Shreegopal Kabra, Promoter & Managing Director, RR Kabel Ltd

29 Sep 2023 , 03:45 PM

Run us through the company’s business model.

We are one of the leading companies in Indian consumer electricity industry with an operating history of over 20 years. We sell products across two broad segment (i) Wire and Cables including house wires, industries wires, power cables and special cables and (ii) FMEG including fans, lighting, switches and appliances. 

Our manufacturing facilities give us the in-house ability to manufacture 100% of our requirements for wires and cables and approximately 37% of our requirements for FMEG products by value. We purchase our balance requirements for FMEG products from third parties and eventually sell them as traded goods.

We own and operate two integrated manufacturing facilities which are located at Waghodia, Gujarat, being the Waghodia Facility, and Silvassa, Dadra and Nagar Haveli and Daman and Diu in India, primarily carry out manufacturing operations in respect of wire and cables and switches. Additionally, we own and operate three integrated manufacturing facilities which are located at Roorkee, Uttarakhand, Bengaluru, Karnataka and Gagret, Himachal Pradesh in India, which carry out manufacturing operations in respect of FMEG products. Our Waghodia Facility is one of the largest consumer electrical manufacturing facilities in India as of March 31, 2023, with an annual manufacturing capacity of 2.1 million CKM of wires and cables.              

Our distribution footprint encompasses extensive pan-India distribution presence of 3,450 distributors, 3,656 dealers and 114,851 retailers. Distributor purchase products form us and on-sell our products to end-users through retailers. Dealers purchase products from us and either, directly or through retailers, on-sell to end-users. We also export our range of wires and cable products to 63 countries in North America, APAC, Europe and Middle East directly as well as through distributors across the world. For the three months period ended June 30, 2023, 99% of our export revenue was derived from distributors and 1% was derived from original equipment manufacturer. 

We have a strong focus on innovation and research and development and have relied on innovation to differentiate our wires and cables and FMEG products. We were the first company in India to launch products compliant with the European regulations, such as Registration, Evaluation, Authorization and Restriction of Chemicals; Restriction of Hazardous Substances Directive and Construction Products Regulations.   

Why should retail investors invest in the IPO?

With reference to Wires & Cables segment, in domestic market we are the fastest growing amongst the key peers. We also have the highest share of 74% in Indian wires & cables industry the B2C revenue. For the period FY 21-23, we have grown at 43% compared to 27% growth of peers. With reference to market share too, we have from in market share from 5% to 7% during the period FY15 to FY 23. We are one of India’s leading wires and cables exporters with export revenue worth Rs. 12,702 million in FY 23 growing at 47% CAGR for the period FY 21-23. 

In the FMEG Segment, we have successfully completed our building foundation delivering 34.8% growth in FY 22 on back of extensive pan-India distribution presence along with committed and experienced professional management. In May’22 in-line with our next stage of consolidation and acquisition, we acquired luminous home electric business in May ’22, develop “RR Signature” brand for premium FMEG products. We are now in the acceleration phase, wherein we intend to leverage well-recognized brand, focus on premiumization, grow our omni-channel presence and focus on achieving operational excellence.

We are accredited with multiple industry first launches. Our Innovation and Quality has enabled to export to regulated jurisdictions in Canada, Europe, Greater Britain, USA and Germany. As on June 30, 2023, we had 35 international product certification. As Innovation Leader, we are first to introduce Low Smoke Zero Halogen Insulation Technology in India. Through innovation, we able to supply cable harness to Swiss textile machinery manufacturer in India. In FY 23, we had 13 product launch in wires and cables segment and 75 product launch in FMEG segment. We intent to invest in upcoming trends – EV charging Cables, Smart Fans and Designer Lights.

We have a strong distribution network with Pan-India presence and Global Footprint, Well-Recognized Consumer Brand with operating history of 20+ Years and diverse products with wide range of Wires & Cables and FMCG products.

Please provide insights into the company’s growth strategy going forward.

We aim to enhance our value proposition to our customers by expanding our wires and cables product portfolio and introducing new product lines through product development and innovation. Additionally, we plan to install a new greenfield project for PVC compound and copper wire and cable manufacturing at the Silvassa Facility, and to expand our electron beam (“e-beam”) production facility (for which we have purchased one e-beam machine) and expanded power cable manufacturing at the Waghodia facility.

We also aim to leverage our existing research and development capabilities as well as increase our research and development investments to further capitalize on emerging trends such as EV charging cables and instrumentation and data communication cables.

