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We initiate with BUY rating coverage on R R Kabel based on its commendable value prop including (i) noteworthy Certification and R&D investments, (ii) robust manufacturing capabilities and prudent capacity expansion, (iii) wide distribution and retail network, and (iv) improving margin trajectory.

Certification and R&D investments:

R R Kabel, a prominent wires and cables industry player, derives more than 74% of revenue from B2C sales. It has 37 international products certifications, one of the highest amongst industry peers. RR Kabel is the first REACH-compliant Indian company, which is the European standard denoting high safety levels.

Fastest growing among peers (FY24-26E):

R R Kabel is expected to clock 20% revenue CAGR in FY24-26E, which would make it the fastest growing cables and wires company in next 2 years. Other peers like Polycab, KEI and Finolex cables are expected to grow at 17%, 19% and 15% respectively during similar time frame. The key growth trigger for R R Kabel is the exceptionally buoyant housing wires market, estimated to grow at 14% CAGR during FY23-27E, and comprising as much as 70% of R R Kabel’s total contribution, highest amongst peers.

Product mix change, FMEG biz breakeven to boost margins:

The company has committed capex of Rs5bn over next couple of years focused on doubling its power cable capacity, expanding copper wire production, introducing an eBeam facility, and establishing a PVC compound manufacturing facility. This will result in favorable product mix towards power cables which commands higher margins. FMEG, currently a loss-making segment, is expected to breakeven by FY25 exit, which will further aid margin expansion. We expect a margin improvement of 80bps and 110bps in FY25E and FY26E respectively.

W&C capacity expansion & B2C-focused portfolio to script spectacular growth:

R R Kabel is expanding capacities at a capex of Rs5bn. Expected to be completed by March’25, the expansion will double its power cable capacity, as also expand copper wire production including e-beam facility and PVC compound manufacturing facility. The company has current installed capacity for wires and cables of 4.2mn ckm across house wires, Industrial wires, Power cables and special cables. The company has also initiated project KaRRma; under phase 1, it would double its market share and retail outreach in house wires and under phase 2, it would increase its micro and nano market reach.

Strategy in place to swell FMEG revenues at faster clip:

The company has a clearly defined strategy in place to grow FMEG revenues faster vis-a-vis industry peers. It is targeting 25% FMEG revenue growth focused on 1) Increasing manufacturing of value-added products across categories, 2) strengthening presence across economy, premium, mid-premium segments; 3) Building ‘RR Signature’ brand for premium FMEG products; 4) Realizing synergies across logistics, promotions, and manpower to optimize costs; 5) Expanding product portfolio; 6) Growing distribution network. We have modeled 22% CAGR revenue growth in FMEG, given expanding product portfolio and widening distribution network.

Valuation outlook:

We expect Revenue/EBITDA/PAT growth of 20%/36%/40%, respectively over FY24-FY26E. Incrementally, the company would improve its margin by ~190bps by FY26. We stay bullish on the wires and cables space in the medium term led by factors like strong realty-infused demand, rural electrification initiative, growing share of organized sector, and Govt impetus towards production and export boost. The company’s enviable value prop should help it outperform the industry in good time. We initiate coverage on the stock with the BUY rating an PT of Rs2,083, valuing the company at 40x FY26EPS.

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