Polycab India Ltd.

CMP 2,199 Rating BUY

INDSEC Q1FY23 - Result Update Target 2,871(15m) Upside 31%

STOCK DETAILS
Future growth intact….
Bloomberg code POLYCAB:IN
Market Cap (Rs. bn) 332
Despite an unprecedented rise in raw material prices and high inflation, Polycab reported healthy top-line
Market Cap (USD bn) 4.2
performance backed by volume and value growth. During the quarter, 2/3rd of growth was led by volume. The
company’s most of the business is above the pre-covid level. The management expects that H2FY23 perfor-
Sector Other Elect. Equip/Prod.
mance would be better than H1 performance. Calibrated price hikes and better operating leverage helped the
Index BSE 200
company to improve its EBITDA margin on a YoY basis.
52 w.High/Low 2,820/1,761
Avg Monthly Turnover (Rs.mn) 70.17
Shares in Issue (mn) 149.6 Polycab reported revenue growth of 47.5% YoY to Rs.27.4bn on the back of strong performance across its verticals.
BSE Sensex 55,398 Revenue of Wires & Cables (W&C) grew by 47.9% YoY, FMEG grew by 60.6% YoY, and EPC & Others grew by 39.2%
NSE Nifty 16,521 YoY.
SHAREHOLDING PATTERN
% Sep-21 Dec-21 Mar-22 Jun-22 EBITDA for the qtr increased by 1.3x YoY to Rs.3.1bn, while margin expanded 413bps YoY to 11.4% on the back of a
Promoter 68.4 68.2 68.1 68.0 152bps improvement in gross margin and 104/158bps YoY decline in employee and other expenses.
Pledge - - - -
Adj. PAT increased by 2.0x YoY to Rs.2.2bn and margin increased by 413bps YoY to 8.0% on the back of healthy op-
FII 6.9 6.4 5.8 5.7
DII 8.0 7.7 8.3 9.0 erating performance.
Others 16.7 17.7 17.9 17.3
FINANCIALS
Quarterly Performance (Consol) Segment Revenue Breakup (Consol)
Rs Mn. FY21 FY22 FY23E FY24E
Revenue 89.3 122.0 139.9 159.6 Result (Rs bn.) Q1Y23 Q1FY22 Q4FY22 Y/Y(%) Q/Q(%) (Rs bn) Q1Y23 Q1FY22 Q4FY22 Y/Y(%) Q/Q(%)
EBITDA 11.7 12.7 16.7 21.0
Revenue 27.4 18.6 39.7 47.5% -31.1% Wires & Cables 24.1 16.3 35.4 47.9% -32.0%
EBITDA(%) 13.1% 10.4% 12.0% 13.1%
FMEG 3.1 1.9 3.8 60.6% -18.7%
Adj. PAT 8.7 8.4 11.3 14.3 EBIDTA 3.1 1.3 4.8 131.8% -34.7%
Others / EPC 1.0 0.7 1.0 39.2% -4.4%
PAT(%) 9.8% 6.9% 8.1% 9.0%
EBITDA(%) 11.4% 7.2% 12.0% +413bps -63bps
EPS 59.0 56.0 75.5 95.7 Segment EBIT Margin
P/E(x) 37.3 39.3 29.1 23.0 Adj. PAT 2.2 0.7 3.2 203.4% -31.8% (Rs bn) Q1Y23 Q1FY22 Q4FY22 Y/Y(bps) Q/Q(bps)
RAKESH ROY Wires & Cables 11.5% 6.6% 11.6% 497 -7
Adj. PAT(%) 8.0% 3.9% 8.1% +413bps -8bps
Sr. Research Analyst
FMEG 2.1% -7.5% 2.8% 956 -67
rakeshr@indsec.co.in Adj. EPS 14.7 4.9 21.6 202.9% -31.8%
Others / EPC 13.3% 19.4% 12.8% -614 55
+91 22 61146111

