Polycab India - Q4 FY21 First cut - YES Securities

B2C business delivers another quarter of strong growth

Result summary - Revenue grew 43% yoy (12% higher than estimate), while gross margins contract 519bps on higher commodity prices. EBITDA grew 40.1% yoy with EBITDA margin of 13.9%. EBITDA margin contracted by 25bps yoy. Pricing actions, leverage benefits and cost saving initiatives helped to maintain EBITDA margin despite sharp contraction in gross margins.

Cables and wires: Cables and wires revenue grew by 36.7% (14.2% above estimate) led by healthy pickup in infra and industrial project activities, improving consumer sentiment and higher sales realisation. Polycab now commands market share 20-22% of the organized market up from 18% two years back. Institutional business saw a decent recovery. Wires continued to grow faster than the cables. Exports registered decline mainly on account of higher base of Dangote order in Q4FY20 and delay in large construction projects globally.

FMEG: FMEG business saw robust growth of 89% yoy (50% higher than estimate) with EBIT margin of 7%. Healthy consumer demand, increased distribution reach and strong execution led to stupendous growth. Fans continues to pose healthy growth, while lighting product business nearly doubled and Switches and Switch gears business grew 2.5x. Improved product mix, calibrated pricing actions and design optimisation initiatives led to healthy improvement in profitability during the quarter.

Others: Others which comprises of EPC business declined 39% yoy with stable EBIT margin on account of muted project execution.

Other Highlights: Net working capital has been largely stable at 67 days vs 64 days in FY20. Company's net cash positioned stands at Rs9.68bn vs Rs2bn in 4QFY20.

Near-term outlook - Company's B2C portfolio has seen strong growth momentum continuing in Q4 as well, with market share gains across segments. We now expect its B2B side of the business to pick up as economy gathers steam and contribute meaningfully in revenue from 2FHY22 onwards.

Our view - The stock is currently trading at 23x FY23E P/E and 14x EV/EBITDA. We remain positive on the stock with BUY rating with TP of Rs1725 and it continues to remain our top pick in the consumer electricals space. Given the strength in the balance sheet, improvement in working capital and faster growth in B2C business, the stock should continue on its re-rating journey.

Source : Equity Bulls

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