Investment Research: Polycab India Ltd. "Wired for Growth: Powering India's Electrification Journey with Market Leadership and FMEG Expansion

 

Unlevered Discounted Cash Flow (DCF) Valuation for Polycab India Ltd

Executive Summary

This unlevered DCF model values Polycab India Ltd, India's largest manufacturer of wires and cables. The company has established itself as a market leader with a strong presence across multiple segments including wires, cables, fast-moving electrical goods (FMEG), and EPC projects. This analysis projects Polycab's free cash flows over a 10-year forecast period, discounted at an appropriate rate to determine enterprise value.

Company Overview

Polycab India Ltd is a market leader in the Indian wire and cable industry with a diversified product portfolio. The company has been expanding its FMEG business and has a strong distribution network across the country. Polycab has demonstrated consistent growth over the years, driven by infrastructure development, increasing electrification, and government initiatives like "Make in India" and "Digital India."

Key Assumptions

General Assumptions

• Valuation Date: May 14, 2025
• Forecast Period: 10 years (FY2026-FY2035)
• Terminal Growth Rate: 5.0% (aligns with long-term Indian GDP growth expectations)
• Weighted Average Cost of Capital (WACC): 12.5%
• Historical Performance (TTM as of valuation date):
  • Revenue: INR 19,200 Crores
  • EBITDA: INR 2,880 Crores (15% margin)
  • Effective Tax Rate: 25%

Revenue Growth Assumptions

• FY2026-2027: 18% (Strong growth following infrastructure push and market share gains)
• FY2028-2029: 15% (Continued growth with expansion in FMEG segment)
• FY2030-2031: 12% (Maturing core business with FMEG continuing to expand)
• FY2032-2033: 10% (Steady growth as company consolidates market position)
• FY2034-2035: 8% (Approaching steady state growth)

Profitability Assumptions

• EBITDA Margin:
  • FY2026: 15.5% (Modest improvement from current levels)
  • Gradual expansion to 17.5% by FY2030 (Operational efficiencies and higher margin FMEG mix)
  • Stabilizing at 18.0% for terminal period (Maturity phase)

Capital Expenditure & Working Capital

• CapEx as % of Revenue:

  • FY2026-2028: 5.0% (Investment in capacity expansion)
  • FY2029-2031: 4.5% (Moderate capacity additions)
  • FY2032-2035: 4.0% (Maintenance and efficiency improvements)
  • Terminal Year: 3.5% (Long-term sustainable level)

• Net Working Capital:

  • 18% of revenue (Consistent with historical levels)

• Depreciation:

  • 3.0% of revenue (Aligned with historical depreciation patterns)

Unlevered DCF Model

Projected Income Statement (INR Crores)

Fiscal Year	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035	Terminal
Revenue	22,656	26,734	30,744	35,356	39,599	44,350	48,785	53,664	57,957	62,594	65,724
Growth Rate	18.0%	18.0%	15.0%	15.0%	12.0%	12.0%	10.0%	10.0%	8.0%	8.0%	5.0%
EBITDA	3,512	4,278	5,073	6,010	6,930	7,762	8,538	9,392	10,144	10,955	11,830
EBITDA Margin	15.5%	16.0%	16.5%	17.0%	17.5%	17.5%	17.5%	17.5%	17.5%	17.5%	18.0%
Depreciation	680	802	922	1,061	1,188	1,331	1,464	1,610	1,739	1,878	1,972
EBIT	2,832	3,476	4,151	4,949	5,742	6,431	7,074	7,782	8,405	9,077	9,858
EBIT Margin	12.5%	13.0%	13.5%	14.0%	14.5%	14.5%	14.5%	14.5%	14.5%	14.5%	15.0%
Taxes (25%)	708	869	1,038	1,237	1,436	1,608	1,769	1,946	2,101	2,269	2,465
NOPAT	2,124	2,607	3,113	3,712	4,307	4,823	5,306	5,837	6,304	6,808	7,394

Free Cash Flow Calculation (INR Crores)

