Polycab India (POLI)

CMP: | 745 Target: | 855 ( 15%) Target Period: 12 months BUY

June 4, 2020

Strong export orders drive FY20 earnings…

The Indian wire & cable industry faced a challenging scenario in FY20 on
account of weak demand from end users, liquidity issues and slower private

Company Update
infrastructure spend. This was further exacerbated by nationwide lockdown
at the end of FY20. Despite such a challenging scenario, Polycab India
posted robust revenue, earnings growth of 11%, 53% YoY with Particulars
improvement in EBITDA margin (up 130 bps YoY) and decline in interest Par ticu lar Am o u n t
cost by 60% YoY. The core business of Polycab i.e. wire & cable (85% of Ma rke t C a p (|C rore ) 11,091.5
Tota l De bt (FY 20) (|C rore ) 152.3
revenue) has grown 7% YoY supported by execution of strong export
orders. On the other hand, fast moving electrical goods (FMEG) segment of C a s h & Inv (FY 20) (|C rore ) 276.0
Polycab posted robust ~30% growth in FY20 (increased its share of revenue EV (|C rore ) 10,967.8
52 w e e k H/L 1180/ 522
from 8% in FY19 to 9.4% in FY20) driven by portfolio augmentation and
Equity c a pita l (|C rore ) 148.9
expansion of dealer networks. Further, while FY21E is likely to be a
Fa c e v a lue (|) 10.0
challenging year for the core business, the company’s focus on increasing sse ff

export business (contribution in sales grew to 12.3% in FY20 vs. 3.1% in

FY19) may limit the impact on its wire & cable business. Also, pan India Key Highlights
dealer networks would help it to recoup lost sales and recover faster from
H2FY21 onwards compared to competitors. We also believe better EBITDA  Despite challenging
margin, lower interest cost and lower tax rate would help drive profitability environment in FY20, wire &
of the company by 17% from FY19-22E. cable business grew 7% YoY led
by ~3.3x jump in export
Focus on export to drive revenue of core business revenue

ICICI Securities – Retail Equity Research

Polycab executed ~| 750 crore worth of export order in FY20 (~| 1100 crore  Gross margin expanded 290 bps
order received from Dangote Group, South Africa). This aided export YoY in FY20 led by favourable
revenue to grow 3.3x YoY in FY20. The large Dangote order also helped mix and benign raw material
boost confidence of management to explore more business opportunities in prices
export markets. Revenue contribution of export increased from ~3% in
FY19 to ~12% in FY20. The management guided export would be ~10% of  Upgrade stock from HOLD to
overall revenue, going forward, as the company is seeing increased traction BUY with revised target price of
in few developed geographies (like US where sales increased 41% in FY20). | 895/share

Increasing presence in FMEG space

The FMEG business (~11% of revenue) recorded a robust performance with
revenue CAGR of 49% in FY16-20 led by portfolio augmentation and overall
distribution expansion (distributor count increased 16% YoY to 1750+ in
FY20). We believe FMEG performance would remain robust (with revenue
Research Analyst
CAGR of ~20% in next two years) in the coming future with the opening up
of economy and addition of more distributors, going forward. Sanjay Manyal
[email protected]
Valuation & Outlook
Hitesh Taunk
We believe Polycab’s performance has remained robust in FY20 despite [email protected]
various challenges. Strong balance sheet condition, market leadership
position in wire & cable business and profitable growth in FMEG segment
would help drive future growth of the company. We upgrade the stock from
HOLD to BUY with revised target price of | 895/share (valuing at 17x FY22E).
.
Key Financial Summary
s sfsf

|C r o r e FY 18 FY 19 FY 20E FY 21E FY 22E (C A G R 19E-22E)

