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Strong growth in FMEG; margin improves for cables & wires

Guides ~15% volume growth and ~8% margin for C&W in 4QFY25

* RRKABEL’s 3QFY25 earnings were above our estimate due to a higher margin in Cables and Wires (C&W) and reduced losses in the FMEG segment. Revenue rose 9% YoY to INR17.8b (2% above our est.). However, EBITDA declined 2% YoY to INR1.1m (8% above our est.). EBITDA margin contracted 70bp YoY to 6.2% (est. 5.9%). Adj. PAT declined 3% YoY to INR686m (18% above our est.), due to better operating performance and higher other income.

* Management indicated that volume growth in 9MFY25 was ~6%, led by ~21% YoY growth for cables; however, wire volumes declined ~3% YoY. With normalization in RM prices, it expects ~15% YoY volume growth in 4QFY25 with a segment EBIT margin of ~8% (vs. 7% in 3QFY25). The target is to improve this segment margin by 100-120bp every year and achieve a margin of ~10% in FY28 (the earlier target was to achieve this in FY27).

* Wire demand and margin in YTDFY25 have remained subdued due to the volatility in RM prices, and demand is likely to recover going forward, with strong traction in real estate. Considering lower volumes and margins in FY25, we cut our EPS by 12% each for FY26/FY27E. We value RRKABEL at 35x Dec’26E (vs. 40x earlier) EPS to arrive at our revised TP of INR1,600.

Revenue up 9% YoY; EBITDA declines 2% YoY

* Consol. revenue/EBITDA/PAT stood at INR17.8b/INR1.1b/INR686m (up 9%/ down 2%/3% YoY and up 2%/ 8%/18% vs. our estimates). Gross margin was down 70bp YoY to 18.3%. Employee costs increased 11% YoY (5.1% of revenue vs. 5.0% in 3QFY24). Other expenses rose 7% YoY (7.0% of revenue vs. 7.2% in 3QFY24).

* Segmental highlights: a) C&W: revenue was up 8% YoY at INR15.4b, while EBIT declined 6% YoY to INR1.1b. EBIT margin dipped 1pp YoY to 7.0%. b) FMEG business: revenue was up 20% YoY at INR2.4b. EBIT loss decreased to INR44m from INR124m/INR117m in 3QFY24/2QFY25.

* During 9MFY25, revenue grew 12% YoY to INR54b, led by 10% growth in the C&W segment and 22% growth in the FMEG segment. EBIT of the C&W segment declined 19% YoY, and EBIT margin was at 6.4% vs. 8.6% in 9MFY24. FMEG segment reported an EBIT loss of INR368m vs. a loss of INR491m in 9MFY24. EBITDA of the company declined 16% YoY to INR2.9b, and OPM was 5.4% vs. 7.2% in 9MFY24. Profit declined 17% YoY to INR1.8b.

Key highlights from the management commentary

* The revenue mix of C&W is at 30:70 in both domestic and export markets. Cables’ contribution should rise to 35% with the commissioning of additional capacities.

* Capacity utilization for wire is 65-67%, while it is 90-95% for cables. The company is facing capacity constraints for HT cables as it has limited capacity. The situation should improve in 4Q or after that.

* Ongoing capex (INR5b in FY24/25) had a revenue potential of INR25b and will help to grow in FY26/27. It will further incur a capex of INR12b spread across FY26-28. This capex will be used for a brownfield expansion at the Waghodia plant, and most of the capex (~80%) will be towards cables. Revenue potential from this capex will be INR40-45b.

Valuation and view

* Wire demand and margin in YTDFY25 have remained subdued due to the volatility in RM prices, and demand is expected to recover going forward with strong traction in real estate. RRKABEL should see strong earnings growth going forward, led by product mix change and demand improvement. In the FMEG segment, revenue growth came above our estimates in 3QFY25, and there was a reduction in EBIT loss led by volume growth and product-mix change.

* We estimate RRKABEL’s revenue/EBITDA/PAT CAGR of 15%/23%/23% over FY24-27. We estimate RoIC to improve to 21% in FY27 vs. 13% in FY24. Valuation seems reasonable at 36x/25x FY26/27E EPS. We value it at 35x Dec’26E EPS (vs. 40x earlier) to arrive at our revised TP of INR1,600 (earlier INR1,900). Reiterate BUY.

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