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For the first time since getting listed in April 2019, the shares of Polycab India saw their steepest fall on January 11. The stocks of India's largest wire and cable maker fell by 21 percent, wiping out over Rs15,000 crore from its market valuation amid tax evasion concerns. Last month, the Income Tax Department conducted searches at its 50 locations from December 22 to December 30.
The impact on the market started showing up after Polycab issued a press release on January 9 denying reports of tax evasion by the company that were circulating in the media. “The company has not received any communication from the income-tax department regarding the outcome of the search.”
The next day, the finance ministry posted a release on the Press Information Bureau stating that the IT department initiated search and seizure operations “in the case of a group engaged in the manufacturing of wires and cables and other electrical items on 22.12.2023. Some of the authorised distributors of the group were also covered in the search. The search action was conducted at more than 50 premises located in Mumbai, Pune, Aurangabad, Nasik, Daman, Halol, and Delhi.”
Without naming the company, it further added that the company has made unaccounted cash sales of around Rs1,000 crore, which are not recorded in the books of accounts. Evidence of unaccounted cash payments of more than Rs400 crore made by a distributor on behalf of the flagship company towards purchases of raw materials has also been seized.
“Further, non-genuine expenses in the nature of sub-contracting expenses, purchases and transport expenses, etc., aggregating to about Rs100 crore, have also been identified in the seized evidence from the premises of the flagship company,” it added. During the course of the search operation, unaccounted cash exceeding Rs4 crore has been seized, and more than 25 bank lockers have been put on restraint. “Further investigations are in progress.”
On January 11, the day when Polycab’s share plummeted to 21 percent, the company issued another release, maintaining their stance of not receiving any written communication from the IT department regarding the outcome of the search. “The Company understands that there is a press release titled ‘Income Tax Department conducts search operations in Mumbai’ published on January 10, 2024 (at 8:06 pm) by the Press Information Bureau, Delhi, which does not specifically name any company,” it added.
On December 22, when Polycab was raided, the stock fell by some 5-7 percent. It started falling more after January 8, especially between Polycab denying the claims and the ministry issuing the statement, explains Aditya Vora, research analyst at Equitymaster Agora Research Private Limited. “This is a serious issue and also raises a lot of questions about the company’s corporate governance. But again, the public memory is short. They will forget about it in no time. However, the premium multiples that Polycab enjoyed due to its growth are not going to be available in the future.”
In comparison to the domestic investors, foreign portfolio investors (FPI) have consistently increased their stake in Polycab, from nine percent in June last year to over 12 percent in September. “If FPI shareholders begin selling, that will be problematic for the company, and the foreign investors are very particular when it comes to corporate governance,” an analyst said on condition of anonymity. Last week, US-based Capital Group, through its affiliate SmallCap World Fund Inc., offloaded shares of Polycab India worth Rs337 crore on the National Stock Exchange (NSE).
The company’s shares touched a record high of Rs5,733 last month, making it a ten-fold return over its initial public offering (IPO) price. The stock made its debut with Rs538 and was subscribed to over 51 times, making it the fifth most subscribed IPO in 2019. Polycab has delivered positive annual returns every single year since it was listed, including returns of over 100 percent in 2023 and 2021.
Inder Jaisinghani, chairman and managing director of Polycab, rose 28 spots to rank 32 with a net worth of $6.4 billion on the 2023 Forbes India Rich List. Jaisinghani was one of the biggest gainers on the list—his wealth was up the most in percentage terms, as the company benefited from increasing electrification.
The Jaisinghanis entered the business in 1964 and dealt in various electrical products, including fans, lighting, switches, and wires. They eventually started manufacturing cables and wires, and they officially incorporated the company in 1996. With a 24 percent market share, it dominates the wires and cables sector in India. In 2014, it forayed into the FMEG business, which has grown at a 30 percent CAGR in the past seven years.
The company did not respond to the queries sent by Forbes India as it is currently in the silent period and will be announcing its latest quarterly results this week.