Sustained growth In fast moving electronics, higher B2C mix to aid Polycab

Polycab has had good traction in the FMEG space since it entered the business in 2014.
After reporting better-than-expected results in the third quarter, analysts have increased their earnings estimates for Polycab India.  They cite sustained growth in the fast-moving electrical goods (FMEG) segment, higher business-to-consumer (B2C) mix, and market share gains as key reasons for the upgrade.  

Revenue in the third quarter (Q3) grew nearly 12 per cent year-on-year (YoY) to Rs 2,799 crore, driven by 6 per cent and 41 per cent growth in wires & cables and FMEG sales, respectively. Operating margins remained steady, while net profit rose 19 per cent, aided by cost-control measures and higher other income.    

Polycab has witnessed good traction in the FMEG space since its foray into this business in 2014. The company has strategically expanded its product offerings and leveraged its large distribution network to grow this business. This, in turn, has helped revenue from this vertical record a compound annual growth rate of 47 per cent over the past five years. 

With strong industry growth prospects, analysts remainbullish over the mid- to long-term prospects of this business. “Polycab’s FMEG business promises good growth potential over the long-term considering its small share in the industry currently. The company expects value-added products to lead demand in the medium to long-term and is likely to gain from the declining share of unorganised players,” said brokerage firm B&K Securities in a recent report.  

The stock currently trades at 22 times its financial year 2021-22 (FY22) earnings, which translates into a near 50 per cent discount to its peers such as Havells, Crompton Greaves Consumer, and others. This is mainly on account of the higher contribution of revenue from the business-to-business channel. The company has been focused on increasing its B2C presence, and has managed to increase its B2C mix from 33 per cent to 40 per cent as of Q3, making it a candidate for a potential re-rating, say analysts at Prabhudas Lilladher.  

In this backdrop, analysts have increased their forward estimates and target prices. Emkay has increased its earnings per share (EPS) estimates by 11.5 per cent, 11.3 per cent and 8.8 per cent for FY21, FY22, and FY23, respectively, while increasing their 12-month price target from Rs 1,310 to Rs 1,425 per share. The sharp correction in its share price on Monday offers a decent opportunity to add the stock and accumulate further on dips, say experts.  

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