This Electrical Equipment Stock Has Potential To Surge 19%, Sharekhan Recommends Buy

Q4FY22 Results

According to the latest report by Sharekhan, "Polycab India Limited's (Polycab's) Q4FY22 performance beat expectations on all fronts led by healthy demand and price hikes particularly in the cables & wires (C&W) segment. Its revenue grew by ~35% y-o-y to Rs 3,970 crore (versus our estimate of 17% growth). C&W revenues grew by 39% y-o-y despite a relatively healthier base. The growth in wires was better than cables. FMEG business posted subdued growth of 9% y-o-y due to low demand for certain products. EPC business grew by 8% YoY. Operating profit growth, however, was restricted to 18% y-o-y to Rs 476 crore due to cost inflation pressures. Consequently, OPM declined by 170 bps y-o-y to 12% (vs our estimate of 11.4%). Net profit grew by 20% y-o-y to Rs 325 crore (vs our estimate of Rs 272cr)."

Key Positives and Positives

The brokerage in its report has stated key positives, "Cables & Wires (C&W) segment's revenues were up 39% y-o-y, OPM improved q-o-q led by price hikes which enabled the company to pass on the q-o-q increase in input costs. Market share in the C&W segment improved by ~200 bps during the year and is currently at 22-24%. Net working capital cycle has reduced from 65 days to 54 days at Q4FY22-end."

The brokerage commenting on the key negatives, stated, "C&W profitability declined y-o-y due to volatility in raw materials and inflationary pressures. Institutional business in C&W space was subdued as compared to last quarter. FMEG reported subdued growth in revenues due to muted demand in switchgear and margins were affected by cost inflation and lower revenues."

Buy for a target price of Rs 3,000

According to the brokerage in its latest report, "Polycab is expected to benefit from government infrastructure investments, revival in housing demand and pick up in private capex spending. OPM is expected to improve with the impact of price hikes and operating leverage offset the increased input costs. The focus on increasing exports and scaling up of FMEG business with product launches would be other key growth triggers. Overall, we believe the company is on a healthy growth trajectory, owing to its leadership position and a strong product portfolio both in the C&W and FMEG businesses and strong distribution and in-house manufacturing capabilities."

The brokerage has said, "We retain a Buy on Polycab India Limited (POLYCAB) with an unchanged PT of Rs. 3,000, on account of strong show in Q4FY22 and healthy long-term growth outlook in both C&W and FMEG businesses." It added, "Fluctuations in raw-material prices and intense competition are key concerns."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. 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 check with certified experts before taking any investment decisions.