RR Kabel Ltd IPO

Published by Sharekhan Education | September 14, 2023

By Amit Pathak | Sharekhan Education

Issue Details:

RR Kabel Ltd IPO has an issue size of  ₹ 1964 Cr, price band of  ₹ 983-1035. The issue opens on Wednesday, 13th Sept 2023 and closes on Friday, 15th Sept 2023.

Company Overview:

RR Kabel Ltd. is a prominent player in the Indian consumer electrical industry, specializing in wires & cables (W&C) and fast-moving electrical goods (FMEG). With operations spanning five state-of-the-art facilities, it boasts an impressive annual installed capacity of approximately 4.1 million cubic kms for W&C and around 14 million units for FMEG. What sets the company apart is its extensive PAN India distribution network, comprising over 3400+ distributors, 3600+ dealers, 114k+ retailers, and 298k+ electricians. RR Kabel also prides itself on holding 35 international product certifications.

Objectives of the Issue:

The IPO comprises Rs 180 crores in fresh equity shares and Rs 1784 crores in an offer for sale. The company will primarily use the proceeds from the fresh issue to repay borrowings. Investors can participate with a minimum application for 14 shares and in multiples thereafter. Once the allotment is complete, the company will list the shares on BSE and NSE.

Industry Overview :

The consumer electrical industry in India plays a vital role, contributing approximately 8% to the country’s manufacturing production, 1.5% to India’s GDP, and about 1.5% to India’s exports. The W&C and FMEG segments comprise this sector, expected to achieve a steady 10% CAGR over the next five years.  Several factors drive this growth, including rural electrification, expansion in residential and commercial real estate, increased per capita electricity consumption, government infrastructure development initiatives such as the Production Linked Incentive (PLI) scheme, and favorable policies promoting manufacturing.

Competitive Strengths : 

RR Kabel holds a commanding position in the W&C segment with over 70% of B2C sales in FY23. This dominance is attributed to its relentless focus on safety, continuous innovation, strong connections with electricians, and a comprehensive digital and physical marketing strategy. Additionally, the company is poised for significant growth in the FMEG segment due to its omnichannel presence, expansive distribution network, diverse product portfolio spanning various price points, and the ability to identify product gaps within the segment. The company’s competitive advantage is further reinforced by a combination of dedicated promoters, professional leadership, and strategic investors.

Business Strategy : 

RR Kabel’s forward-looking strategy revolves around enhancing its customer value proposition. This involves expanding its W&C portfolio and introducing new product lines through New Product Development and innovation. Plans are in place to establish a greenfield project for PVC compound and copper W&C manufacturing at the Silvassa Facility.  The company plans to use globally accredited products to enhance exports and expand e-commerce presence for an omni-channel approach.

Key Concerns :

While RR Kabel has shown impressive growth, there are certain key concerns to be mindful of. The concentration of manufacturing facilities in the Southern and Western regions of India makes the company susceptible to disruptions in these areas. Variations in the prices of essential raw materials like Copper and Aluminum could negatively impact profitability. Exchange rate fluctuations pose another risk due to the company’s involvement in both exporting products and importing raw materials. Additionally, RR Kabel does not have any exclusivity contracts with dealers and distributors.

Financial Performance :

RR Kabel has delivered remarkable financial performance. 43.3% CAGR in revenue growth over FY21-23 and an 18.3% CAGR increase in PAT over the same period. The net profit margin has contracted from 4.9% to 3.4% primarily due to inflation. However, the company has reduced Net Working Capital Days from 113 to 66, resulting in an increase in RoCE from 9% to 10%. Debt to Equity has also improved, reducing from 0.5 to 0.4. At the upper end of the price band (₹983-1035), the issue may appear richly priced at 60.9 x FY23 EPS.
Source: IPO Red Herring Prospectus

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