- 13 Sep 2023
- ICICIdirect
R R KABEL LIMITED IPO OPENED FOR SUBSCRIPTION ON 13TH SEPTEMBER
The current week is going to be super busy for IPO investors as we have four IPOs lined up this week. The issue size of all four combined will be around Rs 5,000 crore.
The first IPO that opened for subscription this week is R R Kabel Limited. The IPO opened for subscription on the 13th and closes on the 15th of September. In this article, we will look at the various aspects related to the company. It will help investors decide whether to subscribe or invest in the IPO for the long term.
R R Kabel Limited IPO: Key Details
Below are the key details related to the R R Kabel IPO:
- Issue Size: Rs 1,964.01 crore
- Price Band: Rs 983 - Rs 1,035
- Issue Details: Rs 180 crore Fresh Issue + Rs 1,784.01 crore Offer For Sale (OFS)
- Market Cap: At the upper price band, Rs 11,675.63 crore
- Minimum Investment: Rs 14,490
R R Kabel Limited IPO: About the business
R R Kabel is one of the leading companies in the Indian consumer electrical industry with a business history of 20 years in India. They are the 5th largest player in the wires and cables market in India, with a market share of 5% (FY23).
The company undertakes the manufacturing, marketing, and sale of wires and cable products under its ‘RR Kabel’ brand. Also, a variety of consumer electrical products, including fans and lights, are under the RR brand, which is licensed by them. R R Kabel manufacture, market, and sell fans and lights under the ‘Luminous Fans and Lights' brand, which is licensed by them.
Their wires and cables segment has been in operation since FY99 and includes a wide range of products such as house wires, industrial wires, power cables, and special cables. They have actively diversified and expanded their product portfolio in adjacent areas such as FMEG, both organically and inorganically.
It is one of the leading companies, and it can be concluded from the following points:
- R R Kabel is the 5th largest player in branded wires and cables market in India, with a total market share of approximately 7% at the end of FY23. It was approximately 5% market share in FY15.
- The company has the highest revenue contribution from the business-to-consumer (B2C) sales channel in wires and cables, with approximately 74% of revenue coming from the B2C sales channel at the end of FY23.
- In CY22, they were one of the leading exporters of wires and cables, in terms of value, with a market share of approximately 9%.
- R R Kabel has one of the highest number of distributors servicing the extensive retail footprint in the consumer electrical industry as of March 31, 2023, and has increased their retailer outlets by 3.5 times from 30,570 in FY21 to 106,626 in FY23.
R R Kabel Limited IPO: Products
The company sells products across two broad segments:
- Wires and cables, including house wires, industrial wires, power cables, and special cables
- FMEG, including fans, lighting, switches, and appliance
In the three months that ended June 30, 2023, 71% of their revenue from operations came from the wires and cables segment, and 97% of their revenue from operations from the FMEG segment was from the B2C channel.
R R Kabel Limited IPO: Industry Overview
India is the third-largest producer and the second-largest consumer of electricity in the world. The consumer electrical industry is one of the important aspects of the Indian economy, contributing approximately 8% to the country’s manufacturing production, approximately 1.5% to India’s GDP, and approximately 1.5% to India’s exports. The consumer electrical industry entails heavy electrical products such as W&C and light electrical products such as FMEG (Fast Moving Electrical Goods).
In FY23, the total domestic market for the FMEG industry was estimated at approximately Rs 1,06,350 crore, representing approximately 59% of the total consumer electrical industry. It is expected to grow at a CAGR of 8% till FY27 to reach a market value of approximately Rs 1,46,500 crore.
Rural electrification, expansion in the residential and commercial real estate sector, increase in per capita consumption of electricity, Government of India’s infrastructure development support through increased capital outlay and government-funded schemes, favorable trade policies to increase exports through initiatives such as production linked incentive (PLI) are expected to drive the growth of the consumer electrical industry in India.
R R Kabel Limited IPO: Listed Peers
R R Kabel has many listed peers and some big names in the same industry. The listed peers include names like Havells India, Polycab, KEI Industries, Finolex, V-Guard Industries, Crompton Greaves Consumer Electricals, and Bajaj Electricals. Let us look at R R Kabel and peers on some financial parameters:
- For FY23, the company that had the highest total revenue was Havells, followed by Polycab. R R Kabel is 5th on the list on the list with a total of eight listed peers in the segment.
- The average Earning Per Share (EPS) of all listed peers is 31.28, while R R Kabel was 17.09.
- Return on Net Worth (RoNW) is highest for Polycab, followed by KEI Industries. Here again, the company is fifth on the list.
- In terms of Net Asset Value per Equity Share, Polycab India is at the top, while R R Kabel holds its 5th position here also.
R R Kabel Limited IPO: Financials
Let us now look at the most crucial part that one needs to consider while evaluating a new company (and also a new company). Below are the financial numbers of R R Kabel over the last three financial years:
- The company has reported a revenue of Rs 2,723.9 crore, Rs 4,385.9 crore, and Rs 5,599.20 crore for FY21, FY22, and FY23, respectively. Revenue has grown at an exceptional 44.4% CAGR in this period.
- From FY21 to FY22 and from FY22 to FY23, their revenue from operations from the FMEG segment grew by 34.84% and 133.25%, respectively.
- Their revenue from operations from outside India increased by a CAGR of 47.13% between FY and FY23.
- R R Kabel has reported an EBITDA of Rs 253.24 crore, Rs 353.73 crore, and Rs 357.70 crore for FY21, FY22, and FY23, respectively. In the same period, the EBITDA margins were 9.22%, 7.98%, and 6.35%, respectively. The margins have declined significantly in this period.
- They have reported a net profit of Rs 142.6 crore, Rs 230.7, and Rs 202.2 crore for FY21, FY22, and FY23.
- For the last three financial years, the company has reported an average EPS of Rs 16.97 (fully diluted) and an average RoNW of 14.78%.
- If we attribute FY24 annualized earnings to the post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 39.26.
- The Return of Capital Employed (ROCE) has increased from 13.59% in FY21 to 15.57% in FY23. ROE has also increased marginally from 13.88% in FY21 to 14.22% in FY23.
- The debt-to-equity ratio is below one and has reduced in the last three financial years. For the last three financial years, the D/E ratio was 0.48, 0.42, and 0.36, respectively.
What are the competitive strengths of R R Kabel Limited?
As per the company, their competitive strength is as below:
- They have a scaled B2C business in the large and growing wires and cables industry. The company is well-positioned to capture a significant share of this growth due to its existing market share.
- R R Kabel has a diverse suite of products driven by their focused research and development efforts with global certifications and accreditations.
- They have an extensive global and domestic distribution network.
- R R Kabel is a recognized consumer brand.
Risks associated with R R Kabel Limited
Below are the risks associated with the R R Kabel Limited:
- The costs of the raw materials that they use in their manufacturing process are subject to volatility. A price increase will impact their financials.
- Any shortages, delays, or disruptions in the supply of the raw materials that they use in the manufacturing process may have a material adverse effect on the business.
- Any disruption, breakdown, or shutdown of original equipment suppliers may impact their manufacturing capabilities.
- The company's inability to maintain the stability of its distribution network in India across distribution channels and attract additional distributors, dealers, and retailers.