BoB Capital Bets On This Major Electricals Stock For 30% Gains, Given More Than 30% Returns In 1 Year

BoB Capital Markets Ltd, a leading brokerage firm, in its recent on Polycab India Ltd has suggested investors buy shares of the company for Target price Rs 3000 per share. The company maintains leadership in wires & cables with ~23% market share; growth momentum in FMEG business sustained in FY22 (5Y CAGR of 30%). Management reaffirms the long-term 'Project Leap' strategy with a higher cost savings target of Rs 200bn (Rs 122bn in FY22) by FY26, a 13% CAGR.

Stock Overview & Performance

According to the NSE, the Current Market Price (CMP) of the stock is Rs 2,316.45 per share at 11:40 AM. Today, it was opened at Rs 2,265.10 per share, while the previous close was Rs 2,314.10 per share. The stock has touched the 52 week low of Rs 1,730.05 per share level, whereas, it hit the 52 week high of Rs 2,820 per share.

The stock has given positive returns in the last 3 months, while in the last 6 months it has given negative returns. On investment periods of 1 year and 5 years it has given positive returns of 32.46% and 253.62%, respectively.

Returns on Investment

1-Month	3-Month	6-Month	1-Year	5-Year
-5.10%	3.00%	-2.53%	32.46%	253.62%

According to the brokerage's estimated target price of Rs 3,000, and the CMP of the stock, the stock could witness a gain of 30%.

CMP	Target Price	Potential Gains
Rs 2,316.45	Rs 3,000	30.00%

Business Updates

Polycab's wires & cables (W&C) business grew 48% in FY22 driven by the inflation-led rise in price realisations, with cost pressures remaining largely constant throughout the year. Although mostly pass-through, Polycab made the tactical decision to absorb increased prices in select categories within the cables segment in order to bolster market share. The company remains the market leader with a 22-24% share in the organised W&C market. In addition to the traditional growth in W&C from construction, utilities and telecom, opportunities are opening up from electric vehicles, renewables, digital connectivity and defence.

Sales mix to improve as FMEG share rises

The FMEG segment grew 21% in FY22. Polycab expects to continue outperforming industry growth (pegged at high-single-digits over the medium term), backed by rising disposable incomes, changing consumer preferences, technological advancements and privatisation. Notably, the company believes most of the categories in which it operates will grow in high-single-digits to low-double-digits over the next few years.

Distribution is strong, Focus on Strengthening Distribution

Polycab has increased the number of authorised dealers and distributors from 4,100 to 4,600+ at the end-FY22. In addition, its retail outlet reach has risen nearly 25% YoY, from 165,000 to 205,000. About 21% of this network is exclusively for the W&C business, 54% is utilised by the FMEG segment and 25% is common to both segments

BoB Capital Market Recommends Buy For A Target Price of Rs 3,000/share

The company plans to maintain an annual capex rate of Rs 3bn-4bn over the next few years, with a focus on greenfield and brownfield projects. Its financial position is strong with net cash of over Rs 11bn and D/E of just 0.01x. ROE/ROCE stood at 16.5%/20.5% for FY22.

The brokerage said, "We continue to value the stock at 35x FY24E EPS, a 50% premium to the 3Y average, and maintain BUY with a target price of Rs 3,000. Key downside risks to growth include higher commodity prices and a weaker economy."

About - Polycab India Ltd

Polycab India Ltd is India's leading manufacturer of cables and wires and allied products such as uPVC conduits and lugs and glands. Apart from wires and cables, the company manufacture and sell FMEG products such as electric fans, LED lighting and luminaires, switches and switchgear, solar products and conduits & accessories. The company was incorporated as 'Polycab Wires Private Limited' on January 10, 1996, in Mumbai as a private limited company. The company's promoters collectively have more than four decades of experience among them. The company has a range of cables and wires for practically every application. More recently Polycab has also launched a wide range of consumer electrical products like Fans, Switches, Switchgear, LED lights and Luminaries, Solar Inverters, and Pumps.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets Ltd. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.