JULY 21, 2022

Indsec Research is also available on www.indsec.com and Bloomberg RESP_ISFL <GO>, Thomson Reuters, Factset and Bluematrix
Page 1
 INDSEC
Key Highlights
Growth Strategy under Project LEAP
Wires & Cables Revenue Trend (Rs. Bn)
Focus on 4 key areas;
40.0 120%
35.4 • Customer Centricity: to improve customer service capability for B2B customers.
35.0
30.0 100% • Go-to-Market excellence: to enhance its presence.
30.0 97% 26.3
24.1 80% • Winning new products: to create innovative products to resolve customer needs.
25.0
20.0 16.3 60% • Set up of organization & digital enabler: to hire talented staff and implementation
15.0 of end-to-end digitalization of front-end sales across businesses.
48% 40%
10.0 44% Wires and Cables:
40%
20%
5.0 25% • The wires and cables business grew 48% on a YoY basis to Rs. 24.1bn led by
- 0% growth from all geography. West contribution is highest followed by south, north
Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 and east region.
Revenue (Rs. Bn) YoY (%)
• Export revenue grew by 62% YoY, and it contributes 6.7% of consolidated reve-
nue. The management has guided that export contribution would rise in the com-
ing years.
• Etira: a sub-brand which was launched in Q4FY22, posted revenue growth of 2x
QoQ basis. Currently, Etira is in the cable and wire segment, but management has
guided that in the coming year they will launch Eitra brand in FMEG segment like
in Fan. Eitra is an economic price segment category, focused on penetrating the
rural market.
• Calibrated price hikes and better operating leverage led to an improvement in
Segment Profitability.
• Historically segment margin is in the range of 11-13% and management expects
they will maintain these margins in the coming year too.
• During the quarter, the company extended its Wires & Cable reach to 27 new dis-
tricts.

Source: Indsec Research Page 2

 INDSEC
Key Highlights
FMEG:
FMEG Revenue Trend (Rs. Bn)
• FMEG business grew 61% YoY to Rs.3.1bn led by strong growth momentum in
4.0 3.8 70% lighting, switchgear, and pump, while switches saw a decline due to supply chal-
61% lenges. During the quarter, Fans, Conduit Pipes, and Solar business posted healthy
3.4 3.4
3.5 60%
3.1
growth.
3.0 50% • By FY23 end company switch plant will start which will solve the switch business
41%
2.5 40%
supply chain issue.
39%
1.9 • The management expects that by FY26 FMEG margin would increase to 12% on
2.0 30%
account of new product launch, premiumization and various cost optimization
1.5 20% measures.
11%
9%
1.0 10% • During the quarter, the company added 100 Distributors and strengthened the
modern trade and e-commerce channel.
0.5 0%
Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 • Products contribution to FMEG revenue
Revenue (Rs. Bn) Growth YoY (%) • Fans: 30-35%
• Lighting: 30-35%
• Rest (Pumps, Conduit Pipes, Solar & Switches): 30-40%
Capex: The management has guided Capex of Rs.3-4bn for FY23. In Q1FY23 company
incurred Capex of Rs.1bn.
Other Key Highlights:
• In Q1FY23, the revenue growth of 48% YoY is attributable to volume growth
(2/3rd) and value growth (1/3rd)
• The company's 87% of revenue comes from the distribution-led model.
• In the cable and wire business the company has a market share of 24% in the or-
ganized market.
• During the quarter, the company launched several media campaigns across TV,
digital and social media platforms.
Source: Indsec Research Page 3
 INDSEC
Valuation & View

We now expect Revenue/EBITDA/Adj. PAT to grow at CAGR of 14.4%/28.7%/30.8% over FY22-

FY24E respectively, with EBITDA margin expected to improve by 276bps to 13.1% at the end of
FY24E.

We are positive about Polycab’s future growth prospects and expect it to outperform peers in
the W&C segment (led by strong exports) and improve its market share in the FMEG segment
led by rapid distribution expansion and product development.

We expect that the management plans to expand the Etira brand (Economic price) to the FMEG
segment which will helps them to penetrate the rural market coupled with market share gain.

At CMP of Rs. 2,199, Polycab currently trades at a PE of 29.1x/23.0x of our 23E/24E earnings
estimates.

Given its better revenue visibility for the long term, we value the company at 30x of our FY24E
EPS, and arrive at a TP of Rs. 2,871, implying an upside of 31%. Hence, we upgrade our rating
on the stock to BUY (Earlier HOLD).

