Fundamental Radar: 5 factors why Polycab India could surpass Rs 3,200 levels in next 12 months

Polycab India, part of the cables and electricals industry, rose a little over 10% in a week and over 30% in the last 6 months to hit a fresh high in December, but the rally may not be over yet.

The stock hit a 52-week high of Rs 2,993 on 14 December and the rally could well extend towards Rs 3,200 in the next 12 months on balance sheet strength, healthy cash positions, industry growth as well as revenue growth.

Polycab India is the market leader in wires and cables (W&C) industry with 22% share in the organized space. It boasts of an extensive product portfolio and has wide distribution reach with retail touch points of 2,05,000 - second only to Bajaj Electricals.

Khadija Mantri, AVP Research at Sharekhan by BNP Paribas decodes 5 factors that makes Polycab India an attractive buy at current levels:

Industry Growth:
The domestic W&C market, estimated at about Rs 60,000 65,000 crore, makes up more than 40% of the Indian electrical industry.

The W&C segment is set for strong long-term growth as it is witnessing demand from real estate and other private sectors.

Further, emerging opportunities in data centers, EVs (charging stations), renewable energy, defense, and electronics (PLI scheme-led thrust) would provide fresh growth levers.

Consumer Preferences:
Consumer preferences are now skewed towards branded products which are being supported by wide distribution reach of the organized players.

Further, aggressive investments in brand building through advertisements and promotions would help Polycab India to deliver strong long-term growth.

Further, calibrated price revisions (as per the movement of copper prices) would help the company maintain its margin at a comfortable level.

Fast moving electrical goods (FMEG) next growth driver:
FMEG can be a key growth enabler in the long term for the company. The company has a strong new product development pipeline to strengthen and build a differentiated portfolio in the FMEG business.

It is also realigning its distribution strategy where it is consolidating its existing dealers/distributors and adding new dealers in new regions.

The company has a huge scope to scale up its business as its current market share in fans and switchgear & switches is very low at ~4% and ~2% respectively.


Growth guidance
Polycab aims to achieve Rs 20,000 crore in revenue in FY2026E. The multi-pronged strategy of increasing distribution, in-house manufacturing as well as backward integration is expected to keep its high-growth trajectory intact.

Valuation:
We have a built-in Revenue/PAT CAGR of 17.8%/23.1% (FY22-FY25E). It has a strong balance sheet and healthy cash position (including current investments) of Rs 1,200-1,300 crore.

The stock trades at ~30x and ~25x its FY2024/FY2025E EPS. Sharekhan recommends a Buy on the stock with a target price of Rs 3,215 per share.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)