(Rating: BUY, TP: Rs2,326, Upside: 21.8%)
B2C growth momentum to accelerate in 2H; maintain BUY
- Polycab delivered lower than expected revenue growth as its key markets of West and South was under extended lockdown restrictions. Gross margins contracted by 390bps yoy as company has not fully passed on commodity inflation to customers. Cost control measures and higher operating leverage have resulted in EBITDA margin expansion.
- Company's B2B business has seen faster growth than its B2C business in Q1 as institutional business saw a marked pickup as construction activity was allowed during the second lockdown.
- FMEG business suffered on the back of poor consumer sentiment especially in South and West. Negative operating leverage and higher employee costs resulted in EBIT loss during the quarter.
- Net working capital has deteriorated to 73 days vs 67 days in FY21. This increase is on account of higher inventory which has resulted due to volatility in copper prices in June.
- We estimate the company to deliver FY21‐24E revenue/EBITDA CAGR of 14%/12% respectively. Rolling over our valuation to FY24 and considering a strong execution track record, 5‐year vision plan and increasing proportion of B2C business, we value company at 28x FY24 EPS and reiterate our BUY rating with a TP of Rs2,326.