Polycab lists at 20% premium over issue price of ?538

Shares of Polycab India Ltd were listed on the stock exchanges at ?644.45, up 19.8% from their issue price of ?538 on Monday. The price band of the wires and cables manufacturer company’s initial public offering (IPO) was ?533-538 per share. The ?1,345 crore public issue was subscribed 51.96 times during its share sale on 5-9 April.

At the upper band, the stock trades at FY20 and FY21 price to earnings (PE) of 16 times and 13 times, respectively, while with improving cash flows and balance-sheet strength, Polycab will trade at a premium with wire and cable peers (Finolex and KEI), but at a discount to FMEG companies (Havells, V-guard), said PhillipCapital (India) Pvt Ltd.

“Over the next two years, return on capital employed (RoCE)/return on equity (ROE) will be 23% and 15%, respectively, and operating cash flow will be ?1,060 crore. We expect earnings CAGR of 19% over FY19-21,” it said in a note on 15 April. Funds raised through the IPO and operating cash flow of ?1,400 crore over FY19-21, will help the company to pay off debt in 2-3 years, PhillipCapital added.

According to Prabhudas Lilladher Pvt Ltd, Polycab has leadership with the most versatile product range in cables and wires, has strong distribution with 2,800 distributors and over 1 lakh retail touch points, a strong manufacturing base, and has diversified into the premium FMEG segment with a presence in fans, lighting, switchgears and switches. “Although fast moving electrical goods (FMEG) are just 8% of sales, a strong brand would enable faster scale-up in the coming years. A recent export order of $137 million for an upcoming refinery is testimony to the quality and growth potential in the wires and cable business,” said Prabhudas Lilladher Pvt Ltd in a report on 4 April.

It added that a steady increase in sales proportion of FMEG will re-rate the stock in the long term.

Over FY16-18 Polycab reported revenue/EBITDA/net profit CAGR of 14%, 24% and 42%, respectively, with reported earnings per share (EPS) of ?26.2 in FY18 and ?25.3 for nine months of FY19.

Polycab is a leading player in wires and cable with 18% share of the organised market. Over the last 3-4 years, it has widened its product offering to fans, LED lighting, luminaries, switches, solar products and accessories.

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