Cables & Wires: 4 key reasons why UBS considers it to be best play in Consumer Durables: Initiates Buy on KEI, Polycab

Stock Market Today: In the India Consumer Durables sector, UBS Research considers cables and wires to be the best play on the electrification theme. They prefer Polycab India Ltd and KEI Industries share prices in the space and have initiated coverage on these two companies

Here are 4 Key reasons why UBS Research prefers cables and wires

1.Robust growth prospect-

The cables and wires Segment is poised to grow at 2 times GDP growth in FY24-FY30. The same is to be propelled by increased capacities, robust domestic demand bolstered by capital expenditures in transmission and distribution and the real estate cycle.

They anticipate that (a) the current $8 billion segment, which accounted for 40% of the electrification market's value in FY24, will be worth US$20 billion in FY30 (estimated), and that the top five companies' market share will increase

(b) the global supply chain will shift and incumbents' sizable capacity will boost export revenue from $2 billion in FY24 to $5 billion in FY30 . The estimates translate to a 17% CAGR (compound annual growth during the period.

(c) UBS's cable and wire coverage companies will see revenue and Ebitda CAGRs of 20% to 25% during FY24–28E due to robust demand, operating leverage, growing market share and robust export penetration.

They have initiated coverage on KEI Industries and Polycab with a Buy Rating.

Other companies in Consumer Durables space under UBS Research coverage with BUY ratings include Havells India and Voltas Ltd.

Finolex Cables, Crompton Greaves Consumer Electricals , Bajaj Electricals , Symphony and Whirlpool of India Ltd are unrated companies under UBS Coverage.

2.Cable & Wires top in electrification attractiveness framework

As per UBS, in concept of electrification attractiveness, cable and wire (C&W) ranks highest. C&W is ranked highest in its industry competitiveness framework for the electrification value chain, which takes into account return generation, export potential, revenue growth, and consolidation.

3. Supply Demand dynamics remains favorable

Favorable supply-demand dynamics are likely to benefit industry leaders, feels UBS Research. It believes that as new C&W capabilities match underlying demand, profit growth will follow. Capacity restrictions have caused several large incumbents to have seen modest top-line growth, but they have accelerated investment. The C&W under UBS coverage see FY24 capex increased by 50% YoY.

4. Earnings growth to support valuations

Compounding earnings will support expensive valuations of the Cable and Wires as Polycab India Ltd and KEI Industries share prices.

The C&W segment has undergone a re-rating led by rise in top-line and margins. The valuations in line with the broader market and seemingly there are low near-term de-rating risks, feels UBS

UBS believes that at 16% and 24% earnings Compound annual growth rate in FY24-27, for Polycab and KEI, they think consensus has underappreciated the potential ramp-up of exports and incumbents' possible M&A to allocate capital to logical, compatible adjacent segments such as electrical subsets.

For KEI Industries share price target price of UBS Research at ₹6,150 indicates around 31% upside

For Polycab India share price UBS target price at ₹12,135 indicates almost 78% upside for the stock from current levels

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