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* Healthy outlook for domestic W&C industry:

The domestic wires and cables (W&C) industry is poised to grow at a healthy pace (typically 2x of real GDP growth rate) given a) rapid development of infrastructure such as metros, highways, railways by the government, b) policies like revamping power distribution from overhead to underground cables and affordable housing schemes, and c) robust real estate demand, driving growth for the industry. Further, with continuous product improvement and introduction of new innovative products like Low-Smoke Zero-Halogen, consumers are shifting towards branded players. RR Kabel has a strong presence all over India, with a market share of more than 9% in 13 key states.

* Expanding presence in export markets:

The company continues to enlarge its global presence (67 countries in 3Q vs. 65 countries QoQ) and expand its product portfolio (higher mix of cables); that has helped it increase its margins. Europe is the key export geography, followed by the Middle East and USA. Around 90% of exports are under the brand RR Kabel while the rest are white labeled exports. With the expansion of export geographies and product portfolio, the management expects the share of exports to increase gradually to 35% from 23% in FY23

* Capex plans on track to achieve 20% growth over medium term:

The company has planned capex of INR 5bn over FY24-25 to support its objective of 20% volume growth in the medium term. It is expanding its copper wire/cable capacity (25% increase in volume terms), power cables capacity (100% increase in volume terms), E-Beam facility, and backward integrating (manufacturing of PVC compound in house). The management expects 5x asset turns and the entire capex will be funded from internal accruals.

* Continues to outpace industry growth in FMEG:

Fans and Lighting are key product categories for RRK, followed by switch and switch gears. The company has launched a premium product under the brand “RR Signature”, and plans to introduce more products and expand its portfolio to achieve 20%+ growth and outpace the industry (revenue grew 21% YoY in 9MFY24 vs. single-digit growth for peers). While gross margins in FMEG are higher than company levels margins, they are still below that of the industry and the management aims to improve that on the back of a) increasing share of premium products, b) price improvement and c) operating leverage. With improving scale of operations, operating losses have declined for the segment. Hence, the management expects the segment to break-even at EBITDA level in FY25. Western and northern India are RRK’s key markets at present, and the company aims to expand its footprint into southern and eastern markets in the medium term. It hopes to achieve 8-10% EBITDA margins in the FMEG segment over the next 4-6 years.

* Maintain estimates; BUY:

Our estimates remain unchanged. We believe the company is seeing robust growth momentum in both domestic (particularly cables) and exports markets. Moreover, the export mix is improving towards cables (higher margins than wires), which will help the company further improve margins in the W&C segment for RRK. Our Mar’25TP of INR1,790 stays. BUY.

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SEBI Registration Number is INM000010361