Polycab India Ltd Bounces Back from Income Tax Scare

In January 2024, Polycab Industries faced a significant setback when the Income Tax Department alleged tax evasion amounting to Rs 200 crore, causing its stock price to plummet by 27.4%. However, despite this initial blow, the company has demonstrated resilience and strategic prowess in navigating through the crisis, as evidenced by its recent financial performance and growth prospects.

Tax Notice and Stock Impact

The income tax evasion notice triggered a sharp decline in Polycab’s share price, with the stock falling from Rs 5,344.25 on January 8, 2024, to Rs 3,878.45 per share on January 11, 2024. The Income Tax Department detected transactions worth Rs 250-300 crore in promoter accounts and collected proof spanning the last 5-6 years. Although the company denied the allegations, investor confidence took a hit initially.

Financial Performance and Recovery

Despite the tax scrutiny, Polycab India showcased robust financial performance in Q3 FY24. The company’s revenue increased by 17% year-on-year to Rs 4,340 crore, aligning with our expectations. The Wires & Cables segment saw a 17% year-on-year growth to Rs 3,904 crore, driven by industry demand and strong volume growth. The EPC (Others) segment experienced a remarkable 96% year-on-year growth to Rs 248 crore due to increased project execution.

However, the FMEG segment’s growth declined by 13% year-on-year to Rs 296 crore, attributed to subdued consumer demand during the quarter. Gross margins exceeded our projections by 190 basis points at 29.6%, supported by strategic pricing adjustments and a favourable product mix. Operating profit improved to Rs 570 crore, marking a 13% year-on-year increase. Nonetheless, operating margins declined by 44 basis points year-on-year to 13.1%, primarily due to rising project-related costs and advertisement expenses, notably during the ODI Cricket World Cup. Profit after tax (PAT) stood at Rs 417 crore compared to Rs 361 crore in the previous year, reflecting a 15% year-on-year increase.

Operational Highlights and Growth Prospects

Polycab India’s revenue from wires and cables segment grew by 17% YoY in Q3FY24, supported by strong volume growth and robust demand momentum in both domestic and international markets. The company’s strategic pricing revisions and favourable product mix contributed to improved gross margins. Despite challenges in the fast-moving electrical goods (FMEG) segment, Polycab remains optimistic about its growth trajectory, particularly in the domestic cables and wires segment.

Market Outlook and Analyst Recommendations

Analysts across brokerages maintain a positive outlook on Polycab India, citing its market leadership in the organized cables and wires segment and growth prospects across multiple business divisions. The company’s strong distribution network, brand recall, and focus on innovation position it favourably for future growth. Management guidance indicates sustained momentum in the wires and cables segment, supported by government infrastructure spending and increasing private capex.

Polycab India share price are presently trading at Rs 5,298.90 , reflecting an increase of 1.32% compared to yesterday’s closing value of Rs 5,131.35. The stock’s 52-week high stands at Rs 5,722.90, while its lowest point during the same period was Rs 2,880.10. Over the past year, the company’s shares have yielded returns of 80.61%

Conclusion
In conclusion, Polycab India Ltd has successfully weathered the storm caused by the income tax notice, demonstrating resilience and agility in adapting to challenges. Despite the initial stock price plunge, the company’s solid financial performance, operational efficiency, and growth prospects have instilled confidence among investors and analysts alike. As Polycab continues to capitalize on market opportunities and reinforce its market leadership, it stands poised for sustained growth and value creation for its stakeholders.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.