Polycab India Gets A New 'Buy' Rating As Goldman Sees Four Growth Triggers

Polycab India Ltd. got a 'buy' rating after Goldman Sachs initiated coverage on the company on the expectation of high growth in the medium term.

The brokerage has set a target price of Rs 5,750 apiece, implying an upside return potential of 8.2%, as it sees multiple levers to build on an already dominant market position.

"We believe that it is fair to look at Polycab as a FMEG company—which benefits from India's infrastructure, housing, power and also from growth in consumption—and that it will maintain a high growth rate in the medium term," Goldman Sachs said in its Nov. 21 note.

The brokerage expects revenue growth of 15% CAGR over FY24–27E. Significant cash generation over FY24–27E (free cash flow to sales at 5%) improves growth visibility through re-investment, it said.

Polycab India will outperform its peers in cables and wires, as its superior growth in the near term and increasing presence in adjacent electrical areas can continue to drive a premium valuation, Goldman Sachs said. The brokerage's bull case shows an upside of 30%.

"Our above-consensus revenue forecasts in the cables and wires business reflect its strong industry position," it said.

The stock has outperformed Sensex so far this year. It has risen 107.58% on a year-to-date basis, compared to an 8% rise in the Sensex.

Growth Driven Factors

• Goldman Sachs expects the cables and wires industry to grow at a CAGR of 13% over the next five years and for Polycab India to grow faster during the initial part of this period, due to its available capacity.

• Within the industry, the company has the highest number of SKUs (12,000+) and remains one of the few players in Asia that manufactures and can cater to the demand for all types of cables and wires required in a project, the brokerage said. "This increases the potential opportunities for cross-selling, with customers increasingly preferring a sole supplier to work with rather than relying on multiple suppliers," the report said.

• The company's maiden investment in the Extra High Voltage segment, albeit small, caters to a fast-growing segment, the note said. It is planning to set up an EHV production line in Halol, Gujarat and expects production to start at the end of FY26.

• It has entered into a technology tie-up with Brugg Kabel, in which the latter would transfer technology for up to 550kV voltage products to Polycab.

• In the long term, fast-moving electrical goods businesses should become an added growth lever, growing on the back of a robust distribution network. "Polycab has indicated its focus to ramp up in-house manufacturing in these categories, as is visible in the capacity addition of various categories below," the note said.

The Key Differentiators

• The broadest distribution network of 4,300 dealers and 2.05 lakh touchpoints (93% sales done through dealers) which allows it to grow faster than the industry, the note said.

• Faster delivery timeline, made possible by its high-inventory model, which results in better ability to cater to demand.

• Increased focus on exports – which is opening up to India cable makers, as global demand looks to secure supply besides China.

• Capacity utilisation at 60-70% allows for near term growth, without the need for any new investment.

Shares of Polycab India rose as much as 2.23%, before paring gains to trade 0.45% higher at 11:26 a.m., compared to a 0.08% advance in the benchmark NSE Nifty 50.

The stock has risen 107.62% on a year-to-date basis. The total traded volume so far in the day stood at 1.7 times its 30-day average.

Of the 31 analysts tracking the company, 19 maintain a 'buy' rating, six recommend a 'hold', and six suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 4.8%.

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