Polycab share price tanks 28% in last five sessions; what should you do?

livemint.com:

Polycab India, a leading electrical wires and cables manufacturer to ₹4,300 apiece from an earlier target price of ₹5,809 apiece to factor in the uncertainties due to the IT raid, by cutting the target P/E to 30x December 25E from 38x September. The company shares were in the spotlight over the last few sessions amid circulating reports of tax evasion allegations against the company.

Amid this backdrop, the company shares tumbled 28.23% in the five sessions, dropping from ₹5,404 apiece to ₹3,878.45 apiece. According to the Ministry of Finance, the IT Department started search and seizure operations in Polycab and some of its distributors on December 12, 2023, at more than 50 locations across Mumbai, Pune, Aurangabad, Nasik, Daman, Halol, and Delhi.

During the search, incriminating evidence was found and seized, which reveals a modus operandi of tax evasion. Preliminary analysis suggests unaccounted cash sales, cash payments for unaccounted purchases, non-genuine transport, and sub-contracting expenses for suppression of taxable income.

Unaccounted cash sales of ₹10 billion (not recorded in the books), unaccounted cash payments of more than ₹4 billion made by a distributor on behalf of Polycab, and ₹1 billion of non-genuine expenses are some of the allegations against the company. "We do not have sufficient data at this point (in the absence of an official letter from the IT Department) to estimate the likely balance sheet impact on Polycab in the event the tax evasion case is proven, given the potential charges levelled might be both GST evasion (18%) and IT evasion, not just IT evasion, and the penalty for the IT evasion could be anywhere between 100% and 200%.