. Company's net cash positioned stands at Rs6.7bn.

- Near-term outlook - Company's B2B portfolio has seen strong recovery with institutional and export business returning back to growth trajectory, while B2C business has faced challenges on back of second wave of Covid and volatility in input prices. We expect the B2C business to resume its growth momentum close to the upcoming festive season as most parts of the country have returned to normalcy post Covid- related lockdowns.

- Our view - The stock is currently trading at 27x FY23E P/E and 18x EV/EBITDA. We remain positive on the stock with BUY rating with TP of Rs2,012. We see the current headwinds as temporary and given the strength in the balance sheet and faster growth in the B2C businesses, the stock should continue on its re-rating journey.

Source: Equity Bulls

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