RR Kabel: Up over 30% from IPO price in less than 2 months, JM Financial sees more upside – key reasons | Mint
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Business News/ Markets / Stock Markets/  RR Kabel: Up over 30% from IPO price in less than 2 months, JM Financial sees more upside – key reasons
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RR Kabel: Up over 30% from IPO price in less than 2 months, JM Financial sees more upside – key reasons

JM Financial has initiated coverage on the wire and cable manufacturer RR Kabel with a ‘buy’ call. The brokerage is bullish on the stock on the back of its industry-leading revenue growth track record, strong outlook, industry tailwinds, and healthy performance.

JM believes RRK is well placed to ride on the growth given its long-term track record of consistent and superior growth compared to peers and has the potential to scale up its FMEG business well.Premium
JM believes RRK is well placed to ride on the growth given its long-term track record of consistent and superior growth compared to peers and has the potential to scale up its FMEG business well.

After a 31 percent jump in the stock from the issue price in just a little over a month, domestic brokerage house JM Financial has initiated coverage on the wire and cable manufacturer RR Kabel with a ‘buy’ call. The brokerage is bullish on the stock on the back of its industry-leading revenue growth track record, strong outlook, industry tailwinds, and healthy performance.

It has a target price of 1,650 for the stock, implying an upside of over 21 percent in 12 months. JM also sees a potential of 20 percent internal rate of return (IRR) over the next 3 years.

"RR Kabel (RRK) has delivered the highest compounded growth in revenue among peers and robust EBITDA growth across 3/5/10 year periods along with a respectable RoCE profile (>15 percent post-tax). We believe RRK is well placed to repeat its strong performance on the back of a) industry tailwinds in domestic and export markets for W&C, and b) robust distribution and portfolio expansion in FMEG. We initiate coverage with a BUY rating and a Dec’24TP of 1,650, basis 35xDec’25EPS (22 percent upside), and see a potential of 20 percent IRR over the next 3 years," said the brokerage.

Stock Price Trend

Currently trading at 1,356.35, the stock has advanced over 31 percent from its IPO price of 1,035. It made a strong debut on September 20, 2023, listing at a 14 percent premium to its issue price.

From its listing price, the stock has risen over 15 percent in a little over 1 month.

The stock also hit its record high of 1,524.55 on October 5. However, for the entire month of October, the stock was down over 3 percent.

About The Firm

RRK is one of the leading companies in India’s consumer electrical industry (comprising wires and cables and FMEG) and has an operating history of over 25 years in the country. 

RRK is the fifth largest player in the branded wires and cables (W&C) market in India, representing approximately 7 percent market share by value as of FY23 (vs 5 percent in FY15), with a strong presence in Fast Moving Electrical Goods (FMEG), especially in Fans & Lighting. It is one of India’s largest exporters of wires and cables with an 11 percent market share of the exports market (as of FY23). The company had one of the largest networks of electricians – 298,084 electricians across India – as of Jun’23.

Investment Rationale

Strong growth prospects for consumer electricals industry: As per the brokerage, the consumer electricals industry (wires & cables + FMEG) is estimated to post a 10 percent CAGR in FY23-27 to reach 2.7 lakh crore in FY27E on the back of growth in real estate (residential and commercial), rising electrification, disposable income growth and aspirations and government and private investments in infrastructure projects. RR Kabel is well placed with its strong product portfolio (across W&C and FMEG segments) and scaled-up distribution network, it noted.

RRK to ride on W&C exports opportunity: W&C exports have grown by 23 percent CAGR in the past 4 years and could rise significantly due to strong demand in developed markets (growth + replacement demand) and the ‘China+1’ policy of several nations. RRK was India’s 2nd largest W&C exporter in FY23 (largest in FY22; exports 22-25 percent of W&C revenue in past 10 years) and holds one of the highest number of international product certifications, the brokerage pointed out. More than 97 percent of sales are distributor-led (over 95 percent of exports under the ‘RR Kabel’ brand), reflecting the significant strength of RRK in export markets, it added.

FMEG scale-up to change the face of the company further: FMEG, introduced in 2012-13, has seen significant organic scale, aptly boosted by acquisitions (FY20/23) and has now achieved a respectable 640 crore in revenue (FY23), informed the brokerage. FMEG is largely led by fans, lighting, and small appliances (encompassing 75 percent of the FMEG categories). Distribution expansion and wallet share gains should deliver significant above-industry growth for RRK along with improved margins, it said.

Estimates

The brokerage expects RRK to post 20 percent revenue, 37 percent EBITDA and 44 percent PAT CAGRs in in FY23-26 (versus 24 percent/16 percent/23 percent in FY19-23) on the back of strong revenue growth and operating margin improvement in both W&C and FMEG segments. It sees a 20 percent and 22 percent CAGR growth in revenue for the W&C and FMEG segments, respectively. It also estimates a FY26 RoE and RoIC (post-tax) of 22 percent and 20 percent, respectively.

JM believes RRK is well placed to ride on the growth given its long-term track record of consistent and superior growth compared to peers and has the potential to scale up its FMEG business well.

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

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Published: 01 Nov 2023, 03:29 PM IST
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