Polycab Shares Surge 5% on Strong Revenue; Citi Sets ₹9,500 Target

Introduction

Shares of Polycab India Ltd. climbed as much as 5% on Monday, January 19, after the company announced strong financial results for the December quarter. The cables and wires manufacturer reported a significant revenue beat that surpassed market expectations, although profitability was affected by margin pressures. The strong top-line performance has reinforced investor confidence, leading to optimistic revisions in price targets from several leading brokerage houses.

Stellar Revenue Performance

For the quarter ending in December, Polycab India posted a remarkable 46% year-on-year (YoY) revenue growth. This figure was substantially higher than the consensus analyst estimates, which had projected growth of around 30%. The impressive performance was driven by sustained momentum across its primary business segments. The core wires and cables business, a key contributor to the company's revenue, grew by 46% YoY. This growth was fueled by strong volume increases, supported by a pickup in private capital expenditure, robust housing demand, and inventory restocking across distribution channels. The Fast-Moving Electrical Goods (FMEG) segment also continued its positive trajectory, contributing to the overall revenue uplift and delivering a positive Earnings Before Interest and Taxes (EBIT).

Margin Pressures Impact Profitability

Despite the strong revenue figures, Polycab's operating margins faced headwinds during the quarter. The overall operating margin declined by 110 basis points YoY, reaching a five-quarter low. This compression was observed across different business verticals. The cables and wires segment saw its margins fall by 150 basis points, while the Engineering, Procurement, and Construction (EPC) business experienced a more significant contraction of 210 basis points. According to analysis from Morgan Stanley, the margin pressure was attributable to several factors, including the deferred pass-through of rising input costs, an unfavorable product mix, and increased advertising and promotional expenditures during the period.

Management's Forward Guidance

Polycab's management conveyed a positive outlook for the ongoing March quarter, stating that the growth momentum remains strong. To counteract the margin pressures, the company has already implemented price hikes in January and has plans for further increases within the quarter. These measures are expected to support a sequential expansion in margins. However, management cautioned that on a year-on-year basis, margins could still show a decline. Importantly, the company confirmed that it has not observed any negative impact on demand despite the sharp increase in commodity prices, indicating resilient market demand for its products. For the EPC business, Polycab guided that operating margins are expected to stabilize in the high single digits over the medium to long term.

Brokerages Raise Price Targets

Following the earnings announcement, several brokerage firms reiterated their positive stance on Polycab India and raised their price targets. Citi maintained its 'Buy' rating and increased its target price to ₹9,500. Similarly, Jefferies kept its 'Buy' rating with a target of ₹9,225. Jefferies noted that even after a nearly 50% rally in the stock since March 2025, it continues to trade at a slight discount to its five-year average valuation. The firm views Polycab as a strong beneficiary of growth in private capex, housing, and infrastructure, estimating an Earnings Per Share (EPS) Compound Annual Growth Rate (CAGR) of 25% between FY25 and FY28. Morgan Stanley also maintained its 'Overweight' rating, setting a price target of ₹9,373, acknowledging the strong volume-led growth.

Key Financial Metrics and Analyst Targets

Market Context and Stock Valuation

The 5% surge in Polycab's stock price reflects the market's positive reception of its top-line growth, which overshadowed the concerns about margin compression. The stock has been a strong performer over the past year, rewarding investors with significant gains. The analysis from Jefferies, highlighting that the stock's valuation remains reasonable compared to its historical average, provides a rationale for the continued bullish sentiment. Investors see the company as well-positioned to capitalize on India's economic expansion, particularly in the infrastructure and real estate sectors. The ability to pass on rising input costs through price hikes without dampening demand will be a critical factor for its performance going forward.

Conclusion

Polycab India's December quarter results presented a dual narrative of exceptional revenue growth and concurrent margin challenges. The company's ability to significantly outperform revenue expectations underscores the strong underlying demand for its products. While margin management remains a key focus area, the proactive steps taken by the management, combined with a positive demand environment, have led to optimistic forecasts from analysts. The upgraded price targets from major brokerages suggest that the market believes in Polycab's long-term growth story, driven by its leadership in the wires and cables industry and its exposure to key economic growth sectors.