IPO: RR Kabel has bright prospects, but needs a long-term horizon

ET Intelligence Group: Gujarat-based RR Kabel, a maker of wires and cables used for home electrical wiring, is planning an up to ₹1,964 crore initial public offering.

Of this, nearly 10% will be through an issue of fresh shares, with the proceeds to be utilised for bringing down the debt of the company, while the balance 90% will be an offer for sale by its promoter and private equity investor TPG Asia. The promoter holding will drop by 3.65 percentage points to 62.7% after the IPO.

The company has posted industry-leading revenue growth of 43% between FY21 and FY23, supported by market share gains in a highly competitive wires and cables space, thanks to its expanding retail presence, launching of new products, and sticky relationship with electricians that play a pivotal role in product sale. In addition, it has been able to penetrate well in the export market and the export revenue doubled in the last two fiscal years.

However, the operating margin lagged that of its counterparts due to the cost of acquiring the electrical division of Luminous Power. Given these factors, long-term investors with a higher risk appetite may consider the IPO.

Business model: Vadodara-based RR Kabel is among the top five players in domestic wires and cables with a market share of 7.4% in the branded space of the industry, which is valued at around ₹54,000 crore and growing at a rate of 16%. It gained nearly 240 basis points (2.4 percentage points) of market share in the last few years. The company has installed a 4.1 million core kilometre capacity of wires and cables in its plants in Gujarat and Silvassa. Its Gujarat plant at Waghodia is one of the largest electrical manufacturing facilities in India.

The company has the largest network of electricians at nearly 300,000 at the end of June 2023 and sells products through a 114,000-retailer network. In addition, it is expanding in export markets such as the UAE, UK and the US, and this segment’s contribution has reached nearly one-fifth of the total revenue – one of the highest among wire companies in India.


Financials: Revenue grew 43.4% annually between FY21 and FY23 to ₹5,599 crore, while operating profit rose 19% on a CAGR basis to ₹357 crore, implying a margin of 6.3%. Its operating profit margin contracted 290 basis points in the last two fiscal years. Net profit expanded at 18% CAGR to ₹189 crore between FY21 and FY23. In the first quarter of FY24, it had revenue of ₹1,597 crore with an operating margin of 8% and profit of ₹74.3 crore.Risks: The wire and cables industry growth is highly dependent on government and private capital expenditure, and the housing sector. Any slowdown in capital expenditure and the housing sector may weigh on the company’s financial performance.

Copper and aluminium account for nearly 82% of the total raw material cost. The prices of both metals have been quite volatile in the last one-and-a-half years. The company’s inability to timely pass on higher raw material prices to its customers may impact margins.

Valuation: At the higher end of the price band, the company demands a price-earnings multiple of 47.6 times based on the trailing 12-month earnings. Its peers such as Polycab, KEI Industries, Finolex Cables and Havells are trading at 54, 45, 32, and 81 times, respectively, according to BSE data.

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