KEI Industries and Polycab India stocks surge upto 9% on bullish UBS report; here’s what it says

Cables and wire majors KEI Industries and Polycab India experienced a significant surge in their stock prices on Tuesday, August 20, following a bullish report from global brokerage UBS. The brokerage initiated coverage on both companies with a "buy" recommendation, positioning them as prime beneficiaries of India's ongoing electrification drive. UBS highlighted favorable demand-supply dynamics will benefit the industry leaders.

UBS set a price target of ₹6,150 for KEI Industries, indicating a 40 percent upside, and ₹8,550 for Polycab India, suggesting a 29 percent gain.

The brokerage emphasized that the cables and wires sector is set to grow at double the rate of India's GDP between FY24 and FY30, with the market expected to expand from the current $8 billion to $20 billion by FY30. UBS also anticipates the market share of the top five companies in this segment to increase significantly during this period. Revenue and EBITDA for UBS' Cable & Wire coverage are projected to grow at a Compound Annual Growth Rate (CAGR) of 20 percent and 25 percent, respectively, between FY24 and FY28, driven by robust demand, operating leverage, increasing market share, and export penetration.

Stock Price Trend

Post the UBS report, KEI Industries' stock surged as much as 9.3 percent to its day's high of ₹4776.85. It is now just a little over 5 percent away from its peak of ₹5,040.40, hit on June 14, 2024. Meanwhile, it has surged 106 percent from its 52-week low of ₹2,317, hit on October 25, 2024.

Meanwhile, Polycab India shares jumped as much as 3.6 percent to its intra-day high of ₹6881.40. The stock is now just 6 percent away from its peak of ₹7,330, hit on June 25, 2024. Meanwhile, it has also rallied 80.5 percent from its 52-week low of ₹3,812.35, hit on January 11, 2024.

In terms of annual performance, KEI Industries has soared by 78 percent, while Polycab India has advanced by over 38 percent, underscoring their robust growth trajectories.

KEI Industries: Poised for Continued Growth

UBS is particularly optimistic about KEI Industries, describing it as the only pure play in the cable and wire industry with a commanding 40 percent market share in the domestic electrification market— the highest among its peers. The brokerage believes that KEI is well-positioned to capitalize on the sustained growth in cables and wires, particularly in branded housing wires and cables. Additionally, UBS suggests that KEI could potentially expand into adjacent electrical segments such as switches and switchgears, further enhancing its market presence.

KEI Industries has been a consistent earnings performer, with multiple growth drivers, including the long-term sustainability of the C&W segment. UBS forecasts that the company’s return on capital employed (ROCE) could rise from 24 percent in FY24 to 28 percent by FY28, driven by the consolidation in the wires market and the company’s investment in building consumer brands.

KEI's potential for growth is further highlighted by its relatively small share of the branded house wires business, currently at just 10 percent. With ongoing geographical distribution and manufacturing expansion, including a new plant that could add ₹4,000 crore in revenue, UBS expects KEI to achieve a healthy 22 percent CAGR in top-line growth over the FY24-27 period, with additional upside potential from exports.

Over the past decade (FY14-24), KEI Industries has grown its revenue by 18 percent, outpacing the industry’s 9 percent growth. UBS also noted that KEI has significantly increased its capital expenditure (capex) in FY24 to ₹400 crore, which is four times the average for FY18-23. From FY25-27, the company’s capex is expected to hover around ₹700 crore annually, reflecting its commitment to future growth.

UBS estimates an earnings CAGR of 31 percent for KEI Industries between FY24-27, supported by the company’s proven execution capabilities and strong growth potential.

Polycab India: Beneficiary of Long-Term Electrification Growth

UBS also expressed confidence in Polycab India, labeling the company as a “cyclical growth champion” poised to benefit from India’s long-term electrification efforts. Polycab’s business model, which is heavily leveraged towards growth, positions it well to capitalize on the increasing demand for cables and wires. UBS highlighted Polycab’s robust domestic volume growth, market share gains, and a distribution-led export business model as key factors driving its optimism.

With a presence in 40 percent of the domestic electrification market, Polycab India stands to gain from the strong, multi-year cyclical tailwinds in the C&W segment, particularly with the ongoing development of low-voltage infrastructure in the country. UBS believes that Polycab has significant room to increase its total addressable market (TAM) revenue share, with the fast-moving electrical goods (FMEG) segment playing a crucial role in its growth.

UBS also pointed out that Polycab’s better-than-expected domestic volume growth and export ramp-up are key near-term triggers for the company. Polycab’s strategy in the current growth-levered environment provides a significant competitive edge, as evidenced by the company tracking ahead of its ₹20,000 crore top-line target by FY26.

Polycab has invested significantly in capacities, positioning it ahead of peers, and has implemented a robust distribution and B2B strategy, including the widest range of stock-keeping units (SKU) in the industry. UBS believes this positions Polycab to outgrow the industry, with an expected market share increase of 200 basis points over the next two years.

With strong endorsements from UBS, both KEI Industries and Polycab India are positioned to benefit significantly from India’s ongoing electrification efforts. The bullish outlook, supported by favorable market dynamics, robust growth potential, and strategic expansions, makes both companies compelling investment opportunities in the cables and wires sector. As India continues its push towards greater electrification, KEI Industries and Polycab India are set to play pivotal roles, driving substantial value for their shareholders in the years to come.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.