Wires & Cables Sector - YES Securities

WIRES & CABLES
Connecting India’s Growth

SECTOR REPORT
Cables & Wires

Connecting India’s Growth
One of the fastest-growing segments of the Premiumization in housing wires led to

KEII FNXC domestic electrical goods sector, the Cables and higher margins
Wires (C&W) space has achieved a remarkable The electrical wires segment (largely housing) has
Reco BUY BUY
~23% volume CAGR to touch 14.5mn kms (11% undoubtedly transformed over the last five years
CMP (Rs) 408 493
in revenue terms) over FY14-18. This feat was as evident from two key developments. One,
12‐mts Target (Rs) 558 600
largely the outcome of a strong demand for cables, customer involvement in electrical purchases has
Upside 36.7% 22.0%
* As on Apr 08, 2019
boosted by the government’s ‘power to all’ mission risen sharply and Two, preference for branded
and commensurate infra spends. However, a products is now the norm given the ubiquity of
sluggish real estate sector has kept demand electrical appliances across households and
KEI Industries growth for wires largely subdued. The C&W space
Y/E Mar FY19E FY20E FY21E potential hazards of electrical faults including
Revenue 41,311 49,740 56,892
is expected to double over FY18-23E to Rs.1,033bn residential fires. Further, organized players have
EBITDA 4,317 5,205 6,037 amid a likely strong power distribution capex, as upped their advertisement and promotional
OPM (%) 10.4 10.5 10.6 also the growth in the wires segment led by a spends in recent times which has ultimately
PAT 1,822 2,345 2,914 plethora of affordable housing projects. Next leg of helped organized players garner higher market
EPS (Rs.) 23.3 29.9 37.2 demand growth would come from adoption of
P/E (x) 17.5 13.6 11.0 share and margins over the last two to three years.
electric vehicles in India. Electric vehicles consume
D/E (x) 1.1 0.9 0.6
RoE (%) 26.4 26.6 25.9 wires ~3x of normal vehicles. Also, there would be
an additional demand coming for setting up of EV FMEG foray to gain from strong distribution
Finolex Cables infrastructure. Revenue growth would be higher Electrical players have diversified into consumer
Y/E Mar FY19E FY20E FY21E compared to volume growth as the industry is durables and domestic appliances. Strong brand
Revenue 31,408 34,648 38,547 moving towards high voltage cables, and housing and vast distribution reach would help companies
EBITDA 4,677 5,213 5,778 wire players are moving up the value chain with to promote and launch new products. Entry into
OPM (%) 14.9 15.0 15.0 premium and niche products. In the listed space, consumer products would mitigate the seasonal
PAT 4,517 5,018 5,576 we recommend KEI Industries (strong volume impact and reduce dependence on a single
EPS (Rs.) 29.5 32.8 36.5 growth & improved product mix) and Finolex segment. Being B2C players, these companies
P/E (x) 16.7 15.0 13.5 Cables (established brand & premium command a premium over pure electrical
RoE (%) 19.0 18.5 17.9 companies, and that would aid in creating a strong
positioning).
brand for the franchise.
April 09, 2019

Research Analyst: Tarang Bhanushali  tarang.bhanushali@yessecuritiesltd.in | Rahul Jain  rahul.jain@yessecuritiesltd.in
Head of Research: Amar Ambani  amar.ambani@yessecuritiesltd.in (For important information about YES SECURITIES (INDIA) LTD. and other disclosures, refer to the end of this material.)
Cables & Wires
KEI Industries: Retail penetration to drive growth Finolex cables: A Pure Premium play
KEI has emerged as the fastest growing cables and wires company in Finolex Cables is a leading player in the domestic cables and wires
the listed space over the past five years. Strong demand from the power industry. It has a vast distribution network across India and commands
distribution sector and increasing share of housing wires has propelled a notable premium over its peers. The company has ramped up its
KEI’s growth. Increasing domestic market reach and improved brand communication cables business and has diversified into higher margin
visibility through media spends has helped doubling of revenues consumer electric products. Remarkably enough, Finolex has
through dealer network over FY14-18, at Rs.9.8bn (28.2% of revenue). maintained its premium brand image despite the weak growth in
The company has also doubled its institutional sales on the back of electrical C&W segment, with no compromise whatsoever on margins
strong demand from infra & power distribution sectors and KEI’s and working capital cycle even during this tough phase. With green
comprehensive range in its cables portfolio. On the back of capacity shoots visible in 9M FY19, we believe growth over the next two years
expansion, EHV & EPC order execution, and strong demand from would be led by new product introduction, strong demand for optic
power distribution sector, we expect KEI to witness a 18% revenue fibre and growing FMEG contribution. Increased promotional expenses
CAGR over FY18-21. Increase in share of higher margin segments coupled with expansion of dealer network should help FMEG product
(470bps) should bring about an 83bps expansion in operating margins revenues double over FY18-21. We expect a revenue CAGR of 11% over
over FY18-21. We believe the company would witness some rerating FY18-21E with OPM of ~15%, and we believe that the valuation gap
given a likely 26.4% PAT CAGR over FY18-21, RoE of +25% and D/E between Finolex and its peers in the electrical industry will narrow as it
trending lower to 0.6x. We initiate with a Buy rating for a target price of continues to deliver superior margins and increase the share of FMEG
Rs.558 (15x FY21E P/E). products. We value the company at 20x standalone FY21E P/E (higher
than its 3-yr average of 19x) and initiate coverage with a Buy rating for
a target price of Rs.600.
Exhibit 1: Consumer Electricals sector valuation snapshot
CAGR (FY18-
Mcap EBITDA margin (%) RoE (%) RoCE (%) P/E (x)
Company 21E) (%)
Rs. mn Rev PAT FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
Finolex Cabl 75,404 11.0 19.1 15.7 14.9 15.0 15.0 14.4 17.2 16.6 16.0 20.9 19.0 18.5 17.9 22.8 16.7 15.0 13.5
KEI Ind. 31,971 18.0 26.4 9.8 10.4 10.5 10.6 27.1 26.4 26.6 25.9 23.8 26.1 27.9 28.9 22.2 17.5 13.6 11.0
Havells 474,451 15.4 19.0 13.9 13.5 14.3 14.9 20.0 20.9 22.5 23.0 26.9 28.3 30.5 31.4 66.6 56.8 46.4 39.6
Vguard 94,074 13.4 23.5 8.2 8.1 9.5 10.2 19.5 18.7 22.1 23.4 26.1 25.1 29.4 31.1 69.7 62.5 45.9 37.0
Crompton 141,657 11.6 18.1 13.0 13.0 13.6 14.2 49.5 40.8 39.0 37.1 42.9 40.2 44.8 50.6 43.7 38.6 31.8 26.6
Symphony 94,922 17.9 11.7 27.5 21.8 23.0 24.0 35.8 26.2 27.0 25.4 46.8 35.4 36.6 34.8 49.3 52.9 41.3 35.4
Orient Elect 33,313 13.9 26.7 8.5 9.0 9.4 9.5 40.3 29.6 29.5 27.4 46.9 35.5 36.9 36.1 52.0 37.6 29.8 25.6
Source: Company, Bloomberg, YES Sec – Research, * As on Apr 08, 2019
2
Cables & Wires
INDUSTRY SECTION The C&W industry is expected to double over FY18-23E to Rs.1,033bn,
boosted by increased infra spends by the government. Demand for
The domestic cables and wires (C&W) industry has registered robust building wires and power cables would be spurred by government
growth over the last five years led by the government’s focus on schemes such as Pradhan Mantri Sahaj Bijli Har Ghar Yojana
providing power to all and gradual pickup from housing market. The (Saubhagya scheme) and Power for All, focusing on electrification of
domestic C&W industry in volume terms is estimated to have rural households and T&D efficiencies, as well as an increase in cabling
witnessed a CAGR of ~23% from 6.3mn kms in FY14 to 14.5mn kms in demand from commercial establishments and public utilities. Growth
FY18. However, in value terms, the growth was lower at 11% CAGR in Renewable energy capacities will drive demand for solar cables and
due to lower commodity prices. The C&W industry size is estimated at elastomeric cables used in windmill applications. In Tier I cities,
Rs.525bn in FY18. In about a decade’s time, the industry, which has increase in demand and the lack of open spaces to setup towers,
gained from growing consumer awareness about the need for quality coupled with rising demand from infra projects like metro has swelled
of electrical products, is gradually moving from a largely unorganized the demand for Extra High Voltage (EHV) underground cables. Share
market to an organized market, led by growing technological and of organized players is further expected to increase to 74% in FY23 from
product niche coupled with increased marketing and branding 66% in FY18 and 61% in FY14.
activities by leading manufacturers.
Exhibit 3: C&W market in revenue terms is expected to double
Exhibit 2: Cables and wires industry registered 23% CAGR in over FY18-23E
volume terms led by strong demand from power distribution 1,200 (Rs bn)
1033
30 (mn km) 1,000
26.2
25
800
20
600 525
467
14.5 413 415
15 13.5 346
400
11.5
9.1
10
200
6.3
5
0
FY14 FY15 FY16 FY17 FY18 FY23E
0
FY14 FY15 FY16 FY17 FY18 FY23E Source: Industry, YES Sec - Research
Source: Industry, YES Sec - Research
3
Cables & Wires
Exhibit 4: Wires and Cables demand drivers Premiumization in housing wires led to higher margins for
Investments in power transmission and distribution (~42% organized players
growth in FY19-FY23) The electrical wires segment (largely housing) has witnessed a sharp
Power Cables
Capacity addition in solar and wind energy transformation over the last five years. Involvement of customer in
Smart Cities Mission purchases of electricals has risen sharply. Electrical fault is one of the
Affordable housing scheme major causes of residential fires and its potential hazard is increasing as
Building Wires
Growing nuclearisation of families more electrical appliances are found in each household unit nowadays.
Investments in commercial and residential infrastructure With an increase in fire accidents caused by electrical faults, consumer
(~35% growth in FY19-FY23) preference towards branded manufacturers has been on the rise.
Automobile industry growth and increasing investments in Further, organized players have also increased their advertisement and
railways for electrification promotional spends over the years. This has helped organized players
Elastomeric and
Growing demand for household appliances and
Flexible Cables / garner higher market share and margins over the last two-three years.
automobiles due to revival in per capita income
Wires
Increased construction activity supported by growing
infrastructure projects
Exhibit 5: Advertisement and promotional spends have
Industrial capex rising across industries such as auto, steel, increased over the last five years
oil and gas, and power. Polycab Finolex KEI Havells *
Control and
Investment expenditure by Indian Railways and in other 7 Vguard Crompton RR Kabel
Instrumentation (% of sales)
mass transit systems
Cables 6
Increased focus on automation in manufacturing and
processing to monitor and control quality 5
Service and industrial sector growth increasing the need for
4
data cables
Intercom and Security system penetration in residential 3
Switchboard and
buildings
telecom Cables 2
Smart cities project
Surge in internet users, with internet penetration as a 1
percentage of total households reaching 60% by fiscal 2023 0

Source: Industry, Polycab DRHP, YES Sec - Research FY13 FY14 FY15 FY16 FY17 FY18
4
Cables & Wires
Exhibit 6: Campaigns of wires & cables players in the industry Company Campaigns
Company Campaigns
Havells
Finolex
Wires That Don’t Catch Fire
Cables
Suraksha, Behtar ElectriKAL ke liye Polycab
KEI Connection Bachat Ka, Connection Zindagi ka

