R R Kabel Ltd Management Discussions

Global Economic Overview

The global economy has demonstrated remarkable resilience, with growth holding steady and advanced and emerging economies countries returning to their target inflation levels after staying elevated for the past few years. The post-pandemic period saw a war between Russia and Ukraine. This was accompanied by supply chain disruptions, middle-eastern wars, and various other geopolitical crises, which led to a surge in inflation. However, despite predictions of a recession, the world economy avoided a downturn. The banking system proved robust, and major emerging market economies remained stable, avoiding sudden stops. According to the IMFs April 2024 report, global growth reached 3.2% by the end of 2023, with headline inflation remaining at 6.8%. Following a similar trend in growth, 2024 and 2025 are expected to remain steady at around 3.2%, with headline inflation declining to 5.9% in 2024 and 4.5% in 2025. Advanced economies are projected to return to their inflation targets sooner than emerging markets and developing economies. This can be attributed to active monetary policy adjustments, stabilisation of supply chains, moderation in commodity prices and wage growth, effective management of inflation expectations, technological advancements, productivity gains, and supportive fiscal policy measures.

Commodities

The global commodity market has experienced significant price volatility, driven by geopolitical tensions in the Middle East and shifts in supply and demand dynamics. Commodity prices are expected to soften slightly in 2024 and 2025 but will remain above pre-pandemic levels. Metal commodities have also seen notable price movements. The IMFs base metals price index rose by 4.7% from August 2023 to February 2024, driven by record steel production in China.

Copper prices increased by 3% in the first quarter of CY

2024, reaching a two-year high due to stronger demand from China and supply constraints in South America. Although there is an increase in 2024 percent-wise, the y-o-y (year-on-year) average monthly Copper LME prices were USD 8,836/MT in March 2023, compared to USD 8,676/MT in March 2024, showing a 1.81% drop in the prices. Nonetheless, the ongoing energy transition to clean and green energy continues to drive copper demand, particularly for electric vehicles (EVs) and renewable energy infrastructure. Copper prices are projected to rise 5% in 2024 and remain steady in 2025 as new production capacities come online.

In contrast, Aluminium prices edged up by 0.3% in early 2024. Like Copper, the y-o-y average monthly Aluminium LME prices also dropped by 2.97%, with prices in March 2023 being USD 2,290/MT and March 2024 being USD 2,222/MT. The prices are driven by concerns over supply from Russia and steady demand from the automotive, construction, and EV sectors, and renewable power infrastructure.

Source: World Economic Outlook, April 2024; Commodity Special Feature; April 16, 2024 – https://www.imf.org/-/media/Files/ Publications/WEO/2024/April/English/commodityspecialfeature.ashx

Source: APRIL 2024 Commodity Markets Outlook – World Bank Group Report – https://openknowledge.worldbank.org/ bitstreams/439f0fe3-6737-4b52-ae1f-6c221dfa45bf/download

Indian Economic Overview

Indias economic landscape in 2023-24 is marked by resilience and growth. This reflects the countrys ability to maintain a strong economic trajectory despite global uncertainties.

According to provisional estimates of gross domestic product (GDP) growth released by the National Statistics

Office (NSO), India registered the highest growth at 8.2% among major advanced and emerging market economies. This positions the country as a global economic leader. The Index of Industrial Production (IIP) (an index that indicates the performance of various industrial sectors of the Indian economy) for March 2024, published by the Central Statistical Organisation (CSO), stood at 159.2. The indices for the mining, manufacturing, and electricity sectors stood at 156.1, 155.1, and 204.2, respectively, indicating steady industrial growth.

Pricing pressures remain a focal point, with the annual inflation rate based on the consumer price index (CPI) provisionally at 4.75% (combined) for May 2024. This reflects rural and urban inflation rates of 5.28% and 4.15%, respectively. The combined CPI was at 4.31%, the rural CPI was at 4.23%, and the urban CPI was at 4.33%, in May 2023. The current repo rate stands at 6.50%, unchanged since February 2023, maintaining a balance between inflation control and economic growth. Import duties and indirect taxes, including GST, Customs, and Excise, have also been pivotal, with the gross tax collection target for 2023-24 revised to INR 34.37 Trillion. Additionally, Indias exports have shown resilience, contributing positively to the overall economic performance.

