Buy R R Kabel Ltd For Target Rs.2,900 by Motilal Oswal Financial Services Ltd
Earnings in line; export share rises in 1H C&W volume guidance trimmed by 3-4pp; margin guidance retained
* RR Kabel’s (RRKABEL) 2QFY27 earnings were in line with our estimates. Consol. revenue/EBITDA grew ~52%/61% YoY to INR32.8b/INR2.8. OPM expanded 50bp YoY to 8.6% (30bp below our estimates). PAT grew ~55% YoY to INR1.8b.
* Management indicated high-single-digit C&W volume growth in 2QFY27, with wires outpacing cables. It now anticipates volume growth of ~14-15% YoY vs. earlier estimate of ~18% in FY27. However, it maintained C&W margin guidance at ~9.5%/10.5% for FY27/FY28, led by operating leverage and disciplined commodity management. In FMEG, it reiterated its FY27 breakeven target. Capex guidance stands at INR5.5-6.0b, with an additional INR2b investment approved for land acquisition in Rajasthan for future expansion.
* We largely maintain our earnings estimates for FY27-28. The stock is trading at 33x/26x FY27E/FY28E EPS. We value RRKABEL at 35x FY28E EPS to arrive at our revised TP of INR2,900. Reiterate BUY.
Key highlights from the management commentary
* Exports are expected to contribute ~30-35% of revenue in 2HFY27; it maintains an equal focus on domestic and international markets.
* Gross margin contracted 90bp YoY in 2QFY27, primarily due to a product mix change and the impact of higher RM prices.
* The net working capital cycle improved to 46 days, with receivable days improved to 32 from 34, despite higher revenue and receivables in absolute terms.
Valuation and view
* RRKABEL’s 2QFY27 earnings were in line with our estimates; however, its C&W volume growth moderated sequentially. The company has reduced C&W volume growth guidance to ~14-15% vs. earlier ~18% due to volatility seen in the industry. However, it remains focused on improving the C&W product mix and expanding its presence in higher-value cables and B2B segments. It is looking for new expansion in Rajasthan, for which the board has approved initial investment of INR2b for land acquisition. The company reiterated its target of achieving breakeven in the FMEG business in FY27.
* We estimate RRKABEL’s revenue/EBITDA/PAT CAGR at ~26%/35%/38% over FY26-28. We estimate OPM at 9.3%/9.8% in FY27/FY28 vs. 8.1% in FY26. The stock is trading at 33x/26x FY27E/28E EPS. We value RRKABEL at 35x FY28E EPS to arrive at our revised TP of INR2,900. Reiterate BUY.
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