Polycab stock surges over 13% in 8 sessions, breaks out of 3-month consolidation zone. Time to buy?

Shares of Polycab India, a leading manufacturer of electrical wires and cables, resumed their upward momentum in the last few sessions and witnessed a breakout after consolidating in a narrow range for nearly three months. The stock surged 13.14% in the past eight trading sessions, rising from ₹6,475 to ₹7,326 apiece.

Polycab shares jumped nearly 6% in Tuesday's trade to their fresh all-time high of ₹7,353. On Monday, domestic brokerage firm JM Financial stated that the stock had been consolidating within a range of ₹6,300-6,925 in the recent sessions. Last Friday, it saw an upside breakout from this range, driven by higher-than-average traded and delivery volumes, indicating a resurgence in investor interest.

"The series has started with a cumulative future open interest of 2.2 million shares as against the last three series average of 2.6 million shares. On the back of a breakout, open interest increased to 2.3 million shares. Overall data indicates renewed buying interest in the stock. In the last five years (maximum history available) in October, the stock has closed in the green on three occasions with an average return of 7%," said JM Financial.

The brokerage has a target price of ₹7,700 on the stock and a stop-loss of ₹6,600.

UBS, Jefferies & Motilal Oswal show confidence in Polycab’s upside

Global brokerage firm UBS recently initiated coverage on Polycab India with a 'buy' rating and SOTP-based price target of ₹8,550, marking the highest target on the Street. UBS highlighted that Polycab, with its 40% share in the domestic electrification market, is well-positioned to capitalise on multiple cyclical tailwinds in the cables and wires segment, particularly from the growing demand for low-voltage infrastructure in India.

UBS further noted that Polycab’s competitive edge lies in its extensive manufacturing capacity and dominant market share, supported by a robust B2C network and significant B2B operations. The company’s distribution-led export business model also provides additional growth potential in relatively untapped overseas markets, it added.

Key near-term triggers for Polycab include better-than-expected domestic volume growth, market share gains, and a ramp-up in exports, according to UBS.

Similarly, Jefferies raised its price target on the stock to ₹7,970 apiece from ₹8,420 while maintaining its 'buy' rating. 

Domestic brokerage Motilal Oswal, in April, initiated coverage on Polycab with a 'buy' rating and set a target price of ₹7,500. Motilal Oswal expects the company's revenue to grow at a 14% compound annual growth rate (CAGR) over FY24–26, driven by a 15% growth in the cables and wires segment and a 10% growth in the fast-moving electrical goods (FMEG) segment.

Additionally, Motilal Oswal projects a 14.5% CAGR for EBITDA and a 15% CAGR for profit during the same period. The brokerage anticipates EBITDA margins to be 13.6% in FY24, 13.1% in FY25, and 13.7% in FY26, compared to 13.1% in FY23 and an average of 12% over FY18–23.

The Indian cables & wires industry, along with FMEG products, is estimated to be worth ₹1.8 trillion in FY23. The industry growth has been fueled by a strong government focus on infrastructure development, a rising trend of nuclear families, an increase in electrification in rural areas, and an increase in the exports of cables & wires, said the brokerage.

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.