Cables and wires segment’s growth to continue: Ind-Ra

New Delhi, June 17 (SocialNews.XYZ) The cables and wires industry's growth is expected to continue during the next decade backed by urbanisation, higher infrastructure spend, increase in electrification and data communication, said India Ratings and Research (Ind-Ra).

Accordingly, Ind-Ra opined the revenue growth at about 11 per cent CAGR witnessed over FY11-FY20 could continue even during the next decade.

The agency expects sector consolidation will shift gears into market share gains for large players, despite rising competition.

"With players shifting focus to the B2C (business to consumer) segment from B2B (business to business), working capital cycle could improve over the near to medium term."

"The credit profiles of sector players are likely to remain strong, despite growth capex and investment in working capital cycle, due to strong profitability and cash flow generation."

According to a Ind-Ra industry peer study, the sector has a strong growth potential, given lower per capita consumption in India than global counterparts.

"Key end-user segments include real estate, construction, power, consumer electricals and agriculture. The government thrust to invest in infrastructure and focus on renewable energy and advancement in telecommunication technology all augur well for a sustained strong growth rate in the long term."

"The sector revenue growth rate has a high correlation with gross fixed capital formation nominal at about '0.8x' on a three-year rolling average basis."

Besides, the historical sector revenue growth median multiplier is at about '1.1x to nominal GDP and 1.3x' to gross fixed capital formation.

As per Ind-Ra, there is a huge scope for large players to consolidate in the sector.

"The revenue share of the top five players over FY13-FY20 has increased by 4 per cent and is likely to intensify with more market share gains by large players as customers up-trade for safety and branded products. However, the top five players' revenue contribution reduced over FY15-FY20 with the increase in the number of new entrants."

"Growth opportunities and market share expansion will revolve around a stronger dealer network, higher stock keeping units, new products development, the ability to forge partnerships, etc."

In addition, the agency said that raw material commodity price fluctuations is a key risk that the sector participants face.

"Raw materials form two-thirds of the cost of sales and primarily metals including copper, aluminium and steel."

"Wire and cables tend to cost less than 5 per cent of the project cost (turnkey) and as such, the demand is less elastic to price changes."

Source: IANS