The Indian cables & wires industry, along with fast-moving electric goods (FMEG) products, is estimated to be Rs 1.8 lakh crore in FY23.
The industry offers huge growth potential and is estimated to report ~10% CAGR over the next few years, led by increased traction in the infrastructure and real estate sectors.
The cables & wires industry constitutes ~39% of the electrical industry and forms a crucial part of the construction and infrastructure activities of the government and private players.
Intensifying focus on infrastructure, strong traction in the real estate sector, an increase in electrification of villages, and rising nuclear families are expected to spur cable & wires industry growth.
The cables & wires market reported ~8% CAGR over FY14-23 and it is estimated to clock 12-14% CAGR over FY23-27 (INR1.2-1.3t).
Exports of cables & wires have been on a rising trend, and companies such as KEI, R R Kabel, and Polycab have increased their export revenues over the years.
Exports clocked a 16% CAGR over FY17-23; whereas, imports posted an ~8% CAGR over the same period. During FY21-23, exports delivered a 36% CAGR as against 15% CAGR for imports.
India is now a net exporter of cables & wires. Additionally, According to our estimates, the industry should clock ~10% CAGR over the next few years, with higher growth estimated for cables & wires (12-14% CAGR until FY27E), water heaters, fans, etc.
The industry would also benefit from government policies, e.g., encouraging domestic manufacturing and PLI incentives for components. There could also be a shift to organized players from unorganized ones, which has historically been the case.
This possible shift would further benefit the bigger players going forward. As a result of infrastructure development, urbanization, smart cities, the growth of residential and commercial real estate, rural electrification, and the move towards renewable energy, the cables & wires segment is expected to experience significant growth.
According to industry estimates, the consumer electrical industry contributes ~1.5% of India’s GDP and it would benefit from the government impetus on infrastructure development. The Central government’s capex increased at a 30% CAGR over FY20- 24 to reach INR9.5t and this is likely to touch INR11.1t in FY25 (up 17% YoY).
As a part of the Paris Agreement, the Indian government has announced its target to achieve net zero emissions by CY70. India is planning to install 500GW of renewable energy capacity by CY30, which is likely to involve a massive investment of ~INR2.4t.
India’s energy demand too is expected to surge over the years led by rising nuclearization, higher disposable income, a rise in industrial activities, etc. The government’s initiatives such as power for all, integrated power development scheme, etc. should help demand growth for cables & wires.
Polycab India: Buy | LTP Rs 5,328 | Target: Rs 7,500| Upside 40%
Polycab India is a market leader in the cables & wires sector, with a ~26% share in the organized market and an ~18% share in the overall market.
The company is focusing on increasing exports, capacity expansion, in-house manufacturing, and building distribution channels.
We expect Polycab to report a ~14% revenue CAGR over FY24-26, led by 15%/10% growth in cables & wires/FMEG segments. RoE and RoCE are expected to be at 20% and 21%, respectively, in FY26 vs. an average of ~15% (each) over FY15-23.
KEI Industries: Buy | LTP Rs 3,792 | Target Rs 5,000| Upside 31%
KEI Industries is the second largest player in the cables & wires segment in India with a market share of ~13% in the organized cables & wires industry and ~9% of the overall market.
Robust business model with backward integration, scaling up of retail and export segments, strong earnings growth, and sector dynamics likely to support sustained rerating.
Going forward, we expect EBITDA and earnings per share (EPS) to register a CAGR of 25% (each) over FY24-26E.
(The author is Head – Retail Research, Motilal Oswal Financial Services)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