USD 776.68 Billion

Indias Exports in 2023-24

3.4%

Budgeted Infrastructure Capex for 2024-25 as % of Indian GDP

The capital expenditure outlay, as detailed in the Interim Union Budget for 2024-25, stands at INR 11.11 Lakhs Crores. Strong domestic demand for consumption and investment, along with the Governments continued emphasis on capital expenditure, are among the key drivers of GDP growth in the first half of 2023-24.

Industry Review

Wires and Cables (W&C) and FMEG Industry

The consumer electricals industry in India plays a crucial role in the economy, significantly contributing to manufacturing production, GDP, and exports. It includes heavy electrical products like wires and cables (W&C) and light electrical products such as fast moving electrical goods (FMEG), encompassing appliances like fans, lighting, appliances, switches and switchgears. The industry is highly competitive with many players offering diverse products and services. The W&C industry experienced substantial growth, reaching approximately INR 84,500 Crores in 2023-24, compared to INR 74,800 Crores in 2022-23. This growth, driven by sectors like power, railways, and real estate, is expected to continue at a CAGR of approximately 13% from 2023-24 till 2026-27 to reach a market value of INR 1,20,000 Crores. The fast-moving electrical goods industry reached approximately INR 1,02,600 Crores in 2023-24 and is expected to regsiter a CAGR of 8% from 2023-24 till 2027-28.

Key Sub-Categories of Wires & Cables

A wire is a single conductor, while a cable consists of multiple conductors for transmitting electricity and telecommunication signals. The W&C market includes: Housing Wires: Used in commercial, industrial, and residential properties to carry electrical current Power Cables: Utilised for power transmission and distribution Control and Instrumentation Cables: Multi-conductor cables for low-energy signals in power system monitoring and control Communication Cables: Transmit information signals, including coaxial, fibre optic, data, ethernet, and twisted wire pairs Flexible and Speciality Cables: Used in consumer appliances, railways, mining, and specific sectors like marine and oil & gas

Key Growth Drivers of Wires and Cables Market in India

1 Residential and Commercial Real Estate

The booming real estate market increases the demand for high-quality wiring and cabling solutions.

As new buildings and complexes are developed, the need for reliable electrical infrastructure rises, directly boosting sales for RR Kabel.

2 Push towards Renewable Energy

Under the Paris Agreement, countries like Japan, South Korea, India, and those from the European Union, have committed to achieving net zero emissions, with India targeting 2070. This global commitment has accelerated the adoption of renewable energy, particularly solar and wind power, creating significant growth opportunities for Indias consumer electrical industry. RR Kabel stands to benefit from this shift, with India aiming to install 500 GW of renewable energy capacity by 2030, driven primarily by solar energy projects. The Interim Union Budget 2024-25 allocated the following: Grid-Based Solar Power: INR 10,000 Crores for 2024-25, a significant increase from the revised estimate of INR 4,757 Crores for 2023-24 Wind Power: INR 930 Crores for 2024-25, slightly up from INR 916 Crores in 2023-24

Rooftop Solarisation: To cover 10 Million homes with the rooftop solar scheme which will provide 300 units of free electricity each month to these households

3 EV Transition

The transition to EVs presents a significant growth opportunity for RR Kabel in the W&C industry. With the Indian Government targeting 30% vehicle electrification by 2030 and implementing supportive policies such as the FAME India Scheme and PLI Scheme, the EV market is poised for rapid expansion. Additional initiatives like the Battery Swapping Policy and tax exemptions further stimulate EV adoption. Given the anticipated need for 20.5 Lakhs charging infrastructure installations by CY 2030, RR Kabel is well-positioned to capitalise on the EV transition in India.

4 Export Promotion by Government

Government policies promoting exports provide significant support for RR Kabels international growth ambitions. By leveraging export incentives and favourable trade agreements, the Company can enhance its competitive edge in global markets.

5 Rural Electrification

The enhancement of road connectivity between rural and urban areas has improved the living standards of rural households, leading to a significant increase in the demand for basic electrical needs. Although seven states have achieved full access to electricity more than 11.8 Lakhs households still await access to electricity. Since 1950, the number of villages with electricity has surged from 3,000 to 600,000, driving substantial growth in the electrical market. This expansion offers lucrative opportunities for companies like RR Kabel to penetrate rural markets and meet the rising demand for wiring cables and

FMEG products. The ongoing rural electrification drive is set to further stimulate demand as it requires the establishment and maintenance of new power infrastructure.