Industries
Jodey Dilon Ke Taar

RR Kabel
Syska
Akalmand Bano Sahi Chuno
Kyunki, wires less nahi, wires more
Anchor by
Panasonic
V-Guard
Bringing home a better tomorrow Naye India ke badhte load ke liye

Source: Companies, YES Sec - Research
5
Cables & Wires
Exhibit 7: Companies (Havells & Finolex) with higher share of Diversification into consumer durables to strengthen franchise
housing wires have registered strong margins expansion brand
Havells KEI Industries Finolex RR Kabel Polycab
Electrical players, over the last decade, have diversified into consumer
18 (%)
durables and domestic appliances to benefit from the strong growth
16
expected in this space. Strong brand and vast distribution reach would
help these companies to launch new products. Entry into consumer
14 products would reduce seasonal impact as well as would reduce the
dependence on growth in one single segment. Being a B2C segment,
12 these companies command a premium over the pure electricals
companies and would aid in creating strong branding for the franchise.
10
8
Exhibit 9: Most of the electrical players have diversified over
the last five years
6 Building Switch Domestic
FY13 FY14 FY15 FY16 FY17 FY18
Cables Wires Fans Lighting & SG Pumps appliances
Havells       
Exhibit 8: Distribution channel Finolex     
Polycab Finolex KEI Havells Vguard
Distributors 500 800 676
KEI  
Dealers 3,300 4,000 1,284 9,800 3,000 V-Guard      
Retailers 100,000 30,000 +100,000 30,000
Source: Company, YES Sec - Research Polycab       
Crompton     
Bajaj Elect.    
Orient Elect.    
Source: Company, YES Sec - Research
6
Cables & Wires
EV demand could bring in some volume uptick for the players Exhibit 11: NitiAyog EV Plan 2030
Electric Vehicle (EV), a story that is yet to see some material pick up in 2016-17 revised classification as per NitiAyog BAU Transformative
the automotive industry, has seen significant changes and inventions in PV - Personal 1% 40%
the industry. There would be huge demand, if the acceptability of EV PV - Commercial/fleet 5% 100%
picks up. With this the component industry would also come in lime CV - Goods 0% 0%
light. One such critical component in EV is electric wire harness. CV - Passenger 1% 100%
Compared to a conventional ICE vehicle, the requirement of wire 3Wh 5% 100%
harness is 3x in EV. Usually such wire harnesses are provided by an 2Wh 5% 40%
Source: NITI Ayog, Industry, YES Sec - Research
auto component company. However, the wire requirement in a vehicle
is different and to develop such processes in house would require huge
capex. Hence, the wire manufacturing would be done by manufacturers Exhibit 12: EV infrastructure demand forecast
in cables & wires industry. Also, there would be an additional demand Cumulative
2017- 2018- 2019- 2021- potential
coming for setting up of EV charging infrastructure, which would also
18 19 21 25 upto 2026
require some amount of wires. One of the cables and wires No of EV Charging
manufacturer in the industry is setting up a facility to grab the demand stations likely to be set 1,000 5,000 50,000 350,000 406,000
from automotive industry and prepare for futuristic demand for EV. up
Norms of EV Chargers
4 4 6 6
Exhibit 10: Demand for copper is quite higher in EV likely to be installed
Total EV Chargers likely
4,000 20,000 300,000 2,100,000 2,424,000
to be installed
% of AC Slow chargers
90% 80% 80% 70%
likely
% of DC Fast Chargers
10% 20% 20% 30%
likely
No of AC Slow chargers
3,600 16,000 240,000 1,470,000 1,729,600
likely to be installed
No of DC Fast Chargers
400 4,000 60,000 630,000 694,400
likely to be installed
Source: NITI Ayog, Industry, YES Sec - Research
Source: www.copper.org, YES Sec - Research
7
Cables & Wires
T&D investments growth: Feeder separation & rural Exhibit 13: Transmission progress as on Feb’19
electrification show the way Target at
End of End of End of 13th plan
T&D accounts for a major share in the demand for power cables in the end of
10th plan 11th plan 12th plan (Till Feb'19)
13th plan
India. This space is largely catered to by organized players given the
Transmission line (in CKM)
rise in technological and product complexities. The sector has witnessed
220 kV 114,629 135,980 163,268 174,841 190,325
huge investments over the last five years as there were transmission
400 kV 73,438 106,819 157,787 179,269 203,644
bottlenecks and the government’s focus on Power for All has led to
765 kV 2,184 5,250 31,240 40,873 56,731
increased spends in rural areas too. India’s inter-regional power
HVDC 5,872 9,432 15,556 15,556 19,815
transmission capacity has increased from 17GW in FY07 to 86GW in
Total 196,123 257,481 367,851 410,539 470,515
FY18 and is further expected to touch 130GW by FY23. The
Substation (in MVA)
government’s focus on providing electricity to rural areas has seen
220 kV 156,497 223,774 312,958 347,116 373,265
power T&D system extended to remote villages. Industry expects
400 kV 92,942 151,027 240,807 310,077 337,372
demand for energy to increase by 6.8-7% CAGR over the next five years,
765 kV - 25,000 167,500 208,000 269,000
resulting in strong T&D spends.
HVDC 8,200 9,750 19,500 22,500 30,500
The government has set higher investments targets over the 13th Plan Total 257,639 409,551 740,765 887,693 1,010,137
(2017-2022) at Rs3-3.2tn compared to Rs.2.1-2.2tn over the 12th Plan. Source: CEA, YES Sec – Research
Planned overhaul of the inter-state transmission system in West Bengal Exhibit 14: Feeder segregation progressing steadily
& North Eastern Railway and associated transmission systems within
63,005
states, as well as huge investments in the ultra-high capacity green (nos)
70,000
energy corridors should drive the transmission sector’s growth.
60,000
43,519
42,992
Increasing private sector participation will also support transmission
41,444
40,383
39,557
38,868
37,028
36,215
35,528
50,000
35,091
34,846
34,504
34,286
sector investments. Investments of ~Rs.2.6-2.8tn are expected in the
40,000
distribution segment, driven by increased outlay from the central
government on various distribution related schemes such as Deendayal 30,000
Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power 20,000
Development Scheme (IPDS), and state investments to reduce AT&C 10,000

losses. Next phase of investment in the distribution sector would be led 0
by improvement in T&D infrastructure coupled with agricultural
Mar'16
Dec'16
June'16
Mar'17
Dec'17
June'17
Mar'18
Dec'18
June'18
Mar'19
Target
Sep'16
Sep'17
Sep'18
feeder segregation and extensive rural electrification under DDUGJY.
Pre- Post Uday
Uday
Source: UDAY, YES Sec - Research
8
Cables & Wires
Industry growth led by mass transportation and overall infra Exhibit 16: Railway electrification work sanctioned
spends 16,000 (Rkm)
14,149
Key infra spends are expected to rise over the next five years, aided by 14,000
several recent policy reforms. Roads would drive most construction
12,000
spends; investments in urban infrastructure, irrigation, and railways
would likely grow at a fast pace. Construction expenditure in railway 10,000
projects is expected to grow 2.4x times led by networking decongestion, 8,000 7,176
6,608
network expansion (including electrification), and high-speed rail.
6,000
During the last five years, 204 electrification projects comprised of
30,964 Rkm have been sanctioned by GoI, and 38,000 Rkm projects have 4,000
2,569
been identified for electrification of BG network by 2021. So far 30,212 2,000
462
Rkm have been electrified, accounting for about 49% of total Rkm on
-
Indian Railways. With 51% of the network yet to be electrified, a huge 2014-15 2015-16 2016-17 2017-18 2018-19
demand is underway for the wires and cables industry.
Source: CORE, YES Sec - Research
Exhibit 15: Metro construction sends are expected to ~double

over the next five years Exhibit 17: Infrastructure spend growth to remain high
(tn) Infrastructure Industrial Building construction

(bn) 50
1,400
45
1,200
40
35 18
1,000
30
800 2
25 17
600 1,189 20
15 2
400 25
639 10
200 14
5
0
0
FY14-18E FY19P-23P
FY14-18E FY19P-23P
Source: Industry, YES Sec - Research Source: Industry, YES Sec - Research
9
Cables & Wires
Spending on road construction is expected to jump significantly on Exhibit 18: Urban population as a % of total population
account of increased awarding by the National Highways Authority of
India (NHAI). The government’s investment focus on smart cities and 40% 36%
metro construction in major Indian cities will drive growth for various
35% 31%
types of cables and wires. The government has approved a budget of 28%
30% 26%
Rs480bn for the development of 100 smart cities over 5 years beginning
23%
FY17. Metro projects are expected to be the second-largest urban 25% 20%
18%
infrastructure investment contributor over the next five years. 20% 17%
14%
Construction spends on metros is expected to increase 1.9x to 15% 11% 11% 12%
10%
approximately Rs.1.1tn over fiscals 2019-2023.
10%
5%
People urbanization and family nuclearization: two key
demand triggers 0%
1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 2021E
India, over the past few decades, has undergone massive urbanization.
This trend is expected to continue with urban population contributing
36% to the total population by 2021 as against 31% in 2011. The
migration is largely on account of higher employment opportunities, Tier II and III cities to drive Housing construction growth
educational needs and expansion of towns/cities. Moreover, supported The three segments to drive growth in building construction are
by urbanization, nuclearization of households is also happening in a big affordable housing (Pradhan Mantri Awas Yojana), healthcare and
way. The other key reasons of nuclearization include changing education. Increase building construction activity will lead to a rise in
lifestyles, rising individualism, changing social/cultural attitudes and demand for cables and wires, especially in the house wires segment.
increased people mobility for better opportunities. Newer households The real estate industry is in focus since the past two years, with key
would fuel the requirement for electrical products. developments such as demonetisation, enactment of the Real Estate
(Regulation and Development) Act (RERA) and the GST impacting the
sector deeply.
Pradhan Mantri Awas Yojana (PMAY) (Urban) aims to construct 20mn