We intend to enhance our efforts to improve our productivity and operational efficiencies by investing in technology. We have implemented several low cost automation solutions to improve process reliability, product quality and down times. This includes automating our packing process in the Waghodia Facility with an auto conveyor that has weighing, auto strapping and shrink wrapping capabilities, as well as installing multilayer storage systems.

Could you elaborate on the company’s expansion plans, both within and outside of India?

Leading players like us are well-positioned to benefit from the global shift from China-based manufacturing to China plus one strategy resulting in a share gain for Indian manufacturers in the global market.  We have been focused on export markets for our wires and cable segment. We intend to leverage our suite of globally accredited products to grow our exports business. We intend to grow exports for our specialized wires and cables products with specialized uses to meet the anticipated demand from our customers across geographies.

As of June 30, 2023, we have 15 products under development for the wires and cables segment and our target to launch products is within the period September 2023 to September 2024.

For example, we launched our products in the United States in Fiscal 2020 which has grown to 11.59% of our exports revenue for the three months ended June 30, 2023.

How does the company plan to leverage its strengths in wires & cables and FMEG segments for future growth?

We believe that by expanding our distribution network in India, we will benefit from greater connections and exposure to potential customers, thereby positioning ourselves to grow our market share in the domestic branded wires and cables and the general consumer electrical industry.

 For instance, we have classified our geographical presence in India into ‘winner’, ‘growing’ and ‘opportunity’ states for our 90 meters housing wires based on market share in these states. We have converted three ‘opportunity’ and ‘growing’ states into ‘winner’ states between Fiscal 2021 and three months ended June 30, 2023. Over time, we intend to classify our geographical presence in the same manner for all of our products. 

We also aim to consolidate and grow our business in India through various initiatives including, consolidating and growing our business in ‘winner’ states; and increasing our footprint and market share in ‘growing’ and ‘opportunity’ states. We have identified the geographical regions where we do not have a significant market presence and are increasing our distribution and sales efforts in these regions to grow our market share. In ‘winner’ states, we are identifying micro and nano markets, at the pin code (for districts, cities and villages) and taluka levels (for sub divisions of districts), within these regions to focus our distribution coverage, sales force coverage and marketing efforts. We are also growing our existing presence on e-commerce platforms to develop an omni-channel presence. We are expanding our product mix in our established markets to take advantage of the shift to branded play in these markets and changing consumer preferences for branded products that offer quality and safety features. We also intend to grow our on-shelf brand presence by expanding our existing offerings to “Star Dealers” (multi-brand outlets in high footfall areas) as well as independent retailers.     

RR Kabel is raising funds through an IPO primarily for debt repayment. Can you elaborate on the  company’s debt profile and the significance of reducing this debt burden?

As on August 28, 2023, the aggregate outstanding borrowings of our Company is Rs. 7,772.96 million. Our Company proposes to utilize an estimated amount of Rs. 1,360.00 million from the Net Proceeds towards repayment or prepayment, in part or full, of all or a portion of certain borrowings availed by our Company as identified below, and the accrued interest thereon

In the event the Net Proceeds are insufficient for payment of pre-payment penalty or accrued interest, as applicable, such payment shall be made from the internal accruals of our Company. We believed that the repayment or prepayment will help reduce our outstanding indebtedness, debt servicing costs, assist us in maintaining a favorable debt-equity ratio and enable utilization of funds from our internal accruals for further investment in business growth and expansion. In addition, we believe that this will enable us to raise further resources at competitive rates in the future to fund potential business development opportunities and plans to grow and expand our business in the future.

What are the macro opportunities for the company? 

We serve the consumer electricals industry comprising of Wires and Cables and FMEG through a diverse suite of products. In FY 23, the opportunity size of wire and cables segment was Rs. 748 bn and is expected to grow at 13% CAGR for the period FY 23 to FY 27. For FMEG Segment, the opportunity size in FY 23 was Rs. 1,064 bn. Within FMEG segment, Fans segment is expected to grow at 9 % CAGR, Switches segment is expected to grow at 9% CAGR, Lighting segment is expected to grow at 14% CAGR and Appliances market is expected to grow at 9% CAGR respectively during the period FY23 to FY 27. 

The Government of India has announced policies aimed at boosting GDP, increasing the share of manufacturing in India and economic growth, thereby boosting electricity consumption by the industrial segment in India. GOI has also announced various schemes to revive power infrastructure, improve urban distribution networks such as Integrated Power Development Scheme and boost rural electrification. Government initiatives in housing and infrastructure sectors like Pradhan Mantri Awas Yojana and PM Gati Shakti National Master Plan will likely increase the demand for electrical products in India.

