R R Kabel
- R R Kabel is coming out with a 100% book building; initial public offering (IPO) of 1,90,67,937 shares of Rs 5 each in a price band Rs 983-1035 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on September 13, 2023 and will close on September 15, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 196.6 times of its face value on the lower side and 207.00 times on the higher side.
- Book running lead managers to the issue are Axis Capital, Citigroup Global Markets India, HSBC Securities and Capital Markets (India) and JM Financial.
- Compliance Officer for the issue is Himanshu Navinchandra Parmar.
Profile of the company
The company is one of the leading companies in the Indian consumer electrical industry (comprising wires and cables and fast moving electrical goods (FMEG)), with an operating history of over 20 years in India. The company sells products across two broad segments - (i) wires and cables including house wires, industrial wires, power cables and special cables; and (ii) FMEG including fans, lighting, switches and appliances. The company’s product’s end use determines whether the sale is through a business-to-business (B2B) or B2C channel. The company undertakes the manufacturing, marketing and sale of (i) its wires and cable products under its ‘RR Kabel’ brand, and (ii) a variety of consumer electrical products, including fans and lights under the ‘RR’ brand, which is licensed by it. The company also manufacture, market and sell fans and lights under the ‘Luminous Fans and Lights’ brand, which is licensed by it. Its ‘RR Kabel’ brand has over 20 years of operating history, while the ‘RR’ and the ‘Luminous Fans and Lights’ brands, which are licensed by it, has over 7 years and over ten years of operating history, respectively.
The company owns and operates two integrated manufacturing facilities which are located at Waghodia, Gujarat, being the Waghodia Facility, and Silvassa, Dadra and Nagar Haveli and Daman and Diu (Silvassa Facility) in India, which primarily carry out manufacturing operations in respect of wire and cables and switches. Additionally, the company owns and operates three integrated manufacturing facilities which are located at Roorkee, Uttarakhand (Roorkee Facility), Bengaluru, Karnataka (Bengaluru Facility) and Gagret, Himachal Pradesh (Gagret Facility) in India, which carry out manufacturing operations in respect of FMEG products. Its Waghodia Facility is one of the largest consumer electrical manufacturing facilities in India as of March 31, 2023, with an annual manufacturing capacity of 2.1 million CKM of wires and cables.
Proceed is being used for:
- Repayment or prepayment, in full or in part, of borrowings availed by the company from banks and financial institutions.
- General corporate purposes.
Industry overview
India is the third largest producer and the second largest consumer of electricity in the world. 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. Consumer electrical industry entails heavy electrical products such as W&C and light electrical products such as FMEG. A wire is a single conductor, whereas a cable is a group of conductors, used for, among other things, transmitting electricity and telecommunication signals. FMEG includes electrical goods and appliances such as fans, lightings, electric heaters, and other household appliances. The consumer electrical industry consisting of W&C and FMEGs was estimated at approximately Rs 1,81,150 crore in Fiscal 2023 and is expected to grow at a CAGR of approximately 10% till Fiscal 2027 to reach a market value of approximately Rs 2,66,500 crore. The industry is highly competitive with the presence of many national and regional players (manufacturers, traders, suppliers, and importers etc.), competing on the basis of factors such as products, price, customer service, post sales services, quality and delivery.
The FMEG industry in India is witnessing increased demand for premium products as consumers are showing a rising interest towards smart, easy-to-use, and technologically advanced products. An increase in disposable income has increased the purchasing power of customers, which in turn, has accelerated the demand for premium products in India. “Smartâ€, “technological enablement†and “plug and play systems†are used as proxies for premiumization among FMEG products and are considered as lifestyle choices. All these factors are driving the FMEG industry towards the premium segment. In 1990s, 80-90% of the sale in W&C and FMEG industry was dependent on the distributors and retailers and brands had limited visibility on the distributor’s sales to retailer’s sales and to consumers. Currently, approximately 45% of the sale is captured by the sales team and routed to the distributors and retailers, approximately 50% of the sale is dependent on the distributors / retailers and approximately 5% sales take place through a brand’s exclusive store. Companies in the consumer electrical industry have adopted an aggressive stance towards direct selling to customers on-site, including electricians, who are the key decision makers in this industry.