households by 2022 and has completed construction of close to 1.6mn
households of the 7.9mn sanctioned. 4.1mn are grounded for
construction as on February’19. Under this scheme, central government
has sanctioned Rs.1.2tn for PMAY (Urban), of which Rs.397bn has been
released as on February’19. PMAY (Rural) targets to construct 30mn
households by 2022. Of the 9.5mn sanctioned households, it has
10
Cables & Wires
constructed 6.4mn as on Dec’18. Under this scheme, central government Exhibit 20: House Sanctioned under PMAY (Grahmin)
has sanctioned Rs.1.25tn, of which Rs.876bn has been released and
Total Sanctioned Houses completed Houses yet to be completed
Rs.752 utilized as on July’18. Successful implementation of this mission (mn)
will significantly boost demand for electrical products. 4.5 4.1
4.0
Exhibit 19: House Sanctioned under PMAY (Urban) 3.5 3.1
2.9
3.0
2.3 2.4
(mn) 2.5 2.1
9.0 2.0 2.0
7.9 1.8
2.0
8.0
1.5 1.2 1.3
7.0 1.0 0.9
1.0
6.0 0.4 0.3
0.5
5.0 4.4
-
4.0 IAY IAY PMAY (G) PMAY (G) PMAY (G)
(FY15) (FY16) (FY17) (FY18) (Till Dec'18)
3.0
1.8
2.0 Source: Ministry of Housing and Urban Affairs, YES Sec – Research
0.7
1.0
- Exhibit 21: Share of households of total power consumption is
FY16 FY17 FY18 Till Feb'19 (FY19)
expected to increase over the next 5 years
Source: Ministry of Housing and Urban Affairs, YES Sec – Research Domestic Industrial Commercial Agriculture Others
100%
7% 10% 8%
90%
As a result of the above, residential and commercial construction 18%
80% 21% 21%
combined is expected to rise 6-7% CAGR between FY19-23, compared
70% 9%
with -2.5% over the past five 5 years. This will translate into a significant 10% 12%
60%
increase in demand for house wires and LV power cables. Healthier
50%
growth from the residential real estate sector (especially in tier II and III 44% 31% 28%
40%
cities as compared to metros and tier I cities) will drive demand for
30%
building wires 20%
28% 31%
10% 22%
0%
FY13 FY17 FY23P
Source: Ministry of Housing and Urban Affairs, YES Sec – Research
11
Cables & Wires
Growing share of organized players Exhibit 22: Share of organized players will improve to 74% by
The Indian cables and wires industry has been gradually moving from FY23E
a largely unorganized sector comprising smaller regional players Organized Unorganized
towards an organized sector comprising pan-India branded market
100%
players across all categories. Furthermore, an increase in technological
90% CAGR ~8%
and product complexities, growing marketing and branding activities CAGR ~7% 34
26
80% 39
by leading cable manufacturers, and the entry of newer players have all 70%
led to an increase in the proportion of the industry’s revenue generated 60%
by the organized sector. The shift from unorganized to organized is 50% CAGR ~17%
more significant in specific categories such as LV power cables and 40% CAGR ~13%
74
66
building wires. In categories like High Voltage (HV) and Extra High 30% 61
Voltage (EHV) power cables, where the manufacturing process is 20%

10%
technology and capital intensive, and governed by strict quality
0%
regulations and established relationship between B2B customers and FY14 FY18E FY23P
incumbents, there are few unorganized players.
At an overall level, the organized players accounted for an ~66% share

of the cables and wires industry’s production in FY18. Industry expects
the share of organized players to grow to ~74% by FY23E on account of
GST rollout, improved efficiency and cost structure (reducing the price
gap between the organized and unorganized sectors) and the
economies of the pan-India distribution network.
12
COMPANY SECTION
COMPANY REPORT
KEI Industries Ltd - BUY

Retail penetration to drive growth
KEI has emerged as the fastest growing cables and wires company in CMP (Rs) (As on Apr 08,
408 Sector: Consumer Electricals
the listed space over the past five years. Strong demand from the 2019)
power distribution sector and increasing share of housing wires has 12‐mts Target (Rs) 558 Market cap (Rs mn) 31,971
propelled KEI’s growth. Increasing reach in the domestic market and
Upside 36.7% Enterprise value (Rs mn) 39,609
improving brand visibility via various media spends, has led to the
company doubling its revenue through dealer network over FY14-18
Exhibit 23: Financial summary
to Rs.9.8bn (28.2% of revenue). The company has also managed to
Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E
double its institutional sales on the back of strong demand from
Revenue 26,281 34,650 41,311 49,740 56,892
infrastructure & power distribution sector and KEI’s comprehensive
yoy growth (%) 11.8 31.8 19.2 20.4 14.4
range in its cables portfolio. On the back of capacity expansion,
Operating profit 2,687 3,388 4,317 5,205 6,037
execution of orders in EHV & EPC and strong demand from power OPM (%) 10.2 9.8 10.4 10.5 10.6
distribution sector, we expect KEI to witness 18% revenue CAGR Reported PAT 937 1,443 1,822 2,345 2,914
over FY18-21. Increase in share of higher margin segments (470bps) yoy growth (%) 49.8 54.1 26.3 28.7 24.3
would lead to an expansion of 83bps in operating margin over FY18- EPS (Rs) 12.0 18.4 23.3 29.9 37.2
21. We believe the company would continue to witness some rerating P/E (x) 33.9 22.2 17.5 13.6 11.0
as it is expected to report 26.4% PAT CAGR over FY18-21, RoE would EV/EBITDA (x) 14.5 11.7 9.2 7.8 6.6
stay +25% and D/E would trend lower to 0.6x. We initiate with a Buy Debt/Equity (x) 1.6 1.4 1.1 0.9 0.6
rating for a target price of Rs.558 (15x FY21E P/E). RoE (%) 22.6 27.1 26.4 26.6 25.9
RoCE (%) 24.1 23.8 26.1 27.9 28.9
Housing wires to propel growth Source: Company, YES Sec - Research
In 9M FY19, sales through dealer network grew ~50% on a yoy basis
and increased its revenue share to 33.4% from 26% in FY14. Since this Re-rating to continue; Initiate with Buy
segment is largely B2C, margins are higher by 100-150bps and working KEI has witnessed valuation re-rating on the back of strong earnings
capital requirement is lower compared to institutional business. Over growth, while keeping leverage under check and improving RoE
FY13-19, KEI has more than doubled its dealers to 1,400 and has sharply from 11% in FY15 to 27.1% in FY18. We believe the company
increased its advertisement spends 10x. Higher sales through channel would continue to witness valuation re-rating as earnings growth
financing will reduce working capital requirements. We expect dealer remains robust on a large base, D/E declines and RoE would stay +25%
business revenue to more than double over FY18-21 to Rs.20bn led by levels.
growing reach and focused spends on advertisements.
April 09, 2019
KEI Industries Ltd
EHV segment sales to double Company rating grid Stock performance

KEI entered the Extra High Voltage (EHV) segment in 2010 via a Low High KEI Sensex
140
technological collaboration with Switzerland‐based Brugg Kabel AG. 1 2 3 4 5
The company has further added a new line of 400kv at Chopanki. Earning growth 110
Revenue contribution from this segment was subdued due to lower Cash flow 80
offtake and teething issues at the new capacity. Utilization levels were B/S strength
50
low, impacting overall margins. However, revenue from this segment Valuation appeal
has picked up in Q3 FY19 and is expected to surge from Q4 FY19 as the Risk 20
Apr-18 Aug-18 Dec-18 Apr-19
company’s capacity is largely booked. EHV orderbook at the end of Q3
Market Data (As on Apr 08, 2019) 1M 3M 1Y
FY19 stood at Rs.6.6bn and provides strong revenue visibility over the
next 18 months. EHV products command higher margins at 14-15%. Sensex: 38,701 Absolute
5.5% 15.4% (0.2)%
52 Week h/l (Rs) 496/248 return
With full utilization, we expect EHV segment revenue to double to
6m Avg t/o (Rs mn): 79.8
Rs.3.5bn in FY19.
FV (Rs): 2 Shareholding pattern (as of Dec’18 end)
Div yield (%): 0.2
Debt levels closer to peak, D/E on the wane Promoter 45.9%
Bloomberg code: KEII IN
KEI has managed to reduce its D/E despite strong capex and increase BSE code: 517569 FII+DII 25.8%
in working capital requirement (led by strong revenue growth). Even NSE code: KEI Others 28.3%
after registering 30% revenue CAGR and a capex of Rs.2bn over FY15-
18, D/E has been flat at 1.4x. We believe debt levels would remain flat
over the next two years even though the company is likely to spend business in FY19 and expects to grow at 10-15% yoy from FY20. On the
Rs.2.3bn on capacity expansion and revenue is expected to surge. back of capacity expansion, execution of orders in EHV & EPC and
Increase in share of retail and exports, wherein the working capital strong demand from power distribution sector, we expect KEI to
requirement in low would reduce the impact of increase in EPC revenue witness 18% revenue CAGR over FY18-21. The share of high margin
and would aid in reducing working capital requirement. This coupled business of retail, EHV, exports and EPC is expected to increase by
strong operating cashflows would lead to D/E declining from 1.4x in 516bps to 53.9% over FY18-21E. This coupled with higher utilization of
FY18 to 0.6x in FY21. current capacities would lead to margin expansion of 83bps expansion
in OPM over the same period. Interest costs would remain flat over
Retail, EHV and exports to boost earnings growth FY19-21 as debt levels would decline marginally and other finance costs
KEI is adding HT and housing wire capacities which over the next one would remain at FY19 levels. Strong revenue CAGR of 18%, OPM
year, as current capacities of these products are running close to optimal expansion of 83bps and flat finance costs would lead to 26.4% PAT
utilization. These capacities are expected to add revenues of Rs.8bn on CAGR over FY18-21E.
full utilization. The company has planned to consolidate its EPC
14
KEI Industries Ltd
INVESTMENT RATIONALE Housing wires: key focus area

KEI’s retail division comprises household wires and LT & HT cables.
Well-diversified product portfolio This segment is largely B2C and is sold through the dealer/distributor
network. The company, over the last five years, has transformed itself
KEI is a leading player in the domestic cables and wires market in India
from a local player in North India to a Pan India player. It has moved
and supplies products ranging from housing wires to Extra High
into the Top Five club of the housing wire segment, having more than
Voltage (400Kv) cables. Cables & wires account for 81.1% of the overall
doubled its revenue through dealer channel over FY14-18 to Rs.10.9bn.
business while EPC business accounts for the rest 18.9%. Sales through
Growth momentum accelerated further in 9M FY19, with the company
dealer network (B2C) accounted for 33.4% of overall revenues in 9M
registering ~50% yoy growth in this segment. Share of dealer network
FY19 and exports accounted for 13% in 9M FY19. Share of EHV cables
sales of overall revenues has increased to 33.4% in 9M FY19 from 26%
was lower at 3.2% due to delay in procurement from customer and
in FY14. KEI plans to increase dealer sales contribution to 40-45% from
commissioning of new facility. The rest is a combination of LT/HT
its current share of 33% over the next three years.
cables and stainless-steel wires. The company continues to diversify its
products by augmenting its capacity in LT, HT and housing wires.
Exhibit 25: Dealer network has more than doubled over
FY13-18
Exhibit 24: FY18 product mix - LT & HT cables account for
more than 50% of revenues (nos)
1,600
1,420
1,400 1,284
0.8 1,147
1,200
18.8
LT HT 926
1,000
828
800
3.4 41.6 EHV HW 650
601
600
SS Wire EPC 400

