Cable and wire stocks have been on a tear since the pandemic, with many companies delivering multi-bag returns. The consumer electronics industry, which also includes fast moving electrical goods (FMEG), is estimated to post 10% CAGR in FY23-27E on the back of rural electrification, growth in real estate, transition to clean and green energy, disposable income growth, shift to branded players and investments in infrastructure projects. Many wire and cable manufacturers have increased their focus on the high-margin FMEG segment (fans, lights, etc.), which has been growing at 10% annually for the past five years.
Cables and wires players have the potential to grow up to 2x GDP. Additional growth is likely to come from sunrise industries such as electric vehicles. Domestic increase and export share gain are also expected to sustain premium valuation. Emerging industries such as fiber optics for 5G, electric vehicles and renewable energy promise additional avenues for growth. The launch of the “Pradhan Mantri Suryodaya Yojana” in January 2024 for the installation of rooftop solar for 1 crore (10 million) homes should give a further boost to wire manufacturers.
Opportunity is huge ahead
Energized by India’s robust economic growth, the wire and cable industry (40-45% of the electrical sector market) has experienced massive growth in recent years. Major players experienced significant overhead and profit gains. The Indian government’s continued focus on housing and infrastructure development should continue to drive structural demand for the wire and cable industry. In fact, continuation of these policies after the general elections in 2024 will only strengthen the strength of the sector.
The government aims to have large-scale electronics manufacturing in India with Rs.1.97 lakh crore allocated under the PLI scheme. Various initiatives have been launched by the government to boost digital infrastructure such as Digital India and Bharatnet, leading to higher demand for internet connectivity which bodes well for the industry.
The industry is on a capacity expansion rampage. KEI plans to spend around Rs.1,000 crore in the next three years. Finolex Cables guided capex to be around Rs. 300 crore over the next 18-20 months. Havells planned an investment of about Rs. 600 crore for the development of a cable manufacturing unit.
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Politics of China+1
The Indian wire and cable industry mainly exports to the US constituting about 18% of exports, followed by UAE (9%) and UK (9%). The Indian W&C market became net export positive for the first time in CY 2019 and has been export positive since then. W&C exports have grown at 23% CAGR in the past 4 years and could rise significantly due to the strong demand in developed markets and the ‘China+1’ policy, export incentives, transition to clean and green energy.
New initiatives bode well
With the continued transition to EVs, the increased demand for the supply of charging stations should stimulate the supply of more electric products as well. Additionally, the communications cable industry has also begun to witness a surge, with an increase in 5G capex. s Growing data consumption has spurred the demand for data centers in India providing opportunities for the W&C industry. Solar industry is growing rapidly worldwide. This will also drive demand for solar cables, which will lead the wire and cable industry to a more sustainable future.
Switch to branded play
Domestic wire and cable industry, including FMEG, turns to branded play As of FY23, branded players have nearly 70% of the market share by value of the W&C market in India. Within this 70%, five major players Polycab, KEI, Havells, Finolex and RR Kabel, garner approximately 60-62% market share and the balance 38%-40% is made up of challenger brands such as Syska and V-Guard. The share of branded play in the domestic W&C and FMEG industry grew from 60% in FY15 to around 70% in FY22 and is projected to reach around 82% by FY27.
Although fluctuating commodity prices and the impact of competition on pricing remain concerns, the long-term outlook for India’s cable future continues to be bright. In conclusion, the sectoral catalysts remain robust; however, investors may need to be selective and avoid potential value traps, especially in stocks with regulatory overhang.
Girish Bhise is the founder and CEO at ValueAdd Research and Analytics Solutions.
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Published: 10 Apr 2024, 12:02 IST
(tagsTo Translate)wire and cable supplies