Nuvama Institutional Equities has reiterated its positive outlook on the Indian cables and wires sector, identifying KEI Industries Ltd and Polycab India Ltd as its top investment choices. This follows a robust first quarter where 11 companies in the cables, wires, conductors, and optical fibre segments collectively reported a 43 percent year-on-year revenue growth and a 69 percent rise in Earnings Before Interest and Taxes (EBIT).
Segment Performance Driven by Cost Pass-Through
The brokerage highlighted that the significant growth in revenue and EBIT was primarily fueled by the successful pass-through of raw material costs to consumers. While overall volume growth remained subdued for most electrical cable and wire manufacturers, RR Kabel stood out with a 17 percent increase. This general volume softness was attributed to limited channel stocking and some destocking, as distributors delayed purchases in anticipation of falling commodity prices.
Optical Fibre Cables Lead Outperformance
The optical fibre cable (OFC) segment emerged as a key outperformer, witnessing a remarkable 115 percent surge in revenue and a 631 percent jump in EBIT. Nuvama attributes this strong performance to several factors, including substantial capital expenditure from hyperscalers, the burgeoning demand driven by artificial intelligence (AI), and increased data-center investments. Improved fibre realisations and higher optical connectivity demand also significantly boosted profitability.
Sterlite Technologies' optical fibre segment, for instance, recorded a 92 percent year-on-year growth, with its Enterprise and Data Centre divisions contributing 39 percent of its revenue. Similarly, HFCL's optical fibre cable revenue soared by 175 percent, with exports accounting for 56 percent of the mix. Both Sterlite Technologies and HFCL have secured long-term hyperscaler orders totaling USD 1.1 billion, pushing their order books to record highs.
Key Demand Drivers and Shifting Landscape
Nuvama forecasts a strong medium-term outlook for the electrical cables and wires sector, bolstered by healthy domestic capital expenditure momentum. The transmission and distribution (T&D) sector is emerging as a crucial structural demand driver, with transmission additions projected to reach 17,000 circuit kilometers in FY27, up from a historical 14,000-15,000 km. Projections suggest 20,000-21,000 circuit kilometers annually between FY26 and FY30.
Export growth presented a mixed picture due to disruptions in the Middle East and uncertainty surrounding US trade policies, though shipments to the Middle East began normalizing in May and June, and US opportunities are gaining traction. Furthermore, capital expenditure within the industry is increasingly shifting towards Medium Voltage (MV), High Voltage (HV), Extra High Voltage (EHV), and specialized cables, with companies like KEI, Universal, and RR Kabel expanding their presence in these high-value segments.
Nuvama's Reaffirmed Price Targets
Nuvama has maintained its 12-month target price of Rs 6,310 for KEI Industries and Rs 10,510 for Polycab India. The brokerage also reaffirmed its target of Rs 1,700 for Havells India and Rs 770 for Sterlite Technologies Ltd, based on their Q1 results. The firm noted that the sector continues to benefit from value growth, a shift towards higher-voltage cables, increasing transmission demand, robust exports, and a strong optical fibre cable cycle.