Polycab India shares: Nirmal Bang cuts PE multiple by 10% but upgrades stock to Buy; price target Rs 5,255

Nirmal Bang Institutional Equities has cut its price multiple for Polycab India Ltd by 10 per cent to 36 times on Q3FY26E EPS mainly due to the recent "extraneous events", coupled with a slowdown in fast-moving electric goods (FMEG). The brokerage has upgraded Polycab India shares to 'Buy' with a revised target price of Rs 5,255.

Nirmal Bang said it is structurally positive about the company’s long-term business prospects but it would await clarity on the recent turn of events.

"We will revert to our original multiple once we see a revival in FMEG and derive adequate comfort on the recent events being addressed to investors’ satisfaction," it said. Polycab India had in December seen IT searches at its premises.

Nirmal Bang said Polycab India's sales growth was 2.6 per cent below its estimate due to weaker-than-expected growth in FMEG. Ebitda margin was also below its estimate by 118 basis points mainly due to 42.1 per cent jump in ad-spends YoY. Increasing ad-spend to 2.1 per cent of total revenue during the Cricket World Cup in Q3FY24 from 1.7 per cent in Q3FY23 worked favourably in terms of creating high on-ground visibility, it said.

"Going forward, 3-5 per cent of B2C top line is expected to be spent on brand positioning - a step in the right direction," it said.

Nirmal Bang said exports contribution has been on a slightly declining trend (6.2 per cent in 3QFY24 versus 9.3 per cent in 2QFY24; 8.1 per cent in M9FY24) mainly due to the transition to a distribution-led model in the US, coupled with longer delivery time to Europe – 6 weeks because of change in sea route from Red Sea.

"Demand however remains robust and order book visibility looks good. We expect exports to clock ~10% in terms of revenue contribution during FY24-FY26," it said.

The brokerage said Polycab India's top line declined by 13.4 per cent YoY due to tepid industry growth amid continued weakness in consumer demand. While Switches & Switchgears grew on YoY basis, B2C Lighting declined on account of value erosion of 5-6 per cent (volume growth also remained tepid) and Fans declined mainly due to a higher base.

"Loss at EBIT level continued to expand YoY mainly due to operating deleverage. We expect FMEG margins to remain under pressure for a couple of quarters due to aggressive marketing and operating deleverage in Fans & Lighting divisions," Nirmal Bang.

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