Polycab India Limited (NSE:POLYCAB) defied analyst predictions to release its second-quarter results, which were ahead of market expectations. The company beat both earnings and revenue forecasts, with revenue of ₹21b, some 9.5% above estimates, and statutory earnings per share (EPS) coming in at ₹14.75, 89% ahead of expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, the consensus forecast from Polycab India's nine analysts is for revenues of ₹78.9b in 2021, which would reflect a reasonable 2.1% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to fall 18% to ₹42.41 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of ₹78.1b and earnings per share (EPS) of ₹40.59 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target was unchanged at ₹985, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Polycab India at ₹1,203 per share, while the most bearish prices it at ₹730. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. One thing stands out from these estimates, which is that Polycab India is forecast to grow faster in the future than it has in the past, with revenues expected to grow 2.1%. If achieved, this would be a much better result than the 11% annual decline over the past year. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 16% next year. Although Polycab India's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the wider industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Polycab India following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at ₹985, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Polycab India. Long-term earnings power is much more important than next year's profits. We have forecasts for Polycab India going out to 2024, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Polycab India that you need to be mindful of.
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