Net s a les 6770.3 7956.0 8830.0 7745.1 9199.2 5.0
EBITDA 728.9 923.2 1135.0 890.7 1195.9 9.0
EBITDA Ma rgin(% ) 10.8 11.6 12.9 11.5 13.0
Net Prof it 358.6 500.5 765.6 538.4 792.1 16.5
EPS (|) 25.4 35.4 51.4 36.2 53.2
P/E(x ) 29.3 21.0 14.5 20.6 14.0
RoE (% ) 15.3 17.6 20.0 12.3 15.6
RoC E (% ) 20.9 28.3 26.5 16.9 20.3
Source: Company, ICICI Direct Research
 Company Update | Polycab India ICICI Direct Research

Exhibit 1: Variance Analysis

Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%) Comments
Revenue impacted by Covid-19 outbreak and subsequent lockdown
Revenue 2129.4 2444.8 -12.9 2507.3 -15.1 during prime sales period. However, excluding Covid-19 impact,
sales would have been up 11% YoY
Other Income 46.5 36.1 28.9 0.3 NM
Change in revenue mix (execution of high margin export orders)
Raw Material Exp 1476.9 1901.7 -22.3 1819.0 -18.8
resulted in strong gross margin (up 840 bps YoY)
Employee cost 89.9 64.4 39.5 91.5 -1.8
Adevertisement Exp 18.5 35.6 -48.1 37.6 -50.8 Rationalisation of advertisement expenditure owing to low demand

Freight and forwarding Exp 49.9 50.0 -0.1 52.6 -5.1

Other Expenditure 193.6 168.4 14.9 167.6 15.5
Total Expenditure 1828.8 2220.1 -17.6 2168.2 -15.7
EBITDA 300.6 224.7 33.8 339.1 -11.4
EBITDA Margin (%) 14.1 9.2 493 bps 13.5 59 bps Sharp increase in gross margin helped EBITDA margin expansion
Depreciation 42.2 34.3 22.9 40.7 3.7
Interest 15.9 26.2 -39.2 8.6 85.6
Exceptional items
PBT 288.9 200.2 44.3 290.2 -0.4
Total Tax 68.0 65.2 4.2 68.6 -0.8 Transition to new corporate tax rate helped save tax outflow
PAT 215.1 137.3 56.8 221.4 -2.8
Key Metrics*
Wires business saw muted demand in Q4 due to lower realisations
Wires & Cables 1,860.5 2,121.6 -12.3 2,169.6 -14.2
and closure of retail channel led by virus outbreak
While fan saw great traction across portfolio (includes lighting,
FMEG 183.3 190.9 -4.0 216.6 -15.4
switchgear), the lockdown impacted overall sales during Q4FY20

Other segment which largely comprises EPC business. Q4

Others 159.2 218.4 -27.1 151.0 5.4 impacted by delayed execution on account of restriction in
movement
Source: Company, ICICI Direct Research

Exhibit 2: Change in estimates

(| crore) FY20E FY21E Introduced Comments
Est. Actual % Chg Old New % Chg FY22E
While FY21E will be a challenging year in terms of lower
demand, we believe a pick-up in construction activity
Revenue 8,935.1 8,830.0 (1.2) 10,028.7 7,745.1 (22.8) 9,199.2
coupled with execution of strong export order would
drive performance of the company
EBITDA 929.3 1135.0 22.1 1,093.1 890.7 (18.5) 1195.9
Change in mix coupled with various cost ratonalisation
EBITDA Margin
10.4 12.9 245bps 10.9 11.5 60bps 13.0 measures (like automation in new plants) would help in a
(%)
fast recovery in margin
PAT 534.7 765.6 43.2 641.3 538.4 (16.0) 792.1
EPS (|) 35.9 51.4 43.2 43.1 36.2 (16.0) 53.2
Source: Company, ICICI Direct Research

Exhibit 3: Assumptions
Current Comments
FY19E FY20E FY21E FY22E
We believe rising contribution of exports and recovery in construction activity would lead to
Wire & Cable 14.0 8.6 (12.0) 15.0
recovery in core business from FY22E onwards

FMEG 34.6 30.7 (10.0) 45.0 Low base coupled with addition of new dealers would help drive growth in FMEG segment

