Buy RR Kabel Ltd For Target Rs. 2,870 by Choice Institutional Equities
Higher Realisation and Favourable Product Mix Drive Q2FY27 Growth
RRKABEL delivered a strong Q2FY27 performance, with revenue increasing 52% YoY to INR 32.8 Bn, primarily driven by improved realisation and a favourable product mix, supported by a higher contribution from cables as exports shifted to the cable segment. This growth was witnessed despite overall wires and cables volume growth remaining only in high single digit. Improved gross profitability, cost-efficiency and operating leverage led to an approximately 50 bps YoY expansion in EBITDA margin to 8.6%.
Q2FY27 Growth Led by Wires and Cables and Improved Profitability
* Revenue increased 52% YoY to INR 32.8 Bn, led by wires and cables on high single-digit volume growth, with exports growing faster than domestic
* EBITDA rose 61% YoY to INR 2.8 Bn, with EBITDA margin expanding 50 bps YoY to 8.6%, driven by higher gross profit, operating leverage and improved cost-efficiency
* PAT grew 55% YoY to INR 1.8 Bn, aided by higher operating profitability
Wires and Cables Continues to Drive Growth; FMEG Targets Full-year Breakeven
* Wires and cables revenue increased 53% YoY to INR 30.1 Bn, with EBIT margin improving 20 bps YoY to 9.4%, supported by high single-digit volume growth and operating leverage
* FMEG revenue grew 42% YoY to INR 2.7 Bn. The Q2 EBIT loss of INR 0.1 Bn was similar to last year’s. The management continues to target segmentlevel breakeven in FY27
Capacity Expansion to Support Next Leg of Margin Improvement.
* FY27 capex of INR 5.5–6.0 Bn is on track. Separately, the board approved at least INR 2.0 Bn for land acquisition as the first step towards new capex, with a part of the outflow this year and the rest in H1FY28. The management tentatively estimates FY28 capex of ~INR 3.0 Bn.
* Newly-added cable capacities are supporting both, export and domestic, growth. The management targets a wires and cables segment margin of 9.5% in FY27 and 10.5% in FY28, backed by operating leverage and better costabsorption.
Valuation & View
We have revised our estimate and expect Revenue/EBITDA/PAT to expand at a CAGR of 19%/23%/27%, respectively, over FY26–FY29E. The revision is driven by the reduction in FY27 volume guidance from 16–18% to 14–15%, partly offset by product mix and operating leverage. The medium-term growth outlook for the wires and cables industry remains favourable, supported by sustained investments in infrastructure, power and electrification, housing and industrial capex. Taking the DCF-based approach, we value RRKABEL at INR 2,870 (vs. INR 2,930). Our target price implies a P/E of 36x average of FY28-29E EPS. We retain our ‘BUY’ rating.
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SEBI Registration no.: INZ 000160131
