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CD Equisearch
Polycab (Buy)
CMP: ₹797.7
Target: ₹1,099
Polycab has evolved from a largely B2B play to a fast-growing B2C brand. Driving this growth as a powerhouse in India’s consumer electricals market have been their investments in branding and marketing with good results. Polycab’s initial strategy was to focus on strengthening not only above-the-line but also below-the-line and through-the-line communication. This ensured not only top-of-mind recall for the brand but similar recognition at point-of-sale and post-purchase satisfaction.
Polycab’s revenues have grown over 14 per cent during FY16-20, although looking closely at the numbers, its primary business has shown sub-10 per cent increase over the last couple of years (last few days of FY20 were impacted due to the pandemic) and our estimates suggest that it will not reach FY20 levels in terms of revenue for at least another couple of years.
The stock currently trades at 18.2x FY21e EPS of ₹44.02 and 13.1x FY22e EPS of ₹61.08. Although demand prospects are barely disappointing, fluctuation in raw material prices poses a key challenge. Realisation and profitability depend of copper and aluminium commodity prices. Weighing odds, we advise ‘buy’ rating on the stock with target price of ₹1,099 based on 18x FY22e EPS of ₹61.08 over a period of 9-12 months.
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