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Export challenges results in lower revenue growth; reiterate BUY

Result Synopsis

RRKABEL performance has been muted with revenue growing at 12.5% yoy (5.2% lower than estimates), Wires and Cables revenue grew at 11.1%, which is lower than peers as the company is facing challenges in exports as availability of shipping containers has become difficult and shipping timeline to Europe has increased from 24 days to 36 days resulting in loss of some exports orders. Margins in Wires and Cables stood at 5.1% contracting sequentially by 209bps. Margin contraction is attributed to huge volatility in commodity prices and negative operating leverage resulting on back of slower growth. On the FMEG front revenue grew by 24% yoy driven by strong performance of Fans, Appliances and Switches, losses in FMEG have come off and it is lowest quarterly loss. Reduction in FMEG loss has been on account of superior product mix and healthy volume growth. Management is confident of strong performance continuing in FMEG and breaking even in 2HFY26. On the wires and cables side management has lowered its volume growth to 15% vs earlier 20% considering export challenges and management has become conservative in its guidance given subdued performance of 1H. Its capex plan of doubling the capacity of cables is underway and on track and company is parallelly working on future capex plan. Considering muted Q2 and lowering of management guidance of 15% volume growth in wires and cables we now value the company at 34x FY27 EPS.

We expect company to start delivering double digit volume growth from 2HFY25 as now focus is to extract incremental revenue from existing dealer and domestic network and incrementally start exporting cables as capacity comes on stream. Also, FMEG segment should continue with its strong growth trajectory and reducing losses and existing FY26 with breakeven status. We estimate the company to now deliver FY24-27E revenue of 18%. We have trimmed down the margin expectation given the change in business mix, increased competition. We value the company at 34x FY27 EPS and our revised PT stands at Rs2,000. We believe the company should do well given the real-estate continues to do well and company’s has distribution network in place to tap the opportunity.

Result Highlights

* Quarter summary – RR Kabel’s has missed the estimates with topline growing 12.5% (5.2% lower than estimates). Gross margin and EBITDA margin stood at 15.9% and 4.7% respectively.

* Wires & cables – Wires and cables revenue grew 11.1% yoy, lower than estimates as the company is facing challenges in exports and has lost some market share in domestic market.

* FMEG –FMEG business revenue grew by 24% YoY. Strong growth in FMEG has been attributed to higher demand for fans, appliances, and Switches. Losses has reduced owing to better product mix.

* Working Capital – Net working capital has largely remained flat with NWC days in 1HFY25 being 63 days vs 64 days as on March’24.

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