Polycab stock is wired for growth, but risks of a shock persist

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₹6,468.90 on Monday. The reason is simple. Investors are upbeat about the strong March quarter (Q4FY24), which saw the company gain market share and grow its volumes.

The wires and cables business, which contributed 87% of consolidated gross total segment revenues in FY24, was the star of the show in Q4, clocking 19% year-on-year growth. This was due to a resurgent domestic market, which saw government and private investments, and a real-estate boom. Polycab’s strategic initiatives solidified its market share to 25-26% of the domestic organised market.

The upshot of this was that the earnings before interest and tax (Ebit) margin in the wires and cables business was higher than anticipated at 15.1% in Q4, thanks to better operating efficiency and product mix, and reduced marketing expenses. Management guided for a sustainable Ebit margin of 12-13% in the long term. On the other hand, one-time charges hurt the profitability of Polycab's fast moving electrical goods (FMEG) business, which contributed 7% of revenue, and Ebit loss mounted in Q4.

Going forward, the management aims to improve FMEG profitability through increased volumes and a focus on higher-margin products such as switches and switchgear. Also read: FMEG Industry: Wire and cable stocks offer a huge opportunity; should you invest? Overall, though, Polycab is brimming with optimism. Anticipating strong demand for cables, the company has increased its annual capex from ₹600-700 crore to ₹1,000-1,100 crore for the next two to three years.

The company has targeted ₹20,000 crore in total revenue by FY26 but could well achieve this sooner, having already crossed ₹18,000 crore in FY24. Investors have taken note. Over the past year the stock has gained as much as 90%,