60% Dividends: PL Raised Target Price On IPO Stock RR Kabel To Rs 1,872 With Buy Rating; 19% Surge Seen

RR Kabel is one of the hot IPOs available on exchanges to buy for hedging double-digit returns ahead. Brokerage Prabhudas Lilladher has revised its FY25E/FY26E earnings estimate on RR Kabel upward by 1.2%/4.0% and maintained a 'Buy' rating. The brokerage has set a target price of Rs 1,872 on RR Kabel which signals nearly 19% potential upside due to continued volume growth and improvement in margins of the company. After listing, the company has rewarded shareholders with dividends as well.

In its research note, PL said, "We met the management of RR Kabel (RRKABEL) to gauge the domestic demand, competitive scenario and capacity expansion. The company has maintained its healthy volume growth guidance in the W&C segment at 15-20% and expects 10% margins in the near term in the W&C segment, given strong demand outlook in sectors and measures to improve margins."

Some of the key highlights of the meeting as per the brokerage are:

- Management continues to target 15-20% volume growth in the W&C segment for the next 2-3 years with improved distribution network & capacity expansion.

- RR Kabel's primary focus lies in augmenting sales per dealer/distributor, advancing digitized payment systems, and broadening the retail and electrician network. Currently, RRKABEL boasts a retail network of 124,000, with a targeted expansion to reach 225,000.

- At present, RR Kabel focuses on eight major states, which accounts for 77% of the domestic market within the 90-mtr housing wire segment. RRKABEL holds more than 9% market share in these key states. The company has more than 20% market share in Gujarat & Kerala while focus continues to expand its market share in UP, Maharashtra & TN (which account 37% market).

- The company has planned Rs 5 billion capex for FY24-25 which Rs1bn already incurred. Additionally, the company intends to continue its capex for future growth. The cable capacity expansion is scheduled to be operational in two phases, targeting completion by Sept 24 and Mar-25, respectively.

- The company has strategized to diversify its product offerings in the export market, towards cables following an increase in cable capacity. With 35 international product certifications and established distribution networks, the company is primed for this expansion. RRKABEL's major focus lies on European countries where supply disruptions due to geopolitical reasons have created opportunities, positioning the company favourably to capture a significant market share.

- Also, RR Kabel expected to take its W&C segment margin to 10.5-11% in the coming years, fuelled mainly by operating leverage and product mix change, while we have estimated ~9% margins, upside risk here.

- Further, the company is estimated to record a 12.3% revenue CAGR over FY23-26E with losses to minimize. The company expected to grow faster than the industry on account of product expansion, premiumisation and network expansion. Over the past three years, the company expanded its retail touchpoints from 25k to 65k and aims to achieve 500k touchpoints within the next five years.

Accordingly, PL's note said, "We believe RR Kabel continues to benefit on account of 1) strong brand with diverse product portfolio 2) well-structured capacity expansion plans, 3) increasing dealers /distribution network and 4) distribution-led export business."

Thereby, the brokerage said, "We upward revise our FY25E/FY26E earnings estimate by 1.2%/4.0% and maintain a 'Buy' rating, as we value the stock at 35x FY26 EPS to arrive at revised TP of Rs1,872 (earlier Rs 1,800)."

Currently, on December 26th, RR Kabel shares ended at Rs 1,579.40 apiece, down by 2.5% with an m-cap of Rs 17,818.60 crore on BSE. This gives a buy-on-dips opportunity in the stock.

Also, in 2023, the company paid up to 60% dividends amounting to Rs 3 per share to its shareholders. Its dividend yield is at 0.28%.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.