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Chugging along well

RR Kabel (RRK) reported a steady 3QFY24 performance, with revenue growth of 10% YoY (+1% QoQ; 2% above JMFe), led by growth of 9% YoY in Wires and Cables (W&C) and 17% YoY in FMEG (+25%QoQ, 2% below JMFe). W&C growth optically appear tepid (+9% YoY) prima facie, given a) high base in 3QFY23 as copper prices recovered in 3QFY23 post the sharp decline in 2QFY23 (average copper prices fell 16% QoQ in 2QFY23), b) RRK’s peers reported 11%/17%/14% YoY for Havells/Polycab/KEI respectively on account of higher mix of cables in portfolio (40-70% of W&C revenue vs. 30-35% for RRK), and c) relatively sluggish growth in wires (65-70% of RRK’s portfolio) where peers too have seen muted volume growth. Exports grew by 37% YoY in 3QFY24 (on a low base) and 30% YoY in 9MFY24, majorly contributed by UK, USA and Middle East given the company’s longstanding relationships with distributors. The benign demand environment resulted in domestic revenue growth of 3% YoY in 3QFY24 (+15% in 9MFY24). Despite strong growth, RRK witnessed a reduction in losses in FMEG in 3QFY24 on YoY/QoQ basis, which we believe is a step in the right direction. Our FY24-26 estimates broadly remain unchanged and we roll forward to Mar’25 TP of INR 1,790 (Dec’24 TP of INR 1,750). We maintain BUY.

3QFY24 summary: Revenue was INR 16.33bn, 10% YoY/+1% QoQ (2% above JMFe; 9% below consensus). FMEG grew by 17%YoY (25%QoQ & 2% below JMFe) while W&C segment revenue grew 9% YoY (-1%QoQ; 2% above JMFe), due to higher base in 3QFY23 (restocking in wires as average copper prices declining 16% QoQ in 2QFY23 had resulted in destocking). Gross margin contracted by 110bps YoY to 19% (-80bps QoQ; +10bps vs. JMFe) due to unfavourable product mix (cables/wires, export/domestic mix etc). EBITDA contracted by 110bps YoY to 6.9% (-60bps QoQ) mainly on account of lower gross margin. EBITDA declined by 4% YoY/7%QoQ to INR 1.13bn (7% above JMFe; 13% below consensus). EBIT grew by 3% YoY (-9% QoQ & 1% above JMFe). Wires and Cables EBIT declined 15% YoY to INR 1.15bn. EBIT margin was 8%, - 230bps YoY/-120bps QoQ. FMEG loss was INR124mn, -64% YoY/-38% QoQ and lower than JMFe (INR164mn) while PAT was INR 710mn, -1% YoY/-4% QoQ and 4% above JMFe (15% below consensus).

Strong 9MFY24 performance: RRK posted Revenue/EBITDA/PAT growth of 19%/56%/74% YoY respectively in 9MFY24, notwithstanding the modest weakness in demand momentum in domestic wires. W&C revenue grew 18%YoY, implying highteens volume growth, in our view (average prices for copper, RRK’s predominant raw material, is up 3% YoY in the same period). Exports grew 30% YoY while domestic revenue grew 15% YoY, implying a reasonably healthy trend. W&C PBIT margin improved 150bps YoY to 8.6% in 9MFY24. FMEG, on the other hand, posted revenue growth of 21% YoY, albeit on a low base, despite weak demand for appliances with a reduced quantum of loss (-33% YoY to INR 491mn). More importantly, working capital days was flat YoY/QoQ at 65 days, indicating prudent balance sheet management.

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