India’s largest cable and wire manufacturer Polycab India ended financial year 2024-25 (FY25) on a high, delivering another strong quarter of double-digit growth and market share gains.
This coupled with margin expansion, operating breakeven for its fast-moving electrical goods (FMEG) business, and steady exports outlook for FY26 is expected to support the stock, which is up 18 per cent over the past month.
The stock is currently trading at Rs 5,765 a share.
Sales in the fourth quarter (Q4) of FY25 were led by the domestic cable-and-wire (C&W) segment, which posted a 27 per cent volume growth year-on-year (Y-o-Y).
While the growth was on the back of infrastructure and real estate capital expenditure (capex), cables did better than wires with double-digit growth.
Revenues of the cable-and-wire business grew 24 per cent Y-o-Y and was dragged down by lower exports due to execution delays, with a large order spilling over into Q1FY26.
In comparison, segment revenue growth for Havells came in at 21 per cent, RR Kabel at 28 per cent, and KEI Industries at 35 per cent.
Given the domestic growth, the company gained 100 basis points (bps) in market share, taking the total to over 26 per cent.
The margins in the segment at 15.1 per cent was ahead of Street estimates, and was led by operating leverage and product mix.
Some of the gains were, however, offset by lower contribution of exports.
Despite the strong show, the company has retained its 11-13 per cent margin guidance in the medium to long term, factoring in the capacity expansion and brand/R&D investments.
Demand for the cable-and-wire business is expected to remain strong on the back of improvement in corporate investment, government capex, and the real estate sector.
Though competitive pressures will increase in the domestic C&W industry, analysts led by Renu Baid Pugalia of IIFL Research point out that Polycab’s formidable cash conversion profile, return on invested capital (ROIC) of 40 per cent, and cost competitiveness (with reach) will act as a shield.
They have retained a “Buy” rating, with a target price of Rs 6,814.
The FMEG segment reported a growth of 33 per cent Y-o-Y, led by wider network and a focus on premiumisation (about a fifth by volume) across categories.
After 10 consecutive quarters of losses, the FMEG segment turned positive at the operating (earnings before interest and taxes) level.
This was aided by improved product mix and better absorption of fixed costs.
Going ahead, the company is confident of growing at twice the industry growth rate as it continues to expand distribution and increase share of premium products at a rapid clip.
The engineering procurement and construction (EPC) segment grew by 47 per cent, led by the execution of the revamped distribution sector scheme, the government scheme to improve the power distribution sector.
Elara Research has reiterated its “Accumulate” rating and raised the FY27 earnings by 4 per cent on strong demand in cables and large order win from the telecom sector.
Harshit Kapadia of the brokerage has raised its target price from Rs 5,865 to Rs 6,320 on account of margin improvement and robust demand in cables and wires with market share gain.
This is further bolstered by EPC order wins, which include the supply of telecom-related cables and wires.
Overall operating profit margins of the company expanded by 110 bps Y-o-Y to 14.7 per cent, led by normalisation in cable-and-wire margin, breakeven in FMEG sector, and improved execution in the EPC segment.
While YES Securities expects strong growth momentum to continue for next two years, after that growth trajectory can come down with slight moderation in margins, given that two large new players are expected to start their operations.
The brokerage has downgraded the stock keeping in view the additional competition in cables and wires.
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