Polycab India gains 2% as Jefferies reiterates ‘buy’ stance

Jefferies is bullish on the stock with a base case target price of Rs 4,270. It expects cables and wires segment revenue to post a 15 percent CAGR over FY23-26e, primarily led by capex revival, infrastructure development and housing sector upcycle

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Shares of Polycab India Ltd rose more than 2 percent on June 27 morning after foreign brokerage firm Jefferies reiterated its “buy” stance on the stock, citing positive capex play and strong market leadership.

Jefferies is bullish on the stock with a base case target price of Rs 4,270. It expects cables and wires segment revenue to post a 15 percent compounded annual growth rate (CAGR) over FY23-26e, primarily led by capex revival, infrastructure development and housing sector upcycle in India.

The fast-moving electric goods (FMEG)-appliances segment is projected to see 17 percent CAGR over FY23-26e, albeit from a lower base. At a consolidated level, Jefferies projects Polycab to achieve a CAGR of 15 percent in revenue and 22 percent in net profit, driven by higher volumes, an optimised mix and traction in FMEG.

In FY23, PolyCab retained its leadership in cables and wires segment with a 22-24 percent organised market share (up 200 basis points over FY21). One basis point is one-hundredth of a percentage point.

Jefferies attributes the bullish call to factors such as leadership in market share, growing international business, a 54 percent increase in research and development (R&D) spend, new FMEG launches and a doubling of retailer count.

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Plugged in for growth

According to the brokerage firm, Polycab’s exports grew sharply by 50 percent year on year (YoY) in FY23, primarily driven by demand in the USA, Europe and Asia.

Despite copper volatility, Polycab’s 95 percent in-house production facility has helped the company sustain a 27 percent gross margin.

Jefferies foresees further strengthening of manufacturing capabilities, as the company plans an additional capex of Rs 6-7 billion in FY23, with 75 percent allocated towards cables & wires and the rest to the FMEG business.

In an upside scenario, Jefferies targets Polycab to reach Rs 4,700 mark, while the downside target price is Rs 2,700.

Subdued traction in capex, housing infrastructure development in India, slower launches in FMEG and excess volatility in commodities impacting margin growth are some of the risks cited by the research house.

At 12.20 pm, the share was trading at Rs 3,489.15 on the National Stock Exchange, up  0.66 percent.

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