Polycab India - Q1FY21 First Cut - ICICI Securities

(CMP: Rs. 849; MCap: Rs. 12653 crore)

Polycab reported a reasonable performance in Q1FY21, despite a revenue loss for almost 40 days due to lockdown and low utilisation levels post relaxation from lockdown. The company has reported marginal increase in gross margin during Q1FY21 due to benefit of benign raw material prices. The EBITDA margin came in at ~6% supported by significant cost cutting measures in the period of lower revenues. The PBT before exceptional items declined by ~85% YoY, however gains from exceptional items and tax write back limited the fall in bottomline to 13% YoY only.

Q1FY21 Earnings Summary

- Polycab's consolidated revenue declined by ~50% YoY at Rs. 977 crore led by a similar decline in revenue of cable & wire business (contributes ~85% in topline) to Rs. 825 crore. The FEMG and EPC business revenues also declined by 43% and 56% YoY to Rs. 138 crore and Rs. 54 crore respectively. The revenue de-growth was attributable to lockdown from the month of April'20

- EBITDA margin decreased by 560 bps YoY to ~6% in Q1FY21 mainly due to low operating leverage. Employee expenses and other expenses increased by 300 bps and 350 bps YoY respectively during Q1FY21. However, better gross margin (up by 50 bps YoY) and rationalisation of advertisement expenditure (down by 170 bps YoY) has restricted fall in operating profit during the period

- PBT during the period declined by ~85% YoY to ~Rs. 30 crore. However, exceptional gains of ~Rs. 10 crore and tax write back of ~Rs. 78 crore during the period limited the fall in PAT to 13% at Rs. 118 crore

Q1FY21 performance was significantly impacted as the sales in first 40 days were insignificant. The demand recovery in core business (i.e. cable and wire business) in the next few quarters would be largely dependent on pick up in government expenditure and construction activities post relaxation from lockdown. However, Polycab being a strong brand in cable and wire industry along with strong balance sheet is well placed among competitors to cope up lost sales once demand returns to normalisation. We maintain our positive stance on the stock.

Source : Equity Bulls

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