Source: Indsec Research Page 4

 INDSEC
Annual Performance

Revenue Trend (Rs. Bn) EBITDA (Rs. Bn) and OPM (%) trend

180 38% 20 14.0%

160 13.1%
160 33% 18 13.5%
13.1%
140 28%
12.9%
13.0%
140 16
122
37% 23% 12.5%
120 14 12.0%
15% 14% 18% 12.0%
100 88
11% 89 12
13% 11.5%
80 10
8% 11.0%
60 1%
3% 8 10.4%
10.5%
40 -2%
6 10.0%
FY20 FY21 FY22 FY23E FY24E FY20 FY21 FY22 FY23E FY24E
Revenue (Rs. Bn) YoY (%) EBITDA (Rs.Bn) OPM

Adj.PAT (Rs. Bn) and margin (%) ROE (%) and ROCE (%) trend

14.0 9.9% 10.0% 30.0%

13.0 9.5% 28.0%
9.0…
12.0 8.6% 8.1% 9.0% 26.0% 27.0%
11.0 25.0%
8.5%
10.0 24.0%
8.0% 22.4% 23.4%
9.0 6.9% 22.0%
7.5% 20.5%
8.0 19.8%
7.0% 20.0%
7.0 18.7%
6.5% 18.0% 18.6%
6.0 17.4%
5.0 6.0% 16.0%
4.0 5.5% 14.0% 15.1%
FY20 FY21 FY22 FY23E FY24E FY20 FY21 FY22 FY23E FY24E
PAT (Rs. Bn) NPM ROE ROCE

Source: Indsec Research Page 5

 INDSEC
Financials
SUMMARY INCOME STATEMENT SUMMARY BALANCE SHEET
(in mn) FY20 FY21 FY22 FY23E FY24E (in mn) FY20 FY21 FY22 FY23E FY24E
Total Income 88,300 89,265 1,22,038 1,39,902 1,59,613 Assets
YoY % 10.6% 1.1% 36.7% 14.6% 14.1% Net Block 13,882 18,332 16,354 20,310 21,268
Cost Of Revenues 60,512 64,982 93,542 1,04,927 1,16,517 Capital WIP 2,412 991 3,755 1,000 1,000
Gross Profit 27,788 24,283 28,496 34,976 43,095 Other Non current Assets 0 0 0 0 0
Gross margin (%) 31.5% 27.2% 23.3% 25.0% 27.0% Long term loans and advances 2,823 3,098 2,600 2,600 2,600
Employee Cost 3,657 3,604 4,066 4,241 4,581 Current Assets
Other Operating Expenses 12,780 9,010 11,777 13,990 17,557 Current Investment 400 6,231 7,641 7,641 7,641
EBITDA 11,350 11,670 12,652 16,744 20,957 Inventories 19,250 19,879 21,996 24,708 27,447
Trade receivables 14,336 14,358 12,964 15,332 17,492
OPM (%) 12.9% 13.1% 10.4% 12.0% 13.1%
Cash and cash equivalents 1,722 2,378 1,217 6,236 13,760
Other Income 928 1,282 899 909 958 Bank Balances other than Cash & Cash Eq. 1,091 2,935 2,854 2,854 2,854
Net Interest Exp. 495 531 352 242 227 Short-term loans and advances 244 173 127 244 244
Depreciation 1,609 1,866 2,015 2,298 2,543 Other Current Assets 3,456 1,772 4,612 3,456 3,456
Exceptional Items 0 97 0 0 0 Total Current Assets 40,499 47,726 51,411 60,471 72,894
PBT 10,174 10,652 11,184 15,114 19,145 Current Liabilities & Provisions
Tax 2,441 791 2,706 3,778 4,786 Trade payables 13,537 13,480 12,175 13,676 15,192
Profit After Tax 7,593 8,724 8,365 11,290 14,302 Other current liabilities 5,202 5,541 4,183 3,648 3,648
Net Profit (%) 8.6% 9.8% 6.9% 8.1% 9.0% Short-term provisions 238 235 254 238 238
EPS 50.97 58.96 55.98 75.55 95.70 Total Current Liabilities 18,976 19,256 16,612 17,562 19,078
Net Current Assets 21,523 28,470 34,800 42,909 53,816
Total Assets 40,640 50,891 57,507 66,819 78,683
Liabilities
Share Capital 1,489 1,491 1,494 1,494 1,494
Reserves and Surplus 36,875 46,048 53,943 63,303 75,160
Total Shareholders Funds 38,364 47,539 55,437 64,797 76,654
Minority Interest 150 188 251 296 353
Total Debt 1,221 1,926 831 781 731
Long Term Provisions 256 251 264 256 256
Other Long Term Liabilities 473 567 452 416 416
Net Deffered Tax Liability 175 418 272 272 272
Total Liabilities 40,640 50,891 57,507 66,819 78,683

