Strong demand is being ridden by Polycab India

 Strong demand is being ridden by Polycab India

The cable manufacturer's optimism is boosted by its belief that it may achieve the FY26 sales goal of 20,000 crore, potentially earlier than expected.

The stock price of Polycab India Ltd. has almost quadrupled over the last year as a result of the company's steadily increasing profits. The cable manufacturer's conviction that it can reach the FY26 revenue goal of 20,000 crore, maybe earlier than expected, adds to the euphoria. In the next quarters, Polycab intends to alter its revenue growth projection, the company said during the September quarter (Q2FY24) earnings call.

It was anticipated that Q2 would be a strong quarter, and it did not let down. Pre-tax profits for the whole company increased by 55% year over year to 557 crore, while sales increased by 27% to 4,218 crore. With a market share of 22-24% in the organized wires and cables (W&C) sector, Polycab has a market leading position. It is thought to benefit from the government's emphasis on infrastructure and the surge in private sector capital expenditure.

W&C contributed 88% of the total revenue in the second quarter. Revenue increased by 29% to 3,805 crore on the back of strong volume growth. Government spending and robust real estate demand were identified by the firm as the main reasons for the growing momentum.W&C witnessed a 285 basis point increase in Ebit (earnings before interest and tax) margin to 14.6%.

The fast-moving electrical goods (FMEG) category, which comprises switches, fans, and lights, performed poorly, posting an Ebit loss of 6 crore. The short-term picture seems grim. "While we foresee FMEG to remain modest in FY24e, margins could improve from FY25e, with advantages associated with distribution revamp and economies of scale," according to a research from Jefferies India.

In spite of this, Jefferies has increased the target price-to-earnings ratio of the stock to 38x from 33x due to the company's steady performance over the last 4-5 quarters. According to Jefferies, the expected rise in profits per share for FY23–26 would be 28% compounded yearly, which will be higher than the 19% figure for FY20–23.

However, because values are not quite low, it is important to monitor if W&C growth continues in the future. The expected profits for FY25 are 40 times the stock's current price. Despite the danger posed by the forthcoming elections, there is still no indication that demand is slowing down, according to Kotak Institutional Equities. The present values, it says, are "too rich for what is still primarily a cables-driven story."