Source: https://infra.economictimes.indiatimes.com/news/railways/ ahmedabad-mumbai-bullet-train-to-be-launched-in-2026-railway-minister/108616891 https://pib.gov.in/PressReleaseIframePage. aspx?PRID=1994174 https://www.railmitra.com/blog/private-train-in-india https://pib.gov.in/PressReleasePage.aspx?PRID=1865754

Key Sub-Categories of FMEG

The FMEG market includes:

Fans: The Indian fan market comprises three main segments: ceiling fans, TPW (table, pedestal, and wall (TPW) fans), and industrial/exhaust fans. In 2023-24, ceiling fans led the market, accounting for about 72% of its value, followed by TPW fans at 20%, and other fans at 8% Lighting: The domestic lighting industry in India is segmented broadly into four main product categories: bulbs, tube lights, downlights, and panels. This diverse product range caters to varying lighting needs across different environments, highlighting the industrys adaptability and broad application Appliances: The appliance industry mainly includes heaters, geysers, coolers, and irons, among others. These are typically used in residential real estate markets Switches and Switchgears: The switch industry is divided into traditional switches and modular switches, with modular switches holding a larger market share by value due to their higher pricing. Meanwhile, the switchgear sector comprises Low Voltage (LV), Medium Voltage (MV), and High Voltage (HV) segments. LV switchgear serves residential and commercial sectors, while MV and HV switchgear are crucial in industries and power utilities. LV switchgear operates similarly to switches with significant consumer engagement, whereas MV/HV switchgear focusses on B2B industrial markets with distinct dynamics and value chains

Key Growth Drivers of FMEG Market in India

1 Premiumisation

According to the latest EY ‘Future of Pay 2024 report, India is projected to experience an average salary increase of 9.6% in the coming year. Over the past decade, wage rates in India have grown by approximately 10%, resulting in higher disposable incomes and increased purchasing power for individuals. This rise in income has spurred the demand for safe, high-quality, and aesthetically pleasing products. This is more so in the FMEG sector where consumers are increasingly willing to invest in premium offerings.

2 Energy E_cient Products

The Bureau of Energy Efficiency (BEE) has introduced mandatory star labelling norms on Ceiling Fans from January 2023 to inform consumers about the benefits of energy efficient choices. Launched in 2006, the

Standards and Labelling (S&L) programme provides information on the energy-saving capabilities of appliances, helping consumers make cost-effective decisions. These initiatives promote energy savings and cost efficiency in appliance choices, encouraging consumers to opt for more efficient products. This trend is driving technological advancements and innovations in the consumer electrical industry, aligning product development with the growing preference for efficient W&Cs.

3 Rise of Smart Homes

The increasing prevalence of IoT is leading to a rise in the popularity of smart homes in India. FMEG companies are innovating with connected appliances and systems controlled via smartphone apps or voice assistants, driven by the need for convenience, energy efficiency, and security.

Consumer electrical sector companies target larger market shares through e-commerce and modern trade outlets. Due to short product life cycles and high competition, continuous innovation and effective marketing are crucial for maintaining market relevance and profitability.

4 Residential and Commercial Real Estate

The growing residential and commercial real estate market in India significantly drives the demand for FMEG products, from lights and fans to switches. This sectors growth is fuelled by an increase in population, urbanisation, and economic conditions.

The Government of Indias real estate reforms, including Real Estate Regulatory Authority (RERA) affordable housing initiatives, and GST simplification, have significantly enhanced transparency, affordability, and buyer confidence.

State government housing schemes complement these efforts, driving sustained demand for FMEG products. This growing residential market, spanning both affordable and premium segments, presents substantial growth opportunities.

5 Replacement Demand

The ongoing need to replace outdated or malfunctioning electrical goods stimulates consistent demand for RR Kabels FMEG products. This cyclical replacement cycle ensures a steady revenue stream as customers seek to upgrade to more reliable and advanced options provided by the Company.

6 Rising Disposable Incomes

Increasing disposable incomes lead to higher consumer spending on quality electrical goods. RR Kabel benefits from this economic trend as consumers are more willing to invest in premium and innovative FMEG products, resulting in increased sales and expanded market penetration.

Business Review

At a Glance

Incorporated in 1995, R R Kabel Limited has established itself as a formidable player in the consumer electrical products industry, catering to the residential, commercial, industrial, and infrastructure sectors. The Company operates in two major segments: W&Cs, and FMEG, which include fans, lighting, switches, and appliances. RR Kabel is a prominent player in the housing wire segment, holding ~10% market share, propelled by strategic initiatives like ‘Project KaRRma to expand market reach and retail presence.

