BUY

Result Update Polycab India Target Price

09th Jun 2021 Consumer Durables 1,900

Robust All-round Performance; Launches ‘Project Leap’ to

(CMP as of Jun 08, 2021)
Catapult Growth
CMP (Rs) 1,740
Polycab reported robust results in Q4FY21with revenues at Rs 3,037 Cr, up 43% YoY and ahead Upside /Downside (%) 10%
of our estimates. Revenue growth was seen across segments with market share gains in the B2C
High/Low (Rs) 1755/709
segment. While gross margins declined by 519 bps to 25.5% due to higher raw material cost, the
EBITDA margins declined by only 25 bps at 13.4% due to better product mix, price hikes, and Market cap (Cr) 25,943
control over other expenses. The company reported PAT of Rs 263 Cr up 19% YoY, aided by Avg. daily vol. (6m) Shrs. 202,384
higher other income. No. of shares (Cr) 14.89
We believe Polycab will be a beneficiary of recovery in the B2B segment and growth will be
supported by its expanding presence in domestic markets as well as higher exports going forward. Shareholding (%)
Moreover, its growth in the B2C and FMEG segments will be driven by demand recovery, new Dec-20 Sep-20 Jun-20
product launches, and product premiumization. In this backdrop, we have increased Promoter 68.4 68.7 68.6
FY22E/FY23E revenue estimates by 3.8%/7.8%, respectively. We value Polycab at 25x FY23E
FIIs 6.9 3.8 4.5
EPS of Rs 76 to arrive at a target price of Rs 1900/share, implying an upside of 10% from CMP.
MFs / UTI 4.5 4.2 2.6
Key Concall Highlights Banks / FIs 0.01 0.01 0.04
Others 20.1 23.3 24.3
 Strong recovery across key segments: The FMEG sales grew by a robust 89% YoY, led
by healthy consumer demand and strong distribution reach aiding market share gains. Within Financial & Valuations
FMEG, Fans continues to witness strong growth while the Lighting business and Switches & Y/E Mar (Rs. Cr) FY21 FY22E FY23E
Switchgear segment grew ~2X and 2.5x YoY, respectively. The Cables & Wires business Net Sales 8,927 10,399 11,956
grew 35% YoY, led by a pick-up in infra and industrial project activities, improving consumer EBITDA 1,167 1,380 1,664
sentiment, and higher sales realization. Wires continue to grow faster than Cables with the Net Profit 886 912 1132
EPC segment revenues declining by ~40% YoY. However, sequential improvement was seen
EPS (Rs) 59.4 61.1 75.9
due to pick-up in infrastructure projects. Copper revenues declined 33% sequentially albeit at
PER (x) 28.8 28.5 22.9
improved margins at 12% ( vs. 10.8% in Q3FY21).
RoE (%)

21.0 17.5 18.5
Exports decline on a higher base: Export revenue stood at ~Rs 137 Cr or 4.5% of overall EV/EBITDA (x) 21.9 18.5 15.0
sales in Q4FY21. Exports declined by 33% YoY due to the higher base of Dangote order; Debt/Equity (x) 0.04 0.03 0.02
excluding that, exports were lower due to delay in some large projects.
 Outlook & Valuation: Polycab has maintained its leadership position in the organized C&W Change in Estimates (%)
segment, while in the B2C categories faster growth was witnessed in the Housing Wires and Y/E Mar FY22E FY23E
FMEG segment led by a strong distributor network and brand presence. The company has Sales 3.8 7.8
launched ‘Project Leap’ and has set a target of over Rs 20,000 Cr revenues in the coming 5 EBITDA 8.1 11.9
years. This quantum leap will be led by faster and profitable growth in the B2B segments PAT 9.3 13.2
(FMEG and Retail Wires) and industry-leading growth in the B2C business. We believe the
growth will be driven by demand recovery, new product launches, product premiumization,
increasing contribution of exports, and online sales over the long run. We have increased
Relative performance
FY22E/FY23E revenue estimates by 3.8%/7.8% respectively. We value Polycab at 25x
300
FY23E EPS of Rs 76 to arrive at a target price of Rs 1900/share, implying an upside of 10%
from CMP. 250

