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Target: ₹2,755
CMP: ₹2,229.65
To factor in the near-term uncertainty, we lower our FY23e EBITDA and net income of Polycab by about 15 per cent. The company had a sombre start to FY23. Its Q1-FY23 revenue dipped 31 per cent quarter-on-quarter to ₹2,740 crore, though year-on-year, it rose 48 per cent due to the lower base. Despite a 280-basis point improvement in the gross margin, the EBITDA margin was 60 basis points lower quarter-on-quarter as staff costs rose 5 per cent, while other manufacturing expenses were 12 per cent lower than the quarter prior. With a 24 per cent tax rate, net income dropped 32 per cent quarter-on-quarter.
Channel partners tend to optimise inventory to avoid being loaded with high-cost stocks amid falling commodity prices. Based on that, the management expects the pace of revenue booking to be dull in Q2-FY23. It expects volume growth, to be steady in H2-FY23.
Polycab has guided to ₹300-400 crore capex a year for the next few years, as it aspires to book ₹20,000 crore revenue by FY26. In Q1-FY23, it incurred ₹100 crore capex.
Post-Q1 FY23, our FY23 revenue is largely intact. We lower EBITDA and net income about 15 per cent each to factor in softer demand from a medium-term perspective and expected recovery in H2 FY23.
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