PL Stock Report - R R Kabel (RRKABEL IN) - Q2FY24 Result Update - Healthy revenue growth, margins improved - BUY

R R Kabel (RRKABEL IN) – Praveen Sahay – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,605 | TP: Rs1,800

Q2FY24 Result Update – Healthy revenue growth, margins improved

Quick Pointers:

♦ W&C business reported ~28% volume growth in H1FY24.

♦ EBITDA margin expanded by 280bps and W&C EBIT margin by 270 bps YoY.

We upward revised our FY24E earnings estimates by 5.8% on account of healthy H1FY24 performance and strong guidance for H2FY24. RR Kabel (RRKABL) reported healthy revenue growth of 17.7% YoY in Q2FY24 mainly with 19% revenue growth in W&C which was driven by export business (+31.3% YoY). The company reported 28% vol. growth in H1FY24 and expected momentum will continue in W&C segment. EBITDA margin reported at 7.5% in Q2FY24 mainly with improvement in gross margin (+240bps YoY) on account of a) product mix, b) pricing, c) cost efficiency.

We believe RR Kabel continue to benefit on account of 1) strong brand with diverse product portfolio 2) well-structured capacity expansion plans, 3) increasing dealers /distribution network and 4) distribution led export business. We estimate Revenue/EBITDA/PAT CAGR of 21.1%/39.3%/44.5% over FY23-26E. Maintain ‘BUY’ at revised TP of Rs 1,800 (Rs 1624 earlier) given solid H1 performance and strong guidance for coming years.

Revenue grew 17.7% and PAT grew 111.6%: Rev. grew 17.7% YoY to Rs16.1bn (PLe: Rs16.6bn). W&C rev. grew by 19% YoY to Rs14.5bn (PLe: Rs14.8bn) on strong volume growth in both domestic and international business (up 31.3% YoY). FMEG rev. up by 7.4%YoY to Rs1.6bn (PLe: Rs 1.8bn). Export revenue contribution was ~29% to its total sales. Gross margin expanded 240 bps YoY to 19.9%. EBITDA grew 87.7% YoY to Rs 1.2bn (PLe:1.2bn). EBITDA margins expanded by 280bps YoY to 7.5% (PLe: 7.4%). PAT grew by 111.6% YoY to Rs741mn (PLe:Rs775bn) was largely from volume growth and improvement in margins. W&C‘s EBIT grew 67.6% YoY to Rs1.3bn and margins expanded 270bps YoY to 9.2%. FMEG reported EBIT loss of Rs 198mn vs loss of Rs240mn in Q2FY23.

Con-call highlights: 1) RRKABL expects 20% volume growth in W&C business in coming years, 2) RRKABL will be increasing its cable capacity by 2.4x by FY25 end with 20% annual increase of wire capacity, 3) Reported 28% W&C vol. growth in H1FY24 where Cable/Wire grew by 32%/25%, 4) B2B contributes 25-26% rev. which is expected to increase ~30% by FY26, 5) RRKABL is expected to maintain 7.5-8.0% EBITDA margin in coming years, 6) FMEG segment is expected to grow by 30% in coming years driven by product mix change and network expansion, 7) Fan contributes 48% of FMEG segment and Luminous’ HEB accounts ~40% of FMEG business, 8) Planned capex of Rs 5bn over two years for capacity expansion which will funded through internal accruals, 9) Gross debt by Sep-23 was Rs 6.7bn, 10) Capacity utilization: 70% in W&C. 11) H2 is seasonally better than H1 for RRKABL. 12) North and West India is strong market for RRKABL while company is penetrating strongly in East. 13) Export business growth was largely from repeat customer. 14) Electrician n/w increased to 3.3lacs. 15) Working capital days improved to 65days by Sep’23 from 75days by Mar’23. (Click on the Link for Detailed Report)