100% population coverage for telecom and high-quality broadband services and laying optical
Others 92.5 29.8 (14.0) 20.0 fiber cables across the nation under Bharat Net project would be key growth driver for project
business
Source: Company, ICICI Direct Research

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 Company Update | Polycab India ICICI Direct Research

Financial story in charts

Exhibit 4: Segment wise revenue contribution in FY16 Exhibit 5: Segment wise revenue contribution in FY20

Others Others
5% 6%
FMEG
3% Wire &
FMEG Cable
Wire & 9% 85%
Cable
92%

Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 6: Well spread distribution network Exhibit 7: Export revenue contribution in topline
West
14.0%
23% 12.30%
12.0%
10.0%

South 8.0%
31%
East 6.0% 5.10%
21% 3.10%
4.0%
2.0%
0.0%
North FY18 FY19 FY20
25% Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Exhibit 8: Working capital cycle Exhibit 9: Return ratios profile

35.0
120
97 101
90 92 30.0
100 28.3
83 80 26.4
74 74 74 70 25.0
80 69 67 66
56 20.020.9 20.0 20.3
(%)

60 50
17.6 16.9
15.015.3 15.6
40
12.3
20 10.0

0 5.0
FY16 FY17 FY18 FY19 FY20E 0.0
FY18 FY19 FY20 FY21E FY22E
Debtor Days Inventory Days Payable Days
RoE RoCE
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 3

 Company Update | Polycab India ICICI Direct Research

Exhibit 10: Wire & cable segment growth trend Exhibit 11: FMEG segment growth trend
9000.0 1200.0
8000.0 CAGR 12%
1000.0
7000.0
6000.0 800.0 CAGR 49%
(| crore)

(| crore)
5000.0
600.0
4000.0
3000.0 400.0
2000.0
200.0
1000.0
0.0 0.0
FY16

FY17

FY18

FY19

FY20

FY16

FY17

FY18

FY19

FY20
FY21E

FY22E

FY21E

FY22E
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 12: Other segment (largely EPC business) growth Exhibit 13: Consolidated revenue growth trend
trend 10000.0
700.0 9000.0
8000.0 CAGR 14%
600.0
CAGR 24% 7000.0
(| crore)

500.0 6000.0
(| crore)

5000.0
400.0
4000.0
300.0 3000.0
200.0 2000.0
1000.0
100.0 0.0
FY16

FY17

FY18

FY19

FY20

FY21E

FY22E
0.0
FY16

FY17

FY18

FY19

FY20

FY21E

FY22E

Source: Company, ICICI Direct Research

Source: Company, ICICI Direct Research

Exhibit 14: Trend of gross margin and EBITDA margin Exhibit 15: FMEG segment growth trend
35 900
30.1
27.9 28.5
30 800
25.0
792
23.3 23.1
766

22.9 700 CAGR 42%

25
600
20
(| crore)

500
538

12.9 13.0
15 11.6 11.5
501

10.8 400
9.4 8.7
10 300
359

5 200
233
185

0 100
FY16 FY17 FY18 FY19 FY20 FY21E FY22E
0
EBITDA margin Gross Margin FY16 FY17 FY18 FY19 FY20 FY21E FY22E
Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 4