Pros and strengths
Scaled B2C business in the large and growing wires and cables industry: The company manufactures and sells a diverse portfolio of products across categories, giving it an opportunity to cross sell its products. Its products in the wires and cables segment include ‘Firex LS0H’, ‘Superex’, ‘Unilay’, medium and high voltage power cables and control cables. It also manufactures a range of special application cables that can be customized as per customer specifications. For instance, in Fiscal 2021, it began supplying ready-to-use cable harnesses to a large Swiss textile machinery manufacturer in India and providing this manufacturer an alternative product manufactured in India and substituting its import of such products. In addition, its products in the FMEG segment are fans such as Jaipur Mahal fans, Audie fans and Droot fans, LED lights such as bulbs, battens, panels and street lights of different watts, as well as appliances such as Ardent and Calid. It has been investing in global trends and have built capabilities to cater to the growing demand for products such as cables used by telecom operators which rollout 5G capabilities, electric vehicle (EV) charging cables, smart fans and designer lights.
Well recognized consumer brands: The company’s focus on safety, quality and continuous innovation, together with its distribution network, connect with electricians and its digital and physical marketing efforts have enabled it to develop brand recognition in the consumer electrical industry. It has invested in implementing brand initiatives, such as Kabel Nukkad and Kabel Mela, to enhance its brand visibility over the last few years. Its brand also provides it the opportunity to cross-sell its FMEG products to its wires and cables customers. Its marketing and sales efforts are spread across multiple touch points where customers discover its brands and product offerings, which create opportunities for cross-selling its products on the back of its brands’ focus on safety, quality and innovation. It has also mapped the distribution network of its wires and cables products, and identified and worked with distributors and retailers to carry its FMEG products.
Technologically advanced and integrated precision manufacturing facilities: The company owns and operates five integrated manufacturing facilities – Waghodia Facility, Silvassa Facility, Roorkee Facility, Bengaluru Facility and Gagret Facility, each located in India. These facilities are accredited to Indian and international standards, capable of precision manufacturing of its range of products. Its Waghodia Facility is one of the largest consumer electrical manufacturing facilities in India as of March 31, 2023, with an annual manufacturing capacity of 2.1 million CKM of wires and cables. Its Waghodia and Silvassa Facilities have the capability to manufacture a wide variety of wire and cable products including house wires, industrial wires, power cables and special cables. Its manufacturing facilities give it the ability to manufacture 100% of its requirements for wires and cables in-house. The percentage of overall rejection for its wires and cables is low at 0.12% in three months ended June 30, 2023. The acquisition of HEB of ‘Luminous Fans and Lights’ in May 2022 allowed it to expand into the premium FMEG segment through its access to manufacturing capabilities for premium FMEG products.
Well-positioned for growth in FMEG segment: The company is well-positioned to capture a significant share of this growth, as a result of its omni-channel presence covering both physical and digital sales, distribution network, its product portfolio which extends across various price points and its ability to identify product gaps in the segment. While it expands its product suite and market access to drive organic growth, it also pursues inorganic growth opportunities by acquiring businesses that help expand its FMEG product portfolio. In Fiscal 2020, it diversified into FMEG segment by amalgamating the business from one of its group companies, RREL. In Fiscal 2020, it also acquired LED Lights Business of Arraystorm to add professional lighting fixtures and LED lights to its portfolio thereby expanding its portfolio to cover office, industrial and warehouse spaces. Further, pursuant to its recent acquisition of the HEB of ‘Luminous Fans and Lights’ in May 2022, it added lights and premium and mid-premium fans thereby expanding its FMEG segment.
Risks and concerns
Rely on extensive pan-India distribution network of dealers, distributors and retailers: The company sells its products through memoranda of understanding (MoUs) with distributors and certain customers within India and across the rest of the world, on a non-exclusive basis. Most of the MoUs with its customers in the business-to-business channel have a term of approximately one year. These MoUs may be renewed or extended in accordance with the terms of such MoUs. Its contractual arrangements with its dealers and remaining customers are predominantly purchase orders. Further, the company issue purchase order to its international shipping agents at each time their services are required. There can be no assurance that it can continue to maintain its networks of distributors, dealers, retailers and international shipping agents on commercially favorable terms or at all. Any failure to enter into new and similar agreements on commercially acceptable terms or at all, or any conduct of operations with distributors and customers without entering into a MOU, could have a material adverse effect on its business, financial condition, prospects, results of operations or cash flows.
