Cable & Wire industry falls under the consumer durables industry at around ~14%. Cable Industry comprises of the companies involved in the manufacturing & trading of the wires and cables. Cables primarily constitutes of Power Cables & Networking Cables. While the Power Cables are used to carry Electric Current, the Networking Cables are used to transmit information signals from one point to another.
The major companies that manufacture Wires & Cables are Polycab India Ltd, Havells India Ltd, Finolex Cables, KEI Industries Ltd, V-Guard etc. In the Optic Fibres, Sterlite Technolgies, Aksh Optic Fibre, Paramount Cables, Birla Cables are the prominent ones with Sterlite commanding ~45% of the market share in optic fibre cable segment. In India, ~60% of the players are organized while ~40% are unorganized. While the unorganized players cater to the Low voltage segment, the organized players are involved in the manufacturing of High Voltage cables & other Speciality Cables.
Market Share in Domestic Cable & Wire market
- Polycab Wires Ltd: Polycab Wires is the market leader, was established in the year 1996 and is run by the Jaisinghani family in Mumbai. The company is inovolved in the manufacturing of Wires, Cables & Fast Moving Electrical Goods (FMEG). The company started its EPC business in the year 2009, as a forward integration of its Wires & cables Segment. The company has 25 manufacturing facilities spread over various parts of the country. For FMEG, the company has entered into Joint Venture with Techno & Trafigura companies. The company has filed its IPO on 31 October, 2018.
- Finolex cables Ltd: The company was founded in 1958 by Mr.P.P. Chhabria & Mr. K.P. Chhabria in Pune. The company is now chaired by Mr. D.K. Chhabria (son of Mr. K.P. Chhabria). The company is involved into the manufacturing & trading of Wires & cables, Switches, LED lightings, Fans, MCB’s & Water Heaters. The company is backwardly integrated and manufactures its own Copper cables as well as PVC & XLPE compounds. The 4 state of the art manufacturing facilities are located in Maharahtra, Goa & Uttarakhand.
- Havells India Ltd: Havells was founded by Qaimat Rai Gupta in 1958. It is one of the largest Electrical Equipment companies in India. The products of the company range from home and kitchen appliances, lighting for domestic, commercial and industrial applications, LED lighting, fans, modular switches and wiring accessories, water heaters, industrial and domestic circuit protection switchgear, industrial and domestic cables and wires, induction motors, and capacitors among others. It owns famous brands like Havells, LLoyd, Crabtree, Standard Electric, and Promptech.
- Anchor Electricals: Anchor electrical Private Limited started nearly five decades ago and became a subsidiary of Panasonic Electric Works (now Panasonic Corporation) in 2007. It is one of the largest domestic manufacturers of electrical construction materials with 4 manufacturing locations. The company has a dominant market share in wiring devices and it is constantly expanding its product range and growing market share in Circuit Breakers, Lighting and Luminaries, Fans and Wires/Cables.
- KEI Industries Ltd: The company was founded in 1968 by Mr Anil Gupta. The company is into the manufacturing of Power cables & execution of EPC projects. The company is one of the first companies to bring in the manufacturing of Extra High Voltage (EHV) cables in India.
- Sterlite Technologies Ltd: Sterlite Technologies was founded in 2000 by Mr Anil Aggarwal. The company is headquartered in Pune, Maharashtra. It is India’s only integrated Optical Fiber producer and one of the largest suppliers of Optical Fibers to overseas markets in China, Europe and South East Asia. The company holds 7% market share globally and is targeting 10% market share globally by June 2020. For this the company has proposed Capacity Expansion plans, that will increase the capacity by more than double.
Types of Cables
On the basis of type of use, the cables can be classified as Power Cables, Control & Special Purpose Cables, Building Wires & Cables, and Telecommunication Cables.
A. Power Cables
Power cables are mostly used in Electricity utilities & other industry sectors Like Mining, Ship building, Railway, Defense, Petrochemicals etc. The Power cables can be further classified according the voltage rating, i.e. Low Voltage, Medium Voltage, High Voltage & Extra High Voltage cables.
B. Control & Special power cables
These are like Flexible cables that are made in order to withstand forces of repeated flexing and abrasion. These wires have control, instrumentation, panel, automobile wiring and other special purpose applications. Majority of these cables are manufactured in small sectors due to low capex and also the technology required for their manufacturing is low.
C. Building Wires & cables
These wires are instrumentally used in the wiring of residences & buildings. The residential segment contributes to the major portion of demand, and is followed by the demand from Shops & Offices.
