Polycab India shares bleed 22% as IT dept finds Rs 1,000 crore undeclared cash sales

After a brief halt, shares of Polycab India Ltd resumed selloff on Thursday as Ministry of Finance in a statement said the income tax department has credible evidences that a company engaged in cables and wire made unaccounted cash sales of around Rs 1,000 crore. It is believed that the company is Polycab India Ltd.  Some of the authorised distributors of the group were also covered in the search and that the search action was conducted at more than 50 premises located in Mumbai, Pune, Aurangabad, Nasik, Daman, Halol and Delhi, finance ministry suggested. The search and seizure operations took place on December 22, 2023.

During the course of the search operation, the Ministry said, a large number of incriminating evidences in the form of documents and digital data have been found & seized. "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," Ministry of Finance said.

Polycab India shares fell 22.4 per cent to hit a low of Rs 3,812.35 on BSE. The stock hit a 52-week high of Rs 5,722.90 on December 14, 2023, before witnessing weakness amid concerns over IT raids at the company's premises. 

Fresh details

"Credible evidences recovered during the search have 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. Evidences of unaccounted cash payments of more than Rs. 400 crore made by a distributor, on behalf of the flagship company towards purchases of raw materials, have also been seized," Ministry of Finance said. 

Further, the ministry in a release said non-genuine expenses in the nature of sub-contracting expenses, purchases and transport expenses, aggregating to about  Rs 100 crore have also been identified in the seized evidences from the premises of the flagship company.

"The search action also resulted in determination of unexplained transactions undertaken by the distributor for issuing bills without genuine supply of goods whereas such goods have been sold in open market in cash. Thus, the authorised distributor facilitated certain parties to inflate their purchase accounts, which aggregate to about Rs. 500 crore. This distributor exclusively sells products of the flagship company. During the course of search operation, unaccounted cash exceeding Rs. 4 crore, has been seized and more than 25 bank lockers have been put on restraint.         

Polycab IT raids  

To recall, Polycab India recently denied reports of tax evasion by the company on stock exchanges and suggested it had not received any communication from the Income-tax department regarding the outcome of December 2023 search operations.

"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," it told stock exchanges. 

Polycab is the market leader in the cables and wires market. Its exports got sharply risen by 54 per cent YoY in FY23 and accounted for 10 per cent of its sales. Polycab’s exports are spread across 72 countries but its key demand centres are developed countries such as the US and Australia. In the past, Polycab India benefitted from the China +1 policy and also due domestic housing, power and industrial capex growth, Jefferies noted in a report earlier this month.