Dependent on the performance of the wires and cables market: The company derives most of its revenue from operations from the manufacture and supply of wires and cables. As a result, its business and financial condition is heavily dependent on the performance of the wires and cables market globally and in India, and it is exposed to fluctuations in the performance of these markets. In Fiscal 2021, as a result of reduced economic activities arising from the general impact of COVID-19, it experienced reduced demands for wires and cables, which negatively impacted its revenue and its results of operation in Fiscal 2021. If demand for wires and cables in India or abroad decreases in the future, its business, results of operations, financial condition, cash flows and prospects may be materially and adversely affected. The wires and cables market may be affected by, among others, changes in government policies, government initiatives, economic conditions, income levels and interest rates, which may negatively affect the demand for and the valuation of its products. These and other factors may negatively contribute to changes in the prices of and demand for its wires and cables and may have a material adverse effect on its business, financial condition, results of operations and cash flows.’
Significant power and fuel requirements: The company requires substantial power and fuel for its manufacturing facilities, and its energy costs represent a significant portion of the production costs for its operations. For Fiscals 2021, 2022 and 2023 and three months ended June 30, 2022 and June 30, 2023, its power and fuel expenses were Rs 306.62 million, Rs 370.24 million, Rs 487.93 million, Rs 109.05 million and Rs 141.91 million, constituting 1.20%, 0.89%, 0.91%, 0.89% and 0.94%, respectively, of its total expenses. If energy costs were to rise, or if electricity supplies or supply arrangements were disrupted, its profitability could decline. Energy prices can be affected by numerous factors beyond its control, including global and regional supply and demand, carbon taxes, inflation, political and economic conditions, and applicable regulatory regime. It source most of its electricity requirements for its manufacturing facilities from local power suppliers or state electricity boards. If its electricity suppliers increase the price for electricity, its cost of production and profitability would be materially adversely affected.
High working capital requirements: The actual amount and timing of the company’s future capital expenditure or working capital requirements may differ from estimates due to, among other factors, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, engineering design changes, weather related delays, technological changes, additional market developments and new opportunities in the wires and cables industry and fast moving electrical good industry. Its sources of additional financing, in the event that it need to draw on them to meet its working capital or capital expenditure needs, may include the incurrence of debt, the issue of equity or debt securities or a combination of both. If the company decides to raise additional funds through the incurrence of debt or issuance of debt securities or a combination of both, its interest and debt repayment obligations will increase, which could have a significant effect on its profitability and cash flows.
Outlook
Incorporated in 1995, R R Kabel provides consumer electrical products used for residential, commercial, industrial, and infrastructure purposes. The company has two broad segments: Wires and cables including house wires, industrial wires, power cables, and special cables; and FMEG including fans, lighting, switches, and appliances. The company undertakes the manufacturing, marketing, and sale of wires and cable products under 'RR Kabel' brand, and fans and lights under the 'Luminous Fans and Lights' brand. The company owns and operates two integrated manufacturing facilities which are located at Waghodia, Gujarat, being the Waghodia Facility, and Silvassa, Dadra and Nagar Haveli and Daman and Diu (Silvassa Facility) in India, which primarily carry out manufacturing operations in respect of wire and cables and switches. Additionally, it owns and operates three integrated manufacturing facilities which are located at Roorkee, Uttarakhand (Roorkee Facility), Bengaluru, Karnataka (Bengaluru Facility) and Gagret, Himachal Pradesh (Gagret Facility) in India, which carries out manufacturing operations in respect of FMEG products. On the concern side, the company faces significant competition in its business from other manufacturers and suppliers of cables and wires and fast moving electrical good products. Due to the fragmented nature of the wires and cables industry and price advantage that the unbranded players generally enjoy, there can be no assurance that it will maintain its competitiveness in wires and cables industry with respect to any of its products.
The issue has been offered in a price band of Rs 983-1035 per equity share. The aggregate size of the offer is Rs 1874.38 crore to Rs 1973.53 crore based on lower and upper price band respectively. On the financial front, the company’s total income increased by 27.11% to Rs 56,336.40 million for Fiscal 2023 from Rs 44,322.18 million for Fiscal 2022. However, the company’s profit for the year decreased by 11.25% to Rs 1,898.72 million for Fiscal 2023 from Rs 2,139.37 million for Fiscal 2022. Meanwhile, the company is expanding its product mix in its established markets to take advantage of the shift to branded play in these markets and changing consumer preferences for branded products that offer quality and safety features. It also intends to grow its on-shelf brand presence by expanding its existing offerings to “Star Dealers†(multi-brand outlets in high footfall areas) as well as independent retailers. It also intends to grow exports for its specialized wires and cables products with specialized uses to meet the anticipated demand from its customers across geographies.
R R KabelR R Kabel is coming out with a 100% book building; ini..
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