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ICICI Direct Report
Polycab India Ltd. reported a satisfactory performance amid the Covid-19 induced lockdown in Q1 FY21 wherein it lost almost 40 days of its sales. Consolidated revenue fell 50% YoY in Q1 FY21 led by a similar decline in revenue of its core business i.e. wire and cable. While cable demand remained muted throughout the quarter, the housing wire segment (approximately 45% of total wire and cable segment) witnessed strong double digit growth in June led by pent up demand and pre-stocking due to price hike.
Despite such a challenging scenario, gross margins increased approximately 50 basis points YoY while Ebitda margin was at approximately 6% (down approximately 560 basis points YoY), mainly due to low operating leverage. The management has indicated at demand improvement on a month on month basis post relaxation of lockdown. While the plant utilisation has reached 50- 60% currently, the company reported a marginal growth in revenue for July 2020 (as on date). The company also increased its focus towards export markets and recorded export revenue growth of 116% in Q1 FY21. The export revenue contribution to total topline increased to 10% in Q1 FY21 versus 2% in Q1 FY20.
We maintain our positive stance on the stock, considering Polycab’s strong fundamentals (that will help it to recoup its lost sales swiftly with a recovery in business activities) and stringent working capital management to reduce the risk on the balance sheet. We reiterate Buy with a revised target price of Rs 950 (valuing at 17 times FY22E).
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