Polycab India Gets A New 'Buy' Rating As Goldman Sees Four Growth Triggers
The brokerage set a target price of Rs 5,750 apiece as it sees multiple levers to build on an already dominant market position.
Polycab India Ltd. got a 'buy' rating after Goldman Sachs initiated coverage on the company on the expectation of high growth in the medium term.
The brokerage has set a target price of Rs 5,750 apiece, implying an upside return potential of 8.2%, as it sees multiple levers to build on an already dominant market position.
"We believe that it is fair to look at Polycab as a FMEG company—which benefits from India’s infrastructure, housing, power and also from growth in consumption—and that it will maintain a high growth rate in the medium term," Goldman Sachs said in its Nov. 21 note.
The brokerage expects revenue growth of 15% CAGR over FY24–27E. Significant cash generation over FY24–27E (free cash flow to sales at 5%) improves growth visibility through re-investment, it said.
Polycab India will outperform its peers in cables and wires, as its superior growth in the near term and increasing presence in adjacent electrical areas can continue to drive a premium valuation, Goldman Sachs said. The brokerage's bull case shows an upside of 30%.
"Our above-consensus revenue forecasts in the cables and wires business reflect its strong industry position," it said.
The stock has outperformed Sensex so far this year. It has risen 107.58% on a year-to-date basis, compared to an 8% rise in the Sensex.
Growth Driven Factors
Goldman Sachs expects the cables and wires industry to grow at a CAGR of 13% over the next five years and for Polycab India to grow faster during the initial part of this period, due to its available capacity.
Within the industry, the company has the highest number of SKUs (12,000+) and remains one of the few players in Asia that manufactures and can cater to the demand for all types of cables and wires required in a project, the brokerage said. "This increases the potential opportunities for cross-selling, with customers increasingly preferring a sole supplier to work with rather than relying on multiple suppliers," the report said.
The company's maiden investment in the Extra High Voltage segment, albeit small, caters to a fast-growing segment, the note said. It is planning to set up an EHV production line in Halol, Gujarat and expects production to start at the end of FY26.
It has entered into a technology tie-up with Brugg Kabel, in which the latter would transfer technology for up to 550kV voltage products to Polycab.
In the long term, fast-moving electrical goods businesses should become an added growth lever, growing on the back of a robust distribution network. "Polycab has indicated its focus to ramp up in-house manufacturing in these categories, as is visible in the capacity addition of various categories below," the note said.
The Key Differentiators
The broadest distribution network of 4,300 dealers and 2.05 lakh touchpoints (93% sales done through dealers) which allows it to grow faster than the industry, the note said.
Faster delivery timeline, made possible by its high-inventory model, which results in better ability to cater to demand.
Increased focus on exports – which is opening up to India cable makers, as global demand looks to secure supply besides China.
Capacity utilisation at 60-70% allows for near term growth, without the need for any new investment.
Shares of Polycab India rose as much as 2.23%, before paring gains to trade 0.45% higher at 11:26 a.m., compared to a 0.08% advance in the benchmark NSE Nifty 50.
The stock has risen 107.62% on a year-to-date basis. The total traded volume so far in the day stood at 1.7 times its 30-day average.
Of the 31 analysts tracking the company, 19 maintain a 'buy' rating, six recommend a 'hold', and six suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 4.8%.