Polycab India shares gained up to 5% on Monday following the company's strong third-quarter results, with the country's largest wires and cables manufacturer delivering impressive revenue growth despite margin pressures. The Mumbai-based company's revenue surge of 46% year-on-year significantly exceeded analyst estimates of around 30%.

Strong Financial Performance with Revenue Beat

Polycab reported robust financial metrics for the December quarter, demonstrating strong demand across its core business segments:

The revenue surge was primarily driven by strong volume growth in the cables and wires business, with the segment achieving 46% year-on-year growth supported by continued momentum from private capex, housing demand, and restocking activities.

Margin Pressures Across Key Segments

Despite strong top-line performance, operating margins came under pressure, declining to a five-quarter low due to rising operational expenses:

Cost pressures included significant increases in advertising and sales promotion expenses, which rose 144% to ₹91.00 crore, and finance costs that increased 38% to ₹69.00 crore. Management indicated that margin pressure resulted from deferred pass-through of input costs, unfavorable product mix, and higher advertising spends.

Management Outlook and Strategic Initiatives

Management expressed confidence in sustained growth momentum, stating that strong performance is expected to continue into the March quarter. The company has already implemented price hikes in January with further increases planned within the quarter to support sequential margin expansion, though margins may still decline on a year-on-year basis.

The company reported no demand impact despite sharp rises in commodity prices, while EPC operating margins are expected to remain in high single digits over the medium to long term. The FMEG segment continued to deliver positive EBIT, contributing to overall performance.

Upgraded Brokerage Targets Reflect Confidence

Leading brokerages maintained constructive views and raised target prices following the results:

Citi reiterated its Buy rating while raising the target price to ₹9,500, highlighting the strong revenue beat and structural tailwinds from infrastructure development and power capacity expansion.

Jefferies maintained its Buy rating with a ₹9,225 target, noting that despite a nearly 50% rally since March, the stock still trades at a slight discount to its five-year average valuation. The brokerage views Polycab as a play on private capex, housing, and infrastructure, estimating an EPS CAGR of 25% over FY25-28.

Morgan Stanley maintained its Overweight rating, pointing to strong volume-led growth in the cables and wires segment while acknowledging margin pressures from cost inflation and higher advertising expenses.

Market Position and Growth Drivers

Polycab's performance reflects its strong market position with an extensive manufacturing footprint of 23 facilities across India, supported by over 15 offices and more than 25 warehouses. The company benefits from structural demand drivers including infrastructure investment, renewable energy expansion, and real estate sector recovery.

Key factors supporting future growth include continued private capex momentum, housing demand recovery, power transmission requirements, and renewable energy infrastructure development. The company's ability to navigate cost inflation while maintaining market share positions it well for sustained growth despite near-term margin challenges.

Polycab India has outlined comprehensive growth strategies across multiple business segments while announcing significant pricing adjustments due to regulatory changes. The company's management has shared strategic objectives and margin expectations, highlighting both domestic and international performance dynamics.

Pricing Impact from BEE Regulations

The company anticipates a price increase of 2% to 4% starting January 1st due to new Bureau of Energy Efficiency (BEE) regulations. This regulatory-driven pricing adjustment reflects compliance requirements that will affect the electrical equipment industry.

Margin Performance Comparison

Polycab's export business demonstrates superior profitability with EBITDA margins of around 15%, significantly outperforming domestic operations. The domestic cable business operates with margins of 9% to 12%, while wire margins range from 15% to 16%. Management predicts improved Q4 margins sequentially.

Q4 Performance Outlook

The company remains positive about its Q4 performance, expecting high demand and strong activity across both government and private sectors. This optimistic outlook reflects the company's confidence in market conditions and its ability to capitalize on emerging opportunities in the electrical infrastructure space.

Solar Business Growth Strategy

Polycab's solar business, which already holds a leading position in the FMEG segment, is positioned for continued expansion. The company anticipates robust growth in Q4 and expects this momentum to continue in future years, reflecting the growing demand for renewable energy solutions.

Strategic Investment and Long-term Targets

The company has announced plans to gradually increase its annual advertising and promotion spending to 3% to 5% of B2C revenue to support growth. The FMEG division aims to achieve growth rates of 1.5 to 2 times industry growth with EBITDA margins of 8% to 10% by FY30, while the EPC business targets steady high-single-digit operating margins over the mid-to-long term.