Multibagger Stock: Polycab India jumped over 270% in 3 years, up 725% in 5 years
It focuses on in-house manufacturing with a high degree of backward integration and has 25 manufacturing facilities. Over the past year, the company’s shares have surged from ₹3,097 to the current trading value of ₹5,313.85 apiece, marking a substantial gain of 71.6%.
However, in January, the stock faced significant selling pressure due to allegations of tax evasion, resulting in a 20% decline within the month. Despite this setback, the stock rebounded sharply in the subsequent months, with gains of 9.50% in February and 6.6% in March. As of the current month, it has risen by 5%.
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Long-term investors have witnessed remarkable returns, with the stock soaring 276% over the past three years and an impressive 725% over the last five years.
The exceptional performance can be attributed to several factors, including consistent earnings growth over the years, improvement in the balance sheet resulting in a net cash positive position, improved return ratios compared to historical levels, sustained government emphasis on infrastructure development, and notable progress in the real estate segment.
Considering the current price, the shares are trading at a staggering 887% premium over their IPO price of ₹538 apiece. Since its listing in April 2019, the stock has consistently delivered positive returns annually.
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Following a gain of 56% in its listing year, the stock saw a modest increase of 4% in the subsequent year. In CY21, it experienced a remarkable surge of 139%, followed by a slight slowdown in CY22 with a 4.5% rally. However, it regained momentum in CY23, achieving a multibagger return of 114%.
Strong Positioning
The Indian cables & wires industry, along with FMEG products, is estimated to be worth ₹1.8 trillion in FY23. The industry growth has been fueled by a strong government focus on infrastructure development, a rising trend of nuclear families, an increase in electrification in rural areas, and an increase in the exports of cables & wires, said domestic brokerage firm Motilal Oswal in its recent note.
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It estimates the industry will record a 10% CAGR over the next few years. The cables and wires industry constitutes 39% of the electrical industry and forms a crucial part of the construction and infrastructure activities of the government and private players.
Polycab, with its presence in cables & wires, switches & switch gears, and FMEG (fans, appliances, lights, and luminaries) segments, has the second-highest total addressable market (TAM) among the listed companies (including consumer durable players).
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More rally ahead
Given the robust standing and favorable market conditions for the Indian cables & wires industry, Motilal Oswal has initiated coverage on the stock with a ‘buy’ rating, setting a target price of ₹7,500 apiece. This target price reflects a potential upside of 41% from the stock’s most recent closing price.
The brokerage expects the company to post a 14% revenue CAGR over the period FY24–26, primarily driven by a 15% growth in cables & wires and a 10% growth in the FMEG segments. In FY24, revenue from cables & wires is anticipated to surge by 26% year-on-year, attributed to capacity constraints faced by competitors such as KEI, which operated at 91% capacity utilisation in FY23.
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Additionally, Motilal Oswal projects a CAGR of 14.5% for EBITDA and 15% for profit over the period FY24–26. EBITDA margins are estimated to be 13.6%, 13.1%, and 13.7% for FY24, FY25, and FY26, respectively, compared to 13.1% in FY23 and an average of 12% over FY18–23.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 16 Apr 2024, 12:50 PM IST
