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Expansions unlocking potential for growth

A year of resilience; setting the stage for long-term growth

The FY24 annual report key highlights of KEI Industries (KEII) are as follows: 1) the company has increased investments in capacity expansion, which is estimated to result in a revenue CAGR of ~15-16% in the medium term; 2) the share of sales through B2C in the overall revenue rose to ~47% in FY24 vs. ~46% in FY23, with a target to increase to ~50% by FY26E; 3) the company is focused on expanding its dealer/distribution network; and 4) the company seeks to expand the international segment, increasing the export share to 15-18% of the total revenue over the next three years vs. ~13% in FY24.

Strategic initiatives toward sustainable growth

* KEII’s strategic roadmap is designed to support sustainable growth and drive market leadership in the Cables and Wires (C&W) industry. The company’s key strategic initiatives include: 1) expanding its manufacturing facilities; 2) focusing on the retail segment; 3) driving growth of the international segment; and 4) boosting growth in dealer/distribution.

* The company incurred a capex of INR4b in FY24 vs. the average annual capex of INR770m over FY19-FY23. Further, the company is committed to a capex of INR9b-INR10b in FY25E and INR5b-INR6b in FY26E toward its greenfield expansion in Sanand, Gujarat.

* It is focused on increasing the contribution of retail in total revenue (with a target to reach ~50% by FY26 vs. ~47% achieved in FY24). Moreover, it seeks to expand its dealer/distribution network. It has a PAN-India retail presence backed by a vast distribution network, including 24 depots, 36 marketing offices, and 1,990 active dealers/ distributors. Further, it aims to increase its export share to 15-18% of the total revenue over the next three years.

The C&W industry exhibits strong growth; outlook to remain positive

* The global C&W industry exhibited strong growth of ~13% YoY in CY23, reaching a market size of over USD243b. It is expected to clock a CAGR of 9.1% and reach a market size of USD547b by CY32. The Indian C&W industry is likely to grow at ~10% CAGR over the next few years, largely driven by increased traction in the infrastructure and real estate sectors.

* KEII is a leading manufacturer of C&W in India and is steadily expanding its global presence. The company’s revenue grew ~15% CAGR over the past 15 years, supported by its effective business strategies, including prudent investments, business diversification, financial discipline, and strong brand recall.

* In FY24, KEII’s overall revenue grew 17% YoY to INR81.0b and EBITDA grew 19% YoY to INR8.4b. The EBITDA margin was at 10.3% vs. 10.2% in FY23, driven by operational efficiency, cost management efforts, and better product mix. The adjusted PAT increased 22% YoY to INR5.8b. ETR stood at 25.6% vs. 25.7% in FY23.

Key initiatives and improvement measures as of FY24

* The company has taken the initiative to digitize the manual shop floor control system. The company aims to achieve supply chain and operational excellence through the digital transformation program. This provides an integrated digital planning and scheduling platform to plan and schedule customer orders.

* The company has successfully developed and launched new products in FY24 to meet the needs of emerging markets and advance its technological capabilities. During this year, the company launched three products – EV Charging Cable, medium voltage covered conductor cable, and Conflame Green + wires (HR – FR-LSH – lead-free).

* The company has strengthened its brand recall by increasing ad spending. It is a sponsor for sports teams such as the IPL and Kabaddi. Further, it is engaged in several activities, including outdoor campaigns, active participation in events and exhibitions, TV advertisements, and video marketing, to boost branding.

Valuation and view

* EBITDA/Adj. PAT of KEII clocked a CAGR of ~18%/38% over FY15-FY24 despite margin pressures (led by RM cost volatility) in the cables & wires segment during FY22/23. Going ahead, we expect EBITDA and EPS to clock a CAGR of 24%/22% over FY24-FY27.

* The higher FCF generation over the past few years has helped KEII to reduce debt and strengthen its balance sheet. The company has accelerated its capex plan to meet the growing demand and maintain its competitiveness. Capex is pegged at around INR10b/INR5b in FY25E/FY26E. We estimate free cash outflow in FY25 and improvements in cash flow from FY26 onwards.

* KEII has consistently delivered strong performance, led by a robust demand environment and a diversified customer base with a significant presence across domestic and international markets. Its growing focus on the retail segment and capacity expansion would continue to drive growth for the company The stock is currently trading at 45x its FY26E EPS. We value KEII at 50x Sep’26E EPS to arrive at our TP of INR5,450. Reiterate BUY.

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SEBI Registration number is INH000000412