26 Jul , 2021 By : Kanchan Joshi
Polycab India Ltd reported a weak performance in the June quarter with revenue declining 38% sequentially. The revenue though grew at more than 90% on a year-on-year basis, it came on a low base of last year.
Analysts attribute the weak performance to muted infrastructure activities leading to lower B2B or institutional sales for cables and wires (C&W). The fast-moving electrical goods or FMEG segment also saw weaker-than-expected performance.
Rising prices of commodities such as copper and aluminium took a toll on the operating performance, while delayed price hikes hit gross margins.
Gross margins were down 200bps, while operating profit declined 67% year-on-year.
“Q1 performance was weak, with revenue/Ebitda missing estimates by 10%/50%. C&W and FMEG revenue fell behind expectations by 6% and 26%, respectively," said analysts at Emkay Global Financial Services Ltd. Exports rose 12% year-on- year, providing some respite.
Analysts, however, expect recovery to start from the second quarter. “Polycab’s management sees the weaker-than-anticipated Q1 as a blip, and drivers of long-term growth intact," said analysts at Anand Rathi Research. Rising infra spend, export opportunities and its expansion to adjacent categories would drive its B2B portfolio, feel analysts. A 25% plus revenue CAGR and margin expansion in FMEG would continue, added analysts at Anand Rathi Research.
Analysts at Kotak Institutional Equities too feel that the revenue growth should pick up from Q2. They say that Polycab missed the EBITDA estimate largely led by higher operational costs and inventory de-stocking in the channel for cables and wires. They have retained their 'add' rating as they see multiple earnings catalysts, including continuous efforts to improve distribution footprint in over 300 towns. The company’s guidance of 80-100 bps improvement in margins led by a cost rationalization mechanism, also keeps analysts optimistic, as does the ambitious growth target to reach Rs200 billion in revenues by FY2026.
Polycab's stock has corrected more than 6% since results were announced on 21 June.
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