200
.
150
Key Financials (Consolidated )
100
(Rs. Cr) FY20 FY21 FY22E FY23E 50
Oct-19 Jan-20 May-20 Sep-20 Jan-21 May-21
Net Sales 8,830 8,927 10,399 11,956
Polycab India BSE Sensex
EBITDA 1,135 1,167 1,380 1,664
Source: Capitaline, Axis Securities
Net Profit 773 886 912 1132

EPS (Rs) 51.9 59.4 61.1 75.9

PER (x) 34.6 28.8 28.5 22.9

RoE (%) 22.0 21.0 17.5 18.5 Hiren Trivedi

Research Associate
EV/EBITDA (x) 22.6 21.9 18.5 15.0
Call: (022) 4267 1759
Debt/Equity (x) 0.03 0.04 0.03 0.02 email: hiren.trivedi@axissecurities.in
Source: Company, Axis Research

1
Quarterly Highlights (Contd…)
 Project Leap - Doubling revenues over the next 5 years: Polycab has set a target of Rs 20,000 Cr + revenues by FY26 through the

strategic initiative ‘Project Leap’. Under this program, the company plans to

a. Focus on enhancing leadership in the B2B segment – The company aims to grow 1.5x in core segments through

expanding presence in the domestic markets and scale up its export revenues

( ~10% of overall revenues)

b. Increasing product portfolio in B2C segment – Exploring adjacencies and targeting higher online sales (10% of overall

revenues). The company has set a target of 1.5x of market growth in wires, 2x growth in and achieving 12% EBITDA margins

in the FMEG segment.

c. Futureproof success: Leveraging technology to transform business model, increased backward integration to improve

profitability.

d. Sustainability agenda - Investing in renewable energy and waste & water recycling to improve the sustainability score.

 Price hikes partially offset commodity price hikes: While the commodity prices have increased in higher double digits during the

quarter, the company has undertaken calibrated price hikes in low-teens to pass on the increased RM cost to consumers.

 Revenue mix: The housing Wires segment has grown at a faster pace while cables have seen sequential improvement. In the FMEG

segment, Fans contributed ~30-35% revenues, Lighting contributed ~25%, while Switches & Switchgear contributed ~15%.

 Network Expansion: The company has expanded its network to ~4100+ dealers while increasing retail touch-points to 165,000 ( vs.

125,000 in Mar’20).

 Market Leadership: The company has maintained leadership in the C&W segment and estimates a market share gain of ~2% to ~22%.

 Capex plans: The company plans to spend Rs 300 Cr in FY22 with a 35% allocation to FMEG for capacity addition, while the rest will

be towards adding new machinery for exports and increasing C&W capacities.

Change in Estimates

New Old % Change

FY22E FY23E FY21E FY22E FY21E FY22E

Sales 10,399 11,956 10,015 11,096 3.8 7.8

EBITDA 1,380 1,664 1,277 1,487 8.1 11.9

PAT 912 1,132 834 1,000 9.3 13.2

Source: Company, Axis Securities

2
Result Update (Rs Cr)
% change % change
Y/E March Q4 FY21 Q4FY20 Q3 FY21
(YoY) (QoQ)

Sales 3037.4 2129.4 42.6 2798.8 8.5

Other Inc 0.0 0.0 0.0

Total Revenue 3037.4 2129 42.6 2799 8.5

Expenditure

Net Raw Material 2264.4 1476.9 53.3 2119.6 6.8

Personnel 99.7 89.9 11.0 89.6 11.3

Other Exp 252.1 262.0 (3.8) 213.8 17.9

Total Expenditure 2616.2 1828.8 43.1 2423.0 8.0

EBIDTA 421.3 300.6 40.1 375.8 12.1

Margins (%) 13.87 14.1 (0.25) 13.4 0.44

Other Income 27.36 46.46 (41.1) 34.48

Interest 16.6 15.9 4.5 8.8 88.5

Depreciation 48.9 42.2 15.9 47.8 2.2

PBT 383.1 288.9 32.6 353.6 8.3

Tax 100.6 68.0 48.0 90.5 11.2

Exceptional items 0.0 0.0 0.0

PAT 282.5 220.9 27.9 263.1 7.4

Source: Company, Axis Securities

3
Financials (consolidated)
Profit & Loss (Rs Cr)
Y/E March FY20 FY21 FY22E FY23E
Net sales 8,830 8,927 10,399 11,956
Other operating income 0.0 0.0 0.0 0.0
Total income 8,830 8,927 10,399 11,956

