R R Kabel cable growth and FMEG break-even drive earnings upgrade

Investment View and Earnings Upgrade

Motilal Oswal Financial Services retained its Buy recommendation on R R Kabel following a 1QFY27 earnings beat. Performance was supported by stronger-than-expected Cables and Wires (C&W) volume growth and the FMEG segment reaching break-even. The broker raised its FY27E and FY28E EPS estimates by approximately 8% and 6%, respectively, reflecting higher volume assumptions and improving FMEG profitability.

The broker raised its target price to Rs 2,960 from Rs 2,800, valuing R R Kabel at 35 times FY28E EPS.

1QFY27 Financial Performance

Adjusted PAT growth was aided by higher other income. Employee costs declined to approximately 4.1% of revenue from 4.5% in 1QFY26, while other expenses fell to 5.5% from 6.8%.

Cables and Wires: Key Performance Driver

C&W segment revenue increased approximately 57% year on year to Rs 28,800 million, while EBIT doubled to Rs 2,854 million. EBIT margin expanded by 2.3 percentage points to 9.9%, ahead of the broker's 9.6% estimate.

Management indicated that overall C&W volumes grew approximately 17% year on year, ahead of estimated industry growth of around 10–12%. Cable volumes rose more than 25%, while wire volumes increased approximately 12%. Margin improvement was attributed to operating leverage, fixed-cost absorption, better product mix and cost optimisation.

The company remains focused on distribution expansion, dealer engagement, higher-value cable products and B2B capabilities across projects, industrial and power cables. Its geographically diversified export portfolio offset temporary disruptions in the Middle East, although some supply-chain challenges persisted. Shipments to the region normalised during May–June 2026.

Initial conventional cable orders have commenced in data centres. However, management described this as a customer-acquisition phase rather than an opportunity for rapid scale-up.

Margin Outlook and Raw-Material Risk

Management reiterated its C&W EBITDA-margin guidance of approximately 10.5% for FY28. Domestic cable margins, currently around 6–7%, are expected to improve towards approximately 10–11% over the medium term through scale, better utilisation and market-share gains.

Raw-material volatility remains a key near-term concern. Current prices imply an increase of approximately 30% year on year versus 2QFY26 levels. Management noted that sharp price movements can lead to temporary channel stocking or destocking and affected volumes towards the end of 1QFY27. It nevertheless expects long-term demand resilience across infrastructure, construction, industrial and power applications.

FMEG Segment Reaches Break-Even

FMEG revenue rose approximately 28% year on year to Rs 2,882 million and achieved EBIT break-even, compared with an EBIT loss of Rs 71 million in 1QFY26 and Rs 93 million in 4QFY26.

Growth was supported by lighting, appliances and switches. Fans benefited from better realisations and a more premium product mix, although fan volumes were broadly flat. Premium products contributed approximately 25% of fan revenue.

Management is targeting approximately 20% annual FMEG revenue growth and sustainable break-even in FY27E. It expects premiumisation and operating leverage to make FMEG a consistently profitable growth engine over time.

Capacity Expansion and Capex

R R Kabel's Rs 12,000 million capex programme remains on track, with nearly 80% allocated to cables. New wire capacity at Silvassa is due to commence in the current quarter, while additional cable capacity at Waghodia is expected later in the year.

Cable utilisation is approximately 90%, compared with 65–70% for wires. Future additions will focus on power cables and specialised, higher-value categories, including high-voltage cables.

Earnings Outlook and Valuation

Motilal Oswal estimates FY26–FY28 revenue, EBITDA and PAT CAGR of approximately 25%, 36% and 40%, respectively. Operating margin is expected to improve from 8.1% in FY26 to 9.2% in FY27E and 9.6% in FY28E. The broker values the company at 35 times FY28E EPS and sets a target price of Rs 2,960.