Cable NewsFMEGLatest NewsSpotlight

Polycab Shares Tank 21% on Tax Evasion Reports, Market Grows Wary of Cable Sector

Polycab logo

Polycab India Ltd., a leading Indian manufacturer of cables and wires, and FMEG suffered a 21% drop in its stock prices on 11th January 2024. The company’s share price tumbled by 21.04% to Rs. 3,878.45 apiece on 11th January from Rs. 4,911.85 on 10th January 2024.

This drastic fall comes in the wake of media reports of alleged tax evasion by the company.

Media Reports on Alleged Tax Evasion & Subsequent Clarification by Polycab

PIB Reports Findings of IT Dept.’s ‘Search and Seizure Operations’, No Company Named

On 10th January 2024, a PIB release stated that on 22nd December 2023, the Income Tax (IT) Department carried out ‘search and seizure operations’ against a company dealing in wire, cable, and electrical goods manufacturing. These operations were conducted at 50 premises of the company located in Delhi, Mumbai, Pune, Nasik, Aurangabad, Halol and Daman.

PIB reported that ‘incriminating evidence’ comprising documents and digital data had been found and seized by the IT Department. As per the PIB release dated 10th January: ‘These evidences reveal modus-operandi of tax evasion adopted by the group in connivance with some of the authorised distributors. Preliminary analysis suggests that the flagship company indulged in unaccounted cash sales, cash payments for unaccounted purchases, non-genuine transport and sub-contracting expenses, etc for suppression of its taxable income.’

As per the press release, the evidence establishes that cash sales to the tune of Rs. 1,000 crore had not been made public by the company. Further, cash payments worth over Rs. 400 crore had been made by a distributor on behalf of the company for purchase of raw material. ‘Non-genuine’ expenses totaling Rs. 100 crore were also revealed through the seized evidence.

Moreover, the seized records divulge unexplained transactions by an authorised distributor of the company to issue bills without the actual purchase of goods. These goods were found to be sold directly in the open market, thus inflating purchase records of ‘certain parties’ by about Rs. 500 crore.

PIB’s report concludes by mentioning that Rs. 4 crore as unaccounted cash has been seized during the IT Department’s operations, and 25 bank lockers have been put on restraint.

Media Reports Associate Polycab with IT Department’s Raid

On 10th January 2024, Business Standard published an article explicitly naming Polycab as the cable & wire manufacturer which was mentioned in PIB’s aforementioned report.

Following this, the Bombay Stock Exchange (BSE) asked for clarification from Polycab regarding this particular news item.

Since then, several media portals have explicitly tied Polycab’s name to the aforesaid IT Department proceedings conducted in December 2023.

Polycab Issues Releases, Clarifies

Polycab at Elecrama 2020

Interestingly, Polycab had published a press release dated 9th January 2024, refuting any rumours of tax evasion. “The Company asserts its commitment to compliance and transparency, having fully cooperated with the Income Tax Department officials during the search proceedings in Dec ’23. The Company has not received any communication from the Income-tax department regarding the outcome of the search, said the release.

In its clarification given to the BSE on 11th January 2024, Polycab confirmed that the IT Department had conducted searches at its premises from 22nd December 2023 to 30th December 2023 and that the company had cooperated with the IT officials in the same.

The Company reiterates that as on date, the Company has not received any written communication from the IT Department regarding the outcome of the search”, stated Polycab.

Polycab stated that this occurrence will have no adverse effect on the company’s financial standing and that it will cooperate in the course of future IT proceedings.

Polycab’s Share Falls 31.6% Since Gaining its All-Time High in December 2023

Polycab, which went public in 2019, had its all-time high share price of Rs. 5,670 apiece on 15th December 2023. With the recent news of alleged tax evasion circulating in the media, within less than a month the company’s shares have fallen by 31.6% since then.

US-based Capital Group Sells its Stake in Polycab

As per a separate report by the Business Standard dated 11th January 2024, US-based financial services company, Capital Group, sold its 8,51,003 shares of Polycab for Rs. 336.64 crore. The shares were offloaded on the National Stock Exchange (NSE) through SmallCap World Fund Inc.

Market Grows Skeptical of Wire & Cable Stocks Post Media Reports

Mutual Funds Lose 940 Cr. Post Polycab Stock Crash

In a report dated 12th January 2024, Moneycontrol stated that the sudden fall in Polycab’s stock cost mutual funds Rs. 940 crore on 11th January 2024.

As per Polycab’s Q2 shareholding data, Domestic Institutional Investors (DIIs) held 6.1% of the company’s shares, which translates to about 90.93 lakh shares. These DIIs consist of various Mutual Funds.

Share Prices of some Indian Wire & Cable Manufacturers Affected

Post media reports alleging Polycab of tax evasion, share prices of major wire & cable manufacturers witnessed a decrease.

KEI Industries [NSE: KEI], another major wire & cable sector player, saw its share price fall by a considerable 5.31% to Rs. 2,980.95 on 11th January 2024 from Rs. 3,148.20 on 10th January 2024. Apar Industries’ [NSE: APARINDS] shares also fell by 8.4% between 10th and 11 January 2024, closing at INR 5,312.00 on 12th January. RR Kabel [NSE: RRKABEL] lost 6.4% in its stock value between 11th and 12th January 2024.

With media reports of the largest Indian manufacturer of wires and cable under the IT Department’s scanner, the average investor seems hesitant to invest in this sector presently.