Polycab Rebounds After Denying I-T Demand, But Governance Concerns Cast Shadow

Polycab India

On Thursday, Polycab India, the largest manufacturer of cables and wires in India, experienced an unprecedented 21% decline in its stock price, caused by reports of searches conducted by the Income Tax (I-T) department and allegations of tax evasion.

This was the biggest single-day drop in the company's history, causing widespread concern among investors and analysts alike.

However, on Friday, the company's stock made a partial recovery, gaining 3% after the previous day's slump. Polycab India's management downplayed the impact of the I-T department's investigation and assured its full cooperation. They clarified that they had not received any written communication regarding the search outcome or any potential tax demand.

What are the thoughts of analysts?

Despite this, analysts remain cautious about the potential corporate governance concerns and uncertainties surrounding the investigation. The I-T department has claimed "unaccounted cash sales" of Rs 1,000 crore, which the company denies having received any communication about tax demands. Axis Capital has even lowered the target price due to uncertainties, and analysts remain divided on the long-term impact, with some being optimistic about recovery.

Independent analyst Ambareesh Baliga has predicted a 15% further drop due to the "corporate governance issue." On the other hand, Geojit Financial Services analyst Anil R recommends waiting for clarity before investing. Market expert Baliga believes the news could be "forgotten" in 4-5 months, depending on the final outcome. Capital Mind analyst Krishna Apalla emphasises the importance of the investigation's findings.

Conclusion

Despite a small increase in the stock's value on Friday, the ongoing investigation by the Income Tax Department and the potential tax consequences that could arise from it continues to pose a significant threat to the future prospects of Polycab India.

The uncertainty surrounding this investigation casts a dark shadow over the company's future, leaving investors and stakeholders anxious and apprehensive.