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Polycab India shares to list on bourses on Tuesday

PhillipCapital has initiated coverage on the stock with a target price of Rs 718.|
Apr 15, 2019, 08.10 PM IST
Wires and cables industry is expected to see sustained demand driven by multiple favourable factors.
Shares of Polycab India will be listed on BSE and the National Stock Exchange on Tuesday after a blockbuster IPO, which subscribed around 52 times last week.

The public offer was opened for subscription during April 5-9 with a price band of Rs 533 to Rs 538.

Quota reserved for qualified institutional buyers (QIB) as well as non-institutional investors got subscribed 92.44 times and 110.42 times, respectively. Overall, the initial public offer received bids for around 91.64 crore shares against 1.76 crore shares on offer.

PhillipCapital has initiated coverage on the stock with a target price of Rs 718. Polycab India’s (PIL) issue price was Rs 538. The brokerage sees 34 per cent upside in the stock.

“At the upper band, PIL trades at FY20/21 PE of 16x/13x. With improving cash flows and balance-sheet strength, valuations will trade at premium with W&C peers (Finolex & KEI), but at a discount to FMEG companies (Havells, V-guard). Higher valuation is mainly due to its market leadership in W&C and transformation into a multiproduct electrical company over the next 24 months,” PhillipCapital added.

Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, Edelweiss Financial Services, IIFL Holdings and YES Securities (India) were managing the offer.

Earlier brokerage houses such as Reliance Securities and Centrum Broking gave ‘subscribe’ rating to the issue.

Polycab’s revenue and PAT clocked 17 per cent and 35 per cent CAGR, respectively over FY15-18, while margin expanded to 10.7 per cent in FY18 from 9.2 per cent in FY15.

“Wires and cables industry is expected to see sustained demand driven by multiple favourable factors, and we expect growth momentum to sustain, going ahead as well,” the brokerage house said.

According to Centrum Broking, Polycab has a market share of around 18 per cent in the organised and around 12 per cent in the total wires and cables industry in India.

The brokerage house further added that Polycab’s cash and bank balance stood at Rs 8 crore as of December 2018 with debt at Rs 540 crore. The company is looking at reducing portion of its debt via proceeds from the fresh issue. Despite a capex of Rs 700 crore incurred over FY16-18, Polycab’s debt to equity has been less than 0.5 times.

Volatility in raw material prices (copper, aluminium, steel, polyvinyl chloride compounds), high dependence on the wire and cable market (89.3 per cent of FY18 revenue) are some of the key risks for Polycab India.
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