Polycab India Ltd, a maker of wires, cables, and rapid moving electrical items, posted better-than-expected March quarter earnings, sending its shares to a new record high on Monday morning. Over the previous five years, the stock has risen by around 940 percent. It has fully recovered from a recent severe dip caused by IT searches on business sites in December 2023.
The firm has not received any formal notification from the tax department since. Analysts' price forecasts for the company range from Rs 4,200 to Rs 7,850. The brokerages with modest target prices want more clarification on the tax problem, given the stock has gained significantly in recent months.
Centrum Broking stated the demand prognosis for wires and cables is strong owing to significant investments in infrastructure, renewables, PLI, railroads, and industrial capex over the next 5-10 years. Polycab India stated that it plans to boost its capex investment to Rs 1,000 crore per year for the next 2-3 years (5-6 times asset turn expected).
"The FMEG ramp-up and margin turnaround will take 1-2 years. We raise our forecasts by 5-10% for FY25/26, carry over the value to FY26E, and lift the P/E multiple to 40 times (up from 35 times owing to improved growth prospects). Maintain ADD grade with a revised target of Rs 6,500 based on 40x FY26E EPS," it said.
In the absence of any notification from tax authorities, the markets have obviously believed that Polycab India has no major regulatory risk, according to Kotak Institutional Equities.
"While this assumption may be proven correct, the governance issue remains an overhang in our thoughts. Meanwhile, the business has reappointed Mr Inder Jaisinghani as MD for another five years, till August 2029. Separately, we see a considerable risk that the company's exceptionally favorable business economics would be reduced in the long run in a commoditized product category like cables, as long as the market stays free and fair," Kotak added.
In the absence of any notification from tax authorities, the markets have obviously believed that Polycab India has no major regulatory risk, according to Kotak Institutional Equities.
"While this assumption may be proven correct, the governance issue remains an overhang in our thoughts. Meanwhile, the business has reappointed Mr Inder Jaisinghani as MD for another five years, till August 2029. Separately, we see a considerable risk that the company's exceptionally favorable business economics would be reduced in the long run in a commoditized product category like cables, as long as the market stays free and fair," Kotak added. This firm believes the stock's current high values are unsustainable and has retained a 'SELL' rating with a fair value of Rs 4,260, up from Rs 4,060 before.
Motilal Oswal, which just commenced coverage on Polycab India with a BUY rating, said it likes the firm because of its outstanding performance in the cables and wires market, where it holds a dominant position and delivers high margins.
"We boost our EPS expectations for FY25 and FY26 by 5% apiece, reflecting better growth in FY24. Reiterate BUY with a target price of Rs 7,850 (based on 50 times FY26E EPS)," it stated.
Nuvama stated that Polycab India's stock has risen by more than 35% since its previous update, removing the regulatory burden. "We believe revenue/Ebitda/PAT will grow at a CAGR of 16%/16%/15% over FY24-26E." We are raising our target price to Rs 7,280 (previously Rs 6,139) due to an increase in our target valuation to 46 times PE (previously 40 times); we remain BUY," it stated.
