Broker's call: Polycab India (Buy)

CMP: ₹965

Target: ₹1,200

Polycab is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods (FMEG) under the ‘Polycab’ brand. Apart from wires and cables, it manufactures and sells FMEG such as electric fans, LED lighting and luminaires, switches and switchgears, solar products and conduits and accessories.

Performance highlights: Company has witnessed more than 40 per cent CAGR profit growth in last five years. It delivered 17.5 per cent top line growth whereas 40 per cent bottom-line growth in FY19. In Q2 of FY20, it posts profit of 192 crore compare to ₹89 crore profit in same quarter of FY19. The company is moving on falling debt path to become a debt free company.

Valuation: Polycab India has strong prospects in its cable and wires business, led by the government’s continuous focus on infrastructure. Currently, it is trading at trailing PE of 21 which is higher than its peer KEI which mostly deals in wire and cable business but it has an edge in its FMEG business where its peer Havells is trading at a very high PE of 55. Polycab’s retail business of FMEG is growing rapidly where it has an attractive valuation than Havells India. It is likely to continue its growth momentum and falling debt may further boost its profitability where we have a target of ₹1,200 in the next one year.