16.2
200
Others 0
4.8
14.3 FY13 FY14 FY15 FY16 FY17 FY18 FY19E
Source: Company, YES Sec - Research;
15
KEI Industries Ltd
Exhibit 26: Ad spends have jumped over last 3 years as Exhibit 27: New capacities and rising dealer network to boost
company’s focus has been on branding and increasing retail housing wires revenues by 2.5x over FY18-21E
market share (Rs mn) (%)
HW yoy growth
(Rs mn) Ad spends Share of overall revenues (%) 16,000 60
160 149 0.5 14,000 48
50
140 0.5
0.4 12,000
0.4 40
120 10,000 32
0.4
0.3 0.3
100 0.3 8,000 30
21 28
80 70 0.3 6,000 30
0.2 14 20
75 0.2 13
60 4,000
0.1 0.2
37 10
40 2,000
20 0.1
20 12 0.1 0.1 0 -
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
0 -
FY13 FY14 FY15 FY16 FY17 FY18 Source: Company, YES Sec - Research
As housing wires segment is largely B2C, this segment has higher
The company appointed a retail business head in FY15, with over 20 margins than the conventional cable segments by 100-150bps and
years of experience in the cable and wire retail business. Over FY13-19, working capital requirement is lower compared to institutional
KEI has more than doubled its dealers taking the total count to 1,400. In business. KEI is also trying to increase the share of sales through
the domestic market, it has a strong presence in north, followed by west, channel financing, which will reduce working capital requirements for
south, and east. The company has taken a restructuring exercise of its KEI. 50% of the dealers are covered under channel finance. Only new
current dealer network and plans to add 100-150 dealers every year. It dealers are not covered under channel finance as per the bank’s policy.
is building its visibility through aggressive brand promotion and Channel financing is on 50% recourse basis. KEI plans to grow 20-25%
advertisement campaigns. It spent Rs.170mn for advertising and each year in this segment by increasing its reach and focused spends on
promotion in FY18 against Rs.15mn in FY15. It also conducts regular advertisements. We expect sales through dealer network to more than
seminars for electricians, who are the brand ambassadors of KEI’s double over FY18-21 to Rs.20bn with margins close to 11%.
products in the consumer-driven retail segment. These aggressive
promotion activities will help it to increase its presence in the domestic
retail market. To cater to the rising demand, KEI is setting up a capacity
at Silvasa which would have a revenue potential of Rs.6bn on full
utilisation.
16
KEI Industries Ltd
EHV segment revenue to surge in FY20E Exhibit 28: EHV segment revenues to double in FY20E
KEI entered the Extra High Voltage (EHV) segment in 2010 via a (Rs mn) Revenue yoy (%)
4,500 160
technological collaboration with Switzerland‐based Brugg Kabel AG. 146
129
140
Brugg has over 100 years’ experience and the ability to manufacture 4,000
120
cables up to 550kV. This collaboration has enabled KEI a faster entry 3,500
100 100
into the EHV cable market with designs, process back-up and services 3,000
80
sought by end users. In the EHV segment, a company would take 4-5 2,500
66 60
years to achieve prequalification on its own as the company must 2,000
40
supply a certain amount of cables and the cables must have performed 1,500
20
satisfactory over the next 5 years. In case of EHV EPC contracts, cables 3 17
1,000 -
make up 70–75% of total value and the accessories are imported.
500 (20)
Margins in this segment are high at 15% and there are high entry (25)
0 (40)
barriers in this segment. FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Revenue contribution from this segment was subdued due to lower
offtake from customer and teething issues at the new capacity. The Deeper penetration to boost Exports
company in FY17-end added new capacity in the EHV segment with
KEI offers a wide range of cables in the export market. The company is
capacity up to 400kv. Lower utilization has impacted margins in this
present in 45 countries with a focus on oil & gas and utilities segment.
segment over the last two years. However, revenue from this segment
Its competitive pricing and ability to offer customised solutions and
has picked up in Q3 FY19 and is expected to surge from Q4 FY19 as the
speciality cables has led to a strong growth in this segment. Exports
company’s capacity is largely booked. EHV orderbook at the end of Q3
account for 13.1% of FY18 revenues and have witnessed revenue CAGR
FY19 stood at Rs.6.6bn and provides strong revenue visibility over the
of 36.1% over FY13-18. Strengthened prequalification parameters and
next 18 months. As mentioned in the industry section, EHV market is
large projects executed with local companies in Middle East & South
expected to be ~Rs.20–22.5bn in FY19, which is growing 10–15%
Africa has also led to strong growth. Current export order book stands
annually. We believe going forward, demand for EHV cables is
at Rs.7.5bn. The company has secured one big order worth Rs.4.5bn
expected to jump in Tier II areas due to urbanization and rising
from Dangote for supply of cables to setup a refinery in Nigeria,
demand. With improvement in utilization in FY20, we expect EHV
expected to be executed over the next one year. In exports, KEI’s
segment revenue to touch Rs.3.5bn from Rs.1.7bn in FY18.
margins are 11% with lower working capital requirement. Increasing
share of exports will improve profitability and help lower working
capital needs.
17
KEI Industries Ltd
EPC business growth: A cautious leap forward Exhibit 29: EPC orderbook has been lower compared to FY17 as
In the EPC segment, services offered include execution of Power the company was focused more on execution
transmission projects of 66kV to 400kV substations on turnkey basis, (Rs.bn)
EPC of EHV & HV cables systems, Electrical balance of plant system for 25
22.2
power plant and Electrical industrial projects. The Company intends to
focus on projects with significant cabling requirements ensuring that its 20
own cables are sold. This has been a natural extension for KEI as these 16.4
14.25
EPC projects generally consume high quantity of LT/HT cables. KEI 15
has collaborations with Woosun Electric Co., Korea for power projects
9
and Cobra Engineers, Spain for substation execution. It has tapped 10 8.3
opportunities in its business spaces to scale up and offer exclusivity

4
through new products and solutions like 400 kV EHV and new EPC 5
project for Banaras. KEI intends to limit its participation to funded

0
projects by bi-lateral agencies to avoid any cash flow risk. FY14 FY15 FY16 FY17 FY18 9M FY19

KEI has managed to ramp up this business over the last five years led
by strong government spends under schemes like ‘Deen Dayal
Upadhyaya Gram Jyoti Yojana’, Integrated Power Development Exhibit 30: After consolidating in FY19, EPC revenues are
Scheme (IPDS) and Pradhan Mantri Sahaj Bijli Har Ghar Yojana expected to increase 12% yoy over FY19-21
(Saubhagya scheme). EPC segment (including cables) has registered
(Rs mn) Revenue yoy chng (%)
45.4% revenue CAGR over FY13-18 and accounts for 25% of overall 10,000 60
business. Over the last two years, the company has been focussing on 9,000 54
50
execution over order bookings as EPC order book had grown to Rs.18bn 8,000 49
at the end of FY17. Post the sharp rise in its EPC business and achieving 7,000
40
31
a scale of ~Rs.1bn in FY18, the company has planned to consolidate its 6,000
EPC business in FY19. It expects growth to pick up from FY20 at 10-15% 5,000 30
each year. Margins in this business are higher than cables at 12-13% 4,000
20
(including cables margins). Orderbook at the end of Q3 FY19 stood at 3,000
12
Rs.15.1bn, as the company has restrained itself for bidding for 2,000 12
10
Saubhagya scheme orders released last year due to lack of funding. We 1,000
6
expect this business to witness revenue CAGR of 10% over FY18-21. 0 -
FY16 FY17 FY18 FY19E FY20E FY21E
18
KEI Industries Ltd
FINANCIALS Exhibit 32: Revenue growth would be led by HW and HT

(Rs mn) LT HT EHV HW SS Wire EPC Others
Retail and HT wires to lead revenue growth 60,000
KEI managed to report 22.2% yoy growth in revenues in 9M FY19 on 50,000

the back of strong growth of 31.8% in FY18. Growth in 9M FY19 was
largely led by a volume growth of 19%. Order book at the end of Q3 40,000
FY19 stood at Rs.38.7bn, which comprises of EPC book of Rs.15.1bn,

30,000
EHV at Rs.6.1bn, cable at Rs.10bn and export book of Rs.7.5bn
(including Dangote order of Rs.4.6bn). KEI is L1 in order worth 20,000
Rs.6.5bn, which includes underground cabling order of Rs.4.8bn from
Nepal Electricity Authority, EPC order of Rs.1.3bn and Rs.470mn EHV 10,000
orders. 0
Exhibit 31: Orderbook have been quite diversified Source: Company, YES Sec - Research
We believe growth momentum would continue as the company

19
expands its HT and housing wires segment. EHV segment revenue too
EPC
is expected to more than double over the next two years. We estimate
39
that KEI would witness 18% revenue CAGR over FY18-21 on the back
EHV of capacity expansion, execution of orders in EHV & EPC and strong
demand from power distribution sector.
Cable
26
Exports order (Rs.mn)

16
19
KEI Industries Ltd
Margins to improve led by increase in share of EHV and retail Exhibit 34: Share of high margin businesses is expected to
Margin expansion over the last two years has been lower than expected increase by 516bps to 53.9% over FY18-21E
due to lower pickup in EHV, investments into strengthening its (Rs mn) High margin business % of revenue (%)
distribution network and jump in commodity prices. We believe the 3,500 60
impact of EHV segment would reverse as the current order book would 54
3,000
lead to full utilization of EHV capacity. Amongst its product portfolio, 51
55
EHV, exports, EPC and retail are high margin businesses. The company 2,500
49
49
50
49
has already registered its 8-quarter high margin of 10.8% in Q3 FY19 as 2,000
46
EHV and retail sales jumped. In 9M FY19, margins were higher by 45
1,500
50bps at 10.3%. The share of these high margin businesses is expected
37 40
to increase by 516bps to 53.9% over FY18-21E. This coupled with higher 1,000
utilization of current capacities would lead to margin expansion of 500 35
83bps expansion in OPM over the same period to 10.6% in FY21.
0 30
Exhibit 33: Share of sales through dealer is expected to increase
to 35% in FY21 from 28% in FY18
Institutional Dealer Exhibit 35: …this would lead to 83bps margin expansion over
100% FY18-21E
90% 25 (Rs mn) (%)
27 26 28 Operating profit OPM
33 34 35
80%
7,000 11.0
70% 10.6
10.4 10.5
60% 6,000 10.5
50% 10.3
5,000 10.2
40% 9.8 10.0
73 75 74 72 67 66 65 4,000 9.5
30%
9.5
20%
3,000
10%
9.0
0% 2,000
1,000 8.5
0 8.0
20
KEI Industries Ltd
Re-rating to continue; Initiate with Buy Exhibit 36: Over the years KEI has witnessed re-rating as it has
KEI has managed to reduce its D/E over FY15-18 despite strong capex delivered strong results
(Rs.2bn) and increase in working capital requirement (led by strong 25 P/E Avg
revenue CAGR of 30%). We believe debt levels would remain flat over
the next two years even though the company is likely to spend Rs.2.3bn
20
on capacity expansion and revenue is expected to surge. Increase in
share of retail and exports, wherein the working capital requirement in
15
low would reduce the impact of increase in EPC revenue. This coupled
strong operating cashflows would lead to D/E declining from 1.4x in
10
FY18 to 0.6x in FY21. Strong revenue CAGR of 18%, OPM expansion of
83bps and flat finance costs would lead to 26.4% PAT CAGR over FY18-
5
21.
KEI has witnessed valuation re-rating on the back of strong earnings 0

Aug-11 Jun-12 Apr-13 Mar-14 Jan-15 Nov-15 Sep-16 Jul-17 May-18 Apr-19
growth, has managed to achieve this keeping leverage under check and
Source: Bloomberg, YES Sec - Research
RoE improved sharply from 11% in FY15 to 27.1% in FY18. We believe
the company would continue to witness valuation re-rating as earnings
growth remains robust on a large base, D/E declines and RoE would
stay +25% levels. We value the company at 15x FY21E P/E (higher than
its 3-year average of 12.5x) and arrive at a target price of Rs.558.
21
KEI Industries Ltd
COMPANY BACKGROUND Exhibit 37: Plant-wise capacity

