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Steady demand outlook; pricing gains boost revenue growth

* Our recent conference and subsequent discussions with participants in the cables & wires (C&W) industry indicate a continued robust demand momentum. This growth is driven by the power sector, infrastructure investments, emerging segments such as EVs and data centers, and an improving real estate demand. While investors have expressed concerns about the sustainability of this momentum in recent quarters, we believe the inherent demand drivers remain intact. Key factors supporting this momentum include: 1) infrastructure development through investments in roads and railways; 2) expansion in the power sector, particularly renewable energy and T&D capex; and 3) growth in new avenues, such as data centers and electric vehicles, alongside ongoing traction in real estate and individual housing.

* Competitive intensity in the sector is unlikely to be as high as initially anticipated, despite entry announcements by new players such as UTCEM and the Adani Group. UTCEM has since clarified that it does not intend to accelerate its planned INR18b investment beyond what was announced in Feb’25 for its foray into the C&W sector. Similarly, no concrete plans have emerged from the Adani Group following the establishment of Praneetha Ecocables, a JV by its subsidiary Kutch Copper in Mar’25. As we highlighted in our note (Link) published on 12th Jun’25, the incremental supply is expected to be absorbed by strong demand growth in the sector.

* We believe that sustained raw material (RM) price increases, which are largely passed through to consumers, have supported revenue growth for C&W companies—a trend reflected in the sectoral performance over the past few years. Last month, copper/aluminum prices increased ~3%, with average prices in 2QFY26 (QTD) rising ~6%/9% QoQ and ~10%/14% YoY for copper/aluminum, respectively. We expect this to translate into price increases of ~3% for wires and ~4-5% for cables in the near term. The combination of rising RM prices and healthy volume growth is expected to sustain robust revenue growth in 2QFY26.

Rating upgrade to BUY for KEII, maintain on POLYCAB (BUY) and RRKABEL (Neutral)

* Considering a robust 2QFY26, we upgrade our EPS estimates POLYCAB, KEII, and RRKABEL by ~3-5% for FY26E and ~2-4% for FY27E/28E. Valuation seems reasonable at 37x FY27E EPS and 31-32x FY28E for POLYCAB/ KEII. RRKABEL trades at 30x/25x FY27/28E EPS.

* Considering continued growth momentum, lower-than-initially anticipated competitive intensity, reasonable valuations, and the stock’s underperformance over the past year (triggered by concerns of increasing competition), we upgrade KEII to BUY from Neutral. We reiterate our BUY rating on POLYCAB and Neutral rating on RRKABEL. We continue to believe that the sector’s demand tailwinds will persist for several more years.

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