Jefferies, in its recent note, has set a base case target of Rs 7,000 for Polycab India Ltd shares. Despite ongoing concerns about alleged tax evasion, the brokerage remains optimistic, citing similar instances in other companies where share prices eventually recovered post regulatory issues. The nature of regulatory developments may differ, but recovery is often attributed to business performance.
While Jefferies currently rates Polycab as a Buy, they express the need for further clarity on the tax evasion issue. The company is set to report its Q3Y24 results on January 18, 2024. Jefferies estimates a 15% YoY sales growth in Q3, driven by a 2% YoY rise in average copper prices, with expected support from C&W volumes and softening commodities in FMEG.
The base case target of Rs 7,000 is grounded in a compounded annual growth of 21% in Cables & Wires revenue over FY23-26. Jefferies attributes this growth to anticipated capex revival, infrastructural development, and an upturn in housing in India. The target PE is set at a premium to the historical 3-year average, reflecting Polycab’s expansion in FMEG, expected housing and capex revival, and strategic initiatives.
Jefferies outlines a downside scenario with a target of Rs 3,000 and an upside scenario with a target of Rs 8,000 for Polycab India shares. The stock has experienced a 30% decline in the past few trading sessions due to concerns over alleged tax evasion. However, Polycab India maintains that it has not received any written communication from the income tax department regarding the outcome of the December search operation.
In summary, Jefferies remains positive on Polycab India’s long-term prospects, emphasizing the potential for recovery based on historical precedents. The brokerage advises caution but expresses confidence in the company’s growth, especially in the Cables & Wires segment, and awaits further details on the tax evasion issue before making any adjustments to their current Buy rating.