IGI Logo

Earnings in line; capacity expansion to drive growth

18% Volume growth guidance intact with higher growth in cables ahead

* RRKABEL’s 1QFY26 earnings were in line with our estimate. Revenue/EBITDA grew ~14%/50% YoY to INR20.6b/INR1.4b. Its cables and wires (C&W) revenue grew ~16% YoY to INR18.3b, while FEMG revenue declined marginally by ~2% YoY to INR2.3b. Overall, OPM surged 1.7pp YoY to 6.9% (in line). Adj. PAT jumped ~39% YoY to INR898m (in line).

* Management indicated that C&W's overall volume grew 6.5% YoY, fueled by 8– 10% growth in wires and ~2% growth in cables, with the latter being hit by domestic order spillovers. RRKABEL remains confident of achieving 18% volume growth and a 100bp margin improvement for FY26 (realized a 40bp improvement so far), aided by ongoing capacity expansions. FMEG losses narrowed by 5.5- 6.0pp due to cost savings and a better product mix. It guided an FMEG revenue growth of ~20-25% in FY26. The company introduced the mid-premium and premium FMEG categories, which accounted for ~20% of its overall sales.

* We broadly retain our EPS estimates for FY26/FY27 and introduce our FY28 estimates with this note. We value RRKABEL at 35x Jun’27E EPS to arrive at our TP of INR1,450. Reiterate Neutral.

C&W revenue up 16% YoY; segmental margin expands 40bp YoY to 7.6%

* RRKABEL’s consol. revenue/EBITDA/PAT stood at INR20.6b/INR1.4b/INR898m (up 14%/50%/39% YoY and in line). Gross margin improved 80bp YoY to ~18%. OPM surged 1.7pp YoY to 6.9%. Employee costs increased 5% YoY (stood at 4.5% of revenue vs. 4.9% in 1QFY25). Other expenses were up ~7% YoY (stood at 6.8% of revenue vs. 7.2% in 1QFY25). Depreciation/interest costs increased ~25%/30% YoY, whereas other income declined ~33% YoY in 1QFY26.

* Segmental highlights: a) C&W: Revenue increased ~16% YoY to INR18.3b, and EBIT increased ~23% YoY to INR1.4b. EBIT margin improved 40bp YoY to 7.6%. b) FMEG: Revenue declined marginally by ~2% YoY to INR2.3b. The company posted a segment loss of INR71m vs. INR207m/INR91m in 1QFY25/4QFY25.

Key highlights from the management commentary

* RRKABEL’s wire capacity utilization was ~70%, and cable capacity utilization stood at ~92-95% during the quarter. It believes that the wires and cables mix in the next three years would be 60:40 for the company, vs. 70:30 at present.

* In the domestic market, cable performance was slightly negative this quarter. As a result, most of the growth on the domestic side was driven primarily by the wire segment.

* Total capex is pegged at INR12.0b over the next three years, with capacities to be commissioned in a phased manner in each year. Net working capital was at 52 days vs. 56 days in Mar’25 and 64/75 days in Mar’24/Mar’23.

Valuation and View

* RRKABEL’s 1QFY26 earnings were in line with our estimates. However, C&W volume growth during the quarter remained subdued at ~7%, significantly lower than peers. Though management is confident of achieving full-year volume growth guidance of ~18% with robust growth of 25% in cables during 9MFY25, the losses in the FMEG business and a pick-up in consumer demand remain critical for profitable growth

* We estimate RRKABEL’s revenue/EBITDA/PAT CAGR at 15%/23%/20% over FY25-28. We estimate the company’s C&W segment margin at 7.8%/8.1%/8.3% in FY26/FY27/FY28 vs. 7.4% in FY25. We project the company’s net debt would increase to INR8.5b by FY28 vs. INR1.1b by FY25, led by higher capex. The stock is trading fairly at 38x/34x FY26E/27E EPS. We value RRKABEL at 35x Jun’27E EPS to arrive at our TP of INR1,450. Reiterate Neutral.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412