Cost of goods sold 7,695 7,760 9,018 10,292

Contribution (%) 12.85% 13.07% 13.27% 13.92%
Advt/Sales/Distrn O/H 0.0 0.0 0.0 0.0

Operating Profit 1,135 1,167 1,380 1,664

Other income 93 128 114 133

PBIDT 1,228 1,295 1,495 1,797

Depreciation 161 187 230 238
Interest & Fin Chg. 50 53 47 47
E/o income / (Expense) 0 10 0 0
Pre-tax profit 1,017 1,065 1,218 1,513
Tax provision 244 179 307 381
PAT before Comprehensive Income 773 886 912 1,132
(-) Minority Interests 0 0 0 0
Associates (7) (0) 0 0
Other Comprehensive Income (16.4) 16.0 0.0 0.0
Adjusted PAT 749 894 912 1,132
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY20 FY21 FY22E FY23E
Total assets 4,072 5,028 5,928 6,999
Net Block 1,422 1,870 1,891 1,923
CWIP 241.2 99.1 210.0 140.0
Investments 25.5 11.8 11.8 11.8
Wkg. cap. (excl cash) 2,045 2,383 3,303 3,835
Cash / Bank balance 281.3 531.3 460.1 1,033
Misc. Assets 57.0 133.2 52.0 56.2

Capital employed 4,072 5,028 5,928 6,999

Equity capital 148.9 149.1 149.1 149.1
Reserves 3,688 4,605 5,393 6,406
Pref. Share Capital 0.0 0.0 0.0 0.0
Minority Interests 15.0 18.8 18.8 18.8
Long Term Borrowings 10.7 103.7 22.7 15.7
Def tax Liabilities 17.5 41.8 12.6 13.5
Other Provisions 192 110 332 396
Source: Company, Axis Securities

4
Cash Flow (Rs Cr)
Y/E March FY20 FY21 FY22E FY23E
Sources 1,162 1,219 891 1,242
Cash profit 983 1,126 1,188 1,416
(-) Dividends 126 0 119 119
Retained earnings 858 1,126 1,069 1,297
Issue of equity 7.7 0.2 0.0 0.0
Change in Oth. Reserves 427.8 22.8 0.0 0.0
Borrowings (78) 93 (81) (7)
Others (53) (23) (98) (48)

Applications 1,162 1,219 891 1,242

Capital expenditure 356.1 487.3 341.9 202.2
Investments 40.0 583.1 0.0 0.0
Net current assets 801.8 (101.4) 619.8 467.5
Change in cash (36.3) 250.0 (71.2) 572.5
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY20 FY21 FY22E FY23E
Sales growth 11.0 1.1 16.5 15.0

OPM 12.9 13.1 13.3 13.9

Oper. profit growth 22.9 2.8 18.3 20.5
COGS / Net sales 87.1 86.9 86.7 86.1
Overheads/Net sales 0.0 0.0 0.0 0.0
Depreciation / G. block 7.8 6.9 7.8 7.4
Effective interest rate 31.5 33.8 27.2 32.5

Net wkg.cap / Net sales 0.21 0.29 0.31 0.34

Net sales / Gr block (x) 4.3 3.3 3.5 3.7

Core RoCE 33.3 26.1 24.7 26.2

Debt / equity (x) 0.03 0.04 0.03 0.02
Effective tax rate 24.0 16.8 25.2 25.2
RoE 22.0 21.0 17.5 18.5
Payout ratio (Div/NP) 16.8 0.0 13.1 10.5

EPS (Rs.) 51.9 59.4 61.1 76.0

EPS Growth 46.0 14.4 2.9 24.2
CEPS (Rs.) 61.1 73.0 76.6 91.8
DPS (Rs.) 7.0 0.0 6.6 6.6
Source: Company, Axis Securities

5
 About the analyst

Hiren Trivedi

Research Associate

hiren.trivedi@axissecurities.in

Call: (022) 4267 1759

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