R R Kabel (RRKABL IN) - Company Initiation - Wired for better future - BUY

R R Kabel (RRKABL IN) – Praveen Sahay – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,035 | TP: Rs1,407

Company Initiation - Wired for better future

We initiate coverage on RR Kabel with a ‘BUY’ rating and TP of Rs1407 valuing at 35x FY25 earnings. We believe RR Kabel is a play on several opportunities in the W&C segment given 1) strong brand with diverse product portfolio 2) well-structured capacity expansion plans, 3) increasing dealers /distribution network and 4) distribution led export business. Although the company has grown its FMEG portfolio inorganically, yet it expects to minimize losses in coming years by transitioning towards premium markets. In FMEG, too, the company has enhanced its brand presence, positioning and manufacturing capabilities to minimize losses. We estimate Revenue/EBITDA/PAT CAGR of 20.7%/38.8%/44.3% over FY23-26 led by 1) improving business mix 2) operating leverage & cost optimization 3) investments in brand building and 4) increasing distribution reach. Initiate ‘BUY’.

Investment Arguments

♦ Fastest growing Wires & Cables company: RR Kabel is a fastest growing player in the W&C segment with reported rev. CAGR of ~40% in W&C vs peers of ~30% over FY21-23. Robust growth can be attributed to it’s a) strong brand recognition, b) diverse product portfolio, c) high-quality manufacturing facilities, and d) wide distribution network. The company accounts for 74% revenue from B2C and maintained this at higher level, being wire heavy company. RR Kabel is doing Rs 5bn capex in next two years, aimed at augmenting its production capacity in both wire and cables. The domestic W&C market is expected to report CAGR of 12.5% over FY23-27 to reach Rs 1200bn, with broad based growth across sub-sectors. We expect W&C segment’s revenue CAGR at 22.3% over FY23-26E.

♦ Extensive distribution network & advertisement focus being B2C play: RR Kabel products are currently being sold through 3,405 distributors & 3,656 dealers covering 114,851 retailers. Widening of distribution network in a targeted manner through addition of new distributors/dealers and retailers remains at the core of company’s growth strategy along with increasing electrician network. The company has consistently invested in brand building and advertisements (1.5% rev.) to build its B2C business.

♦ Exports – Visible growth opportunities: RR Kabel is a prominent player in India's W&C export with ~9% market share. Its robust network of 72 distributors is spread across key regions like North America, Asia Pacific, Europe, and Middle East. The company is expected to improve product mix towards cable, which is better margin product in exports against wire.

♦ FMEG - Strategic diversification for growth: RR Kabel has actively expanded and diversified its product offerings in the FMEG sector, both through organic and inorganic means. RRKABL has amalgamated Ram Ratna Electricals, acquired LED lights business of Arraystorm and home electrical business of Luminous Power to build its portfolio in FMEG. Company’s focus is to minimise losses in FMEG business in coming years.

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