Insights from The Management in Q1 FY25
In this newsletter, we are are going to talk about how things are progressing in the wires and cables industry in India.
When we think about building or growing a nation, infrastructure development is often the first thing that comes to mind. Whether it’s power generation, manufacturing, logistics, real estate, or cutting-edge computing, infrastructure is the backbone of any industry. Once established, it constantly needs upgrades—a universal truth not just in India, but worldwide. While the scale may differ, the need for infrastructure and its upkeep is universal.
At the core of any infrastructure are wires and cables. Think of them as the nervous system, enabling power distribution, telecommunications, and signal transmission. As infrastructure development ramps up in any industry, the role of wires and cables becomes indispensable.
Additionally, it should be made clear that, just like any other industry, the wires and cables industry doesn’t operate in isolation. This is because these components are fundamental inputs for other products, with demand stretching across the globe. The industry is shaped by global demand and supply, national economic conditions, and changes across various sectors, which in turn guide the strategic moves of industry players.
After analyzing the Q1 FY25 results and listening to the recent conference calls of prominent listed wires and cable companies in India, we’ve identified several factors that reveal how the industry has performed and what the future holds.
Here are 5 key highlights that emerged from our analysis of Q1 FY25 results, revealing where the Indian wires and cables industry is headed.
1) Heavy CAPEX
The amount of capex that is currently being undertaken by wires and cable companies is insane and like never seen before. The data presented below will give you a better perspective.
All industry players are making significant investments because they anticipate a huge demand. This brings us to our next point.
2) Huge Demand for wires and cables
Rajesh Jain (RR Kabel): “At industry level still it seems the demand is much higher than the supplies or capacity building what is being done by industry players. At least as I told you for the next two years we see very good demand and secondly even whatever capacity building is being done still they are shortage and now every expansion will require another two to three years. So I don’t find any oversupply position.”
Chirayu Upadhyay (Polycab): “We believe the demand momentum in the domestic cables & wires business is very strong and believe will continue to be the case for many years to come. We believe there is enough and more requirement for large players like us to add on capacity for us to be able to cater to all the increased demand that will be coming over the next few years. And that is why we continue to work on the capex guidance that we’ve given”
Rajiv Goel (Havells): “I think medium term, we believe that not only India but globally, there is a requirement for these. And I think the way the power consumptions are going up, again, not in India but globally. We need to invest in the infrastructure, which has been neglected for years. We believe this is actually a three to five year opportunity and not just one-year opportunity.”
Anil Gupta (KEI): “The industry outlook remains strong and with a good demand in domestic market as well as international markets.”
Most of the comments were about cables, but the wires business slowed down in Q1 FY25 for one main reason.
3)Â Copper Price Volatility: Channel Destocking
Chirayu Upadhyay from Polycab provided a clear explanation of how the industry dynamics played out, highlighting the differences between institutional sales and distributor (B2C) sales.
“In the first couple of months, the offtake was very good because the copper prices were on the rise. And that is where industry had or the channel had stocked up on inventory. June saw a very sharp decline in commodity prices. And that is where the channel, they kind of went slow as far as new orders were concerned, and utilized the inventory that they had stocked up in the first couple of months.”
“We have back-to-back pricing, so we don’t get largely affected because of this volatility in commodity prices. And that is why the orders that we have taken in the past 3 to 6 months and where we had to supply cables, those are something that we continued to supply. Whereas the distributors, they take a view on where the copper prices are headed. Generally, the volatility in commodity prices or copper prices in a month is only about 4% to 5%. But last quarter, the volatility was quite high.”
“From mid-March to mid-April, it went up by almost 15%, mid-April to mid-May up by almost 11% and from mid-May to mid-June went down by almost 12%. So, the volatility was quite high. And that is where the distributors, they obviously would not want to miss out on the lower prices that might be available to them in the next month. And that is why there was a slowdown as far as channel sales are concerned”
Anil Gupta (Havells): “So June was a particular month where suddenly there was a huge destocking because we had seen stocking in March-April-May period. In June, heavy destocking happened because of the raw material fluctuations. We are seeing July to be coming back to normal levels.”
Rajesh Jain (RR Kabel): “But particularly what happened in this quarter in the month of April and May, copper prices went up sharply.”
Recently, infrastructure growth has favoured cables. However, growth for wires is expected to pick up as its main end-user industry, Real Estate seems to be in an upcycle.
4)Â Growth in Wire: Real Estate Cycle Turn
For wires, 70% of demand comes from real estate.
Chirayu Upadhyay (Polycab): “But what we do believe is that we are now in that phase of real estate upcycle wherein the demand for wires should start picking up. We’ve already seen a couple of quarters where we’ve seen the demand for wires improving than what we have witnessed over the past decade or so. And that is why we believe that if what we think will pan out, that is where the wires growth will also pick up. And that is where the mix might move more towards wires.”
Rajiv Goel (Havells): “We have saying this that the construction which has happened around, let’s say, 24 to 30 months before normally they start kicking in.”
Rajesh Jain (RR Kabel): “This optimism is fueled by the government’s strategic focus on real estate and infrastructure development. Along with a comprehensive array of benefits for both rural and urban housing developments, these initiatives serve as a perfect cornerstone for India’s emergence as a developed nation. Consequently, the growth and development of the real estate sector will greatly benefit the Indian electrical industry.”
Rajeev Gupta (KEI Industries): “It is basically higher double demand higher double digit because lots of individual bungalows are being made in all over the country. And the real estate projects which was not which was earlier not there in the larger city since last 1.5-2 years, these projects getting announced and they had started the projects.”
Wires offer better profit margins, as Chirayu aptly explains: “within B2C, the wires business is a better margin business.”
In the same comment, he also mentioned about export: “International businesses is again much higher margin business.”
So, the chronology is as follows, Exports (highest margin) business followed by domestic wires and last on the list comes domestic cables (lowest margin).
5)Â Exports Dampened: Logistics
Chirayu Upadhyay (Polycab): “So, while we had good sales happening in the other geographies, what has also happened is the freight costs have increased over the past few quarters.”
Rajesh Jain (RR Kabel): “So, Rahul, again see this what happened particularly in this quarter our shipment got delayed. Still, we have very healthy order book and we have continuous order since our major exports are distribution driven and regular order. So, there is not the problem of demand. The only thing in quarter one shipment got delayed and it got postponed to second quarter. It may have some later effect”
Anil Gupta (KEI Industries): “We had around INR 65 crores worth of cables lying for export, but the logistics was in the container placement was in customer’s scope, and they delayed the placement of containers due to which a substantial number of cables around INR 65 crores could not be dispatched, which is now being dispatched in July.”
However, as far as the demand in the international market is concerned, it remains resilient.
Conclusion:
The cable industry is buzzing with unprecedented levels of CAPEX. Companies are investing heavily to boost capacity, to cater to the surging demand both domestically and internationally. This is largely due to increased energy consumption and years of underinvestment in global power infrastructure. This trend means cable volumes are set to go up.
On the other hand, wires are gearing up for their moment too! As the real estate market in India heats up in the coming quarters, wire demand is also expected to rise. And here’s the kicker: as wire sales grow, so will their contribution to total revenue, boosting profit margins since wires are a higher-margin business.
Looking ahead, this industry is poised for major expansion. So, get ready for an exciting journey in the world of wires and cables!
(Author: Adnan Twitter)
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