Fortune Scrip

Published: Dec 29, 2021
Updated: Dec 29, 2021

POLYCAB INDIA

B2B conquered, B2C in sights

The wires and cables sector has assumed a lot of importance of late, particularly on account of the remarkable stress on infrastructure development by the government as well as because of a fast-growing real estate industry. Ergo, our Fortune Scrip this time is Polycab India, the leading player in this segment.

Promoted by the Jaisinghani family over four decades ago, the company entered the capital market with an IPO a couple of years ago and by now has already emerged as a multibagger. The company is engaged in the manufacture of power cables, control cables, instrumentation cables, solar cables, building wires, flexible cables, flexible/single multi-core cables, communication cables, welding cables, submersible flat and round cables, rubber cables and over conductors, railway signalling cables, speciality cables and green wires in the engineering, procurement and construction (EPC) business.

In 2014, it entered the FMEG (fast-moving electrical goods) segment with the manufacture of switches and switchgears, fans, LED lights, water heaters, coolers and clothes irons, among others.

Polycab is steadily growing on the financial front. During the last eight years, its consolidated sales turnover has expanded from Rs 3,986 crore in fiscal 2014 to Rs 8,927 crore in fiscal 2021, with the profit at net level shooting up almost nine times from Rs 89 crore to Rs 882 crore during this period. The company's financial position is robust, with reserves at the end of March 2021 standing at Rs 4,605 crore, more than 30 times its equity capital of Rs 149 crore.

NEGLIGIBLE LOANS

The company has negligible borrowings of around Rs 249 crore when viewed in the context of investments of Rs 635 crore, fixed assets of Rs 1,870 crore and a sales turnover of Rs 8,927 crore. Last year, it paid interest charges of Rs 53 crore, which was just 0.59 per cent of its sales turnover.

But we have not selected Polycab for its past laurels. The company's future prospects are all the more promising, and going ahead investors in this company can reap a rich harvest.
Consider:

• By now, the company has emerged as the largest manufacturer of wires and cables in the country. It has made rapid strides so far with continued growth in sales and earnings all these years, particularly during the last ten years or so. What is more, the pace of growth is expected to continue if not quicken going ahead, as the demand for the company's products is on a steady climb. By March 2021, the company's sales have approached the Rs 9,000-crore mark, the Covid-19 pandemic notwithstanding. And the management has targeted revenues of Rs 26,000 crore by fiscal 2026, suggesting a CAGR of 18 per cent. This target is to be achieved by pushing up growth in both the B2B and B2C segments through strategic initiatives, as well as maintaining and the company's leadership position in the B2B category.
• Having strengthened its position in the B2B segment (cables and wires), Polycab is now focusing on enlarging its presence in the B2C (FMEG) segment. Having entered the FMEG segment in 2014, the management succeeded in growing it to 10 per cent of revenues in the last five years. During the last three years, the FMEG share has shot up to 30 per cent and then 40 per cent, and the management is confident of taking this share to 50 per cent within the next 4 years.

GROWTH DRIVERS

• The management's confidence is based on three drivers. The first is the strong growth potential in FMEG. This is on account of rising incomes and improved standards of living of people, especially the lower and higher middle-income group. The second driver is investment in brand building. The management has realized brand building is a must for pushing up sales and has seen proof of the buoyant impact on sales of house wires after appointing actor Paresh Rawal as its brand ambassador and a similar impact on sales of another two items after engaging actor R Madhavan and actor Khurana. The third driver is expansion of the distribution network. The company has plans to augment its distribution reach from the present 1,00,000 outlets to 1,37,000 outlets by the end of 2023. These steps are expected to push up sales of FMEG products at a rate of 28 to 30 per cent during the next 3 to 5 years.
• The company has by now emerged as the largest and the most versatile manufacturer of wires and cables, enjoying a 12 per cent (overall market) to 18 per cent (organized market sale) marketshare. The pace of growth is expected to improve in view of the government's emphasis on implementation of infrastructure schemes like 'Smart Cities', 'Housing for All' and 'Electrification of All Villages'. This growth will also be propelled by the company's entry into newer segments like EVs, defence, and distributor-led exports.

In view of the rapid strides made by the company so far and all the more better prospects ahead, the share price of the company has started scaling new high lavels. During the last few months the share price has more than trebled to Rs.2330. In view of the bullish phase the share price can more up further even to rs.4000/5000. Accumulate this stock at every decline.