India knows how to light up a room (or a whole country!). When it comes to electricity, we're like the cool kid on the block with a staggering installed power capacity of 411.64 gigawatts.
India's power usage increased by a 11% in December 2022, to 121.19 billion units, enough power to light up the night sky.
Welcome to today's article, in which we explore a fascinating business. Our spotlight shines brightly on KEI Industries, a company with a truly electrifying venture.
Now close your eyes and picture the entangled network of wires that appears to have a life of its own that you are accustomed to seeing over your head. Yes, I am referring to these fascinating works that have occasionally captured the interest of every Indian ⬇️.

And what's this? KEI Industries holds the key to this intriguing realm!

Overview of the cables and wire industry

Prepare to connect to some amazing information! Around 40–45% of the Indian Electrical Industry is powered by the massive INR 450–500 billion domestic wires and cables sector in India.

However, what precisely drives this demand? Well, the expansion of the manufacturing, infrastructure, power, telecommunications, as well as our comfortable residential and thriving commercial sectors, goes hand in hand with the requirement for wire and cable. Wires and cables are the unsung heroes that keep the sparks flying in everything from massive infrastructure projects to oil and gas operations to vast housing developments to the digital revolution!

The government is turning up the voltage, so hold on tight! Their efforts in the areas of infrastructure, housing, power, and digitalization are similar to power surges that will electrify the wire and cable sector in the near future. But there's more! The industry is preparing to provide cables for solar and wind power applications as renewable energy gains popularity, breathing new life into the world of wires and sparks.

There's a sudden surge of exhilaration, though! India's market for wire and cables has the potential to grow by a staggering USD 1.65 billion between 2021 and 2025.
It's like an unstoppable current! The wires and cables industry is set to ignite the future with its energy, with growth momentum growing at a  CAGR of 3.80%.
So buckle up, everyone, because a shockwave of development and innovation is about to hit the wire and cable business. 💥

About the company

KEI Industries Limited shines as a leading participant in the enormous field of wires and cables, ranking among the top three in the organised Indian industry. Their incredible journey began in 1968, and in 1992 they changed from a partnership firm with modest beginnings to a public limited corporation. Along the way, the company has also left a lasting impression on the global cables and wires industry, captivating nations far and wide.

KEI Industries is not just a participant but a driving force behind the growth of crucial sectors like steel, transportation, energy, infrastructure, and more. Their influence on fertilisers and building materials is similarly noteworthy, demonstrating their capacity for adaptation.

With time, KEI began to be known as a "one-stop solutions provider" for all cable and wire requirements. Their commitment to excellence is evident in their high-quality products and successful completion of Engineering, Procurement, and Construction (EPC) turnkey projects. They now have a solid reputation in the field. Speaking about their manufacturing plants, the Company has established five state-of-the-art facilities at:

• Bhiwadi (Rajasthan)
• Chopanki (Rajasthan)
• Pathredi (Rajasthan)
• Rakholi and Chinchpada (Dadra and Nagar Haveli and Daman & Diu)

Additionally, they have two PVC compound backward integration plants in Harchandpur (Rajasthan) and Dapada (Dadra and Nagar Haveli).   

Let me quickly describe what a backward integration plant is and how it benefits the company. Backward integration, in its simplest form, is when a business begins producing its own raw materials or components rather than purchasing them from outside vendors. So, by bringing PVC production in-house, they can speed up turnaround times, improve product quality, and promote cost savings. Due to their ability to produce competitive solutions quickly and flexibly, they may continue to dominate the market. It's now time to explore the incredible product line that this firm has to offer. Get ready to be shocked (in the best possible way⚡) by their electrifying offerings! 

Product Portfolio

The company’s wide product portfolio includes the following:

• Extra-High Voltage (EHV)
• High Tension (HT), and Low Tension (LT) power cables
• Instrumentation and control cables
• Specialty flexible cables, single-core and multi-core
• Rubber cables
• Solar power cables
• Fire Survival/Resistant cables
• Marine and offshore submersible cables
• Communication cables
• Thermocouple cables

Clearly their product line is incredibly extensive and serves many different industries. What sets KEI apart is their ability to manufacture Extra High Voltage (EHV) cables above 220kV, making them one of the few players in India with this capability. They are among the selected few manufacturers of 400kV EHV cables in the world.

