IGI Logo

Scaling with strength

Expanding capacity and capitalizing on industry trends

KEI Industries (KEII) is among the leading players in the Cable and Wire (C&W) industry in India. We believe KEII benefits from multiple growth drivers and business strategies, such as: 1) strong growth potential in the C&W industry over the long term; 2) focus on capacity expansion and gaining market share; 3) growth in the retail business; and 4) higher exports and product innovations. We estimate its revenue/EBITDA/EPS CAGR at ~17%/ 24%/22% over FY25-27. The stock is trading at 49x/40x FY26E/FY27E EPS, which remains attractive. We value KEII at 50x Dec’26E EPS to arrive at our TP of INR5,150, having 19% upside potential. Reiterate BUY. Key risks to our TP are: (a) slowdown in government-led infrastructure projects; (b) higher volatility in raw material prices; (c) global headwinds, which may impact export; and (d) increase in competition due to higher capacity addition in the sector.

Well-positioned to outpace industry growth

* The Indian C&W market grew to INR800b in FY24 from INR600b in FY19, reflecting a CAGR of ~6%. This growth was driven by the expansion of High-Voltage (HV) and Extra High-Voltage (EHV) cables, elastomeric cables, and PVC control cables supported by rural electrification, transmission line development, and post-COVID construction resurgence.

* Power transmission cables held the largest share in the domestic C&W market (28-30%), followed by building wires (21-23%). The C&W industry is likely to post ~11–13% CAGR over FY24-27, reaching INR1.2t by FY27E, driven by infrastructure development, rising construction activity, and increasing digital connectivity.

* KEII expanded its C&W capacities significantly across multiple facilities in 1HFY25. Its cable capacity increased ~36% and wires capacity 27% in 1HFY25 compared to FY24-end capacity. It is also undertaking a greenfield expansion in Sanand, Gujarat, with a planned capex of INR18-19b over FY25-26 to increase cable capacity by 263,523km (growth of ~137% over existing capacity). Following the expansion, capacity utilization is projected to moderate to ~60-70% in FY26-27; however, it is expected to rebound to over 90% by FY29E, driven by robust demand. KEII plans to continue investing INR5-7b annually in growth capex, targeting a CAGR of ~17%. Additionally, the company has acquired land in Baroda, Gujarat, for future expansion.

Strategic initiatives focus on driving retail business and exports

* Over the past three years, KEII has expanded its geographical footprint and strengthened its retail division through promotional campaigns, outdoor marketing, and sponsorships, boosting brand visibility. The share of B2C sales in overall revenue grew from ~29% in FY20 to ~47% in FY24 and ~54% in 1HFY25, improving cash flow and reducing receivable periods. The company targets to increase the retail share to ~50% of the sales mix by FY26, supporting greater stability and growth. With a PAN-India retail presence, its network includes 25 depots, 36 marketing offices, and 2,038 active dealers/distributors as of Sep’24.

* KEII is expanding its international presence by targeting high-potential regions and building strong partnerships while ensuring global quality standards. The company has secured UL approval in the US, BASEC approval in Europe, and various construction protocol certifications. It exports to over 60 countries and has set up marketing offices in key markets such as the UAE, South Africa, Nepal, and Gambia. Its export share of revenue increased to ~13% in FY24, with plans to raise it to ~15-18% in the next three years. KEII has a strong export order book of INR7.3b as of Sep’24.

* The company aims to strengthen its existing product offerings while expanding into high-growth, profitable new segments. Its current portfolio includes products in the cable, Stainless Steel Wire (SSW), and EPC projects segments. The company plans to enhance its offerings and explore new segments with significant growth potential. To support this, KEII will intensify its R&D efforts and market research to align with evolving customer needs. The company holds 37 registered trademarks and 19 pending applications as of Mar’24.

Stock Performance (1-year)

Valuation and view: High growth potential; reiterate BUY

* We estimate KEII’s overall revenue CAGR at ~17% from FY25-27, driven by ~18% growth in the C&W segment and ~8% growth in the SSW segment, while EPC’s revenue is projected to decline ~10% annually. EBITDA is estimated to clock a CAGR of ~24%, with margins expanding 135bp to 11.7% by FY27. Margin expansion is likely to be led by higher revenues, better operating leverage, and improved gross margins from retail, exports, and product mix. Adjusted PAT is estimated to post ~22% CAGR.

* The higher FCF generation over the past few years has helped KEII reduce debt and strengthen its balance sheet. However, given the accelerated capex, the cumulative capex is expected to outpace the cumulative OCF over FY25-27. We estimate cumulative capex of INR23.6b during FY25-27 vs. cumulative OCF of INR18.7b during the same period. We estimate free cash outflow of INR6.3b/ INR216m in FY25/FY26, with FCF of INR1.7b in FY27. The recent INR20b raised through QIP will support its expansion plans while keeping it net cash positive. ROIC is likely to decline initially due to the QIP fundraise, a higher net cash balance, and a lower asset turnover on EHV expansion. However, it is expected to improve as capacity utilization ramps up. In FY20, the company raised funds through QIP (INR5b), which also led to a decline in ROIC. However, ROIC later increased with a ramp-up in capacity utilization and higher OCF generation (Exhibit 11).

* KEII has consistently delivered strong performance led by a robust demand environment, a diversified customer base, and 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 trading at 49x/40x FY26E/FY27E EPS, which remains attractive. We value KEII at 50x Dec’26E EPS to arrive at our TP of INR5,150. Reiterate BUY.

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412