This multibagger midcap stock is a proxy play on India capex

• Polycab has given multibagger returns in 2023, as it zoomed by 117%.
• It’s a leader in the wire & cables market with 22-24% organized market share.
• Jefferies says that the stock is a good play on India capex.
  

Mumbai-based wire and cable company has been amongst the top gainers in the last few sessions, as the benchmark indices went on a bull run? What’s making people rush in to buy midcap stock, while the economy presents a robust picture.

Polycab was added to MSCI’s domestic index in late November. This move will trigger fund buying in the stock, which will support its stock price at its heights.

In spite of giving multibagger returns of 117% this year, it’s one of those few midcap stocks that’s not run up ahead of its target price set by analysts (see table). There is more juice left in the stock as the wire and cable maker set a target to achieve ₹20,000 crore annual revenues by FY26. Its revenues for FY23 were at ₹14,107 crore.

“The company is on track to achieving this milestone well before time but indicated that revisions to the target, if any, will be made only at the end of FY24. Polycab is also nearing its goal of 10% exports in the topline, reaching 9.3% in Q2FY24,” said a report by BobCaps.

Target price of Polycab

Demand’s on the move

The company’s revenues rose by 33% in the first half of the financial year, the company expects to maintain the momentum in the second half too. All thanks to favourable demand conditions for its core wires and cables business due government’s infrastructure push as well as construction activity in the real estate sector.

“We expect Polycab to register 19% revenue compounded annual growth rate (CAGR) over FY23-26. Volume growth prospects and margin profile for cables & wires remains strong led by rising industrial and infra capex,” said a report by Centrum.

Its high-margin B2C business of fans and lighting, however, has been growing slower, at around 8% in Q4FY24 as compared to its core business. “Management believes the brand repositioning will bolster sales traction, deepen the company’s pan-India presence and particularly help the fast-moving electrical goods (FMEG) business.

A proxy play on India capex

Jefferies also believes that Polycab is a good play on India capex. As India’s capex increases, its business will grow. That’s because the leader in the Indian C&W industry, with a 22-24% share in the organized market.

“On the private side, average industry capacity utilization stands at 70-75%, which could entail fresh capacity adds across many sectors. On the public side, 2023 budgetary allocation has been directionally positive for capex and infra,” says Jefferies.

More data like heightened industrial activity, and India’s GDP projected to grow at 7% in FY24, will all add to its appeal.