(km) Capacity
KEI Industries Limited (KEI) was established in 1968 as a partnership EHV 900 km
firm under the name Krishna Electrical Industries, with prime business HT power cables 7,500 km
activity of manufacturing switch board cables for DOT. The firm was LT power cables 93,600 km
Rubber cables 3,600 km
converted into public limited with the corporate name KEI industries
Total cables 1,05,600 km
Limited in December 1992. KEI entered into a technological tie-up with House/flexible/winding wires 8,17,000 km
BRUGG KABEL A.G., Switzerland for manufacturing EHV cables Stainless steel wire 6,000 MT
ranging from 66kV to 220kV and in 2017 the company added a new line Source: Company, YES Sec - Research
to manufacture EHV up to 400kV. Over the years, KEI has added new
products to its portfolio and has transformed into one of the leading Exhibit 38: Key management Team
cables and wires manufacturer in India. Name Designation
Mr. Anil Gupta Chairman & Managing Director
The company operates through cables, stainless steel wire, and turnkey K.G Somani Non‐Executive & Independent Director
projects segments. Cables segment comprises extra high voltage (EHV), Mr. Pawan Bholusaria Non‐Executive & Independent Director
high tension (HT) and low tension (LT) power cables, control and Mr. Vijay Bhushan Non‐Executive & Independent Director
instrumentation cables, winding wires, and flexible and house wires. Mr. Vikram Bhartia Independent Director
Stainless steel wire segment includes stainless steel wire. Its product Mr. Sadhu Ram Bansal Non‐Executive & Independent Director
portfolio includes EHV, MV and LV power cables, control and Mrs. Archana Gupta Non‐Executive Director
instrumentation cables, specialty cables, elastomeric cables, rubber Mr. Akshit Diviaj Gupta Executive Director
Mr. Rajeev Gupta Executive Director (Finance) & CFO
cables, submersible cables, flexible and house wires, winding wires and
stainless-steel wires. Its cable products are used in oil refineries,
railways, automobiles, cement, steel, fertilizers, textile and real estate
sectors. It is also engaged in Engineering, Procurement and
Construction (EPC) business. Its manufacturing plants are located at
Bhiwadi, Chopanki, Silvassa and Pathreri.
.
22
KEI Industries Ltd
FINANCIALS Exhibit 40: Income statement

Exhibit 39: Balance sheet Revenue 26,281 34,650 41,311 49,740 56,892
Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E Operating profit 2,687 3,388 4,317 5,205 6,037
Equity capital 156 157 157 157 157 Depreciation 284 322 338 389 428
Reserves 4,455 5,890 7,574 9,733 12,463 Interest expense 1,244 1,119 1,264 1,315 1,249
Net worth 4,611 6,047 7,730 9,890 12,620 Other income 101 93 46 51 56
Debt 7,502 8,409 8,609 8,609 8,109 Profit before tax 1,259 2,040 2,761 3,552 4,416
Deferred tax liab (net) 353 397 397 397 397 Taxes 324 597 939 1,208 1,501
Current Liab & Prov 6,492 7,346 8,738 10,497 11,992 Minorities (2) (0) - - -
-Sundry creditors 6,355 7,167 8,545 10,288 11,768 Net profit 937 1,443 1,822 2,345 2,914
-Provision 137 179 193 208 225
Total Liabilities 18,958 22,199 25,474 29,393 33,118 Exhibit 41: Cash flow statement
Fixed Asset 4,084 4,300 4,770 5,170 5,470 PBIT 2,504 3,158 4,025 4,867 5,665
Non-curr. investments 29 30 30 30 30 Depreciation 284 322 338 389 428
Current Assets 14,512 17,098 20,019 23,961 27,245 Tax paid (324) (597) (939) (1,208) (1,501)
-Inventories 4,989 5,556 6,624 7,976 9,122 Working capital ∆ (2,680) (1,733) (1,529) (2,183) (1,788)
-Sundry debtors 8,246 10,228 11,829 14,100 15,966 Operating cashflow (217) 1,151 1,896 1,865 2,804
-Other current assets 1,277 1,314 1,566 1,886 2,157 Capital expenditure (792) (538) (809) (789) (728)
Cash 333 772 656 232 374 Free cash flow (1,009) 613 1,087 1,076 2,076
Total Asset 18,958 22,199 25,474 29,393 33,118 Equity raised 59 86 - - -
Investments 2 (1) - - -
Debt financing/disposal 2,529 908 200 - (500)
Interest Paid (1,244) (1,119) (1,264) (1,315) (1,249)
Dividends paid (55) (92) (139) (185) (185)
Other items (8) 44 - - -
Net ∆ in cash 275 438 (116) (424) 142
23
KEI Industries Ltd
Exhibit 42: Ratio analysis Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E
Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E Valuation ratios (x)
Growth matrix (%) P/E 33.9 22.2 17.5 13.6 11.0
Revenue growth 11.8 31.8 19.2 20.4 14.4 P/BV 6.9 5.3 4.1 3.2 2.5
Op profit growth 10.8 26.1 27.4 20.6 16.0 EV/EBITDA 14.5 11.7 9.2 7.8 6.6
EBIT growth 12.3 26.2 27.4 20.9 16.4
Net profit growth 49.8 54.1 26.3 28.7 24.3 Exhibit 43: Du-pont analysis
Profitability ratios (%) Tax burden (x) 0.74 0.71 0.66 0.66 0.66
OPM 10.2 9.8 10.4 10.5 10.6
Interest burden (x) 0.50 0.65 0.69 0.73 0.78
EBIT margin 9.5 9.1 9.7 9.8 10.0
EBIT margin (x) 0.10 0.09 0.10 0.10 0.10
Net profit margin 3.6 4.2 4.4 4.7 5.1
Asset turnover (x) 1.56 1.68 1.73 1.81 1.82
RoCE 24.1 23.8 26.1 27.9 28.9
Financial leverage (x) 4.06 3.86 3.46 3.11 2.78
RoNW 22.6 27.1 26.4 26.6 25.9
RoE (%) 22.6 27.1 26.4 26.6 25.9
RoA 5.6 7.0 7.6 8.5 9.3
Per share ratios (Rs)

EPS 12.0 18.4 23.3 29.9 37.2
Dividend per share 0.6 1.0 1.5 2.0 2.0
Cash EPS 15.7 22.5 27.6 34.9 42.7
Book value per share 59.3 77.2 98.7 126.2 161.0
Payout (%)
Dividend payout 5.9 6.4 7.6 7.9 6.3
Tax payout 25.7 29.3 34.0 34.0 34.0
Liquidity ratios
Debtor days 114.5 107.7 104.5 103.5 102.4
Inventory days 69.3 58.5 58.5 58.5 58.5
Creditor days 88.3 75.5 75.5 75.5 75.5
Leverage ratios (x)

Interest coverage 2.0 2.8 3.2 3.7 4.5
Net debt / equity 1.6 1.3 1.0 0.8 0.6
Net debt / op. profit 2.7 2.3 1.8 1.6 1.3
24
COMPANY REPORT
Finolex Cables Ltd - BUY

Premium play
Electrical C&W growth picks up CMP (Rs) (As on Apr 08, 2019) 493 Sector: Consumer Electricals
Finolex Cables is a leader in the electrical housing wires segment and 12‐mts Target (Rs) 600 Market cap (Rs mn) 75,404
commands a premium over its peers. In 9M FY19, the company
managed to report 9% revenue growth in electrical C&W segment Upside 22% Enterprise value (Rs mn) 74,378
despite the challenges with respect to Kerala floods and logistics
disruption at its Roorkee plant. Strong brand positioning and superior Exhibit 44: Financial summary
product quality has enabled the company to maintain high margins (15- Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E
16%) and keep its working capital requirements very low compared to Revenues 24,448 28,151 31,408 34,648 38,547
its peers, even though real estate market has been stagnant. We believe yoy growth (%) (3.9) 15.1 11.6 10.3 11.3
Operating profit 3,959 4,408 4,677 5,213 5,778
growth in this segment would be led by recovery in housing wires
OPM (%) 16.2 15.7 14.9 15.0 15.0
segment and commissioning of new capacities for auto and solar sector.
Reported PAT 4,003 3,301 4,517 5,018 5,576
Growth would also be led by market share gains in North and East, yoy growth (%) 20.4 (17.5) 36.8 11.1 11.1
wherein the company has been aggressively adding new distributors. EPS (Rs) 26.2 21.6 29.5 32.8 36.5
We expect this segment to witness revenue CAGR of 10% over FY19- P/E (x) 18.8 22.8 16.7 15.0 13.5
21E after registering flat growth over FY14-18. Margins in this segment EV/EBITDA (x) 18.6 16.9 15.5 13.6 12.0
are expected to remain above 15.5%. RoE (%) 21.2 14.4 17.2 16.6 16.0
RoCE (%) 21.2 20.9 19.0 18.5 17.9
Communication cables steer revenues over FY13-18 Source: Company, YES Sec – Research
Revenue growth over the last five years (when electricals C&W
revenues were flat) was led by ramp up of its communication cables Decisive foray into consumer electrical goods (FMEG)
business (16.4% of revenue). Rising volume of mobile data traffic Finolex entered the FMEG segment to capitalize on the strong brand
coupled with the government’s thrust on digitization has led to a surge recall and sales network. Revenues increased 45% yoy to Rs.600mn in
in demand for optical fibres. OFCs account for 70% of communication FY18. These products have been well accepted, and distributors have
cables and is largely a B2B business. With high-speed internet grown by 523 to 1,125 only within its second year of operation. We
connectivity and seamless data flow becoming a necessity, demand for expect this business to grow faster than the market and is expected to
optic fibre networks is set to spiral upwards. Finolex is increasing its double over FY18-21E. This segment is expected to move into black as
OFC capacity by 60% as current unit is operating close to capacity. We it achieves scale over the next two to three years.
expect this segment to grow at 10% yoy with margins of 13.5%.
April 09, 2019

