The reduction in the price of copper and aluminum has weighed on the shares of Polycab India Ltd. The stock has decreased 22% from its 52-week high of $2,820 per share, set on April 22. These metals are utilized in cables and wires. On the London Metal Exchange, the cost of copper and aluminium has decreased from the average price in April by roughly 29% and 27%, respectively.
“In general, changes in the one-month average price of copper and aluminium are passed on to consumers quickly in the cable and wire industry.” If the recent wild slide in commodity prices continues, it is likely to have a significant impact on Polycab’s realization in the second quarter,” said Harshit Kapadia, an analyst at Elara Securities (India). In the June quarter, 86.3 percent of Polycab’s consolidated total revenue came from the wires and cables business (Q1FY23).
Furthermore, dealers and distributors seek to cut inventory in the prospect of additional price decreases. Furthermore, the monsoon season would cause construction activities to slow. As a result, Polycab anticipates that the second half of FY23 will be more favorable than the first. The demand is anticipated to increase starting in Q3FY23.
Due to decline in commodity prices, demand was weak in June. Nonetheless, a lower base helped, as last year’s Q1 was damaged by the second covid wave. The result was a 48 percent year-over-year (y-o-y) increase in Polycab’s operating revenue to over 2,737 crores. The company reported that volumes in a few categories were higher than before the outbreak. Volume-driven increase accounted for about two-thirds of revenue growth, with pricing actions accounting for the remainder, it said.
Ebitda’s margin increased by more than 410 basis points year on year to 11.4%, aided by price increases and improved operating leverage. Ebitda’s margin should stay in the 11–13% range, according to Polycab.
Recently, the Ebit margin for the wires and cables sector has ranged between 10% and 12%. Fast-moving electrical goods (FMEG), which reported an Ebit margin of 2% in Q1, still have space for improvement.
By FY26, the business hopes to achieve a 12-percent annualized Ebitda margin in FMEG by utilizing strategies such as operating leverage, new product development, premiumization, and cost minimization. Nevertheless, considering the presence of fierce rivals in this market, hitting this goal would be a challenge.Commodity price stability would be crucial for Polycab stock. Additionally, growing infrastructure spending by public and private organizations is encouraging because the expansion is anticipated to be volume-driven.
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