Buy Polycab India; target of Rs 1425: Emkay Global Financial

Emkay Global Financial is bullish on Polycab India has recommended buy rating on the stock with a target price of Rs 1425 in its research report dated January 25, 2021.

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Emkay Global Financial’s report on Polycab India

Q3 performance came in ahead of expectations, with a 6% revenue beat, driven by both C&W and FMEG segments. FMEG growth of 41% yoy was robust, while C&W growth was restricted by a 33% decline in export revenues due to a high comparable base in Q3FY20. Despite a steep contraction in gross margins of 319bps yoy and 416bps qoq, EBITDA grew 11% on a 17% yoy reduction in other opex. C&W EBIT margins expanded 90bps yoy, while FMEG momentum sustained with a margin of 5.9% (0.6% in Q3FY20). Commodity headwinds continue to persist, while price increases should restrict gross margin contraction in Q4. Focus on distribution expansion, new product launches and premiumization should aid the sustenance of strong FMEG revenue growth.

Outlook

Taking 1) strong performance in Q3 and 2) elevated commodity price environment into account, we have aligned our estimates, making us raise FY21-23E EPS by 9-12%. Maintain Buy with a revised TP of Rs1,425 (20x FY23E EPS) vs.Rs1,310 earlier.

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