Buy R R Kabel; target of Rs 2870: Choice Institutional Equities

Moneycontrol • 2 days ago

Original source

Key Investment Pillars

  • Improved realization and favorable product mix: RRKABEL's revenue increased 52% YoY to INR 32.8 Bn, driven by higher realization and a favorable product mix, supported by a higher contribution from cables.
  • Operating leverage and cost efficiency: The company's EBITDA margin expanded 50 bps YoY to 8.6%, driven by higher gross profit, operating leverage, and improved cost-efficiency.
  • Capacity expansion and new acquisitions: RRKABEL's board approved at least INR 2,000 Mn for land acquisition as the first step towards further wires and cables capacity expansion, with a part of the outflow this year and the rest in H1FY28.
  • FMEG segment targets full-year breakeven: Despite seasonal Q2 losses, the FMEG segment is expected to achieve full-year breakeven in FY27, driven by significantly higher revenue and improved profitability in H2.

Thesis Validation Checklist

To validate the investment thesis, investors should monitor the following signals over the next 12 months:

  • Revenue growth: RRKABEL's ability to maintain its revenue growth trajectory, driven by improved realization, favorable product mix, and operating leverage.
  • Margin expansion: The company's ability to expand its EBITDA margin, driven by higher gross profit, operating leverage, and improved cost-efficiency.
  • Capacity utilization and new acquisitions: RRKABEL's ability to utilize its expanded capacity and integrate new acquisitions, such as the UM Cables acquisition.
  • FMEG segment performance: The FMEG segment's ability to achieve full-year breakeven in FY27, driven by significantly higher revenue and improved profitability in H2.