First T+2 Listing: RR Kabel Debuts At 14% Premium Against IPO Issue Price; 4 Reasons Why To Buy This Stock

Wired For Better Future: Leading Indian consumer electrical company, RR Kabel debuted on a premium on stock exchanges on Wednesday. The company is the first to list in a timeline of T+2 after the closing of an initial public offering (IPO)). The company's Rs 1,964 crore IPO was a success too with oversubscriptions across the investors category. But the company is wired for more growth ahead, and hence, brokerage Prabhudas Lilladher has initiated a 'Buy' recommendation.

On BSE, RR Kabel listed at a 13.9% premium to Rs 1,179 apiece, while on NSE, the stock debuted at a 14% premium to Rs 1,180 apiece. This is compared to its IPO issue price of Rs 1,035 per share.

The stock continued to trade on a bullish note.

At the time of writing, RR Kabel traded at Rs 1,188.55 apiece, up by Rs 153.55 or 14.84% from its IPO price. From its listing price, the stock is up nearly a per cent. The stock's 52-week high and low come to around Rs 1,199 apiece and Rs 1,137.60 apiece on BSE respectively. The market value is over Rs 13,471 crore.

On NSE, the stock traded at Rs 1,185.95 apiece, also up by 14.6%. From listing price, it is up by 0.5%. Its 52-week high and low are at Rs 1,198.95 apiece and Rs 1,136.80 apiece here respectively.

RR Kabel launched its IPO on September 13th and the subscription window for the issue closed on September 15. On the last day, the IPO received an oversubscription of 18.69 times. The company planned to raise Rs 1,964 crore from the IPO which was a mixture of fresh issue and offer for sale (OFS). Further, the price band for the IPO was fixed at Rs 983 to Rs 1,035 per equity share.

More bullish driving factors seen in RR Kabel shares ahead.

On RR Kabel, Praveen Sahay - Research Analyst, Prabhudas Lilladher said, "We initiate coverage on RR Kabel with a 'BUY' rating and TP of Rs1407 valuing at 35x FY25 earnings. We believe RR Kabel is a play on several opportunities in the W&C segment given 1) a strong brand with diverse product portfolio 2) well-structured capacity expansion plans, 3) increasing dealers
/distribution network and 4) distribution led export business. Although the company has grown its FMEG portfolio inorganically, yet it expects to minimize losses in coming years by transitioning towards premium markets."

In FMEG too, Sahay added, "The company has enhanced its brand presence, positioning and manufacturing capabilities to minimize losses. We estimate Revenue/EBITDA/PAT CAGR of 20.7%/38.8%/44.3% over FY23-26 led by 1) improving business mix 2) operating leverage & cost optimization 3) investments in brand building and 4) increasing distribution reach. Initiate
'BUY'."

Here are 4 arguments that Sahay made in his investment recommendations for RR Kabel:

1. Fastest growing Wires & Cables company:

RR Kabel is the fastest growing player in the W&C segment with reported rev. CAGR of ~40% in W&C vs peers of ~30% over FY21-23. Robust growth can be attributed to its a) strong brand recognition, b) diverse product portfolio, c) high-quality manufacturing facilities, and d) wide distribution network. The company accounts for 74% of revenue from B2C and maintained this at a higher level, being wire heavy company.

RR Kabel is doing Rs 5bn capex in the next two years, aimed at augmenting its production capacity in both wire and cables. The domestic W&C market is expected to report CAGR of 12.5% over FY23-27 to reach Rs 1200bn, with broad-based growth across sub-sectors.

"We expect W&C segment's revenue CAGR at 22.3% over FY23-26E," Sahay's note said.

2. Extensive distribution network & advertisement focus being B2C play:

RR Kabel products are currently being sold through 3,405 distributors & 3,656 dealers covering 114,851 retailers. Widening of distribution network in a targeted manner through addition of new distributors/dealers and retailers remains at the core of company's growth strategy along with increasing electrician network.

The company has consistently invested in brand building and advertisements (1.5% rev.) to build its B2C business.

3. Export - Visible growth opportunities:

The company is a prominent player in India's W&C export with ~9% market share. Its robust network of 72 distributors is spread across key regions like North America, Asia Pacific, Europe, and Middle East. The company is expected to improve product mix towards cable, which is better margin product in exports against wire.

4. FMEG - Strategic diversification for growth:

The company has actively expanded and diversified its product offerings in the FMEG sector, both through organic and inorganic means. RRKABL has amalgamated Ram Ratna Electricals, acquired LED lights business of Arraystorm and home electrical business of Luminous Power to build its portfolio in FMEG. Company's focus
is to minimise losses in FMEG business in coming years.

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.