IPO Note : R R Kabel Limited by Motilal Oswal Financial Services Ltd
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One of the leading cable & wire company: R R Kabel Ltd (RRKL) is the 5th largest player in Indian C&W industry with 7% market share in the branded market. It generates highest share (74% as of FY23) of the C&W revenue from B2C in the industry. It is the largest exporter (27% of revenues) as of CY22 with 9% market share. It has built one of the largest pan-India network of 3,400+ distributors and 3,600+ dealers along with 271,264 electricians.
Diversification into FMEG segment: In FY20, RRKL diversified into FMEG (Fast Moving Electrical Goods) segment and further strengthened it through acquisition of home electrical business of Luminous Power Technologies in FY23. It has built a wide portfolio covering 77% of the industry products and contributes 11% to the overall revenue.
Large Market supported by long term drivers: Indian W&C market valued at ?748bn, is expected to grow at 13% CAGR upto FY27 with share of branded players expected to rise to 80% (current 72%). Rural electrification, increase in per capita consumption of electricity in India, expansion in real estate sector, transition towards clean & green energy, global shift to China+1 strategy and several government initiatives supporting infrastructure and housing such as ‘Housing for All’, would continue to drive the market growth.
Financials: RRKL’s revenue/EBITDA/PAT grew at 43%/18%/18% CAGR over FY21-23 with C&W/FMEG segment growing at 40%/77% respectively. EBITDA margin however is lower at 7-8% vis-à-vis 10-13% for peers, as the company has been spending aggressively on advertisement & promotion to capture market share in cables which is relatively new business. RoE stood healthy at 21% as of FY23.
Issue Size: ?19.6bn IPO consists of both fresh issue of ?1.8bn and OFS of 17.2mn shares by promoter as well as investor TPG Asia. The promoter stake post stake sale would reduce to 62.8%. The market cap post listing would stand at ?116.8bn.
View: We like RRKL given its strong positioning in C&W industry with good brand recall and extensive distribution network. The issue is valued at 39x annualized Q1FY24 P/E which is in line with peers. We believe RRKL could benefit from the industry tailwinds given its size and higher presence in B2C segment. Hence, we recommend Subscribe.
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SEBI Registration number is INH000000412
