India Ratings and Research (Ind-Ra) opines the revenue growth at about 11% CAGR witnessed over FY11-FY20 in the cables and wires industry could continue even during the next decade. The growth is likely to be backed by continued urbanisation, higher infrastructure spending, increase in electrification and data communication.
The agency expects sector consolidation will shift gears into market share gains for large players, despite rising competition. With players shifting focus to the B2C (business to consumer) segment from B2B (business to business), working capital cycle could improve over the near to medium term. The credit profiles of sector players are likely to remain strong, despite growth capex and investment in working capital cycle, due to strong profitability and cash flow generation.
Ind-Ra has conducted a peer study and covered the top industry players in the cables and wires segment. The study also discusses the industry characteristic features including risk parameters. The peer study compares the industry participants on various business and financial parameters, which are the key building blocks of credit ratings.
Multiple Growth Levers
The agency opines the sector has a strong growth potential, given lower per capita consumption in India than global counterparts. Key end-user segments include real estate, construction, power, consumer electricals and agriculture. The government thrust to invest in infrastructure and focus on renewable energy and advancement in telecommunication technology all augur well for a sustained strong growth rate in the long term. The sector revenue growth rate has a high correlation with gross fixed capital formation nominal at about 0.8x on a three-year rolling average basis. Also, the historical sector revenue growth median multiplier is at about 1.1x to nominal GDP and 1.3x to gross fixed capital formation.
Competition to Intensify
As per Ind-Ra, the cables and wires market is estimated at around INR500 billion in size (INR250 billion with organised sector). Industry is characterised as highly competitive with about two-thirds of the home cable market and half of the industrial cables market with the unorganised segment. As such, there is a huge scope for large players to consolidate. The revenue share of the top five players over FY13-FY20 has increased by 4% and is likely to intensify with more market share gains by large players as customers up-trade for safety and branded products. However, the top five players' revenue contribution reduced over FY15-FY20 with the increase in the number of new entrants. Growth opportunities and market share expansion will revolve around a stronger dealer network, higher stock keeping units, new products development, the ability to forge partnerships, etc.