Polycab stock falls after tax raid, Jefferies keeps ‘buy’ call but cuts target price

Brokerage firm Jefferies maintained its ‘buy’ call on the company while slashing the target price from Rs 7,000 to Rs 5,870 as the company missed margin estimates due to low exports and higher advertisement spending in the quarter.

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Polycab shares dragged on January 20, extending the fall after the company’s fiscal third quarter net profits failed to live up to expectations earlier this week. The stock was also under pressure amid an overhang of the outcome of the income-tax raid on the company’s offices.

Brokerage firm Jefferies maintained its ‘buy’ call on the company while slashing the target price from Rs 7,000 to Rs 5,870 as the company missed margin estimates due to low exports and higher advertisement spending in the quarter.

The Polycab stock was trading at Rs 4,402 in the morning on January 20, down 0.5 percent from the previous close.

Jefferies reiterated that it’s still waiting for further clarity from the government regarding the income tax raid. In December, the income tax department raided 50 premises of Polycab. On January 10, the department said it found unaccounted cash sales of Rs 1,000 crore. Polycab said they have received no communication from the Income tax department regarding the outcome of the searches.

Polycab’s net profit grew 15.3 percent on-year to Rs 416.51 crore in the quarter ended in December 2023, while its net sales jumped 16.8 percent to Rs 4,340.47 crore. Jefferies in their previous note on the company expected a 15 percent growth in sales for Q3.

Wires and cables revenue increased 18 percent on-year to Rs 3,873-crore revenue from the FMEG business declined 15 percent YoY to Rs 288.30 crore, which the company attributed to sustained weakness in consumer demand
The EBITDA margin declined 130 bps QoQ to 13.1 percent in the quarter.

In its previous note on Polycab, Jefferies compared the stock reactions of other companies in 2023 that saw decline in stock price after searches from the income tax department.

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