Market Position and Growth

As of 2023-24, RR Kabel ranks as the fourth-largest manufacturer in the Indian W&C industry, holding ~5% of the overall market share. The Company has demonstrated robust growth, achieving a revenue of INR 5,830 Crores in 2023-24, driven by a remarkable 17.6% growth in revenue compared to 2022-23.

Manufacturing and Distribution

RR Kabel operates five integrated manufacturing facilities across India. Two facilities in Waghodia (Gujarat), and Silvassa (UT of Dadra & Nagar Haveli and Daman & Diu), focus on manufacturing wires, cables, and switches. The other three facilities, located in Roorkee (Uttarakhand); Bengaluru (Karnataka); and Gagret (Himachal Pradesh), are dedicated to FMEG products.

The Companys extensive pan-India distribution network includes 3.9k+ distributors, 4.0k+ dealers, and, 144k+ retailers as of March 31, 2024. Furthermore, RR Kabel boasts one of the largest networks of 454k+ electricians in India, as of March 31, 2024. The Companys extensive network can reach a broad customer base through its B2B and B2C channels.

International Presence and Certifications

RR Kabels reach extends beyond India, with its products available in 67 countries worldwide. The Companys dedication to quality and excellence is evident in its collection of over 37 international certifications, distinguishing it as a leader in the Indian consumer electrical products industry.

W&C Segment

Wires and Cables

In 2023-24, RR Kabels W&C segment remained pivotal, contributing 88% to the Companys overall revenue. Supported by two strategically located manufacturing facilities with a combined annual capacity of 4.2 Million ckm (Cable Kilometre), RR Kabel strengthened its position as a leading entity in the Indian electrical industry.

A critical element of RR Kabels strategy in 2023-24 was its focus on capacity expansion and infrastructure development through its Capex plan of ~INR 500 Crores planned for 2023-24 and 2024-25.

Under Project KaRRma, RR Kabel aimed to increase its market share and retail presence in the domestic housewires segment, thereby solidifying its market position by focussing on expanding its reach in micro and nano markets. This strategic investment demonstrates the Companys commitment to meeting growing demand and enhancing its competitive advantage.

Revenue Mix (2023-24)

Domestic W&Cs

In 2023-24, RR Kabels domestic W&Cs segment demonstrated remarkable growth, reaffirming its position as a leading player in Indias consumer electrical industry.

The domestic wires segment accounted for a significant portion of the Companys revenue in 2023-24.

During 2023-24, RR Kabel experienced substantial volume growth in the domestic wires segment compared to 2022-23. This growth was primarily driven by the booming real estate sector, which includes housing, office spaces, restaurants, and hotels.

RR Kabel is strategically expanding its market presence in South and East India while maintaining strong revenues from the North and West regions, aiming to diversify and drive future growth. Looking ahead, the Company targets moderate growth in the W&Cs segment through continued investments in R&D, innovation, and the expansion of its distribution networks.

Wires & Cables Export

In 2023-24, RR Kabel maintained its leadership in global W&Cs exports, holding a commanding 10% market share across 67 countries in North America, APAC, Europe, and the Middle East. The export segment accounted for 26% of Revenue from Operations, driven by a distribution-focussed strategy with recurring B2C exports and direct sales to distributors. The ‘RR Kabel brand dominated exports, constituting nearly 90% of sales and establishing a strong market presence in Europe, the US, and the Middle East. RR Kabels diverse product range, including power, control, communication, and speciality cables, meets global market demands with support from numerous global certifications. This ensures compliance and competitive advantage. Despite geopolitical challenges, RR Kabel remains optimistic, leveraging opportunities from global shifts in the international market and sustaining growth through innovation, R&D, and efficient logistics. Overall,

2023-24 marked robust growth and strategic consolidation for RR Kabels global export segment, poised for continued expansion and success in the global market.

W&C Business Outlook

Looking ahead, RR Kabels W&C segment is set to drive revenue growth to INR 5,830 Crores in 2023-24, a 17% increase from the previous year. The Company plans to enhance EBIT margins in 2024-25 through cost efficiencies and an improved product mix. A self-funded Capex of ~INR 500 Crores will expand capacity, upgrade manufacturing facilities, and increase production capabilities to bolster market position and support growth. Further, the Company is also contemplating significant Capex projects which will be undertaken in the next 2 years considering the strong demand and the Companys aim to achieve a good market share.

