PL Stock Report - Polycab India (POLYCAB IN) - Q1FY24 Result Update - Robust revenue growth, margins improvement - Upgrade to 'ACCUMULATE'
Polycab India (POLYCAB IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd
Rating: ACCUMULATE | CMP: Rs4,309 | TP: Rs4,760
Q1FY24 Result Update - Robust revenue growth, margins improvement
Quick Pointers:
♦ Domestic W&C business reported ~53% volume growth in Q1FY24.
♦ EBITDA margin expanded by 270bps, W&C margin improved by 330 bps YoY.
We upward revised our FY24/25E earnings estimates by 14.8%/12.7% and upgrade to ‘Accumulate’ from ‘HOLD’ to mainly reflect revision in top-line growth assumption (6.8%/9.1% in FY24/FY25) and margin improvement (~13.5% EBITDA margin) with segment & product mix. Polycab reported strong revenue growth of 42.1% YoY in Q1FY24, despite high base and fluctuation in commodity prices on the back of robust volume growth (~53%) in 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 W&C from infrastructure/real estate/construction activities (which accelerated institution business growth), 2) focus on B2C through deepening reach & premiumization of product portfolio and 3) expected market share gain of ~2% in coming years with wide SKUs, availability of products, logistics support etc. We expect Revenue/EBITDA/PAT CAGR of 19.3%/20.7%/22.2% over FY23-25E led by strong domestic demand environment supported by government measures & revival in private capex along with strong traction in export revenue. Upgrade to ‘Accumulate’ from ‘HOLD’ at revised TP of Rs 4760 (Rs 3553 earlier) given solid Q1 performance and strong guidance for coming years.
W&C business reported ~53% volume growth: W&C business reported 48% revenue growth on the back of robust volume growth (~53%) in W&C business. Domestic distribution business, institution business and export has driven strong growth in W&C. Geographically, growth was broad based with highest growth coming from North region mainly from strong traction in infrastructure – railways & roads, power transmission business and real estate sector. Cables growth continued to outperform wires growth in Q1FY24. Polycab gained market share in FY23 of ~150 bps and reached 17%+ (expected to improve further). W&C margin improved by 320bps YoY on account of judicious price revisions, better operating leverage and strong growth in international business.
Sales grew 42.1% and PAT grew 48.1%: Sales grew 42.1% YoY to Rs38.9bn (PLe: Rs31.3bn) despite high base and fluctuation in commodity prices. Wires and cable business grew 48% YoY with strong traction in international business which grew by 88% YoY with increase in international coverage and opening of warehouse in USA, while domestic business grew by 44.6% YoY. Export revenue contribution was 8.9% to its total sales. Gross margin expanded 150 bps YoY to 26.5%. EBITDA grew 76.3% YoY to Rs 5.5bn (PLe:4.0bn). EBITDA margins expanded 270bps YoY to 14.1% (PLe:12.8%). PAT grew 81.7% YoY to Rs4.0bn (PLe: Rs2.7bn) was largely from volume growth and improvement in margins. W&C‘s EBIT grew 89.5% YoY to Rs5.2bn and margins expanded by 320bps YoY to 14.8%. FMEG revenues grew 2.1% YoY to Rs3.1bn and reported EBIT loss of Rs 56.7mn vs profit of Rs64mn in Q1FY24.