IGI Logo

Industry leading C&W performance in Q3

KEI Industries (KEII IN) reported 20% top-line growth in Q3FY25, in line with our estimates, led by growing domestic demand. Despite margin declining due to fluctuations in copper prices, management has retained revenue growth target of 16-17% with EBITDA margin at 10-11% for FY25. Management upwardly revised sales growth to 19-20% from FY26 from 16-17% earlier, led by growing exports contribution (15-17% target from the current 11-13%), rising retail presence, and continued increase in domestic demand driven by new capacity. We reiterate Accumulate with a TP of INR 4,660 on 40x (unchanged) December 2026E P/E as we roll forward by a quarter.

Robust demand, lower wires mix drive industry-leading C&W sales: KEII delivered an industry-leading 26% YoY sales growth in cables & wires (C&W) segment (vs Havells 7% & Polycab 12%), led by strong demand from low tension, high tension (LT-HT) cables and lower mix of wires, which saw another quarter of destocking. C&W posted volume growth of 17% YoY. EPC revenue plunged 80% YoY while revenue for stainless steel (SS) wires rose 29% YoY. Management has raised sales growth target from FY26 to 19-20% YoY from 16-17% earlier, led by growing exports contribution, rising retail presence and continued increase in domestic demand led by new capacity.

EHV hit by delay in utilities approval, capacity used for HT: In Q3, Extra High Voltage (EHV) cables sales fell 55% YoY to INR 840mn, due to delay in permit from utilities. To utilize idle EHV capacity, HT cable production was bolstered, due to fungibility of EHV capacity with HT. This resulted in sales for HT cables, up 54% YoY to INR 5.6bn. Sales for house wires (29% of Q2) grew 25% to INR 7.2bn, led by healthy retail demand while LT cables rose 30% YoY to INR 9.9bn. Management expects EHV to rebound in FY26 once new Sanand capacity is operational, with a revenue target of INR 6bn in FY26.

Margin down due to volatile copper prices in Q3: Gross margin contracted 130bp YoY to 23.5%, due to fluctuations in copper prices and lag in passing on prices to end-users. Employee cost went up 14% and operating cost by 16%. EBITDA rose 12% YoY to INR 2.4bn, in line with our estimates. EBITDA margin shrank 60bp to 9.8% YoY, due to the dip in EHV volume. Management has retained target of EBITDA margin in the range of 10-11% in FY25, with margin likely to normalize by Q4FY25. Further, by FY27, it aims to expand margin from 11.0% to 12.5%, once utilization improves.

Reiterate Accumulate with a TP of INR 4,660: We lower our EPS by 1% for FY25E, due to delayed margin recovery on continued copper price volatility and keep FY26E EPS unchanged. We retain our TP at INR 4,660 based on 40x (unchanged) December 2026E P/E as we roll forward by a quarter. We reiterate Accumulate as KEI is the secondlargest C&W company with a dominant market share in India (Source: Company), given: 1) sectoral tailwinds, 2) raising sales growth guidance, and 3) focus on growing exports presence. Higher capacity utilization, continued margin improvement, strong cashflow generation, robust domestic demand, and rising exports opportunity are key catalysts. We expect an ROE of 16% during FY25-27E.

Please refer disclaimer at Report
SEBI Registration number is INH000000933