Extending their bull run for the third consecutive trading session on Tuesday, shares of Polycab India, a leading electrical wires and cables manufacturer, jumped 3.60% to ₹4,351.75 apiece. This comes on the heels of an 8.2% surge over the last two trading sessions.
Between January 04 and January 11, the company’s shares faced downward pressure amid reports of tax evasion allegations. During this period, the stock witnessed a significant decline of 28.23%.
However, the shares staged a recovery in Friday’s trade (January 12) after the management clarified that the company had not received any written information on the findings.
According to the Ministry of Finance, the Income Tax Department (“I-T Department”) officials had initiated a search proceeding at some of the premises and plants of the company from December 22, 2023, to December 30, 2023.
The search has revealed unaccounted cash sales of ₹10 billion (not recorded in the books), unaccounted cash payments exceeding ₹4 billion made by a distributor on behalf of Polycab, and ₹1 billion of non-genuine expenses, as per reports.
Also Read: Polycab India Stock: Over 28% drop in 6 sessions leads to retail investors losing ₹3,108 crore
In the midst of this uncertainty, global brokerage firm Jefferies has retained its positive outlook on the company in its latest note. It retains the ‘buy’ rating on the stock, with a target price of ₹8,000 apiece and 7,000 apiece under its bull case scenario and its base case scenario, respectively. However, the brokerage said it awaits further clarity on this issue.
Jefferies projects a 15% year-on-year (YoY) growth in the company’s sales for Q3 FY24. Additionally, it anticipates a 40-basis point YoY expansion in the operating profit margin. This growth is expected to be driven by operating leverage from C&W volumes and a softening in commodities within the FMEG segment.
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The company is scheduled to announce its Q3 earnings on Thursday (January 18). In the preceding quarter (Q2FY24), it posted its highest quarterly profit after tax of ₹430 crore, fueled by a 27% increase in sales and a 160-basis point YoY margin expansion.
As the market leader in the Indian C&W industry (with an organised share of 22–24%), Jefferies views Polycab as a strategic play on India’s capital expenditure. The brokerage identifies three key drivers for the Polycab cable and wire business, including the revival of private capex, government/public capex, and housing upcycle in India.
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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 16 Jan 2024, 12:54 PM IST