RR Kabel to ride on industry tailwinds, export opportunity
₹1,035 apiece. Sure, the company’s robust September quarter (Q2FY24) profitability released during this time helped the stocks. Ebitda margin rose by 44 basis points sequentially to 7.5% in Q2 helped by the better volume performance of W&C business, which formed 90% of gross segment revenue.
The rest comes from the fast-moving electrical goods (FMEG) segment. “In the W&C segment, RR has maintained a healthy volume growth guidance at 15-20% and expects 10% margin in the near term, given strong demand outlook in sectors and measures to improve margins," noted Praveen Sahay, a Prabhudas Lilladher analyst. Over FY23-FY26, he sees revenue, Ebitda, and net profit compounding annually at 21.7%, 41% and 46%.
RR has also got a strong hold in exports, contributing about 28% of overall revenue in H1. The company is seeing good demand in export markets and expects good growth in the near term. As of FY23, RR had a 9% share in the export market.
According to Sahay, RR exports a large quantity of cables, which command high margins. So, RR doubling its power cable capacity makes sense. RR’s shares now trade at 40 times FY25 estimated earnings, which looks pricey.
Hereon, investors should observe demand trends in end user industries like real estate. Besides, intense competition and volatility in prices of key raw materials such as copper and aluminium, could put a strain on RR’s profitability. Moreover, the FMEG business clocked about 20% year-on-year revenue growth in H1 helped by contribution from Luminous Power’s home electrical business that was acquired in May 2022, but the segment is incurring losses due to higher fixed cost and lower capacity utilization.
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