Check out this graph displaying the company's revenue mix by product. It provides a visual representation of how the earnings of the company are split up among various product categories. Each section represents a particular product and illustrates how much of the total revenue it contributed. It's a quick and simple approach to comprehend how the company makes money from its numerous offers.

Let's unravel the company's ownership structure, shall we?

It is seen that 37.21% is held by the promoters, indicating their belief in the company. 0% of which is pledged, a good sign! Let's shift our attention now to the company's business model.

Business Model

By now you must have known that their business is diversified across several products, customers, segments, industries, and geographies which multiplies business opportunities as well as mitigates the risk of a downturn in any one or more areas.

1. Expanding Manufacturing Capacity
The company added:

• 25,400 kms to cables,
• 2,15,000 kms to House Wires/WW and
• 1,800MT to Stainless Steel Wire manufacturing capacity during the year.
  Also, Investments of 800 crore will be made in next 4/5 years in capacity expansion to support future growth.

2. Focus on Retail Business
With increased emphasis on retail, its contribution to the overall sales mix went up to 41% in FY 2021-22, from 34% the previous year. Their strong retail focus also resulted in a solid year-on-year growth of 65% in the segment. They have a target to increase the sales from their dealer network to 50% within 2/3 years.

3. Grow Distribution Network
The dealer/distribution partners across India in the year went up by 8.3% with a total of 1805 dealers.

4. Enhance overseas presence
The company is focusing on increasing its sales in countries where they are currently exporting as well as building presence in new countries.

5. Explore FMEG opportunities
They have a plan to add new products, once the retail sales reach 50% of the total sales. With the primary focus on remaining a reputed brand for House wires and cables, they are also exploring the FMEG market as an upcoming opportunity. With a huge spur in demand and growing preferences towards branded products, the category holds significant potential.

• Sales from EHV contributed 9% of total revenue and registered a growth of 21.53% in the domestic market.

MOAT of the company

1.     Extra High Voltage (EHV) Cables:
EHV is a type of cable that is used for electric power transmission at high voltage. KEI is one of the selected few players globally having the capability to manufacture 400kV EHV cables, which gives them a strategic edge in tapping the attractive opportunities in the EHV space. Also, many overhead electric transmission networks (yes I am talking about the same picture that we saw at the beginning of this article) are planning to move underground in large cities and 400kV EHV cables are used for the same.
The government is focusing on driving large-scale migration of overhead power networks to an underground power grid, considering that the latter is safer and more reliable. A similar trend is being witnessed in the private sector as premium hospitals, hotels, shopping malls, metro rail and smart cities are opting for underground cable networks. This is leading to a significant rise in the demand for EHV cables.

2.     Backward Integration:
The company enables backward integration through in-house production of PVC, their manufacturing facilities provide them with excellent control on the availability of raw materials and the entire manufacturing process which reduces the turnaround time, improves the product quality and drives cost deficiencies thus helping in delivering competitive solutions with speed and agility. 

3.     Global Presence:
The company has been able to achieve substantial global expansion over the years. They export multiple products including EHV cables, HT cables, LT cables, and Stainless-Steel wires to customers in more than 50 countries across the world.
The international markets are served through subsidiary and overseas marketing/project offices.
They have their marketing and project offices in Australia, Dubai, Gambia, Nepal and South Africa which enable them to work closely with their global customers and also develop a strong relationship, indicating an increase in the export sales.

4.     Diversified Product Portfolio:
The company has a wide variety of wires and cables which cater to the Industrial and Commercial use as well as Domestic use.

5.     Extensive network:
The company has about 1800 distributors or dealers spread across the country and is planning to expand at the rate of 30-35%.

Financial Metrics

In FY 2021-22 the Revenue of the company increased from the previous year at ₹5727 crores. And the Net Income went up by 28.31% at ₹376.02 crores.
For 2023, both the revenue and the PAT have shown an increase as seen in the graph below 👇

Speaking about the Revenue split, we can see that maximum revenue that the company is earning is from the Institutional customers, then comes retail, and then export.

