Polycab India IPO makes stellar debut, lists at 19.8% premium

Shares of Polycab India Ltd was listed on the stock exchanges at 644.45 ($9.27), up 19.8% from its issue price of 538 ($7.74) per share on Monday.

Price band of the wires and cables manufacturer’s initial public offer (IPO) was at 533-538 per share. The 1,345-crore ($193.55 million) public issue was subscribed 51.96 times during its share sale on 5-9 April.

At the upper band, the stock trades at FY20 and FY21 price to earnings (PE) of 16 times and 13 times respectively while with improving cash flows and balance-sheet strength, valuations will trade at premium with wire and cable peers (Finolex and KEI), but at a discount to FMEG companies (Havells, V-Guard), said PhillipCapital (India) Pvt Ltd.

“Over the next two years, Return on capital employed (RoCE)/ Return on equity (ROE) will be 23% and 15% respectively and operating cash flow will be 1,060 crore. We expect earnings CAGR of 19% over FY19-21,” it said in a note on 15 April. It said that funds raised through IPO and operating cash flow of1,400 crore over FY19-21, will help the company to pay off debt in 2-3 years.

According to Prabhudas Lilladher Pvt Ltd, Polycab has leadership with most versatile product range in cables and wires, has strong distribution with 2,800 distributors and over 1 lakh retail touch points , strong manufacturing base, diversification into premium FMEG segment with presence in fans, lighting, switchgears and switches.

“Although fast moving electrical goods (FMEG) is just 8% of sales, strong brand would enable faster scale up in the coming years. Recent export order of $137 million for an upcoming refinery is a testimony of quality and growth potential in wires and cable business,” said Prabhudas Lilladher Pvt Ltd in a report on 4 April.

It added that steady increase in sales proportion of FMEG will re-rate the stock in the long term.

Over FY16-18, Polycab has reported revenue/EBITDA/net profit CAGR of 14%, 24% and 42% respectively with reported earnings per share (EPS) of 26.2 in FY18 and 25.3 for nine month in FY19.

Polycab is a leading player in wire and cable with 18% share of the organised market. Over the last 3-4 years, it has widened its product offering to fans, LED lighting, luminaries, switches, solar products and accessories.

Polycab has a wide manufacturing base, with 24 manufacturing facilities. It has incurred a capex of 1,100 crore in the past five years, including plants for FMEG. Currently its capacity utilization stands between 70-80%. Polycab has high working capital due to penetrative strategy in FMEG and manufacturing focus.

It is also starting channel financing like Havells – the impact of which is already visible in reduction in receivables from 89 days to 58 days. Although aggressive penetration policy in FMEG will keep inventory high, full impact of channel financing will further improve working capital in the coming years, said Prabhudas Lilladher.

Also read:

IFC-backed electrical goods maker Polycab files for $270m IPO

India: IFC-backed Polycab may soon file draft papers for $300m IPO

This article was first published on livemint.com