MOSL initiates coverage on Polycab, RR Kabel & KEI Industries with ‘buy’ call

Growing focus on infrastructure, traction in the real estate sector, electrification of villages and growing exports to spur growth in the cables & wires industry, Motilal Oswal has said

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The wires and cables industry offers huge growth potential with companies such as Polycab, RR Kabel and KEI Industries set to be the biggest beneficiaries, Motilal Oswal has said, as it initiated coverage on the three stocks with a “buy” call.

India’s electrical industry, worth around Rs 1.8 trillion in FY23, is likely to post a 10 percent CAGR over the next few years, the brokerage said in a report on April 15.

The cables and wires segment, which accounts for around 39 percent of the electrical industry, is a crucial part of the construction and infrastructure activities. The increased focus on infrastructure, traction in the real estate sector, electrification of villages and  growing number of nuclear families could “spur cables and wires industry growth”, Motilal Oswal analysts write in the note.

At mid-day, Polycab was trading at Rs 5,373.15 on the National Stock Exchange, up 1.35 percent from the previous close. KEI Industries was at Rs 3,912.20, down 2 percent and and RR Kabel at Rs 1,593.30, down -0.3 percent.

Over the last year, Polycab has gained around 73 percent, KEI Industries has gained around 120 percent and RR Kabel has gained around 32.99 percent.

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Leading players to gain market share

The cables and wires market reported an 8 percent CAGR over FY14-23 and is expected to clock a higher 12-14 percent during FY23-27, the analysts said.

Larger organised players could also benefit on higher exports and rising demand for “safe” branded products. The share of branded players could improve to 80 percent by FY25 from around 74 percent in FY23, the analysts said.

Polycab, KEI and RR Kabel are the leading players in the segment, with a market share of 18 percent, KEI 9 percent and RR Kable 7 percent, respectively.

“We initiate coverage on Polycab, KEI and RR Kabel with a BUY rating, as we believe these companies will benefit from favourable industry trends and report healthy earnings growth over FY24-26E,” the report said.

The brokerage expects the three to retain their valuations. It valued Polycab at 50x FY26E EPS (target price Rs 7,500), KEI at 50x (target price of Rs 5,000) and RR KABEL at 40x (target price of Rs 2,200.)

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