The Return on Equity as seen from the graph below has not shown a very significant increase, it went up from 19% to 20%.

The Return on Capital Employed is the entire capital that is utilized from shareholders as well as debt. ROCE for 2022 was at about 24% which has increased to 26% in 2023, which is a good growth sign.

• PAT increased to ₹477 crore.
• Working capital cycle has improved to 3.41 months from 3.72 months.
• Retail sales contribution in the overall sales mix increased to 41% in FY 2021-22 from 34% in previous year.
• EPC sales stand at 7% of overall sales which is in line with the target set.
• Domestic Institutional Segment grew by 31%.
• The EBITDA increased by 27% to ₹604 crores from ₹476 crores but the EBITDA margin has gone down to 10.54% from 11.37%, this was impacted by the commodity inflation and lag in price increase in the institutional business. 

The Fixed Asset Turnover Ratio measures the efficiency of a company. A higher ratio implies that the management is using its fixed assets more effectively.

The Inventory Turnover Ratio (for wires and cables industry) between 4 and 6 is usually a good indicator that the restock rates and sales are balanced.

The current ratio indicates a company's ability to meet short-term debt obligations which is at 2.22 from the past year. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months.

Market Comparison

The major competitors of KEI are Polycab and Finolex Cables Ltd.

 
The table below shows the key financial metrics that have been used for comparison:

Segment Opportunities

• Under the National Infrastructure Pipeline (NIP), 111 lakh crores has been sanctioned as capex to be made in the key infrastructure sectors over FY 2020-25.
• There is a strong thrust on oil & gas projects, renewable power projects, tunneling and ventilation projects in highways and railways, and metro rail projects.
• The Production Linked Incentive (PLI) scheme is also fueling the expansion of manufacturing capabilities across sectors. These series of positive policies and initiatives taken by the government are boosting the demand for wires and cables from institutional customers.
• Rising demand for EHV cables due to increased EPC infrastructure projects where KEI confronts less competition.
• Increased export revenues due to the increased geographical presence and penetration.
• Rise in revenue share of a retail segment with higher profitability.
• Reviving demand in industries such as metro rail, fertilizers, steel, cement, information technology, and pharmaceuticals.
• Increasing urbanization is likely to stimulate demand for the housing industry, and thus the need for cables.
• There is a structural requirement for more and more efficient Transmission & Distribution infrastructure.
• Rising demand for T&D for power evacuation due to increased renewable energy generation.
• Investments by the government in critical infrastructure areas such as electricity, transportation, and building materials.

The Bottom Line

The company where I would invest all my money would be KEI industries Limited. It is in the business of manufacturing Cables and Wires for about 40 years with a wide range of product portfolio. The overall management is quite experienced in the particular segment with Mr. Anil Gupta, the promoter, Chairman-cum-Managing Director is a renowned expert in the Indian cables and wires industry. There is a bright future prospect of the cables and wires segment as and when the government of India is likely to focus on the following major sectors:
-          Infrastructure Development is the key sector that the government focuses on so that the economy grows as a whole.
-          Manufacturing sector
-          Renewable sector
To summarise:

• Demand for cables and wire will increase, thus benefiting the business.  It caters to both the Retail as well as the Institutional segment. There is a high probability of Volume growth as they are expanding in the Retail segment by 30-35% per annum as mentioned in the annual report. Focusing on growing their distribution network to strengthen their Pan-India presence.
• It is one of the leading exporters and also one of the few players in the world who manufacture the Extra High Voltage cables, which gives them a competitive advantage.
• Investments of ₹800 crore is to be made in the next 4-5 years to increase the capacity expansion.
• Promoter has pledged 0% from their holdings.
• Financials look solid with high growth and high probability.
• High Growth potential as the company is planning to expand its business in the FMEG sector in the next 2 to 3 years.
• The company is doing Capex constantly which shows that there is a demand for the products, the company is generating cash, revenue is also growing along with decent margins, ROCE% and ROE% is good compared to the peers. Current high valuation will not be a concern for me as companies with high growth potential usually trade on high valuation most of the time.
  Overall, the financials and wide product portfolio of KEI Industries Limited, gives it an upper hand and will prove to be a beneficial investment. 
  
  *Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.