Polycab India's ₹35 Dividend Bonanza: A Golden Opportunity or a Risky Gamble?

The market is buzzing over Polycab India Limited's announcement of a ₹35 per share dividend, the highest in its history. For investors, this payout—nearly double the ₹18 dividend paid in FY2023-24—raises critical questions: Can Polycab sustain this generosity? What does it say about its growth trajectory? And how might this impact its stock price as India's infrastructure boom accelerates? Let's dig into the numbers to find out.

The Dividend: A Testament to Strength or a Liquidity Stretch?

First, let's assess whether this dividend is sustainable. Polycab's free cash flow (FCF) for FY2024-25 surged to ₹838.80 crores, up from ₹1,296.24 crores in FY2023-24, driven by a 24.22% jump in net sales to ₹22,408.31 crores. With operating cash flow hitting ₹1,808.53 crores, the company has ample liquidity to fund both dividends and its growth plans.

But there's a catch: the debt service coverage ratio (DSCR) dipped to 0.82, below the 1.0 threshold, signaling potential strain in covering debt from operating cash. While the interest coverage ratio of 11.45 remains strong, the total debt of ₹15,060 crores (up from ₹2,023 crores in FY2023-24) is a red flag.

Verdict: The dividend is sustainable for now, backed by robust FCF. But investors must monitor whether the debt binge continues. Management's focus on maintaining ₹10–11 billion in annual CapEx to fuel growth could stretch liquidity further.

Growth Trajectory: Riding India's Infrastructure Wave

Polycab's EPC (Engineering, Procurement, and Construction) segment delivered a staggering 74.35% sales growth, outpacing Wires & Cables (19.9%) and FMEG (18.4%). This aligns with India's push to spend ₹111 trillion on infrastructure by 2030, a tailwind for Polycab's core businesses.

The company's net profit margin of 8.78% and P/E ratio of 41.05 reflect investor optimism about its long-term prospects. However, the elevated P/E raises questions: Is the stock overvalued?

Verdict: The EPC boom and infrastructure spending justify growth optimism. But investors should tread cautiously—valuation multiples are high, and execution risks (like raw material costs or delays in projects) loom large.

Stock Performance: A High-Wire Act

Polycab's stock has risen 47% in the past year, outperforming broader indices. But with the P/E at 41.05, a misstep in earnings or FCF could trigger a correction.

The cash and equivalents balance of ₹2,174 crores (up from ₹1,195 crores in FY2023-24) and a current ratio of 2.08 suggest strong liquidity. Yet, the debt load and DSCR below 1.0 mean Polycab can't afford a slowdown in sales growth.

Verdict: The stock's trajectory hinges on two factors: 1) Whether FMEG and EPC segments sustain their momentum, and 2) If management curbs debt growth while maintaining dividends.

Investment Advice: Buy, Hold, or Bail?

• For Income Investors: The 22.33% dividend payout ratio (FY2024) leaves room for future hikes, but only if FCF continues to grow. The ₹35 dividend offers a yield of ~1.2% (assuming a stock price of ₹2,800), modest but stable.
• For Growth Investors: The P/E of 41.05 is rich, but if Polycab meets its FY2026 revenue targets a year early (as hinted by Chairman Inder T. Jaisinghani), the stock could justify its premium.
• For Bulls: Bet on India's infrastructure push and Polycab's market leadership in cables and FMEG.
• For Skeptics: Worry about debt, the DSCR, and competition in FMEG.

Final Take

Polycab's ₹35 dividend isn't just a shareholder love letter—it's a gamble. The company is betting its infrastructure dominance and FCF can offset rising debt and macroeconomic headwinds. For now, the bull case holds: India's growth story is real, and Polycab's execution in EPC is unmatched.

Action: Buy the dips near ₹2,500-₹2,600, but set a stop-loss below ₹2,200. Avoid if you can't stomach volatility or if infrastructure spending falters. This is a hold for the long term, but only if Polycab's debt discipline improves.

The dividend is a win for shareholders—just don't let it blind you to the risks. Stay Foolish!

Data as of June 6, 2025. Past performance does not guarantee future results.