 Company Update | Polycab India ICICI Direct Research

Conference call highlights

Wire & cable segment
 Segment revenue increased 7% YoY in FY20
 Domestic sales of wire & cable were impacted by challenging
economic environment and benign commodity prices. Nationwide
lockdown severely dented demand in Q4
 Domestic distribution channel sales posted a slight decline in FY20
while institution business was stable helped by execution of Optic
Fibre Cable (OFC). OFC sales for the year was over | 180crore
 Export contribution to overall sales increased to 12.3% in FY20
(3.1% in FY19) led by partial execution of Dangote order and
increasing traction seen in few developed geographies like US
 Dangote sales amounted to about | 750 crore in FY20
 Segment adjusted EBIT margin 530 bps YoY in Q4FY20 to 14.6% (up
by 220 bps YoY to 12.7% in FY20) driving benefit from improved
product mix and benign raw material prices
 Domestic wire and cable industry declined by 14% YoY in FY20. The
unorganised industry (30-35% of total industry) declined 25% (I-
direct estimate) whereas organised industry (60%-65%) would have
declined 8-9% ( I-direct estimate)
FMEG segment
 FMEG segment grew 30% YoY in FY20 driven by portfolio
augmentation, better product mix, overall distribution expansion
 FMEG contribution to overall sales increased 140 bps YoY to 9.4%
in FY20
 Fans continued to see great traction across portfolio improved sales
mix and pricing actions led to better profitability
 EBIT margin increased from 1% in FY19 to 2.1% in FY20
EPC segment
 Healthy topline growth in FY20 by 13% YoY with improved EBIT
margin. Healthy topline growth and margins led by execution of
profitable projects.
 Annual sustainable operating margin in this business is expected to
be in high single digit over mid to long term
 In FY20, company with its consortium partners undertook projects
under BharatNet Phase II in states of Gujarat and Bihar to connect
over 4,700 Gram Panchayats with OFC in period of 10 months
Others
 Almost 40 days of sales impacted in Q1FY21 due to lockdown.
Recovery in business would start from H2FY21.
 Company is working on various cost optimisation initiatives to
improve operating leverage. Based on historical trend, the EBITDA
margin is likely to be in the range of ~11%-13%
 Export revenue to be ~10% in the coming future
 Incurred capex of | 280 crore in FY20. Capex in FY21 will be lower
at ~| 200 crore depending on recovery in the economy

ICICI Securities | Retail Research 5

 Company Update | Polycab India ICICI Direct Research

Exhibit 16: Historical price trend

1400 14000
1200 12000
1000 10000
800 8000
600 6000
400 4000
200 2000
0 0

Jun-19

Feb-20
Apr-19

Oct-19

Apr-20
Dec-19
Aug-19
Polycab Nifty-50

Source: Bloomberg, Company, ICICI Direct Research

Exhibit 17: Shareholding Pattern

(in %) Mar -19 Ju n -19 Se p -19 De c-19 Mar -20
Promoter NA 68.7 68.7 68.6 68.6
FII NA 3.3 3.8 NA 4.9
DII NA 4.4 4.2 NA 2.8
O thers NA 23.6 23.3 31.4 23.7
Source: Company, ICICI Direct Research

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 Company Update | Polycab India ICICI Direct Research

Financial summary

Profit and loss statement

esf
| crore Exhibit 18: Cash flow statement | crore
(Y e ar -e n d Mar ch ) FY 19 FY 20E FY 21E FY 22E (Y e ar -e n d Mar ch ) FY 19 FY 20E FY 21E FY 22E
Re ve n u e 7,956.0 8,830.0 7,745.1 9,199.2 Prof it af ter Tax 500.5 765.6 538.4 792.1
G row th (% ) 17.5 11.0 -12.3 18.8 A dd: Depreciation 141.4 160.9 178.1 203.3
Ra w mate ria l e x pe ns e 5,374.6 5,626.6 4,879.4 5,703.5 (Inc)/dec in C urrent A s s ets -738.6 -152.3 -460.9 -566.7
Employe e e x pe ns e s 300.2 365.7 387.3 414.0 Inc/(dec) in C L and Prov is ions
1236.9 -608.8 -147.4 176.7
A dv e rtis e ment & Promotion
9 6.6 108.7 77.5 128.8 O thers 116.7 49.5 53.4 27.3
e ight a nd f orw a rding e x pe ns e s 149.9 189.7 154.9 202.4 C F fr o m o p e r atin g activitie
1257.0
s 214.9 161.6 632.7
O the r e x pe ns e s 520.1 662.2 697.1 827.9 (Inc)/dec in Inv es tments 2.2 3.9 0.0 0.0
Tota l O pe ra ting Ex p 7,032.8 7,694.9 6,854.4 8,003.3 (Inc)/dec in Fixed A s s ets -277.0 -355.4 -250.0 -350.0
EBIT DA 923.2 1,135.0 890.7 1,195.9 O thers -21.7 -34.2 2.0 5.0
G row th (% ) 26.7 22.9 -21.5 34.3 C F fr o m in ve s tin g activitie
-296.5
s -385.8 -248.0 -345.0
De pre c ia tion 141.4 160.9 178.1 203.3 Is s ue/(Buy back) of Equity 0.0 7.7 0.0 0.0
Inte re s t 116.7 49.5 53.4 27.3 Inc/(dec) in loan f unds -535.7 -39.7 50.0 -40.0
O the r Inc ome 93.3 92.8 69.7 82.8 Div idend paid & div idend tax 0.0 -104.5 -71.5 -98.3
PBT 758.4 1,017.4 728.9 1,048.0 O thers -116.7 265.8 31.4 -27.3
Tota l Ta x 255.8 244.4 183.1 251.5 C F fr o m fin an cin g activitie
-652.4
s 129.2 9.9 -165.6
PA T 500.5 765.6 538.4 792.1 Net C as h f low 308.1 -41.6 -76.5 122.1
G row th (% ) 39.6 53.0 -29.7 47.1 O pening C as h 10.7 317.6 276.0 199.5
f