Source: Company, Indsec Research Page 6

 INDSEC
Financials

SUMMARY CASH FLOW STATEMENT SUMMARY RATIOS

(in mn) FY20 FY21 FY22 FY23E FY24E FY20 FY21 FY22 FY23E FY24E
PBT 10174 10650 11159 15114 19145 Profitability
Depreciation & Amort., Total 1609 1866 2088 2298 2543 Return on Assets 12.7% 12.6% 11.3% 13.4% 14.6%
After other adjustments -103 -182 183 1151 1185 Return on Capital 27.0% 22.4% 20.5% 23.4% 25.0%
(Inc) / Dec in Working Capital -6221 2458 -4974 -3134 -3383 Return on Equity 19.8% 18.6% 15.1% 17.4% 18.7%
Taxes -3012 -2409 -3340 -3778 -4786 Margin Analysis
Cash from Ops. 2446 12382 5116 11650 14703 Gross Margin 31.5% 27.2% 23.3% 25.0% 27.0%
Capital Expenditure & investments -2622 -10121 -4270 -4409 -4458 EBITDA Margin 12.9% 13.1% 10.4% 12.0% 13.1%
Cash from Investing -2622 -10121 -4270 -4409 -4458 Net Income Margin 8.6% 9.9% 6.9% 8.1% 9.0%
Issue of Share capital 4000 0 0 0 0 Short-Term Liquidity
Net Borrowings -1194 -1075 -168 -50 -50 Current Ratio 2.0x 2.4x 3.0x 3.3x 3.7x
Others -906 -531 -347 -242 -227 Quick Ratio 1.1x 1.4x 1.7x 2.0x 2.3x
Issuance of Dividend -1793 0 -1492 -1930 -2445 Avg. Days Sales Outstanding 59 59 39 40 40
Cash from Financing 107 -1606 -2007 -2222 -2722 Avg. Days Inventory Outstanding 110 110 85 85 85
Extraordinary receipts/payment 0 0 0 0 0 Avg. Days Payables 78 74 47 47 47
Net Change in Cash -69 656 -1160 5019 7524 Long-Term Solvency
BF Cash 1791 1722 2377 1217 6236 Total Debt / Equity 0.0x 0.0x 0.0x 0.0x 0.0x
END Cash 1722 2378 1217 6236 13760 EBITDA / Interest Expense 21.5x 20.9x 32.8x 63.5x 85.4x
Valuation Ratios
EV/EBITDA 28.7x 27.3x 25.1x 18.7x 14.6x
PER 43.1x 37.3x 39.3x 29.1x 23.0x
P/B 8.5x 6.9x 5.9x 5.1x 4.3x

Source: Company, Indsec Research Page 7

 INDSEC

Stock Price movement from Initiation (18th November 2019) to 20 July 2022
Recommendation History

Periods
Date Closing Price TP Rating Analyst
(in mts)
260

210 21-July-22 2199 2,871 12m BUY Rakesh Roy

160 16-May-22 2540 2,877 12m HOLD Rakesh Roy

110 Rakesh Roy/Harsh

24-Jan-22 2,510 2,771 15m HOLD
N. Vasa
60 Rakesh Roy/Harsh
25-Oct-21 2,339 2,353 12m HOLD
N. Vasa

26-July-21 1889 2,334 15m BUY Rakesh Roy

Polycab Nifty
28-Jan-21 1,183 1,386 15m BUY Malay Shah

05-Nov-20 940 1,130 18m BUY Malay Shah

24-Jul-20 834 897 21m HOLD Malay Shah

04-Jun-20 755 855 24m HOLD Malay Shah

23-Jan-20 1,003 1,169 12m HOLD Malay Shah

18-Nov-19 897 1,018 12m HOLD Malay Shah

Source: Company, Indsec Research Page 8

 INDSEC
INDSEC Rating Distribution

BUY : Expected total return of over 15% within the next 12-18 months.
HOLD : Expected total return between 0% to 15% within the next 12-18 months.
SELL : Expected total return is negative within the next 12-18 months.
NEUTRAL: No investment opinion, stock under review.
Note: Considering the current pandemic situation, the duration for the price target may vary depending on how the macro scenario plays out. Therefore, the duration which has been mentioned as a period of 12-18
months for upside/downside target may be higher for certain companies.

