Polycab India sees sharp rebound, shares gains over 3% in two days; Jefferies recommends Buy with upside of 76%

Despite these allegations, Polycab stated on January 11 that it had not received any written communication from the IT department regarding the outcome of the December raids.

Polycab India, a prominent manufacturer of electrical wires and cables, has experienced a recovery in its share price in the last two days, surging by almost 3% to reach Rs 4,094. This rebound follows a sustained downturn observed over the past few trading days, with the stock witnessing a significant decline of 28.23% over the last six sessions, dropping from Rs 5,404 apiece to Rs 3,878.45.

The recent pressure on Polycab’s shares is linked to reports of tax evasion allegations against the company. The Ministry of Finance revealed that the Income Tax Department initiated search and seizure operations at Polycab and some of its distributors on December 12, 2023, covering more than 50 locations across Mumbai, Pune, Aurangabad, Nasik, Daman, Halol, and Delhi.

During the search, evidence was found, suggesting a modus operandi of tax evasion. Preliminary analysis pointed to unaccounted cash sales amounting to Rs 10 billion, unrecorded cash payments exceeding Rs 4 billion made by a distributor on behalf of Polycab, and Rs 1 billion of non-genuine expenses, as stated by domestic brokerage firm Axis Capital in a recent note.

Despite these allegations, Polycab stated on January 11 that it had not received any written communication from the IT department regarding the outcome of the December raids. The company also asserted that there was no material adverse impact on its financial position. Investors closely watch for further developments as the situation unfolds.

Brokerage View on Polycab

Polycab India’s stock, which faces recent challenges, is recommended for a “buy” by Jefferies with a target of Rs 7000, suggesting a substantial 76% upside. Despite a notable ~30% decline triggered by tax evasion concerns, the company clarified on January 11 that it had not received any written communication from the IT department regarding the outcome of the search, awaiting further clarity.

Analyst View

“Shares of Polycab India have broken the crucial support of the 200-simple moving average (SMA), implying a negative bias for short-medium term. Moreover, the price action is unable to attract buying momentum in the overbought category of Relative Strength Index, shows the daily chart. The chart structure remains highly fragile and any decline may attract additional selling pressure,” said Avdhut Bagkar, derivatives & technical analyst at StoxBox.

Bagkar, also said that the support for the present bias exists at 3500 and 2700 levels, which seems to be achievable in coming months. The recuperate the losing bias, the stock must surpass the 200-SMA placed at 4433 to fascinate bulls.

Stock performance 

Amidst this uncertainty, Polycab shares have demonstrated resilience, delivering positive returns in the long term while facing challenges in the short term. The stock has experienced a decline of 25.79% over the last 5 days and a substantial downturn of 29.38% in the past month. However, looking at the long-term perspective, the share has shown a modest increase of 2.39% over 6 months. Notably, over the past year, Polycab shares have exhibited robust performance, gaining over 50%.

Sources: Financial Express

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