Polycab India tanks 22% as I-T dept finds ‘unaccounted sales’ of Rs 1,000 crore

The income tax department searched Polycab’s premises on January 10. The officials raided 50 premises of the company in Mumbai, Pune, Aurangabad and Nashik in Maharashtra, Daman, Halol in Gujarat and Delhi

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Shares of Polycab India plunged 22 percent in the morning trade on January 11 after the income tax department said it unearthed “unaccounted cash sales” of about Rs 1,000 crore when it searched the company’s offices the previous day.

Meanwhile, multiple block deals worth a total of Rs 1,293 crore also took place on the exchanges. Around 33 lakh shares, representing a 2.2 percent stake in Polycab changed hands on the exchanges. Moneycontrol could not immediately identify the buyers and sellers involved in the transaction.

At 10.12 am, shares of Polycab were trading at Rs 3,825 on the NSE. Volumes in the counter also shot up as 20 lakh shares changed hands, significantly higher than the one-month daily traded average of 7 lakh shares.

“Credible evidences recovered during the search have established that the flagship company has made unaccounted cash sales of around Rs 1,000 crore, which are not recorded in the books of accounts,” the Central Board of Direct Taxes (CBDT) said on January 11. CBDT is the administrative body for the income tax department, said.

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The income tax department searched Polycab’s premises on January 10. Income tax officials covered 50 premises of the company in Mumbai, Pune, Aurangabad and Nashik in Maharashtra, Daman, Halol in Gujarat and Delhi.

Some of the authorised distributors of the group were also covered in the searches, the CBDT said.

Even though the CBDT statement did not name the group, PTI reported that official sources confirmed it to be Polycab India.

A distributor, acting on behalf of the company, was found to have made unaccounted cash payments exceeding Rs 400 crore for the procurement of raw materials, as per the CBDT statement. The investigation also alleges the discovery of “non-genuine” expenses worth around Rs 100 crore, encompassing sub-contracting expenses, purchases, and transport expenses, among others, based on seized evidence from Polycab’s premises.

The search operation also shed light on instances of “unexplained” transactions conducted by the distributor, involving the issuance of bills without actual goods supply. These goods were purportedly sold in the open market for cash.

According to the CBDT, the authorised distributor enabled certain parties to artificially inflate their purchase accounts, amounting to approximately Rs 500 crore. Notably, this distributor exclusively deals in products from the flagship company.

Following the news, Nuvama Institutional Equities expects a medium term impact on the stock amidst a de-rating on valuations which had expanded to 37x throughout 2023.

“Next week’s Q3 result becomes even more critical now, as anything lower than 14-15 percent revenue growth for Polycab will further add a negative trigger,” the brokerage believes.

Meanwhile, Nuvama also feels that the development has put valuations of the entire cables and wires pack at risk now as in the near term the market may assume that some of these practices might be done by other players as well to some extent.

“Some stocks where valuations have expanded meaningfully (for example, KEI Industries at 42x now) are at a risk of getting de-rated in the very immediate term,” the brokerage firm stated.

Likewise, shares of KEI Industries also slumped 8.5 percent to Rs 2,880 on the NSE.

Also Read | I-T dept found unaccounted sales of Rs 1,000 crore during raids against Polycab

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