Why Polycab India Share Price is Rising

Shares of electrical cable maker Polycab India are in focus of late, rising as much as 9% in the past 5 trading sessions.

In fact, the stock has been on an uptrend for the past couple of months with shares rising over 50% in 2023 so far.

With Indian share markets expressing signs of an upcoming bull market, it looks like Polycab India can continue the uptrend for the remainder of 2023.

Let's find out why Polycab India shares are on an uptrend and what's in store for the next two quarters.

#1 Anticipation of good results

These days, a lot of stocks are witnessing bullish momentum in anticipation of their Q1 results. This is because raw material prices have come down for most industries and inflationary concerns are fading.

For financial year ending March 2023, Polycab India posted its highest ever profit after tax (PAT) at Rs 128.2 billion (bn).

Industry experts are of the view that Polycab India could continue the good performance in the coming quarters as last year's merger effect will result in additional revenue generation.

Last year, the merger of Heavy Duty Cables (HDC) and Light Duty Cables (LDC) unlocked significant value for Polycab through incremental cross-selling revenue and enhanced efficiencies across the sales, supply chain, and operations.

The new route to customers will give the overall performance a boost and energise the B2B business, enabling the company to offer a complete portfolio of wires and cables.

The company has also entered the EHV market. India's growing power demand, especially in Tier 1 and 2 cities and smart cities, is fuelling the need for High-Voltage (HV) and Extra-High-Voltage (EHV) cables.

Furthermore, as load transmission systems continue to expand, 220 KV transmission lines will soon be replaced by 400 KV, with the possibility of even higher 550 KV transmission lines.

Polycab India is seizing the opportunity to expand the market leadership in the cable industry by investing in a cutting-edge EHV production facility in Halol.

The capex investment this year will kick off the establishment of this facility, which is expected to commence production in FY26.

Polycab has partnered with leading Swiss cable manufacturer, Brugg Cables, to procure the high-end technology required for EHV production. This investment will open a potential domestic market of Rs 40-50 billion, as well as significant overseas business opportunities for Polycab.

#2 Complete acquisition of Steel Matrix

Last month on 30 June 2023, Polycab India announced that it has acquired the remaining 25% shares of Steel Matrix. Steel Matrix is now a wholly owned subsidiary of Polycab India.

Steel Matrix manufactures steel drums and bobbins for cables and wires. The acquisition will ensure dependable supply of quality packing materials, improving control over the supply chain and increase the overall operating efficiencies.

It would also help to strengthen the backward integration of the company's manufacturing process.

#3 Policy reforms

The government has aimed at constructing 12 million and 28.5 million houses in urban and rural India respectively under its 'housing for all' scheme.

It has introduced various conducive export policies such as the Remission of Duties or Taxes on Export Products (RoDTEP) scheme, Advance Authorisation Scheme (AAS), and the Export Promotion Capital Goods (EPCG) Scheme to facilitate international trade.

The government has brought in much-needed reforms for the power distribution system and strengthened the sub-transmission and distribution networks.

In addition to this, the government has also introduced the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), to expand electrification to all parts of India. As of 2023, a total of 290 million households have been electrified, with seven states reporting 100% household electrification.

This has significantly increased demand for electrical equipment and products in the rural parts of India. There is considerable rise in revenue from the Tier II and Tier III cities of India.

All these schemes have led to increased demand for wires and cables, the primary products of Polycab India. The company has also been able to increase its revenue from exports segment.

The real estate sector's revival is also a plus point for Polycab as it is the perfect proxy play. The Indian real estate sector demonstrated strong resilience to global uncertainties in 2022 and came out of a prolonged downcycle to register growth across the entire real estate verticals.

Growing middle-class and rising disposable income is driving customer preference for safe, quality, smart, user-friendly, and experience-based products leading to increasing demand for premium products.

This has led to rise in demand for all the products such as wires and cables, fans, lights, switches and switch gears, across the portfolio.

#4 Diversifying global supply chains

In the past two years, we witnessed significant transformations in global supply chains, primarily driven by the disruptions caused by the pandemic and the Ukraine-Russia conflict.

Consequently, companies worldwide are actively diversifying their supply chains to mitigate supply chain risks.

During this period, the dynamic nature of the global landscape has prompted businesses to reevaluate and enhance their supply chain strategies, seeking to reduce vulnerability and enhance resilience in the face of unforeseen challenges.

Polycab India has dedicated significant effort over the past few years towards new product development, obtaining necessary approvals, and expanding into new geographies. This effort is now bearing fruit, as the company is witnessing repeat orders from large customers across the globe.

The company is expected to achieve a double-digit contribution target over the medium term from this business. The performance of international business has also been a key growth driver for Polycab India.

How Polycab India shares have performed recently

Polycab India shares have gained 7.8% in the past one month.

In the past one year, Polycab India is up 78%.

It reached a 52-week high of Rs 3,950 on 17 July 2023. Polycab India has a 52-week low of Rs 2,104 touched on 15 July 2022.

In addition to the reasons listed above, one more reason why Polycab India is showing bullish momentum is because FIIs have consistently added stake in the company.

In September 2022, FIIs held 6.4% stake which increased to 9.8% within just two quarters. FIIs have once again turned net buyers for June 2023 and along expected lines, Polycab India could have seen inflows.

For more, check out Polycab India's detailed shareholding pattern.

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.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...