D. Networking Cables
The networking cables can be classified into Jelly Filled Telephone cables, LAN Cables, Coaxial Cable, Speaker Cable, V-SAT Dish Cable, CCTV Cables, and Optical Fibre Cables etc. These wires are used to connect two network devices or computers or land line telephone lines. While the Twisted Pair or Coaxial Cables are used within a building, the Optical Fibre Cables is used for longer distances or for applications requiring higher bandwidth or electrical insulation. Optical Fibre cables show better growth opportunity than Jelly Filled Telephone Cables (JFTC) segment due to the technological obsolescence of the latter.
Growth boosting Factors
Following are the sectors that majorly shape the fortune of wire and cable industry along with their current and prospective state of development:
The Government of India has been supportive to growth in the power sector. Renewable energy is fast emerging as a major source of power in India. The Government of India has set a target to achieve 175 GW installed capacity of renewable energy by FY22. Wind energy is the largest source of renewable energy in India, accounting for 48.08 per cent (34.62 GW)* of total installed renewable capacity (72.01 GW)*. There are plans to double wind power generation capacity to 60 GW by 2022. India has also raised the solar power generation capacity addition target by five times to 100 GW by 2022. The Union Government of India is preparing a ‘rent a roof’ policy for supporting its target of generating 40 gigawatts (GW) of power through solar rooftop projects by 2022. All the states and union territories of India are on board to fulfill the Government of India’s vision of ensuring 24×7 affordable and quality power for all by March 2019. As of August 2018, 194.2 million households out of 219.2 million households were electrified and the remaining 25.0 million households are expected to be electrified by end March 2019, under the Pradhan Mantri Sahaj Bijli Har Ghar Yojana-“Saubhagya” scheme.
With daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth US$ 31.75 billion during the period April 2000 to June 2018, according to the data released by Department of Industrial Policy and Promotion (DIPP). India is currently the world’s second-largest telecommunications market with a subscriber base of 1.17 billion and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG). The rise of ‘Internet of Things’ & the creation of infrastructure for the 5G will demand a huge quantity of optical fibre cable.
The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport. The construction space stands to be the biggest consumer of wires & cables with 50% of the demand. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Some of the steps taken in the recent past are being discussed hereafter.
- Announcements in Union Budget 2018-19:
- Massive push to the infrastructure sector by allocating Rs 5.97 lakh crore (US$ 92.22 billion) for the sector.
- Railways received the highest ever budgetary allocation of Rs 1.48 trillion (US$ 22.86 billion).
- Rs 16,000 crore (US$2.47 billion) towards Sahaj Bijli Har Ghar Yojana (Saubhagya) scheme. The scheme aims to achieve universal household electrification in the country.
- Rs 4,200 crore (US$ 648.75 billion) to increase capacity of Green Energy Corridor Project along with other wind and solar power projects.
- Allocation of Rs 10,000 crore (US$ 1.55 billion) to boost telecom infrastructure.
- A new committee to lay down standards for metro rail systems was approved in June 2018. As of August 2018, 22 metro rail projects are ongoing or are under construction.
- Rs 2.05 lakh crore (US$ 31.81 billion) will be invested in the smart cities mission. All 100 cities have been selected as of June 2018.
The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in 2017.
The Government of India’s Automotive Mission Plan (AMP) 2006–2016 has come a long way in ensuring growth for the sector. Indian Automobile industry is expected to achieve a turnover of $300 billion by the year 2026 and will grow at a rate of CAGR 15 per cent from its current revenue of $74 billion.
Rise in middle class income and young population is also a positive factor for growth contribution.
The Indian Railway network is growing at a healthy rate. In the next five years, the Indian railway market will be the third largest, accounting for 10 per cent of the global market. In order to develop three new arms of Dedicated Freight Corridor (DFC) in the various regions of the country, Indian government is planning to invest Rs 3,30,000 crores ($50.98 billion).
As of July 2018, total renewable power generation installed capacity (grid interactive) in the country stood at 116.82 GW, which is 33.81 per cent of the total installed capacity of 345.49 GW. The Government of India is committed to increased use of clean energy sources and is already undertaking various large-scale sustainable power projects and promoting green energy heavily. The Ministry of New and Renewable Energy (MNRE) has set an ambitious target to set up renewable energy capacities to the tune of 175 GW by 2022 of which about 100 GW is planned for solar, 60 for wind and other for hydro, bio among other.
