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Polycab India (Buy)
CMP: ₹713.65
Target: ₹857
Polycab reported strong numbers led by positive surprise on margins and higher than expected other income. Revenue was weaker than expected due to sluggish domestic market and revenue loss of ₹610 crore due to lockdown. Export revenues jumped 3.4x y-o-y and was flat on a sequential basis led by execution of Dangote order and higher revenues from the US.
Company has executed orders worth ₹750 crore of the total ₹1,100 crore order from Dangote. Margins surprised positively led by improvement in product mix and price hikes taken in some FMEG segment. PAT outperformance was aided by jump in other income (114.1 per cent y-o-y) and higher margins (+423 bps y-o-y).
Company has restarted all its manufacturing capacities and is gradually ramping up to meet demand from exports and Tier II/III towns. Company is looking at expanding its reach in the export market ($38 billion opportunity) as consumers shift procurement from China. C&W channel inventory is at normalised levels and lower in areas where demand has picked up in Q1.
We believe earnings revival over the next 2-3 years would be led by market share gains in the FMEG business. We have cut our FY21/22 estimates by 34.5 per cent/26.4 per cent factoring in slower recovery in the housing wire segment. Near term stock performance would be subdued due to concerns over demand revival in C&W segment.
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