Hold Back This Electricals Stock, Suggests Prabhudas Lilladher

Brokerage firm Prabhudas Lilladher has recommended the investors to ''hold back'' the stock of Polycab India Ltd for an opportune time. It believes that the scrip will potentially decline by nearly 3% to 4% despite the company reporting an all-time high revenue of Rs 43.2 billion and PAT of Rs 4.3 billion in the quarter.

Polycab India was founded in 1996. It is engaged in the business of manufacturing and selling electrical wires and cables and fast-moving electrical FMEG goods under the 'POLYCAB' brand.

Q4FY23 performance

Despite a high base and lower commodity prices, Polycab reported healthy revenue growth of 16%/9% YoY in FY23, especially in Q4, riding on the back of healthy volume growth in the cable business. The profitability (52%/32% in FY23/Q4FY23) was largely led by volume growth and improvement in margins by 270bps/200bps through judicious price revisions and a favourable business mix.

Prabhudas Lilladher noted that the company's wires and cable business grew 15.2% YoY with strong traction in international business which grew by 125% YoY while domestic business grew by 8.7% Export revenue contribution was 12.5% to its total sales. Gross margin expanded 300bps YoY to 25.2%. The cable & wire domestic distribution business reported a volume growth of 21% in FY23.

Management Outlook

As per the research note of the brokerage firm, Polycab aims to achieve Rs 200 billion in revenue by FY26E under 'Project LEAP'. This is possible given the sustained growth from infrastructuring, real estate and construction activities as well as the company's focus on B2C through deepening reach and premiumisation of the product portfolio.

Moreover, the GTM expansion continues and gains from a shift in consumer demand from the unorganised to the organised sector.

Valuation & Rating

According to Prabhudas Lilladher, "We expect 14.1%/14.8% Sales/PAT CAGR over FY23-25, on the back of healthy domestic demand environment supported by government measures and revival in private capex and strong traction in export revenue with an increase in international coverage."

"We increase our FY24/FY25 earnings estimate by 2.7%/3.8% to mainly reflect an upward revision in top-line growth assumption and margin improvement with product mix. Maintain 'HOLD' at a revised target price of Rs 3,249 (Rs 2,794 earlier)," the brokerage firm further added.

Dividend Details

Additionally, the board of directors, in their meeting held on 12th May 2023, recommended a final dividend of Rs 20 per equity share for the financial year ended 31 March 2023.

This payment is subject to the approval of shareholders in the annual general meeting of the company and if approved, would result in a net cash outflow of approximately Rs 2,995 million.

Share price movement

The latest closing price of Polycab India stock is Rs 3,426.55 per share, which rallied by 1.42% over the previous day's closing price while writing this copy. In the last one year, the share price has rallied by 33.21%, but in the last three years, the price has risen by 395.49%.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.