Polycab India Stock Recovers 3% After 21% Plunge; Income-Tax Outcome Awaited

12 Jan 2024 , 03:59 PM

The Polycab India stock saw a 3% increase on the morning of January 12, rebounding after a significant 21% decline the previous day. This decline occurred following the revelation by the income-tax department that it had uncovered ‘unaccounted cash sales’ amounting to approximately Rs 1,000 crore during a search of over 50 company premises.

On January 11, the company clarified that it had not received any written communication from the income-tax department regarding the outcome of the search. The management stated in an exchange filing that while post-search proceedings will follow their course, the company will fully cooperate with the income-tax department, emphasizing that there is no material adverse impact on the company’s financial position.

Since the initial tax evasion reports surfaced on January 9, Polycab India’s stock plummeted by 27% as investors displayed reluctance towards India’s largest cable and wire manufacturer. Despite the company dismissing the claims, market observers note that concerns over ‘corporate governance issues’ could further impact the overvalued stock price.

When reports of tax evasion first emerged on January 9, Polycab India informed stock exchanges that it had not received any communication from the income-tax department. Two days later, tax officials stated in a release that a preliminary analysis indicated unaccounted cash sales, cash payments for unaccounted purchases, non-genuine transport, and sub-contracting expenses were carried out by a wire and cable manufacturer group to suppress taxable income. Although the company was not explicitly named, the income-tax department mentioned searching 50 premises of the group in December.

Despite these challenges, Polycab India has demonstrated robust financial performance, with significant revenue growth and profits. In FY23, the company’s revenue from operations increased by 15.6% YoY to Rs 14,107 crore from Rs 12,203 crore in FY22. Profits also witnessed an uptick, reaching Rs 1,282 crore in FY23 compared to Rs 917 crore in FY22. Since its listing in 2019, Polycab India’s shares have consistently delivered positive returns, with notable gains in 2021 (138%) and 2023 (113%).