Finolex Cables Ltd
Strong balance sheet and short working capital cycle to drive Company rating grid Stock performance
inorganic growth Low High Finolex Cables Sensex
140
Construction sector accounts for 60% of electrical cables & wires 1 2 3 4 5
revenue and is largely B2C. The company sells ~70-75% of its products Earning growth 110
through its dealer network and the rest is directly sold to institutional Cash flow 80
clients. The company uses the advance sales strategy for sales through B/S strength
50
its dealers. Dealers either pay the company in advance or avail channel Valuation appeal
Risk 20
financing (non-recourse) provided by banks. This has allowed the Apr-18 Aug-18 Dec-18 Apr-19
company to lower debtor days to ~20-25 days. The company has been
Market Data (As on April 08, 2019) 1M 3M 1Y
reporting strong FCF despite the increase in B2B business of OFC. Cash
Sensex: 38,701 Absolute
and cash equivalents stood at Rs.10.7bn at the end of FY18 and is 11.8% 10.0% (29)%
52 Week h/l (Rs) 740/356 return
expected to increase further to Rs.19bn despite the capex of Rs.2bn.
6m Avg t/o (Rs mn): 32.7
Further, the company holds 32.39% stake in Finolex Industries (current
FV (Rs): 2 Shareholding pattern (as of Dec’18 end)
mkt cap of Rs.66bn). We believe its strong balance sheet would help it
Div yield (%): 0.8 Promoter 37.3%
grow inorganically.
Bloomberg code: FNXC IN
BSE code: 500144 FII+DII 27.0%
Premium valuations to stay put
NSE code: FINCABLES Others 35.7%
Finolex has maintained its premium brand image despite the weak
growth in electrical C&W segment. The company has not compromised
on its margins as well as working capital cycle during this tough time.
With green shoots visible for the company in 9M FY19, we believe
growth over the next two years would be led by new product
introduction, strong demand for optic fibre and increase in contribution
from FMEG products. Increased promotional expenses coupled with
expansion of dealer network would led to FMEG products revenue
doubling over FY18-21. We expect revenue CAGR of 11% over FY18-21
with OPM of ~15%. We believe that the valuation gap between Finolex
and its peers in the electrical industry will narrow as it continues to
deliver superior margins and increases the share of FMEG products. We
value the company at 20x standalone FY21E P/E (Marginally higher
than its 3-yr average of 19x) and initiate coverage with a Buy rating for
a target price of Rs.600. We have not given any value to FNCB’s stake
in Finolex Industries (Rs.138/share).
26
Finolex Cables Ltd
Electrical cables and wires segment: Visible green shoots Finolex Cables has over 30,000 dealers and 4,000 channel partners
Finolex Cables is a leading player in the domestic electrical cables and serviced through 28 depots across India. West and South India account
wires industry. This segment accounts for 79% of the company’s for 75% of the company’s electrical C&W business. To gain market share
revenues and offers a wide range of products in each of the segments. in North and East the company has been aggressively adding new
Construction sector accounts for 60% of Finolex’s electrical C&W distributors in these regions and has also setup a plant in Roorkee,
segment, with the rest spread between automotive, agriculture, Uttarakhand. The company serves the Southern and Western market
industrial and power (each accounting for ~10-12%). Revenue growth through its plants at Pune and Goa and the Northern and Eastern region
in this segment has been subdued at 2% CAGR during FY13-18 largely through its Roorkee plant. Current average utilization at these plants
due to falling commodity prices and higher exposure to the housing together stood at ~66%. Capex over the next two years would be largely
segment. Volume growth during the same period was higher at 3.4%. to improve product portfolio (solar and auto) and increase its backward
However, post GST tax revision to 18%, revenue growth for Finolex has integration at its Pune plant. The company has received the necessary
been strong as the share of organized players has increased. Given the approvals for the expansion at Pune.
shrinking price differential between organized and unorganized
Exhibit 46: South and West account for 75% of sales for EWC
coupled with rising focus on premium electrical wires, the share of
organized players has been inching upwards.
10
Exhibit 45: Construction sector accounts for 60% revenue of South
EWC 15
45 West
10
Construction North
10
Agriculture
30
East
10 Industrial
60
Automotive
10
Power Strong brand positioning and higher share of B2C business has enabled
the company to register high margins over its peers. Electrical fault is
one of the major causes of residential fires and its potential hazard is
Source: Company, YES Sec - Research alarming as more electrical appliances are found in each household unit
nowadays. With an increase in fire accidents caused by electrical faults,
27
Finolex Cables Ltd
consumer preference towards branded manufacturers has been on the Communication cables: growth engine since last five years
rise. This has led to companies like Finolex to garner higher margins The communication cables segment accounts for 16.4% of overall
over the last 2-3 years. The company expects to maintain its margins revenues and has grown at a faster pace than the electrical cables due
around 15-16% going forward. to increased demand from telecom, broadband, and DTH companies.
In this segment, optical fibre cable (OFC) accounts for 70% of sales,
Exhibit 47: EWC revenue growth expected to be ~10% yoy
followed by LAN at 15% and the rest is between Co-axial cables, CCTV
35,000
(Rs mn) Electricals Cables yoy (%)
12
cables and telephone wires. The segment registered 19% revenue CAGR
during FY13-18 largely led by strong demand for OFC.
10 10 10
9
30,000 8 Exhibit 48: Optic fibre accounts for 70% of communication
6
cables revenue
6
25,000 4
3
2
1 15
1
20,000 0 Optic Fibre
(1)
(2)
15
15,000 (4)
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E LAN

70
Post GST tax revision to 18%, revenue growth for Finolex has picked Rest
up. Shrink in price differential between organized and unorganized
coupled with rising focus on premium electrical wires, share of
organized players has been inching upwards. In 9M FY19, the company
Source: Company, YES Sec – Research, Rest includes speaker, telephone, co-axial and CCTV
registered 9% yoy revenue growth led by strong demand from
cables
construction, automotive and industrial segments. We expect this
growth to continue with the change in consumer preference, increase in The company started to manufacture OFC in FY96 through a JV with
share of organized players in the real estate, rising penetration in North AT&T, USA. The company bought out its JV partner and fully acquired
& East, and contribution from new capacity. We estimate revenue the optic business during FY02. The Company's Optic Fibre Division
CAGR of 9.7% over FY18-21E to Rs.30.4bn and margins to above 15% further expanded its capacity in September 2004. Finolex has also
over the same period. entered into a marketing JV with Corning USA (leader in the optical-
fibre technology globally) in 2012 to procure and market optical fibre.
JV with Corning has registered good growth as domestic demand has
28
Finolex Cables Ltd
been quite strong. Current capacity stands at 2.4mn FKm and utilization FMEG business to boost revenue growth
levels remain elevated. The company plans to expand its capacity to To de-risk itself from the core wires and cables business and to take
~4mn FKm and has already acquired land for its expansion. advantage from the strong brand recall and sales network, Finolex
made a foray into the electrical consumer segment. The company first
This business is largely B2B (80%) and driven mostly by government entered the electrical switches and lighting segment, leveraging its
tenders and private companies. Margins in this business are lower than widespread distribution network in the country. The company than
electrical cables at 12-13%. The segment is expected to register strong introduced switchgears, fans and water heaters in FY17. However, for
growth of 10-15% annually as demand in the domestic market remains these products the company has setup a different channel and is using
high. We estimate revenue CAGR of 11.6% over FY18-21 and margins asset light model. The company is currently producing only switches
to decline from FY19 levels of 14% to 13.5%. and switchgears at its plants in Roorkee, rest all other products are
currently outsourced. The company will continue to operate this model
Exhibit 49: Communications revenue growth would be boosted until it achieves some scale in each product.
from H2 FY20 post the commissioning of new plant
(Rs mn) (%)
Exhibit 50: FMEG revenue to double over FY18-21; would
Communication Cables yoy
7,000 100 account for 2.4% of overall revenues
87
6,000 80 (Rs mn) FMEG revenues yoy growth (%)
1,400 50
5,000 60 45
45
1,200
40
4,000 40
1,000 35
3,000 29 20
13 15 25 25 30
10 800 25
10
2,000 8 0 25
600
20
1,000 (19) (20)
400 14 15
0 (40) 10
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 200 7 5
Source: Company, YES Sec - Research 0 0
FY16 FY17 FY18 FY19E FY20E FY21E
29
Finolex Cables Ltd
These products have been well-accepted in the market and within its JV performance to look up
second year the number of distributors stocking it have grown by 523 Over the years Finolex has formed JV with companies which are global
to 1,125. Revenue from these products improved to Rs.600mn in FY18 leaders in technology and products. Currently, Finolex has two
from Rs.414mn in FY17. Currently most of the products have positive operational JVs, one with Sumitomo Electric Industries of Japan and
contribution, however, with the high advertising and promotion costs, another with Corning SAS. JV with Sumitomo was entered in 2007 to
the segment is reporting loss at operating level. We expect this business set up an extra-high-voltage (EHV) cable plant to manufacture cables
to grow faster than the market and would drive overall growth for the above 33kV. Performance of this JV has been below par as the JV
company. Increased promotional expenses coupled with expansion of obtained final certification for its 400kV-EHV cables in December ’17,
dealer network would led to FMEG products revenue doubling over after 10 years of setting up the JV.
FY18-21E. This segment is expected to move into black over the next 2-
3 years as the company achieves some scale. Till date, the company have invested Rs.1.6bn in the JV and will
continue to support for the next 1.5-2 years. Under full utilization, the
Copper rods biz to stay subdued company would be able to supply 325km thereby clocking Rs.5bn
To support its requirement of Copper Rods, the company entered a JV turnover from Rs.750-800mn expected to be registered in FY19. Demand
with Essex Group Inc, USA for manufacture of copper rods. The plant for EHV wires has been on the high as power distributors are
was set up at Goa with a capacity of 60,000tpa. Later in the year FY01, converting overhead transmission wires to underground. Demand
Finolex bought out the JV from its American partner. It used to sell growth is also led by an increase in demand from Metro operators.
surplus copper rods to third parties (Rs.1.2bn in FY14); sales dropped Currently, half of EHV demand is met through imports and hence
in recent years due to the falling premium to cathode. The company domestic EHV producers have huge scope in this segment. The
may look at increasing sales to third parties when situation is management expects the business to break even over the next two years
favourable. as execution picks up.
In 2012, Finolex entered into a JV with Corning USA (leader in the

optical-fibre technology globally) to procure and market optical fibre.
Finolex also employed Corning’s technology to augment its capacity
from 1.2mn FKm to 2mn FKm at their existing plant at Pune. As per the
JV agreement, all further requirements of OFC beyond the company’s
capacity would be met through purchases from Corning. JV with
Corning has registered good growth as domestic demand has been
quite strong.
30
Finolex Cables Ltd
Credible working capital cycle Cash & investment in associate company suppress return ratios
Finolex’s working capital cycle is quite superior than its peers in the Finolex cables holds 32.4% stake in Finolex Industries, a part of the
C&W segment. High exposure to B2C business and increasing use of Finolex Group. The company is India’s leading manufacturer of PVC-U
channel financing has allowed the company to reduce its receivable pipes and fittings, and the second-largest manufacturer of PVC resin.
days. In the electrical C&W and other businesses, receivable days are The company had Rs.5.5bn of investments in associate and JV
very low. However, high receivable days in terms of communication companies as on FY18. It also had Rs.9.7bn investments in mutual funds
cables has kept debtor days around ~20 days. Inventory days for the and tradable stocks. With a major part of the capital employed in the
company is at par with its peers as it must keep some buffer for any above investments, return ratios appear to be subdued for high margin
disruption in availability of copper. low working capital business. If we consider the return on invested
capital into business, numbers appear quite good at 30% against RoE of
Exhibit 51: Dealer network has more than doubled over 15.2% in FY21E.
FY13-18
80 Debtor days Inventory days Creditor days
Exhibit 52: Higher proportion of cash & cash equivalents and
(days)
70
69 68
65 65
investments in Associate companies has led to lower RoE
65
60 40 (%) RoIC RoE
47 49
50
35
29.8 30.5
40 29.3 29.4
28.4 28.3
28 30
30 24 24
23 23 22 23 21 23 21
20 19
18 25
20
7 19.5 18.9
10 18.2 17.6
20 16.0
15.2 15.3 15.2
-
FY15 FY16 FY17 FY18 FY19E FY20E FY21E 15
14.9
10
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
31
Finolex Cables Ltd
FINANCIALS Premium valuations to sustain

