RR Kabel IPO (Subscribe)

Highlights

R.R. Kabel Limited is one of the leading companies in the Indian Consumer Industry (including wires and cables and Fast Moving Electrical Goods (FMEG)) It was incorporated on 1995 and has over 20 years of operating history. The company sell products in two major categories: (i) wires and cables, which includes household, business, and special cables; and (ii) FMEG, which includes fans, lighting, switches, and appliances. 

The company manufactures, markets, and sells (i) wires and cable products under the ‘RR Kabel’ brand, and (ii) a variety of consumer electrical products, including fans and lights, under the ‘RR’ trademark, which is licensed by the company. RR Kabel also manufactures, markets, and sells fans and lights under the licensed ‘Luminous Fans and Lights’ brand.  

R.R Kabel was the fifth largest player in India’s branded wires and cables market, with a 7 pct market share by value as of March 31, 2023, up from a 5 pct market share by value as of March 31, 2015.

The company has a large pan-India distribution network, with 3,450 distributors, 3,656 dealers, and 114,851 retailers on a non-exclusive basis as of June 30, 2023. As part of the company’s distribution strategy, we seek to give their end-users with a consistent experience across several touchpoints also export their products in 63 countries.

The company places a high priority on innovation, research, and development, and has relied on innovation to set their FMEG and wires and cables apart from the competition. The company was the first business in India to introduce products that complied with European laws including Construction Products laws (CPR), the Restriction of Hazardous Substances Directive (ROHS), and the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH).

We have five integrated manufacturing facilities that are all located in India – Waghodia Facility, Silvassa Facility, Roorkee Facility, Bengaluru Facility, and Gagret Facility. These facilities are accredited to Indian and international standards, capable of precision manufacturing of their range of products.

From the IPO proceeds Rs. 1800 mn would be utilize towards repayment in full or in part, of borrowings availed by the company from banks and financial institutions and other corporate purposes. Rs. 17,840 is going towards existing selling shareholders of the company.

Key Highlights

• According to the Technopark report, the Indian consumer electrical industry was estimated at Rs.1,811.50 bn in Fiscal 2023 and is expected to grow at a CAGR of 10 pct until Fiscal 2027 to reach a market value of approximately Rs. 2,665 bn. The Company believes they are well-positioned to capture a significant share of this growth.
• The Company were a prominent exporter of wires and cables from India in terms of value in calendar year 2022, accounting for around 9 pct of the Indian exports market. The company has also concentrated on export markets for wires and cables. They seek to expand exports by using their array of globally approved products.
• R.R. Kabel are able to manufacture 100 pct of their wires and cables in-house because of company’s manufacturing facilities. In the three months ending June 30, 2023, the percentage of overall rejection for our wires and cables was 0.12 pct.
• Company sell the majority of products under their brand ‘RR Kabel’ and manufacture under private labels for select customers. It has long-standing connections with ten distributors in these markets who handle the majority of their exports.
• During the 3 months ended June 30, 2023, company has launched 6 and 28 new products in the wires and cables and FMEG and as of June 30, 2023, Company has 15 and 55 products under development for wires and cables and FMEG segments.
• As of FY23, 88.56 pct of the company revenue comes from wire and cable segments and 11.44 pct of revenue comes from the FMEG segment. Out of the total revenue 77.31 pct of revenue comes from within India and 22.69 pct from outside the India.
• Company was the fastest growing consumer electrical company among our peers in India, growing at a CAGR of 43.4 pct between Fiscal 2021 and Fiscal 2023. Despite of revenue growth EBITDA margin and Profit Margin of the company falling YoY and currently stood at 6.35 pct and 3.37 from EBITDA and profit margin of 9.22 pct and 4.93 in FY21.

Key Risk

• Company business performance subject to Seasonality.
• Company exposed to foreign currency fluctuation risks, particularly in relation to import of raw materials, export of products and their borrowings.
• RR Kabel depends on a limited number of third parties for the supply of their raw materials and delivery of products and such third parties could fail to meet their obligations, which may have a material adverse effect on business, results of operations, financial condition and cash flows.

Valuation

At the upper end of the price band, the issue is quoting at PE of 39x its FY24E annualized earnings. The issue appears to be fully priced. However, one may Subscribe from a longer-term perspective.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.