Source: Company, ICICI Direct Research C los ing C as h 317.6 276.0 199.5 321.6
Source: Company, ICICI Direct Research

Exhibit 19: Balance sheet | crore Exhibit 20: Key ratios | crore
(Y e ar -e n d Mar ch ) FY 19 FY 20E FY 21E FY 22E (Y e ar -e n d Mar ch ) FY 19 FY 20E FY 21E FY 22E
L iab ilitie s Pe r s h ar e d ata (|)
Equity C apital 141.2 148.9 148.9 148.9 EPS 35.4 51.4 36.2 53.2
Res erv e and S urplus 2,705.7 3,682.1 4,233.8 4,927.6 C a s h EPS 45.5 62.2 48.1 66.9
Total S hareholders f unds 2,847.0 3,831.0 4,382.7 5,076.5 BV 201.6 257.3 294.4 341.0
Total Debt 192.0 152.3 202.3 162.3 DPS 0.0 7.0 4.8 6.6
O ther non current liabilities 57.2 49.6 51.6 56.6 O p e r atin g Ratio s (%)
T o tal L iab ilitie s 3,096.2 4,032.9 4,636.6 5,295.4 EBITDA Ma rgin 11.6 12.9 11.5 13.0
A s s e ts PA T Ma rgin 6.3 8.7 7.0 8.6
G ros s Block 1,785.9 2,093.1 2,343.1 2,693.1 A s s e t Turnov e r 4.5 4.2 3.3 3.4
L es s : A cc Depreciation 510.3 671.2 849.3 1,052.6 Inv e ntory Da y s 91.6 79.6 100.0 90.0
Total Fix ed A s s ets 1,468.6 1,663.1 1,735.0 1,881.7 De btor Da y s 67.4 66.1 90.0 90.0
Inv es tments 29.4 25.5 25.5 25.5 C re ditor Da y s 69.7 56.0 60.0 54.0
Inv entory 1,995.8 1,925.0 2,121.9 2,268.3 Re tu r n Ratio s (%)
Debtors 1,469.4 1,599.7 1,909.8 2,268.3 R oE 17.6 20.0 12.3 15.6
L oans and A dv ances 25.8 29.8 26.1 31.0 R oC E 28.3 26.5 16.9 20.3
O ther C A 256.7 345.6 303.1 360.0 R oIC 22.4 24.7 15.6 19.2
C as h 317.6 276.0 199.5 321.6 V alu atio n Ratio s (x)
Total C urrent A s s ets 4,065.3 4,176.0 4,560.4 5,249.2 P/E 21.0 14.5 20.6 14.0
C reditors 1,520.2 1,353.7 1,273.2 1,361.0 EV / EBITDA 11.9 9.6 12.4 9.1
Prov is ions 37.1 49.4 46.5 49.7 EV / Ne t S a le s 1.4 1.2 1.4 1.2
O ther C L 974.8 520.2 456.3 541.9 Ma rke t C a p / S a le s 1.4 1.3 1.4 1.2
Total C urrent L iabilities 2,532.1 1,923.3 1,775.9 1,952.6 Pric e to Book V a lue 3.7 2.9 2.5 2.2
Net current as s ets 1,533.2 2,252.7 2,784.5 3,296.6 So lv e n cy Ratio s
O ther non current as s ets 65.0 91.6 91.6 91.6 De bt / Equity 0.1 0.0 0.0 0.0
T o tal A s s e ts 3,096.2 4,032.9 4,636.6 5,295.4 C urre nt R a tio 2.4 2.8 3.3 3.5
Source: Company, ICICI Direct Research Q uic k R a tio 1.1 1.4 1.7 1.9
f