Finolex has maintained its premium brand image despite the weak
Revenue growth steady at ~10% growth in electrical C&W segment. Revenue CAGR of 11% over FY18-
Electricals C&W segment has seen an uptick in demand in 9M FY19. We 21 coupled with OPM of ~15%, the company is expected to witness 8.5%
estimate this segment to witness revenue CAGR of 9.7% over FY18-21E PAT CAGR. Company’s short working capital cycle and low capex
led by rising penetration in North & East, and contribution from new requirement would lead to ~Rs.8bn of FCF for the company. Cash and
capacity. Communication cable segments near term growth would be cash equivalents would jump to Rs.19bn, which is ~26% of current
restricted by capacity constraints. Growth in this segment would be market cap. This is in addition to the 32.4% stake in Finolex Industries,
strong from H2 F20 on commissioning of its new plant in Pune. FMEG which valued at current price would be ~Rs.139/share. We believe that
business would boost Finolex’s overall growth as the company expands the valuation gap between Finolex and its peers in the electrical
its distribution channel and focus advertisement and brand promotion industry will narrow as it continues to deliver superior margins and
would increase consumer demand. This segment is expected to double share of FMEG products rises. The company has witnessed rerating
its revenue over FY18-21. Given the combination of the above, we over the last three years on the back of its strong distribution network,
estimate revenue CAGR of 11% over FY18-21. superior margins and strong balance sheet. We initiate coverage with a
Buy rating for a target price of Rs.600 (20x FY21E P/E). We have not
Margins to stabilize at 15% as revenue picks up given any value to FNCB’s stake in Finolex Industries (Rs.138/share).
In the electrical C&W segment Finolex over the last five years has been
Exhibit 53: Operating margin for Finolex is superior to majority
focused on improving its margins as demand remained weak from
of its FMEG peers
housing sector. Premium positioning and superior product quality has
led to the company increasing margins from 10-11% before FY14 to 16% 18 FY17 FY18
in FY18. The management expects this segment margins to stay above 16.2
15.7
15% going forward. Communication cables margins have picked up 16
over the last two years on the back of higher capacity utilization and 13.4
13.9
14 13.0
strong demand. This segment margins are expected to stay at 13.5% 12.4
over the next two years. Losses from the FMEG products are expected 12
to decline as the company achieves scale and supply chain is ramped 10.2
9.8 10.0
10
up. In 9M FY19, margins are lower by 70bps yoy to 14.4% due to weak 8.5
8.2
Q2 FY19 performance. We expect margins to improve from 9M levels 8
6.7
in Q4 as demand remained strong. We expect margins to stabilize
around 15% levels over the next two years. 6
Finolex KEI Havells * Vguard Crompton Orient Electric
Source: Company, YES Sec – Research, * - Ex-Llyod
32
Finolex Cables Ltd
Exhibit 54: Working capital cycle is under control Exhibit 56: Finolex is trading at a huge discount to its FMEG
peers
120 111 FY17 FY18
(Days)
103 CAGR
RoCE P/E
100 Company (FY18-21E)
80 71 Rev. PAT FY19E FY20E FY21E FY19E FY20E FY21E
60 63
58 Finolex 11 19.1 19 18.5 17.9 16.7 15.0 13.5
60 50 53
KEI 18 26.4 26.1 27.9 28.9 17.5 13.6 11.0
40
Havells 15.4 19 28.3 30.5 31.4 56.8 46.4 39.6
20
Vguard 13.4 23.5 25.1 29.4 31.1 62.5 45.9 37.0
0
Crompton 11.6 18.1 40.2 44.8 50.6 38.6 31.8 26.6
(3) (2)
(20) (11) Symphony 17.9 11.7 35.4 36.6 34.8 52.9 41.3 35.4
(16)
(40) Orient Elec 13.9 26.7 35.5 36.9 36.1 37.6 29.8 25.6
Finolex KEI Havells * Vguard Crompton Orient Electric
Average 14.5 20.6 29.9 32.1 33.0 40.4 32.0 26.9
Source: Company, YES Sec – Research
Source: Company, YES Sec – Research, * - Ex-Llyod
Exhibit 57: Finolex is trading at a discount to its 3-year average

Exhibit 55: Return ratios are high even though FMEG
1-yr forward P/E of 19x
contribution is low at 2%
30 P/E Avg
86 FY17 FY18
75.9
76 25
66
20
56 49.5
46 15
39.140.3
36 31.8
27.1 26.2
10
24.4 22.6
26 19.220.0 19.5
5
16
6 0
Finolex # KEI Havells * Vguard Crompton Orient Electric
Aug-11 Jun-12 Apr-13 Mar-14 Jan-15 Nov-15 Sep-16 Jul-17 May-18 Apr-19
Source: Company, YES Sec – Research, # RoIC used for Finolex, * - Ex-Llyod Source: Bloomberg, YES Sec - Research
33
Finolex Cables Ltd
COMPANY BACKGROUND Exhibit 59: Key management Team

Name Designation
In July 1945, two brothers P.P. Chhabria and K.P. Chhabria came to Mr. D.K.Chhabria Executive Chairman
Pune from Karachi and within six months, they set up a retail business Mr.Mahesh Viswanathan Executive Director & CFO
selling electrical cables which became quite successful. A sizeable order Mr. Sanjay K. Asher Independent Director
Mr. Pradeep R.Rathi Independent Director
in the mid 1950's from the Defence Department for wire harnesses for
Mr. Shishir Lall Independent Director
trucks and tanks bolstered their confidence, and hence they ventured
Ms. Shruti Udeshi Non-Executive Director
into cable manufacture. Today, Finolex Cables is a leading Mr. Pratap Pawar Independent Director
manufacturer of electrical and telecommunication cables. The company Ms. Poornima K Prabhu Independent Director
started its operation with the manufacture of PVC insulated electrical Mr. Mohan Lal Jain Additional Non-Executive Director
cables for the automobile industry. Since then, the Company has Source: Company, YES Sec - Research
constantly endeavored to augment its product range to include
different category of wires and cables. In 2006, it entered the electrical Exhibit 60: JV and Associate
space by launching switches and CFL. Post 2013, it started entering Company JV's/associate Ownership (%)
other categories such as LED lighting, Fans, switchgears and Water Finolex Industries Associate 32.4
heater. The company has manufacturing facilities at Pimpri and Urse in Finolex J-Power Systems Pvt. Ltd. JV 49.0
Pune as well as at Goa & Uttarakhand. These plants produce Electrical Corning Finolex Optical Fibre Pvt Ltd. JV 50.0
& Telecommunication cables, LT & HT Power & Control Cables, Source: Company, YES Sec - Research
Electrical Switches, Compact Fluorescent Lamps (CFL's), PVC Sheets &
Copper Rods. Rest of the products are outsourced.
Exhibit 58: Plant-wise capacity

(km) Capacity
Electrical cables Pimpri, Roorkee
Electrical & Communication cables Urse, Goa
Optic fibre and Optic fibre cables Urse, Goa
Lighting Urse
Switches Urse
Power cables Urse
CCC rods Goa
34
Finolex Cables Ltd
Exhibit 61: Products and applications

Category Products Application
Electrification of industrial establishments, used by construction industry, electrical
1100V PVC insulated cables
panel wiring and consumer electrical goods
Motor winding PVC insulated cables and 3 core flat cables Submersible pumps and electrical motors
Automotive/battery cables Wiring harness for automobile indus. and battery cables for various applications
For providing power from the UPS to the computer / appliances in the networking
Electrical cables UPS cables
environment
Heavy duty underground low voltage power and control Connection to the user point from main supply of power
Heavy duty underground high voltage power cables Intra-city power distribution network
Elevator cables For use by Elevator industry
Solar Cables Specially insulated cables for use in solar parks
Jelly filled telephone cables (JFTC) Telephone line connections to exchanges and users
Local area network (LAN) cables Indoor and outdoor networking, voice and data transmission, broadband usage
PE insulated telephone cables (Switchboard cables) Telephone instrument connections to EPABX
Coaxial cables Cable TV network solutions, microwave, communications, mobile towers
Communication Speaker cables Broadcasting applications in buildings & electronic goods
cables Optic fibre Principal raw material for optic fibre cables
Networks requiring high speed transfer of large bandwidth due to voice image & data
Optic fibre cables
transmission
V-SAT cables For connecting V-SAT dish to base station
CCTV cables For better quality CCTV images
CCC rods CCC rods of 8mm diameter Raw material for manufacture of copper based cables
Electrical
Premium & classic switches, sockets, regulators, etc. For power supply to equipment in domestic, commercial and industrial environment
switches
Retrofit & non-retrofit CFL lamps as well as T5 tube lights,
Lamps Lighting for domestic use, hotels, shops, offices, corridors and industrial lighting
fittings and LED base lighting switches
Electrical Fans Ceiling Fans, Portable Fans, Exhaust Fans For use in domestic, commercial and industrial environment
For use in voltage surge protection and safety applications in domestic and
Switchgear MCB, RCCB, MCCB and distribution box
commercial environment
Water Heaters Instant and storage water heaters For use in domestic, commercial environment
35
Finolex Cables Ltd
FINANCIALS Exhibit 63: Income statement

Exhibit 62: Balance sheet Revenue 24,448 28,151 31,408 34,648 38,547
Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E Operating profit 3,959 4,408 4,677 5,213 5,778
Equity capital 306 306 306 306 306 Depreciation 480 438 429 451 473
Reserves 21,103 23,984 27,857 32,138 36,793 Interest expense 43 14 14 14 14
Net worth 21,409 24,290 28,162 32,444 37,099 Other income 594 812 731 840 924
Debt 11 10 10 10 10 Profit before tax 4,030 4,767 4,964 5,588 6,215
Deferred tax liab (net) 183 1,077 1,077 1,077 1,077 Taxes 1,034 2,190 1,638 1,844 2,051
Other non current liab 2 - - - - Minorities (1,007) (724) (1,191) (1,274) (1,412)
Long term Provision 60 70 70 70 70 Net profit 4,003 3,301 4,517 5,018 5,576
Current Liab 2,731 2,393 2,548 2,626 2,851
-Sundry creditors 1,883 1,775 1,893 1,993 2,218 Exhibit 64: Cash flow statement
-Other curr liabilities 488 314 350 328 329 Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E
-Provision 360 305 305 305 305 PBIT 4,073 4,782 4,979 5,602 6,229
Total Liabilities 24,396 27,839 31,866 36,226 41,106 Depreciation 480 438 429 451 473
Tax paid (1,034) (2,190) (1,638) (1,844) (2,051)
Fixed Asset 4,230 4,142 4,142 4,642 5,142 Working capital ∆ (840) (1,300) (1,006) (356) (716)
Non-curr investments 5,118 5,536 6,089 6,698 6,698 Operating cashflow 2,679 1,729 2,764 3,853 3,936
LT loans and adv 42 38 42 46 51 Capital expenditure 411 (350) (429) (951) (973)
Other Non-curr assets 681 344 384 423 471 Free cash flow 3,090 1,380 2,335 2,902 2,962
Current Assets 6,091 7,053 8,214 8,648 9,589 Equity raised 1,534 132 - - -
-Inventories 4,620 4,991 5,851 6,170 6,865 Investments (1,652) (418) (554) (609) 0
-Sundry debtors 1,244 1,749 2,065 2,183 2,429 Debt fin/disposal (665) (2) - - -
-Other current assets 227 313 297 295 295 Interest Paid (43) (14) (14) (14) (14)
-Current Investments 6,476 9,691 10,175 11,193 12,872 Dividends paid (460) (552) (644) (736) (920)
Cash 1,758 1,036 2,821 4,576 6,284 Other items 339 1,968 1,147 1,230 1,359
Total Asset 24,396 27,839 31,866 36,226 41,106 Net ∆ in cash 2,143 2,493 2,269 2,772 3,387
36
Finolex Cables Ltd
Exhibit 65: Ratio analysis Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E
Y/e 31 Mar (Rs m) FY17 FY18 FY19E FY20E FY21E Valuation ratios (x)
Growth matrix (%) P/E 18.8 22.8 16.7 15.0 13.5
Revenue growth (3.9) 15.1 11.6 10.3 11.3 P/BV 3.5 3.1 2.7 2.3 2.0
Op profit growth 12.3 11.3 6.1 11.5 10.8 EV/EBITDA 18.6 16.9 15.5 13.6 12.0
EBIT growth 14.4 17.4 4.1 12.5 11.2
Net profit growth 20.4 (17.5) 36.8 11.1 11.1 Exhibit 66: Du-pont analysis
Profitability ratios (%) Tax burden (x) 0.99 0.69 0.91 0.90 0.90
OPM 16.2 15.7 14.9 15.0 15.0 Interest burden (x) 0.99 1.00 1.00 1.00 1.00
EBIT margin 16.7 17.0 15.9 16.2 16.2 EBIT margin (x) 0.17 0.17 0.16 0.16 0.16
Net profit margin 16.4 11.7 14.4 14.5 14.5 Asset turnover (x) 1.08 1.08 1.05 1.02 1.00
RoCE 21.2 20.9 19.0 18.5 17.9 Financial leverage (x) 1.20 1.14 1.14 1.12 1.11
RoNW 21.2 14.4 17.2 16.6 16.0 RoE (%) 21.2 14.4 17.2 16.6 16.0
RoA 17.7 12.6 15.1 14.7 14.4
Per share ratios (Rs)

