RR Kabel, India’s leading wire and cable manufacturer, made a strong debut on the stock market on Wednesday, September 20, 2023. The company’s shares are listed at Rs 1,180 on the NSE, a 14% premium over the IPO price of Rs 1,035. The stock touched an intraday high of Rs 1,250 and a low of Rs 1,150, before closing at Rs 1,220. The company’s market capitalization stood at Rs 11,900 crore at the end of the day.
The company’s IPO, which was open from September 13 to September 15, was subscribed 18.69 times. The issue comprised a fresh issue of Rs 180 crore and an offer for sale of Rs 1,784 crore by the promoter and private equity firm TPG Asia. The company raised Rs 585.62 crore from anchor investors at the upper end of the price band.
What does RR Kabel do?
RR Kabel is one of the top five players in the domestic wires and cables industry, with a market share of 7.4% in the branded segment as of FY23. The company manufactures and sells a wide range of wires and cables for residential, commercial, industrial, and infrastructure applications. The company has a strong brand presence and a loyal customer base across India and overseas markets.
The company operates through two business segments: wires and cables, and electrical products. The wires and cables segment accounted for 88.6% of the revenue in FY23, while the electrical products segment contributed 11.4%. The electrical products segment includes products such as fans, switches, lighting, water heaters, and appliances.
The company has a diversified sales channel mix, comprising business-to-consumer (B2C), business-to-business (B2B), and exports. The B2C channel accounted for 74.6% of the revenue in FY23, while the B2B and export channels contributed 12.9% and 12.5%, respectively. The company has a strong distribution network of over 114,000 retailers and over 300,000 electricians across India. The company also exports its products to over 40 countries, including the UAE, UK, US, Australia and South Africa.
The company has four manufacturing facilities in Gujarat and Silvassa with an installed capacity of 4.1 million core kilometres per annum for wires and cables. The company also has an in-house research and development center and a testing laboratory to ensure quality and innovation.
What are the growth drivers for RR Kabel?
RR Kabel has been growing at a faster pace than the industry average in the past few years. The company’s revenue grew at a compound annual growth rate (CAGR) of 43.4% from Rs 1,037 crore in FY21 to Rs 2,960 crore in FY23. The company’s EBITDA (earnings before interest, tax, depreciation, and amortization) grew at a CAGR of 18.4% from Rs 156 crore in FY21 to Rs 222 crore in FY23. The company’s net profit grew at a CAGR of 18.4% from Rs 84 crore in FY21 to Rs 120 crore in FY23.
The company’s growth has been driven by several factors such as:
- Increasing demand for wires and cables from various end-user segments such as housing, commercial real estate, infrastructure, power generation and transmission, railways, telecom, and renewable energy.
- Rising disposable income and urbanization lead to higher spending on electrical products for home improvement and lifestyle enhancement.
- Expanding product portfolio and launching new products such as solar cables, fire-resistant cables, co-axial cables, and fiber optic cables to cater to emerging customer needs.
- Enhancing brand visibility and awareness through aggressive marketing campaigns and celebrity endorsements.
- Leveraging digital platforms and e-commerce channels to reach out to new customers and markets.
- Strengthening export presence by entering new geographies and increasing market share in existing ones.
- Improving operational efficiency and profitability by optimizing raw material sourcing, reducing wastage, increasing automation, and adopting best practices.
What are the challenges and risks for RR Kabel?
RR Kabel also faces some challenges and risks that may affect its performance in the future. Some of these are:
- Intense competition from other organized players as well as unorganized players who offer lower-priced products.
- Volatility in raw material prices such as copper and aluminium which account for nearly 82% of the total raw material cost. The company’s inability to pass on higher raw material prices to its customers may impact margins.
- Regulatory changes such as GST rates, import duties, environmental norms, and safety standards may affect the demand and cost of wires and cables.
- Dependence on third-party distributors and retailers who may not act in the best interest of the company or may switch to other brands.
- Exposure to foreign exchange fluctuations and geopolitical risks in export markets that may affect revenue and profitability.
What is the outlook and valuation for RR Kabel?
RR Kabel has a positive outlook for the future, given its strong brand, diversified product portfolio, wide distribution network, robust growth prospects, and healthy financial performance. The company expects to benefit from the recovery in the domestic economy, the government’s focus on infrastructure development, the increasing adoption of renewable energy sources, and the rising demand for electrical products.
The company’s IPO was priced at a price-to-earnings (PE) ratio of 32 times based on the FY23 earnings, which is lower than its peers such as Polycab India (40 times), Havells India (67 times) and KEI Industries (35 times). The company’s PE ratio is also lower than its historical average of 36 times. The company’s return on equity (ROE) and return on capital employed (ROCE) were 17.9% and 20.1%, respectively, for the trailing 12 months ended June 2023, which are higher than its peers.
Therefore, RR Kabel’s stock may offer an attractive opportunity for long-term investors who are looking for a quality play in the wires and cables industry. However, investors should also be aware of the risks and challenges that may affect the company’s performance and valuation. Investors should also monitor the company’s financial results, operational updates, and market developments on a regular basis.
This post RR Kabel Shares Soar on Debut; Should You Buy, Sell or Hold? was originally published at Finance Crave
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