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As of FY23, the market size of India’s consumer electrical industry reached ₹1.8 trillion, with a compound annual growth rate (CAGR) of 9-10% from FY16 to FY23. 

This growth has been driven by several factors, including the government’s emphasis on infrastructure development, the increasing prevalence of nuclear families, expanding electrification in rural areas, and growth in exports of cables and wires, as indicated by a brokerage report. 

According to estimates from Motilal Oswal, the industry is projected to maintain a CAGR of approximately 10% in the coming years. Particularly, sectors like cables and wires are expected to see higher growth rates of 12-14% until FY27E, along with water heaters, fans, and other segments. 

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The industry stands to gain significantly from government policies that promote domestic manufacturing and offer Production-Linked Incentives (PLI) for components. 

Moreover, the brokerage sees a transition from unorganized to organized players, a trend that has been historically observed. This shift could further benefit larger players in the industry as demand rises. 

As per the brokerage report, the export of cables and wires from India has been on a consistent upward trajectory, driven by companies such as R R Kabel, KEI, and Polycab. Between FY17 and FY23, the sector witnessed a robust compound annual growth rate (CAGR) of 16%, surpassing the 8% CAGR observed in imports. 

Polycab, KEI, and R R Kabel dominate the cables & wires industry, collectively holding approximately 50% of the market share among organized players, which accounts for 35% of the industry as a whole. 

Motilal Oswal Securities Limited has initiated coverage on Polycab, KEI, and R R Kabel with a Buy rating. The brokerage anticipates these companies will capitalize on favorable industry trends, leading to robust earnings growth from FY24-26, with a potential upside of more than 40 percent.

Polycab India Ltd belongs to a large-cap category of stock with a market capitalization of ₹80,407 crores. On Monday, company shares were trading at ₹5,352 per share, up 0.94 percent on the stock exchange. 

Motilal Oswal Securities gave a buy recommendation on Polycab India Ltd for a target price of ₹7,500 per share, representing a 40 percent upside from the current market price. 

Polycab dominates the cables and wires sector, holding approximately 26% of the organized market and 18% overall. With 25 manufacturing units and a strong emphasis on in-house production, it boasts extensive backward integration. Brokers suggest its market share has grown by 1.5% from FY14 to FY23, outperforming most competitors. 

Polycab launched its FMEG business in FY14 and saw a strong revenue growth with a CAGR of 39% from FY15 to FY22. However, revenue growth slowed down in FY23 and FY24 due to weak demand and distribution channel restructuring. 

Brokerage project a revenue CAGR of 10% for FY24-26 and anticipates the EBIT margin to turn positive at 2% by FY26, rebounding from the losses in FY23 and FY24. With its entry into the FMEG sector, Polycab has expanded its total addressable market (TAM) to INR1.4 trillion. 

Polycab achieved a 34% profit growth rate from FY14-23, and analysts project a 15% EPS growth rate for FY24-26. Motilal recommends a Buy on Polycab, valuing it at 50x FY26E EPS due to its robust earnings performance and impressive return ratios, with RoCE and RoIC estimated at approximately 21% and 27% for FY26E, respectively. 

The company’s export contribution dropped to 8% in the first nine months of FY24 due to its shift to a distribution model in the US and disruptions from the Israel-Hamas conflict affecting EU trade routes. Nonetheless, the company remains optimistic about a rebound in its international business. 

Polycab has consistently outspent its competitors in the cables and wires sector, with capex figures from FY14-23 being 3.9x to 4.9x higher than KEI and HAVL. This heightened spending reflects Polycab’s focus on expanding capacity and bolstering in-house manufacturing. The company has expanded its dealer network at a 5% CAGR from FY18-23, now boasting over 0.2 million retail touchpoints. In FY23, dealers and distributors accounted for approximately 83% of its revenue.

KEI Industries Ltd 

KEI Industries Ltd belongs to a Mid-cap category of stock with a market capitalization of ₹35,682 crores. On Monday, company shares were trading at ₹3,954 per share, down 0.94 percent on the stock exchange. 

Motilal Oswal Securities gave a buy recommendation on KEI Industries Ltd for a target price of ₹5,000 per share, representing a 27 percent upside from the current market price. 

KEI, the second-largest player in the cables & wires sector, stands out with its ability to manufacture EHV (extra high voltage) cables exceeding 220KV. Holding a 9% market share overall and 15% among its peers, as indicated by a brokerage report, KEI has demonstrated a remarkable 40% profit growth from FY14-23. 

Broker projects a 25% EPS growth from FY24-26. Based on its robust earnings performance, strengthened balance sheet, and favorable sector trends, the brokerage has initiated coverage on KEI with a buy rating, valuing it at 50x FY26E EPS. 

The company plans to increase its retail contribution to 50% over the next two years. In FY23 and 9MFY24, exports accounted for 10% and 14.5% of its revenue, respectively. The goal is to raise this to 16-17% in the next three years. With five overseas offices and exports to over 60 countries, KEI intends to invest approximately ₹ 14 billion to expand its production capacity in the coming years. 

R R Kabel Ltd 

R R Kabel Ltd. belongs to a Mid-cap category of stock with a market capitalization of ₹17,944 crores. On Monday, company shares were trading at ₹1,591 per share, down 0.50 percent on the stock exchange. 

Motilal Oswal Securities gave a buy recommendation on R R Kabel Ltd for a target price of ₹2,200 per share, representing a 38 percent upside from the current market price. 

RR Kabel holds approximately 7% of the domestic cables and wires market, with B2C sales making up about 77% of its FY23 revenue, a leading figure among competitors. It achieved a 36% CAGR in export revenue from FY20-23, outpacing its peers.

The company aims to boost its cable production capacity by 2.4 times by FY26E and targets a 20% YoY growth in wire revenue. These expansions will alleviate cable capacity limitations, fostering growth and margin enhancement, as mentioned by Brokerage. 

The company is prioritizing the integration of acquired businesses, diversification of its product portfolio, and the development of value-added products. Brokerage forecasts a 15% revenue CAGR from FY24 to FY26, expecting this segment to achieve EBIT break-even in FY26. 

RRKABEL has delivered a PAT CAGR of approximately 22% from FY19 to FY23, and Motilal projects an EPS CAGR of around 43% for FY24-26. Brokerage initiated coverage on R R Kabel with a BUY rating, valuing it at 40x FY26E EPS due to its robust earnings growth and impressive return ratios, with a projected RoE/RoCE of 25%/24% in FY26E. 

Written by Omkar Chitnis

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