Sharekhan has issued a BUY recommendation for Polycab India, emphasizing the company’s robust performance and leadership in the wires and cables (W&C) industry. With a target price of Rs 5,020, Sharekhan highlights Polycab’s strategic growth initiatives, including its expanding presence in the premium Fast-Moving Electrical Goods (FMEG) segment. The company’s focus on innovation and operational efficiency makes it a compelling choice for investors looking to benefit from India’s electrification and infrastructure growth.

Polycab's Growth Drivers

Dominance in the W&C Segment
Polycab India has solidified its leadership in the W&C market, which contributes approximately 86% to its overall revenue. This segment is experiencing strong demand driven by infrastructure development, urbanization, and a shift toward organized players.

Focus on Premiumization
Polycab continues to focus on premiumization across its product categories, which is expected to enhance profit margins and market share.

Impressive Financial Performance

Robust Revenue Growth
Polycab’s revenue for Q2FY25 stood at Rs 4,385 crore, reflecting a 15% year-on-year growth, primarily driven by strong domestic and export demand.

Improved Profitability
The company reported an improvement in its EBITDA margins, which rose by 50 basis points to 14.3%, driven by operational efficiencies and cost management.

Healthy Loan-to-Equity Ratio
With minimal debt and a strong return on equity (RoE) of 22.1%, Polycab remains financially stable and well-positioned for future growth.

Strategic Initiatives and Expansion Plans

LEAP Initiative Driving Growth
Polycab’s LEAP (Leadership in Electrification and Premiumization) strategy has been instrumental in its expansion into untapped markets and premium product categories.

New Investments in Manufacturing
The company is scaling its manufacturing capabilities to meet rising demand and is aggressively investing in premium products to capture a larger market share in the FMEG segment.

Performance in the FMEG Segment

Steady Growth but Room for Improvement
While the FMEG segment is growing, it still constitutes a smaller portion of Polycab’s overall revenue. Efforts are underway to improve profitability and scale operations in this segment.

Valuation and Target Levels

Target Price and Upside Potential
Sharekhan has assigned a target price of Rs 5,020, indicating a 15% upside from the current levels. The valuation considers Polycab’s leadership in the W&C market, growth potential in the FMEG space, and strong financial metrics.

Key Stock Levels

Polycab’s stock is trading near its 52-week high of Rs 4,570, reflecting positive investor sentiment. Key support levels are at Rs 4,250, while resistance levels are at Rs 4,700.

Technical Analysis

Candlestick Patterns Signal Strength
A review of daily charts indicates a bullish engulfing candlestick pattern, signaling a potential upward trend in the near term.

Fibonacci Levels
Key Fibonacci retracement levels for Polycab India are as follows:

Support Levels: Rs 4,250, Rs 4,100
Resistance Levels: Rs 4,650, Rs 4,720
Relative Strength Index (RSI)
The RSI indicates strong buying momentum, suggesting that the stock could see further upward movement if it consolidates above current resistance levels.

Competitive Landscape

Key Competitors
Polycab faces competition from established players like Havells India and Finolex Cables. While Havells has a stronghold in the FMEG segment, Finolex remains a key competitor in the W&C space.

Polycab's Competitive Edge
Polycab’s focus on branding, innovation, and premium product offerings ensures it maintains a competitive advantage in India’s electrification and infrastructure sectors.

Challenges and Risks

Raw Material Volatility
Polycab’s profitability is sensitive to fluctuations in raw material prices, particularly copper and aluminum, which are key inputs for the W&C segment.

Execution Risks in the FMEG Segment
Achieving scale and improving margins in the FMEG segment remains a challenge, requiring strategic focus and investment.

Conclusion and Recommendation

Sharekhan’s BUY recommendation underscores Polycab India’s strong fundamentals, market leadership, and growth potential. With a target price of Rs 5,020, the stock presents a compelling investment opportunity for those looking to capitalize on India’s infrastructure growth and increasing electrification.