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Polycab India: Growth levers in place

16 Feb 2024 , 12:02 PM

Analysts of IIFL Capital Services hosted Polycab’s management at IIFL’s Investor Conference in Mumbai. Management remains optimistic of attaining Rs 200bn target ahead of time with higher OPM margins to the north of 13-14%. Polycab’s growth is expected to exceed the 10-12% market growth and will be primarily driven by robust cable and wire volumes. Further, with an emphasis on exports, the company aims to contribute 10% to topline in next 2-3 years and increase margins. Aggressive A&P spends (4% of B2C topline) and a leadership change to accelerate FMEG’s turnaround by FY25. Strong FCF provides support for portfolio-wide strategic initiatives and expansion in international geography. Analysts of IIFL Capital Services retain BUY with TP of Rs5,172, assigning multiple of 35x on FY26 EPS.

Cables leading from the front: 

Cables sustained double digit growth given continuous thrust on capex by government and pickup in private capex. In Cables, the company commands 4-5 pps premium over peers, while have similar price range in Wires, given the intense competition. Further, in light of strong demand expectations in cables and healthy outlook in wires, management elevated capex upwards to Rs8-9bn for FY24 (vs Rs6-7bn earlier, up 31%) and expects to expense Rs 6-7bn in FY25. 

Brand building to propel growth in FMEG segment: 

Management plans to target highly competitive market through aggressive A&P spends, product differentiation and leveraging its existing dealer network to expand reach. Brand establishment to delay profitability by few quarters but will aid in revenue diversification over the long run. Further, rebalancing portfolio between fans and switches & switchgears to drive greater synergies with its core C&W portfolio. 

Exports remains the priority: 

Huge headroom for growth in exports market with target to attain 10% of topline in next 2-3 years. Additionally, implementing dealer based strategy in US with focus on high margins SKUs to bode well for growth and profitability.

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  • Polycab India
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