EPS 26.2 21.6 29.5 32.8 36.5
Dividend per share 2.5 3.0 3.5 4.0 5.0
Cash EPS 29.3 24.4 32.3 35.8 39.5
Book value per share 140.0 158.8 184.1 212.1 242.6
Payout (%)
Dividend payout 11.5 16.7 14.3 14.7 16.5
Tax payout 25.7 45.9 33.0 33.0 33.0
Liquidity ratios
Debtor days 18.6 22.7 24.0 23.0 23.0
Inventory days 69.0 64.7 68.0 65.0 65.0
Creditor days 28.1 23.0 22.0 21.0 21.0
Leverage ratios (x)

Interest coverage 94.9 332.1 345.7 389.0 432.6
Net debt / equity (0.1) (0.0) (0.1) (0.1) (0.2)
Net debt / op. profit (0.4) (0.2) (0.6) (0.9) (1.1)
37
RECOMMENDATION PARAMETERS FOR FUNDAMENTAL REPORTS
Analysts assign ratings to the stocks according to the expected upside/downside relative to the current market price and the estimated target price. Depending on the expected
returns, the recommendations are categorized as mentioned below. The performance horizon is 12 to 18 months unless specified and the target price is defined as the analysts’
valuation for a stock. No benchmark is applicable to the ratings mentioned in this report.
BUY > 15%

ADD 5% to 15%
HOLD -15% to +5%
SELL > - 15%
NOT RATED
UNDER REVIEW
POSITIVE: Positive is rating given to stocks we like but yet to be formally included in our coverage universe.
NEGATIVE: Negative is rating given to stocks yet to be formally included in our coverage universe, but we find valuations expensive vis-a-vis fundamentals.
NEUTRAL: Neutral rating is given to stocks that are not under our formal coverage yet, but we find current valuation fairly representing fundamentals.
ABOUT YES SECURITIES (INDIA) LIMITED
YES SECURITIES (INDIA) LIMITED (‘‘YSL’’) was incorporated on 14th March 2013 as a wholly owned subsidiary of YES BANK LIMITED. YSL does not have any other
associates. YSL is a SEBI registered stock broker holding membership of NSE and BSE. YSL is also a SEBI registered Category I Merchant Banker, Investment Adviser and a
Research Analyst. YSL offers, inter alia, trading/investment in equity and other financial products along with various value added services. We hereby declare that there are
no disciplinary actions taken against YSL by SEBI/Stock Exchanges.
38
DISCLAIMER DISCLOSURE OF INTEREST
Investments in securities market are subject to market risks, read all the related documents carefully before Name of the Research Analyst : Tarang Bhanushali, Rahul Jain
investing.
The analyst hereby certifies that opinion expressed in this research report accurately reflect his or her
The information and opinions in this report have been prepared by YSL and are subject to change without personal opinion about the subject securities and no part of his or her compensation was, is or will be
any notice. The report and information contained herein are strictly confidential and meant solely for the directly or indirectly related to the specific recommendation and opinion expressed in this research report.
intended recipient and may not be altered in any way, transmitted to, copied or redistributed, in part or in
whole, to any other person or to the media or reproduced in any form, without prior written consent of Sr. No. Particulars Yes/No
YSL.
Research Analyst or his/her relative’s financial interest in the subject
1 No
The information and opinions contained in the research report have been compiled or arrived at from company(ies)
sources believed to be reliable and have not been independently verified and no guarantee, representation Research Analyst or his/her relative or YSL’s actual/beneficial ownership of 1%
of warranty, express or implied, is made as to their accuracy, completeness, authenticity or validity. No 2 or more securities of the subject company(ies) at the end of the month No
information or opinions expressed constitute an offer, or an invitation to make an offer, to buy or sell any immediately preceding the date of publication of the Research Report
securities or any derivative instruments related to such securities. Investments in securities are subject to
Research Analyst or his/her relative or YSL has any other material conflict of
market risk. The value and return on investment may vary because of changes in interest rates, foreign 3 No
interest at the time of publication of the Research Report
exchange rates or any other reason. Investors should note that each security's price or value may rise or fall
and, accordingly, investors may even receive amounts which are less than originally invested. The investor Research Analyst has served as an officer, director or employee of the subject
4 No
is advised to take into consideration all risk factors including their own financial condition, suitability to company(ies)
risk return profile and the like, and take independent professional and/or tax advice before investing. YSL has received compensation or other benefits from the subject company(ies)
5 No
Opinions expressed are our current opinions as of the date appearing on this report. Investor should or third party in connection with this research report
understand that statements regarding future prospects may not materialize and are of general nature which Broking/Investment Banking/Merchant Banking relationship with the subject
may not be specifically suitable to any particular investor. Past performance may not necessarily be an 6 No
company at the time of publication of Research Report
indicator of future performance. Actual results may differ materially from those set forth in projections.
YSL has managed or co-managed public offering of securities for the subject
7 No
Technical Analysis reports focus on studying the price movement and trading turnover charts of securities company in the past twelve months
or its derivatives, as opposed to focussing on a company’s fundamentals and opinions, as such, may not Research Analyst or YSL has been engaged in market making activity for the
8 No
match with reports published on a company’s fundamentals. subject company(ies)
YSL, its research analysts, directors, officers, employees and associates accept no liabilities for any loss or
damage of any kind arising out of the use of this report. This report is not directed or intended for Since YSL and its associates are engaged in various businesses in the financial services industry, they may
distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, have financial interest or may have received compensation for investment banking or merchant banking or
brokerage services or for any other product or services of whatsoever nature from the subject company(ies)
country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject YSL and associates to any registration or licensing requirement in the past twelve months or associates of YSL may have managed or co-managed public offering of
within such jurisdiction. The securities described herein may or may not be eligible for sale in all securities in the past twelve months of the subject company(ies) whose securities are discussed herein.
jurisdictions or to certain category of investors. Persons in whose possession this document may come are Associates of YSL may have actual/beneficial ownership of 1% or more and/or other material conflict of
required to inform themselves of and to observe such restriction. interest in the securities discussed herein.
YES SECURITIES (INDIA) LIMITED CIN: U74992MH2013PLC240971 | SEBI Single Registration No.: NSE, BSE & MCX:
Registered Office: Unit No. 602 A, 6th Floor, Tower 1 & 2, Indiabulls Finance Centre, INZ000185632 | MERCHANT BANKER: INM000012227 | RESEARCH ANALYST:
Senapati Bapat Marg, Elphinstone Road, Mumbai – 400013, Maharashtra, India. INH000002376 |INVESTMENT ADVISER: INA000007331| AMFI ARN Code – 94338 |
Tel: +91-22-71123123 | Email: research@yessecuritiesltd.in | Website: www.yesinvest.in Details of Compliance Officer: Name: Vaibhav Purohit,
Email id: compliance@yessecuritiesltd.in, Contact No-+91-22-33479208
26

Wires &amp; Cables Sector - YES Securities

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WIRES & CABLES

Connecting India’s Growth

Cables & Wires

One of the fastest-growing segments of the Premiumization in housing wires led to

April 09, 2019

Source: Industry, YES Sec - Research

percentage of total households reaching 60% by fiscal 2023 0

Source: Industry, YES Sec - Research

Suraksha, Behtar ElectriKAL ke liye Polycab

KEI Connection Bachat Ka, Connection Zindagi ka

Jodey Dilon Ke Taar

Kyunki, wires less nahi, wires more

Bringing home a better tomorrow Naye India ke badhte load ke liye

Source: www.copper.org, YES Sec - Research

Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power 20,000

Development Scheme (IPDS), and state investments to reduce AT&C 10,000

Exhibit 15: Metro construction sends are expected to ~double

(tn) Infrastructure Industrial Building construction

Pradhan Mantri Awas Yojana (PMAY) (Urban) aims to construct 20mn

Source: Ministry of Housing and Urban Affairs, YES Sec – Research

Voltage (EHV) power cables, where the manufacturing process is 20%

At an overall level, the organized players accounted for an ~66% share

KEI Industries Ltd - BUY

EHV segment sales to double Company rating grid Stock performance

INVESTMENT RATIONALE Housing wires: key focus area

SS Wire EPC 400

Source: Company, YES Sec - Research

Source: Company, YES Sec - Research;

Source: Company, YES Sec - Research

opportunities in its business spaces to scale up and offer exclusivity

project for Banaras. KEI intends to limit its participation to funded

Source: Company, YES Sec - Research

Source: Company, YES Sec - Research

FINANCIALS Exhibit 32: Revenue growth would be led by HW and HT

KEI managed to report 22.2% yoy growth in revenues in 9M FY19 on 50,000

FY19 stood at Rs.38.7bn, which comprises of EPC book of Rs.15.1bn,

We believe growth momentum would continue as the company

Exports order (Rs.mn)

Source: Company, YES Sec - Research

Source: Company, YES Sec - Research

KEI has witnessed valuation re-rating on the back of strong earnings 0

COMPANY BACKGROUND Exhibit 37: Plant-wise capacity

FINANCIALS Exhibit 40: Income statement

Per share ratios (Rs)

Leverage ratios (x)

Finolex Cables Ltd - BUY

April 09, 2019

Source: Company, YES Sec - Research

Source: Company, YES Sec - Research

In 2012, Finolex entered into a JV with Corning USA (leader in the

60 40 (%) RoIC RoE

Source: Company, YES Sec - Research

FINANCIALS Premium valuations to sustain

Source: Company, YES Sec – Research, * - Ex-Llyod

Exhibit 57: Finolex is trading at a discount to its 3-year average

COMPANY BACKGROUND Exhibit 59: Key management Team

Exhibit 58: Plant-wise capacity

Exhibit 61: Products and applications

FINANCIALS Exhibit 63: Income statement

Per share ratios (Rs)

Leverage ratios (x)

BUY > 15%

ABOUT YES SECURITIES (INDIA) LIMITED

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