Why Polycab India Share Price is Falling

The Indian stock market indices Sensex and Nifty 50 witnessed a remarkable rally in 2023. However, the real action unfolded in the broader markets, where the midcap and smallcap indices outperformed the frontliners by a huge margin.

The smallcap and midcap companies dominated headlines in 2023, surging by 44.6% and 49.1% over the year, respectively, marking one of their best annual performances.

The Nifty Smallcap 100 and the Nifty Midcap 100 indices scaled record highs this week too, in 2024.

In stark contrast to the broader midcap rally, Polycab India, a leading wire and cables manufacturer, witnessed a dramatic 20% stock price decline on Thursday.

This plunge extends a downward trend observed since the start of 2024.

Here's a deeper look into the story.

#1 Income Tax Raid

In the aftermath of the Income Tax Department's recent statement on Wednesday regarding search operations at a cables and wires manufacturing company, substantial evidence has been uncovered.

The flagship company, is found to have engaged in unaccounted cash sales amounting to approximately Rs 10 billion (bn), which were not documented in its official records.

During the search, compelling evidence also revealed unrecorded cash payments exceeding Rs 4 bn made by a distributor on behalf of the flagship company, specifically for the procurement of raw materials.

Additionally, the investigation identified non-genuine expenses, such as sub-contracting expenses, purchases, and transport expenses, totalling around Rs 1 bn in the seized documents from the flagship company's premises.

The search operation exposed instances of unexplained transactions orchestrated by the distributor, involving the issuance of bills without actual goods supplied.

These goods, ostensibly sold in the open market for cash, contributed to the inflation of purchase accounts by approximately Rs 5 bn for certain parties. It is noteworthy that this distributor exclusively deals in products from the flagship company.

The Income Tax Department seized unaccounted cash exceeding Rs 40 million (m) during the search, and over 25 bank lockers have been restrained as part of the ongoing investigation. Consequently, Polycab India shares experienced a 10% lower circuit following the news.

The company issued a statement denying any alleged tax evasion on their part.

Polycab India further said it remains focused on its mission to provide quality products and services to its customers while upholding the principles of corporate governance and ethical business practices.

#2 Stake Reduction

Apart from this, promoters of Polycab have gradually reduced their shareholding over the last few quarters.

As of September 2023 quarter, promoter shareholding in Polycab stood at 65.91% from 67.97% in September last year.

Promoters selling their shares can undermine faith in a company, sometimes as their actions reflect their perception of the company's prospects.

This disrupts the alignment of interests between promoters and shareholders, raising doubts about long-term commitment.

Look at the table below.

Quarter ending	Mar-24	Jun-24	Sep-22	Dec-22	Mar-23	Jun-23	Sep-24
Promoter Stake (%)	68.1	67.9	67.9	66.6	66.2	66	65.9
Mutual Fund Stake (%)	8.2	7.9	7.3	7.2	6.6	7.0	6.0

The shareholding of India's domestic mutual funds in Polycab fell to a three-year low in September. It peaked at 8.2% in March 2022, and as of September, domestic mutual funds hold only a 6% stake in the company.

On the flip side, foreign investors have consistently increased their stake in Polycab. From around 9% in June, the FPI shareholding in Polycab stood at over 12% in September.

What Next?

Going forward, the company plans to strengthen its image as a leader in innovation and quality across diverse product segments.

It also plans to expand its manufacturing capacity and distribution network to cater to the growing demand in domestic and international markets.

Further, entering the extra-high voltage (EHV) segment can be a lucrative market with significant potential for future growth.

It also plans to target international markets and aim for a good consolidated turnover to come from exports by 2026.

How Polycab India Shares Have Performed Recently

Polycab India lost 20% today. In the past month, the shares are down 30%.

In the past year, shares of the company have been trading 47% higher.

The company touched its 52-week high of Rs 5,733 on 12 December 2023 and its 52-week low of Rs 2,615 on 9 January 2023.

About Polycab India

Polycab is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods 'FMEG' under the 'POLYCAB' brand.

Apart from wires and cables, the company manufactures and sells FMEG products such as electric fans, LED lighting and luminaires, switches and switchgear, solar products and conduits & accessories.

The promoters collectively have more than four decades of experience among them.

To know more, check out Polycab India company fact sheet and its latest quarterly results.

You can also compare Polycab with its peers.

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