Polycab India – Wired for Growth

Polycab India: Wired for growth

Wires and cables maker Polycab India (PIL) reported a 14% rise in profit after tax (PAT) to Rs 221.4 crore during the quarter ended December 31, 2019, helped by higher income.

It had clocked Rs 193.6 crore PAT in the corresponding quarter of the preceding fiscal, PIL said in a statement to exchanges.

Strong volume, distribution network came in handy to boost margins by 200 basis points to 14% vs 12% on the quarter.

PIL engaged in the business of manufacturing and selling wires and cables. It is the largest manufacturer of wires and cables in India and a growing player in FMEG (Fast-Moving Electrical Goods) space.

It has delivered resilient performance despite a tough macroeconomic environment.

Its topline growth remains strong across segments helped by robust pan India distribution network coupled with exports while profitability improved sequentially on the back of enhanced and evolving product mix and various strategic initiatives implemented over the past few years.

During the quarter, wires and cables business grew 20% while FMEG business grew 34% to Rs. 216 crore.

EPS at Rs 15 per share, ROCE of 30.6% and ROE at 23.5% for Q3FY20 offers value for money proposition.

Post results, the PIL share price hit a new high of Rs 1,140. In the last three months, the stock of the fast-moving electric goods (FMEG) company has rallied 58%.

Foreign portfolio investors (FPIs) have increased their stake in Polycab for the third straight quarter post its listing. FPIs increased its stake by nearly 1 percentage points in Q3FY20.

Their holding in the company rose to 4.64% in the December quarter from 3.75% in the September quarter.

The same was rose from 3.33% at the end of June quarter. They held a 2.49% stake as on April 16, 2019, the day of listing.

A robust distribution network, wide product offerings, efficient supply chain management, strong manufacturing capabilities, and brand image have driven its success.

With 24 facilities in operation, PIL has built strong manufacturing capabilities in the W&C and FMEG segments. Apart from strong control over costs, it has maintained stringent control over the quality.

PIL has a pan-India distribution network of 2,800+ distributors and dealers with a reach of 100,000+ retail outlets

Sustained investments in FMEG over FY14-21E (a third of overall CAPEX) will help the company ramp up revenue market share from 1% currently to 3% (4x growth in revenues) over the next three-four years with significant operating margin ramp up potential

With manufacturing scale and robust distribution in place, Polycab’s incremental value creation lies in creating a brand pull for its FMEG products via innovation, and better Working Capital management

Net net with better ROCE and ROE number over competitors, the company looks well-positioned for stronger growth ahead.

Hence despite a sharp rise in the stock price long term in the last 6 months posts its IPO, we believe this is a stock which can surely add further value to shareholders over the next 2-3 years.

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