940% return in 5 years! Can multibagger stock Polycab India rise further?

Polycab India Ltd, a manufacturer of wires and cables and fast moving electrical goods, reported better-than-expected March quarter results, which sent its shares soaring to fresh record high level on Monday morning. The stock has rallied roughly 940 per cent in the last five years. It recovered fully from a recent steep fall that was triggered by IT raids at the company premises in December 2023.

The company did not receive any written communication from the tax department since. Analyst price targets on the stock stays in the wide range of Rs 4,200-7,850. The brokerages with low target prices wish to get more clarity on the tax issue, as the stock has rallied quite a bit in recent months.

Centrum Broking said demand outlook for wires & cables is robust due to heavy investments lined up in infra, renewables, PLI, railways and industrial capex in the next 5-10 years.

Polycab India, it said, aims to increase its capex outlay to Rs 1,000 crore each for next 2-3 years (5-6 times asset turn likely).

"FMEG ramp up and its margin turnaround will take 1-2 years. We increase our estimates by 5/10 per cent for FY25/26, roll over the valuation to FY26E and increase the P/E multiple to 40 times (up from 35 times due to superior growth prospects). Retain ADD rating with a revised target of Rs 6,500 on 40x FY26E EPS," it said.

In the absence of any communication from the tax authorities, the markets have clearly assumed that Polycab India does not face any material risk on the regulatory front, said Kotak Institutional Equities.

"While this assumption may indeed be proven right, the governance factor remains an overhang in our minds. Meanwhile, the company has announced the re-appointment of Mr Inder Jaisinghani as MD for another five years through August 2029. Separately, we see significant risk that the company’s highly attractive business economics get diluted in the long term in a product category that is as commoditized as cables, as long as that market remains free and fair," Kotak said.

This brokerage feels the rich valuations at which the stock trades is unsustainable and maintained 'SELL' with a fair value of Rs 4,260 from 4,060 earlier.

"While we remain structurally positive about the company’s long-term business prospects, we still await clarity from the tax department. We will revert to our original multiple once we see a revival in FMEG and derive adequate comfort on the tax-related issues getting addressed. Nonetheless, we believe it is a long term compounder and therefore it should be accumulated at every dip," said Nirmal Bang. This brokerage sees the stock at Rs 5,905.

Motilal Oswal, which recently initiated coverage on Polycab India with a BUY rating, said it likes the company due to its strong performance in the cables & wires segment, where it has a leadership position as well as strong margin delivery.

"We raise our EPS estimates by 5 per cent each for FY25 and FY26, considering higher growth in FY24. Reiterate BUY with a target price of Rs 7,850 (premised on 50x FY26E EPS)," it said.

Nuvama said the Polycab India stock has rallied more than 35 per cent since its last update, leaving behind the regulatory overhang. "We reckon revenue/Ebitda/PAT should grow at a CAGR of 16 per cent/16 per cent/15 per cent over FY24–26E. We are upgrading TP to Rs 7,280 (earlier Rs 6,139) on the back of an upward revision of our target valuation to 46 times PE (earlier 40 times); retain ‘BUY," it said.