Cables and Wires are powering the Indian growth story. Three stocks to buy by Motilal Oswal

Powering the Indian growth story

Strong demand prospects to boost earnings momentum

 The Indian electrical industry (at ~INR1.8t in FY23) likely to post 10% CAGR: The Indian cables & wires industry, along with FMEG products, is estimated to be ~INR1.8t 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 construction and infrastructure activities.

 Higher exports and market share gains to support organized players: The industry should benefit from the rising exports of cables from India, as exports have clocked a 16% CAGR vs. ~8% CAGR for imports over FY17-23 (~15% YoY growth during 9MFY24). The organized players are also anticipated to benefit from the rising demand for branded products due to their safety features and quality. As per industry estimates, branded players currently constitute ~74% of the industry (vs. 61% in FY14), which is expected to improve to 80% by FY27.

 Polycab, KEI, and RRKABEL, among the leading players in cables & wires: Polycab, KEI, and RRKABEL are the leading players in the cables & wires industry, with a combined market share of ~50% among the organized players (35% of the entire industry). They are favorably placed to gain from the rising infrastructure spending. A strong distribution network and higher capex, with a focus on backward integration, will drive growth for these companies.

 Initiate coverage with a BUY rating: We initiate coverage on Polycab, KEI, and RRKABEL with a BUY rating as we expect them to benefit from the favorable industry trends and report healthy earnings growth over FY24-26. We believe these companies will maintain their premium valuations. We value: Polycab at 50x FY26E EPS to arrive at our TP of INR7,500, KEI at 50x FY26E EPS to arrive at our TP of INR5,000, and RRKABEL at 40x FY26E EPS to arrive at our TP of INR2,200.

 Key downside risks: a) a rise in commodity prices; b) higher competitive intensity in the sector; and c) demand impact due to an economic slowdown.

Click here to download Cable Stocks by Motilal Oswal