With exports accounting for 26% of revenue, RR Kabel aims to strengthen its global presence through additional product certifications and participation in major electrification projects. The outlook for RR Kabels W&C business is positive, driven by revenue growth, margin expansion, and promising export prospects. The Company is well-positioned to maintain its upward trajectory and solidify its status in Indias consumer electrical market.

Fast Moving Electrical Goods (FMEG)

In 2023-24, RR Kabels FMEG segment remained pivotal, contributing 12% to the Companys overall revenue. The Company operates advanced manufacturing facilities in Roorkee, Bengaluru, and Gagret, boasting an annual production capacity of 3.3 Million units for fans and 1.9 Million units for lights. Its diverse product range includes fans, lighting, switches, switchgears, and home & kitchen appliances.

In 2023-24, RR Kabel significantly expanded its market presence by adding over 300 distributors and establishing 10,000 additional retail touchpoints, facilitating approximately 20% sales growth. The Company became the top-selling brand in the exhaust fans category on Amazon and the leading player in TPW on Flipkart. The successful launch of new products further boosted consumer confidence and sales growth.

Also, to expand its FMEG revenues, RR Kabel developed 347 new products, under FMEG for residential and commercial use, as of March 31, 2024. This product development is part of their strategy to strengthen market leadership.

In Project Lakshya, RR Kabel aimed to expand the distribution width and depth of its fans and lights segment through field sales officers and successfully transform it into the RR Signature brand.

Fans

RR Kabel offers a wide range of products, including ceiling fans, table pedestal and wall fans, and exhaust fans. The Company has an annual installed capacity of 3.3 Million units, with its Roorkee plant producing 1.5 Million fans and the Gagret plant producing 1.8 Million premium fans.

The BLDC fan segment, known for its energy efficiency, presents a significant growth opportunity, aligning with the rising consumer demand for energy-saving appliances. Although currently a small part of the market, the BLDC segment is expected to grow substantially.

R R Kabel Limited is focussed on expanding its premium fan production and capitalising on the growing demand for energy efficient fans. This strategic approach positions the

Company for continued success in the Indian fan market.

Lighting

R R Kabel Limited is a prominent player in Indias FMEG industry, expanding notably in the lighting segment. The Company is strategically positioned to capitalise on this growth through its Arraystorm brand and the acquisition of

Luminous home electrical business in May 2022. This performance is driven by RR Kabels wide product range, giving it a competitive edge in the lighting sector where many competitors are experiencing stagnant or negative growth. The Company offers various lighting products such as panel lights, bulbs, downlights, and streetlights.

Switches and Switchgears

RR Kabel is making significant strides in the switches and switchgears market, a crucial segment of the electrical equipment industry. Commencing switch manufacturing in 2021, RR Kabel established a state-of-the-art manufacturing plant in Waghodia with an impressive capacity of 9.9 Million units. This facility produces a diverse range of products, including modular switches, miniature circuit breakers (MCBs), and distribution boards (DBs), catering to both the residential and commercial segments.

Appliances

RR Kabel has ambitiously entered the fast-growing home appliances market, positioning itself to capitalise on the demand driven by changing lifestyles, rising disposable incomes, and technological advancements. The appliances segment offers a diverse range of products, including water heaters, irons, room heaters, and coolers, sourced as traded goods. These products cater to households, commercial establishments, and industries, with a focus on convenience, energy efficiency, and innovation. Key components include tanks, heating elements, and cooler motors. With urbanisation, increasing consumer aspirations, and government emphasis on energy efficiency and sustainability, the segment is poised for steady growth.

FMEG Business Outlook

In 2023-24, RR Kabels FMEG revenue surged to INR 765 Crores. This growth is attributed to expanded distribution channels, substantial gains in e-commerce, successful product launches, and the transition to the RR Signature brand. The FMEG segment now contributes 12% to total revenue, driven by strategic expansions and new offerings such as BLDC and decorative fans, which enhance diversity and innovation.

However, the lighting segment faced a decline due to ongoing structural changes and price erosion, which are expected to continue until 2024-25. The Company anticipates a reversal of this trend by 2025-26. This factor tempered RR Kabels Lighting segment growth to single digits, albeit still significantly above the industry average. RR Kabels path towards profitability is due to improved gross margins and enhanced procurement efficiency.

Looking forward, the Company aims to achieve breakeven, expand its distribution networks, and innovate with aesthetically and technologically advanced products like smart fans, lights, and appliances to capitalise on emerging market trends. Overall, RR Kabels FMEG segment exhibits robust growth, margin enhancement, and strategic positioning for sustained leadership in the industry.