On January 10, the income tax department conducted searches at Polycab’s facilities. The officials carried out raids at 50 locations of the company, spanning Mumbai, Pune, Aurangabad, Nashik in Maharashtra, Daman, Halol in Gujarat, and Delhi.
Polycab India witnessed a 22 percent drop in its shares during morning trade on January 11 following a statement from the income tax department.
The department revealed the discovery of approximately Rs 1,000 crore in “unaccounted cash sales” during its search of the company’s offices on the preceding day.
Meanwhile, multiple block deals worth a total of Rs 1,293 crore also took place on the exchanges. Around 33 lakh shares, representing a 2.2 percent stake in Polycab changed hands on the exchanges.
At 10.12 am, shares of Polycab were trading at Rs 3,825 on the NSE. Volumes in the counter also shot up as 20 lakh shares changed hands, significantly higher than the one-month daily traded average of 7 lakh shares.
“Credible evidence recovered during the search has established that the flagship company has made unaccounted cash sales of around Rs 1,000 crore, which are not recorded in the books of accounts,” the Central Board of Direct Taxes (CBDT) said on January 11. CBDT is the administrative body for the income tax department, said.
On January 10, the income tax department conducted searches at various locations of Polycab, covering 50 premises across key regions.
The targeted areas included Mumbai, Pune, Aurangabad, and Nashik in Maharashtra, along with Daman, and Halol in Gujarat, and Delhi.
The search aimed to scrutinize the company’s premises for potential tax-related discrepancies. This move by income tax officials reflects a broader effort to ensure compliance and unearth any irregularities.
The comprehensive search spanned diverse geographical locations, underscoring the thorough examination of Polycab’s operations in Maharashtra, Gujarat, and the national capital.
Some of the authorized distributors of the group were also covered in the searches, the CBDT said.
Even though the CBDT statement did not name the group, PTI reported that official sources confirmed it to be Polycab India.
A distributor, acting on behalf of the company, was found to have made unaccounted cash payments exceeding Rs 400 crore for the procurement of raw materials, as per the CBDT statement.
The investigation also alleges the discovery of “non-genuine” expenses worth around Rs 100 crore, encompassing sub-contracting expenses, purchases, and transport expenses, among others, based on seized evidence from Polycab’s premises.
The search operation also shed light on instances of “unexplained” transactions conducted by the distributor, involving the issuance of bills without actual goods supply.
These goods were purportedly sold in the open market for cash.
According to the CBDT, the authorized distributor enabled certain parties to artificially inflate their purchase accounts, amounting to approximately Rs 500 crore. Notably, this distributor exclusively deals in products from the flagship company.
Following the news, Nuvama Institutional Equities expects a medium-term impact on the stock amidst a de-rating on valuations which had expanded to 37x throughout 2023.
“Next week’s Q3 result becomes even more critical now, as anything lower than 14-15 percent revenue growth for Polycab will further add a negative trigger,” the brokerage believes.
Meanwhile, Nuvama also feels that the development has put valuations of the entire cables and wires pack at risk now as in the near term the market may assume that some of these practices might be done by other players as well to some extent.
“Some stocks where valuations have expanded meaningfully (for example, KEI Industries at 42x now) are at a risk of getting de-rated in the very immediate term,” the brokerage firm stated.
Likewise, shares of KEI Industries also slumped 8.5 percent to Rs 2,880 on the National Stock Exchange (NSE).