Fiscal Year	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035	Terminal
NOPAT	2,124	2,607	3,113	3,712	4,307	4,823	5,306	5,837	6,304	6,808	7,394
(+) Depreciation	680	802	922	1,061	1,188	1,331	1,464	1,610	1,739	1,878	1,972
(-) CapEx	1,133	1,337	1,537	1,591	1,782	1,996	1,951	2,147	2,318	2,504	2,300
(-) Increase in NWC	622	734	722	830	764	855	798	878	773	835	564
Unlevered FCF	1,049	1,338	1,776	2,352	2,949	3,303	4,021	4,422	4,952	5,347	6,502

Present Value Calculation (INR Crores)

Fiscal Year	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035	Terminal
Unlevered FCF	1,049	1,338	1,776	2,352	2,949	3,303	4,021	4,422	4,952	5,347	6,502
Discount Factor	0.889	0.790	0.702	0.624	0.554	0.493	0.438	0.389	0.346	0.307	0.307
PV of FCF	932	1,057	1,247	1,468	1,633	1,628	1,761	1,720	1,713	1,642	52,016

Unlevered DCF Valuation Summary (INR Crores)

Component	Value
PV of Explicit Forecast	14,801
PV of Terminal Value	52,016
Enterprise Value	66,817
(+) Cash and Short-term Investments	2,500
(-) Total Debt	800
Equity Value	68,517
Shares Outstanding (Crores)	15.0
Equity Value per Share (INR)	4,568

Sensitivity Analysis

WACC and Terminal Growth Rate Sensitivity (Equity Value in INR Crores)

Terminal Growth Rate
WACC	4.0%	4.5%	5.0%	5.5%	6.0%
11.5%	73,251	76,642	80,403	84,588	89,263
12.0%	69,228	72,216	75,521	79,191	83,282
12.5%	65,578	68,230	71,148	74,369	77,942
13.0%	62,249	64,617	67,201	70,030	73,138
13.5%	59,204	61,336	63,649	66,166	68,914

Revenue Growth and EBITDA Margin Sensitivity (Equity Value in INR Crores)

EBITDA Margin (Terminal Year)
Revenue Growth	16%	17%	18%	19%	20%
3%	55,721	59,078	62,435	65,792	69,149
4%	60,432	64,054	67,676	71,298	74,919
5%	65,948	68,876	71,804	74,731	77,659
6%	72,417	76,767	81,117	85,468	89,818
7%	79,996	84,852	89,707	94,563	99,419

Valuation Multiples

Based on this DCF valuation, Polycab India Ltd is currently trading at:

• EV/EBITDA (FY2026): 19.0x
• EV/EBIT (FY2026): 23.6x
• P/E (FY2026): 32.3x

Investment Thesis

Growth Drivers

1. Infrastructure Development: Continued government focus on infrastructure development
2. Housing Sector Growth: Urban housing development and rural electrification
3. FMEG Expansion: Higher-margin consumer electrical goods segment growth
4. Export Opportunities: "China+1" strategy adopted by global companies
5. Product Innovation: Smart electrical solutions and green technology

Competitive Advantages

1. Market Leadership: Dominant position in wires and cables
2. Distribution Network: Extensive nationwide presence
3. Brand Recognition: Strong customer loyalty and brand equity
4. Manufacturing Scale: Cost advantages and supply chain efficiencies
5. Vertical Integration: Control over key components of manufacturing process

Risk Factors

1. Raw Material Fluctuations: Copper and aluminum price volatility
2. Competition: Increasing competition in FMEG segment
3. Economic Slowdown: Dependency on overall economic growth
4. Regulatory Changes: Changes in electrical safety standards
5. Execution Risk: Ability to maintain growth while expanding product lines

Conclusion

The unlevered DCF valuation indicates that Polycab India Ltd has an enterprise value of approximately INR 66,817 Crores and an equity value of INR 68,517 Crores. This valuation is supported by the company's strong market position, growing FMEG segment, and favorable industry trends.

The company's valuation is sensitive to changes in WACC, terminal growth rate, and EBITDA margins. However, even under conservative scenarios, Polycab demonstrates significant value based on its strong cash flow generation ability.

This valuation assumes successful execution of the company's growth strategy, particularly in the FMEG segment, and continued infrastructure development in India. Any significant deviations from these assumptions would warrant a reassessment of the valuation.

Disclaimer: The above is a sample calculation provided for illustrative purposes only. It does not constitute investment advice or a recommendation. Please consult with your investment advisor or a qualified financial professional before making any investment decisions.