Source: Company, ICICI Direct Research

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 Company Update | Polycab India ICICI Direct Research

Exhibit 21: ICICI Direct Coverage Universe (Consumer Discretionary)

C MP M C ap EPS (|) P/E (x) EV /EBIT DA (x) Ro C E (%) Ro E (%)
Se cto r / C o m p an y
(|) T P(|) Ratin g (| C r ) FY20EFY21E FY22E FY20EFY21E FY22EFY20EFY21EFY22EFY20EFY21EFY22EFY20EFY21EFY22E
A s ian Paints (A S IPA I) 1,716 1,900 Buy 1,64,564 29.9 32.5 38.6 57.4 52.8 44.5 36.3 33.1 27.9 30.7 31.5 33.5 26.6 26.3 27.8
A s tral Polytecnik (A S TPO L958
) 900 Hold 14,433 16.6 14.2 20.0 57.8 67.2 47.8 27.8 30.4 23.3 20.5 16.3 20.2 16.6 12.6 15.4
Hav ells India (HA V IND) 555 575 Buy 34,626 11.7 7.8 13.2 47.3 70.9 42.0 29.0 36.8 23.3 19.6 14.0 21.2 17.0 11.2 17.1
K ans ai Nerolac (K A NNER)395 415 Buy 21,287 9.9 7.8 10.4 39.8 50.6 38.0 26.6 31.2 24.1 17.6 14.5 17.9 14.1 11.1 13.7
Pidilite Indus tries (PIDIND)1,510 1,485 Buy 77,415 25.0 26.7 31.3 60.4 56.6 48.2 37.9 35.8 30.5 32.7 30.6 30.9 26.6 24.5 24.6
Polycab India (PO L I) 745 855 Buy 11,091 51.4 36.2 53.2 14.5 20.6 14.0 9.6 12.4 9.1 26.5 16.9 20.3 20.0 12.3 15.6
S upreme Indus (S UPIND)1 ,062 1,040 Hold 13,490 38.5 36.8 27.6 39.7 28.9 38.5 15.1 18.3 13.9 22.5 15.7 21.1 20.7 15.0 19.5
S ymphony (S Y ML IM) 899 1,055 Buy 6,289 26.0 23.7 35.1 34.6 38.0 25.6 28.9 32.1 20.6 28.8 23.9 31.9 29.0 22.7 28.9
V -G uard Ind (V G UA RD) 186 210 Buy 7,918 4.4 3.5 5.1 42.8 52.6 36.5 29.6 35.6 24.8 24.8 19.1 23.9 18.6 14.5 18.2
V oltas L td (V O L TA S ) 567 635 Buy 18,753 15.8 9.5 21.4 36.0 59.7 26.5 25.1 46.0 20.3 19.5 11.2 20.1 13.0 7.2 14.9
Source: Company, ICICI Direct Research

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 Company Update | Polycab India ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

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 Company Update | Polycab India ICICI Direct Research

ANALYST CERTIFICATION
I/We, Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the
specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in
the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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