Various policy interventions by GoI to promote export of goods and services is expected to further boost the exports market for Wires & Cables in India. For instance, AAS and the EPCG Scheme are being implemented to enable duty free import of raw materials and capital goods for export production. RoDTEP scheme has also been introduced which rebates various central, state, and local duties/ taxes on exported products. 

Many stringent technical standards and compliances have been laid out by various countries for wires and cables product. For example, Europe has laid out regulatory compliances such as REACH, ROHS and CPR. We have over 35 international product certifications, enabling us to export our products to global markets. 

Global transition towards clean and green energy is another opportunity. Commitment of various countries towards achieving a cleaner and greener environment, for instance, the Paris agreement, and net zero emission have resulted in increasing adoption of renewable projects across the globe. These are expected to increase the demand for Wires & Cables in the global market, which in turn would provide a great opportunity for Indian exports. 

The key growth drivers for the wires and cables industry in India include rural electrification, increase in per capita consumption of electricity in India, expansion in the residential and commercial real estate sector, transition towards clean and green energy, global shift from ‘China-based manufacturing’ to China plus one strategy.. 

The emergence of new age sectors such as the construction of Multimodal Logistics Parks  as a part of the Gati Shakti National Master Plan, local data centers and airports is expected to drive the increase in demand of wires and cables such as flexible cables, control and instrumentation cables etc. and FMEG products in India. 

According to Technopak, the data center industry in India was valued at US$4.4 billion in 2021 and is projected to reach US$10.1 billion by 2027, growing at a CAGR of approximately 15% between 2022 and 2027, while the domestic electric vehicle market is estimated to see a 47% CAGR between 2022 and 2030.

Additionally, the pace at which technology adoption and digitization is happening across India, due to factors such as improvement in telecommunications infrastructure and increase in data consumption, is expected to increase the demand for wires and cables such as communication cables in India.

In the FMEG segment, urbanization and nuclearization is expected to increase the demand for residential real estate in India, which in turn, is expected to generate demand for electrical products as each house would require, among other things, electrical appliances, wirings, fans and lights. India’s youth and working age population, accompanied by rise in per capita income is expected to drive premiumization in fast moving electrical goods (“FMEG”) segments such as fans, lightings and home appliances. 

How does the company anticipate addressing emerging ESG challenges and opportunities in its industry?

We undertake various initiatives to address environmental issues such as climate change and global warming. We have adopted “zero” waste discharge initiatives wherein no untreated effluent from our manufacturing operations is discharged on to the land or into any water body. 

We were the first company in India to launch products compliant with European regulations such as REACH, ROHS and CPR according to Technopak Report.  We have also sell green BLDC fans. These fans are energy efficient and all components such as motor box, plastic, binding mechanism and artwork ink are all made up of green products such as pulp tray, biodegradable inks and cotton threads.

We adopt a structured approach to developing and implementing our environmental initiatives. This involves the articulation of our environmental goals (including meeting our customer expectations on sustainability), and the identification of material issues along with a gap analysis of our existing policies via peer benchmarking and the selection of green key performance indicators (“Green KPIs”) of our environmental initiatives. Some of these chosen indicators form part of our core sustainability themes, including emissions and climate change, water, diversity, human capital, environment management systems and governance. As of the date of this Red Herring Prospectus, we are monitoring our Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions. Further, we have signed a tripartite agreement for the purchase of electricity from an offsite hybrid solar and wind plant for our Waghodia Facility. 

 We intend to formalize data capture, measurement, reporting and disclosing of our Green KPIs across our core functions and geographies, to allow us to track our progress towards our environmental goals, and have rolled out our Green KPIs as well as benchmarked against peers for guidance on target setting and internal improvements. We also aim to source hybrid renewable green energy from third party providers with a goal of increasing the contribution of such green energy to our overall energy consumption. 

We intend to work on monitoring of targets, implementation of new initiatives, modification of our roadmap (if necessary), strengthening of our social initiatives, rolling out of a sustainable procurement policy and finally work on our carbon disclosure project (“CDP”) and sustainability disclosures (including preparing an annual CDP sustainability report which we aim to be global reporting initiatives referenced). We are also preparing our systems and processes to address the disclosure requirements for Business Responsibility and Sustainability Reporting.