PL Stock Report: Polycab India (POLYCAB IN) - Q2FY24 Result Update – Robust vol. growth with margins improvement - Accumulate

Polycab India (POLYCAB IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs5,339 | TP: Rs5,943

Q2FY24 Result Update – Robust vol. growth with margins improvement

Quick Pointers:

§ Domestic W&C business reported ~30% volume growth in Q2FY24.

§ EBITDA margin expanded by 160bps, W&C margin improved by 300bps YoY.

We upward revised our FY24/25/FY26E earnings estimates by 7.1%/6.2%/2.9% to mainly reflect revision in top-line growth assumption (3.7% in FY24/FY25/FY26) and margin improvement (~14% EBITDA margin in FY24) with segment & product mix. Polycab reported healthy revenue growth of 26.6% YoY in Q2FY24, on the back of robust volume growth (~30%) in domestic W&C business. The company expects to achieve Rs 200bn revenues sooner than targeted by FY26E under Project LEAP given 1) strong volume growth in domestic W&C from infrastructure/real estate/construction activities (which accelerated institution business growth), 2) focus on B2C through increase in advertisement (3-5% of retail revenue vs 2.1% in FY23), expanding reach & change in product mix and 3) expected W&C market share gain of ~2% in coming years with wide SKUs, availability of products, logistics support etc. We expect Revenue/EBITDA/PAT CAGR of 19.8%/21.7%/22.8% over FY23-26E led by strong domestic demand environment supported by government measures & revival in private capex. Maintain ‘Accumulate’ with TP of Rs5943 (earlier Rs 5665).

W&C business reported ~30% domestic volume growth: W&C business reported 28.9% revenue growth on the back of robust volume growth (~30%) in domestic W&C business. Domestically, both distribution driven business and institutional business exhibited strong performance. Geographically, growth was broad based, with highest growth coming from North region, mainly from strong traction in infrastructure – railways & roads, power transmission business & real estate sector. Cables continued to outperform wires growth in Q2FY24. Healthy vol. growth indicates market share gain for Polycab. W&C margin improved 300bps YoY to 14.6%, led by better operating leverage & improvement in product-mix.

Sales grew 26.6% and PAT grew 58.8%: Sales grew 26.6% YoY to Rs42.2bn (PLe: Rs38.0bn) led by healthy volume growth in domestic W&C business. W&C business grew 28.9% YoY to Rs38bn (PLe: Rs33.9bn) on strong domestic volume growth of ~30% (Dom. W&C revenue up 35.5% YoY). Export revenue decline by 9.5% YoY which contributed 9.3% to its total sales. Gross margins expanded by 100bps YoY to 27.1%. (PLe:26%). EBITDA grew by 42.4% YoY to Rs6.1bn (PLe: Rs5.2bn). EBITDA margins expanded by 160bps YoY to 14.4% (PLe: 13.6%). PAT grew by 58.5% YoY to Rs4.3bn (PLe: Rs3.6bn) was largely from volume growth and improvement in margins. W&C‘s EBIT grew 60.2% YoY to Rs5.5bn and margins expanded by 300bps YoY to 14.6%, led by better operating leverage and improvement in product-mix. FMEG revenues grew 8.1% YoY to Rs3.3bn and reported EBIT loss of Rs 60.2mn in Q2FY24 vs loss of Rs26.8mn in Q2FY23.

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