Polycab Share Price Bounces Back: A Comprehensive Analysis Amid IND vs AFG Showdown 2023-24

In today’s trading session, Polycab Share India, a prominent producer of electrical wires and cables, saw a rise in the price of its shares. It started the day with a 3% increase, reaching ₹4,059 per share. This recovery came after a steady decline over the previous few trading days.

Recent sessions have seen pressure on the company’s shares due to circulating reports of the company being accused of tax evasion. In light of this, the stock dropped 28.23% over the previous five sessions, from ₹5,404 per share to ₹3,878.45.

The IT Department began search and seizure operations at Polycab and some of its distributors on December 12, 2023, at over 50 locations in Mumbai, Pune, Aurangabad, Nasik, Daman, Halol, and Delhi, according to the Ministry of Finance.

Incriminating evidence was discovered and taken into custody during the search, exposing a method of tax evasion. According to preliminary analysis, there may have been cash payments made for unauthorized purchases, unreported sales, phony transportation, and subcontracting costs used to conceal taxable income.

Axis Capital has precipitously lowered its target share price for Polycab India Ltd. to Rs. 4300 from Rs. 5,809, taking into account the uncertainties surrounding the IT raid. Geojit Financial Services says that it has reached its ‘Sell’ target on the stock and anticipates underperformance. The Ministry of Finance stated, without naming the company, that the IT department has solid evidence to believe it discovered unreported cash sales of Rs 1,000 crore during its raid at a major cables and wires company in December. This news caused the stock of Polycab Share India to drop 21% in the previous session.

If Polycab Share chooses to refute the allegations, Axis Capital will not be able to determine whether tax evasion took place or when the final judgment will be rendered. Furthermore, the extent of the consequences that may arise from proving tax evasion is uncertain—they may include penalties for both GST and IT evasion.

But until the accusations are refuted, we think a multiple derating is unavoidable. Our goal price was lowered to Rs 4,300. We reduced our EPS projections by 2-4 percent in order to account for the disruptions caused by the IT raid in FY24E and the lower margins on cables and wires as the industry adds capacity in FY25/26E,” the statement read.

According to Axis Capital, Polycab Share India has not yet received an official letter from the IT Department based on its discussions with the management. The business disputes any tax evasion and, should charges be brought against it, plans to file an appeal. It stated that in this case, seeking legal recourse and getting a ruling on the issue could take a while.

Given that: (1) the potential charges leveled could be both GST evasion (18%) and IT evasion, not just IT evasion; and (2) the penalty for the IT evasion could be anywhere between 100 and 200 percent, we do not currently have enough data to estimate the likely balance sheet impact on Polycab in the event the tax evasion case is proven.” It is important to remember that Polycab had investments and net cash of Rs. 15.3 billion as of September 23, the statement stated.

Anil R, a research analyst at Geojit Financial Services, stated that more information is still pending in the ongoing Rs 1,000 crore tax evasion case involving Polycab India. There is a belief that the stock will underperform amid expectations of ongoing volatility, he said.

“With regard to Polycab’s main business, robust volume growth, increased government spending, and a booming real estate market drove the company’s success in cable and wires. In the future, a slower rate of growth is anticipated despite a favorable demand climate because of elements like rising interest rates, higher input costs, and more intense competition. We had suggested a sell rating with a target price of Rs 4,473, which has been reached, due to valuation concerns,” the speaker stated.