The above announced developments set a clear path for the wire & cable industry growth subject to how these are tapped by the players.
The Cable Industry is highly Capital Intensive; nearly 70% of its expenditure is on raw material. The Power cable has primarily two important components, the Wire and the Insulation. The conducting wire is made up of Copper or Aluminium (Copper preferred on account of better conductivity and Aluminium used in order to make the wire Cost effective); the insulation is generally made up of PVC (Polyvinyl Chloride) or XLPE (Cross linked Polyethylene). XLPE is used in order to make the wires heat resistant at high temperature of current transmission. Other inputs required for wire manufacturing are Steel Braiding Wires, Metallized Paper, Polyester strips, Aluminium Foils & Brass Pins etc, these materials are required depending upon the final application of the product. The Copper cost constitutes nearly 75% of the total Raw Material cost of the cable.
Whereas, the Optical Fibre Cables constitutes of two key raw material i.e. the Optical fibre & the FRP (Fibre Reinforced Plastic) rod. The optical fibre is a thin hair fine filament made up of molten silica glass; the FRP Rod is used to give strength to the Optical Fibre. Other components are lasers, splitters, multiplexers, switches, photo detectors and other receiver types, silicon optical benches. Nearly 70% of the cost is made up of Optical fibre & FRP rod.
Includes the average cost of top 4 companies, ie. Polycab Industries, Havells India, Finolex Cables & KEI
The Performance of few of the Cables Companies in India
(the balance revenue is composed of other appliances/components included in business)
Last reported installed Capacities
Prospective Capacity Addition details as per recent company updates
1. FKm: It refers to Fibre Kilo Metre and is used to measure and denote the length of Optic Fibre & Optical Fibre Cable.
2. MTPA: The production of Winding wires are measured in terms of Metric Tonne per annum.
3. Km: Other wires & cables, they are denoted in terms of kilometres.
Capacity Expansion Plans as per management discussion
KEI Industries Ltd.
(1) KEI has announced the II phase expansion plan for its Pathredi (Rajasthan) plant. With an investment of Rs. 30-35 Crores the capacity of HT power cable is enhanced to generate a revenue of Rs. 200 Crores on full utilisation of its capacity.
(2) Capex in Silvassa (Dadra & Nagar Haveli) Phase I in Housing Wire segment with an investment of Rs 39-44 crores. That will have capacity to generate revenue of Rs 300 crores. Phase II, investment of Rs 30 crore that would generate revenue of Rs.300 crore.
(3) Capacity Addition of 300,000 km pa of Housing Wire, with an investment of Rs. 55-60 Crore, will have a capacity to generate Rs 300 crore annually at its full capacity. Additional investment of Rs 30 crore will add another 300,000 km capacity & be able to generate additional revenue of Rs 300 crore at its full production capacity.
(4) II Phase of capacity addition with an investment of Rs 30-35 crore that shall generate a revenue of Rs 200 crore per annum at its full capacity.
Birla Cables Ltd.
The company announced in May 2018, a proposed capex which would enhance its production capacity from 81848 Km to 96848 Km of optic fibre. It will require an approximate investment of Rs 17 crore and shall be sourced through Debt & Equity both.
Precission Wires Ltd.
The company announced an addition of 8000 MTPA of Winding Wires by 2019, that would enhance its capacity from the present 36000 MTPA to 44000 MTPA.
Sterlite Technologies Ltd.
The Board of Directors of the company have approved an investment of Rs 320 crore for making an addition of 15 Mn FKm of Optical Fibre Cables. Further, the company wants to increase its Optical Fibre by 20 Mn FKm to meet the increasing demand for the same.
Key Risks & Concerns
a. Business Risk: The product i.e., the cables is primarily demanded by Power Utilities, Infrastructure, Real Estate & Industrial segments. Any kind of slowdown in these sectors is bound to have a negative impact on the sales of the cable industry.
b. Raw Material Price Fluctuation Risk: Unavailability of raw material i.e. the Aluminium or Copper from m which the wire is made can have an adverse impact as the prices of the same would rise. India imports large amount of Copper, thus, any kind of fluctuation in the foreign currency rates can further multiply the woes of the cable industry, and have a direct bearing on the profitability margins.
c. Competition Risk: The cable & wire industry faces lot of competition from the peers. The cut to cut throat competition faces a major challenge for the companies.
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References: Companies’ Annual reports, Media reports, Investor presentations, Analysts’ meets.
Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. The report & references mentioned are only for information of the readers about the industry stated.