DISCLOSURE

DISCLOSURE
BUSINESS ACTIVITIES:
Indsec Securities and Finance Limited (ISFL) is a corporate member of BSE (Equity, WDM segment), of NSEIL (Equity, WDM, Futures & Options and Currency Derivative segments) and has also secured membership of the MSEI Exchange (Currency
Derivative Segment) vide registration No. INZ000236731. ISFL is an AMFI Registered Mutual Fund Advisor (MRMFA) vide Registration Number 9194. ISFL is also a Depository Participant of the National Securities Depository Limited (NSDL) and a
SEBI registered Portfolio Manager. With this setup ISFL is in a position to offer all types of services in the securities industry.
Since inception company’s focus has been on research. In view of its research capabilities ISFL focused mainly on institutional business and is today empaneled with most of the local financial institutions, insurance companies, banks and mutual
funds. ISFL has grown from being a medium size broking outfit to become one of the largest capitalized Indian broking company offering the complete range of broking services.
ISFL was incorporated on 28th July 1993 and doesn’t have any associates/ subsidiaries. ISFL is a registered Portfolio Manager under SEBI (Portfolio Managers) Regulations, 1993 vide registration No. INP000001892.
DISCIPLINARY HISTORY:
• No material penalties / directions have been issued by the SEBI under the securities laws, SEBI Act or Rules or Regulations made there under
• No penalties have been imposed for any economic offence by any authority.
• No material deficiencies in the systems and operations of the Company have been observed by any regulatory agency.

• There are no pending material litigations or legal proceedings, findings of inspections or investigations for which action has been taken or initiated by any regulatory authority against the Company or its Directors, principal officers or em-
ployees or any person directly or indirectly connected with the Company.
DECLARATION:
• ISFL/Research Analysts or their associates or their relatives do not have any financial interest in the subject company (ies);
• ISFL/Research Analysts or their associates or their relatives do not have actual or beneficial ownership of 1 % or more in the subject company (ies);

• Directors may have actual or beneficial ownership of 1 % or more in the subject company (ies);
• ISFL/Research Analysts or their associates or their relatives do not have any material conflict of interest in the subject company(ies) at the time of publication of this document;
• ISFL has not received any compensation from the subject company (ies) in the past twelve months;
• ISFL has not managed or co-managed public offering of securities for the subject company (ies) in the past twelve months;

• ISFL has not received any compensation for investment banking or merchant banking or brokerage services or any other service from the subject company (ies) in the past twelve months;

• ISFL has not received any compensation or other benefits from the subject company (ies) or third party in connection with this document;
• None of the research analysts have served as an officer, director or employee of the subject company (ies);

• ISFL has not been engaged in the market making activity for the subject company (ies);

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 INDSEC
DISCLOSURE

GENERAL TERMS AND CONDITION/ DISCLAIMERS:

This document has been issued by ISFL and is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of security.

This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources believed to be reliable. However, we do not guarantee its accuracy and the information may be incomplete
and condensed. Note however that, we have taken meticulous care to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the analyst nor any other employee of our company is in any way responsible for
its contents. The Company’s research department has received assistance from the subject company (ies) referred to in this document including, but not limited to, discussions with management of the subject company (ies). All opinions, projec-
tions and estimates constitute the judgment of the author as of the date of this document and these, including any other information contained in this document, are subject to change without notice. Prices and availability of financial instru-
ments also are subject to change without notice. While we would endeavor to update the information herein on reasonable basis, we are under no obligation to update or keep the information current. Also, there may be regulatory, compli-
ance, or other reasons that may prevent us from doing so.

Securities recommended in this document are subject to investment risks, including the possible loss of the principal amount invested. Any decision to purchase/sale securities mentioned in this document must take into account existing public
information on such security or any registered prospectus. The appropriateness of a particular investment, decision or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies dis-
cussed in this document may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Each recipient of this document should make such investigations as it deems necessary to
arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved).

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject the company to any registration or licensing requirement within such jurisdiction. Further, this document is not directed or intended for distribution to the US taxpayers covered under
US Foreign Account Tax Compliance Act (FATCA) provisions. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are
required to inform themselves of and to observe such restriction

This is just a suggestion and the company will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Any comments or statements made herein are those of the analyst and do not necessarily
reflect those of the company. No matter contained in this document may be reproduced or copied without the consent of the company. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prose-
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The research analyst(s) of this document certifies that all of the views expressed in this document accurately reflect their personal views about those issuer(s) or securities. Analyst’s holding in the stocks mentioned in the Report:-NIL

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