Shares of Polycab fall 4% Following News of Income Tax Raids

The manufacturer of cables and wires Polycab saw a 4% decline in its stock price on Friday due to rumors that the Income Tax department was searching 50 of the company’s locations.
The news broke on Friday that the Income Tax Department’s investigation wing had searched almost 50 locations in Mumbai connected to Polycab India, sending the stock down to the day’s low of Rs 5,404 on the BSE.
With a 15% market share in the organized category, Polycab is the biggest cable and wire company in India. The stock is viewed as a significant wager on India’s capex upcycle, having more than doubled in value in the past year.

Thanks in part to a 30% increase in C&W volume and product mix, Polycab reported its highest-ever quarterly PAT (59% YoY) in the September quarter. Three primary drivers of Polycab’s business are identified by analysts: housing, government/public capex, and private capex.

“We anticipate FY23-26E sales/PAT CAGR at +19%/+28%, driven by higher volumes led by housing, capex, and infrastructure, as well as bettering FMEG traction from FY25e. We increase the target PE to 38x (from 33x) in light of the company’s steady performance over the last four to five quarters, which puts it at a premium of about 25% over its historical 3-Y average PE. We predict that FY23–26e EPS CAGR will be +28%, exceeding hist CAGR of +19% over FY20–23,” Jefferies had previously stated.

Under Project LEAP, the company anticipates generating Rs 200 billion in revenue earlier than anticipated by FY26E.

Domestic broking firm Prabhudas Lilladher had previously stated, “We expect Revenue/EBITDA/PAT CAGR of 19.8%/21.7%/22.8% over FY23-26E led by strong domestic demand environment supported by government measures & revival in private capex.” On the counter, its target price is Rs 5943.

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