After a strong volume led growth (20%+) last fiscal, manufacturers of cables and wires (C&W) will grow even faster this fiscal albeit on sharper price hikes to pass on a steep rise in prices of key raw materials. While volume growth will moderate, it will remain healthy supported by demand from infrastructure-linked sectors, such as thermal power, renewables and data centres, as well as the real estate sector.

Operating profits too will expand on the back of high pricing flexibility, as demonstrated in the past, which will more than offset rising raw material costs and increasing competition due to entry of new players.

Robust demand and healthy capacity utilisations will spur addition of capacities, however strong cash flows and low reliance on external debt will keep players’ credit profiles stable.

An analysis of 17 C&W manufacturers, accounting for ~70% of the organised sector’s¹ revenue of Rs 100,000 crore, indicates as much.

Volumes in C&W sector have grown by a compound annual growth rate of over 15% in last 5 years driven by capital expenditure towards rapid digitization, growing urbanization and rising power demand.

Says Mohit Makhija, Senior Director, Crisil Ratings, “This fiscal too, volumes will continue to grow on the back of demand for housing wires and power cables (~50% of total revenue) with investments upto Rs. 10-12 lakh crore lined up in renewables, power, real-estate and new age sectors like data centres and smart meters. However, volume growth is expected to be a tad lower this fiscal at ~10% as higher prices (18-20% rise in realizations) may lead to some deferment of discretionary capex spends by industrial sector.”

At the same time, rise in realizations will also partly compensate for elevated prices of key raw materials due to their tightening global supply amid the West Asia conflict. Prices of copper and aluminium have risen 22-27% while price of polyvinyl chloride (PVC), another key raw material, has also gone up by ~12% over last fiscal.

But C&W manufacturers enjoy strong pricing flexibility and have demonstrated their ability to pass on raw material price increases in the past. It may be pertinent to note here that cables and wires generally form less than 5% of total project cost. However, increasing competition with entry of new players will limit incumbents’ ability to some extent, and price hikes will be more calibrated. Having said that, absolute operating profits will expand ~12-13%.

Says Rucha Narkar, Associate Director, Crisil Ratings, “Healthy cash flows and steady demand will encourage players to ramp up capex as utilization levels already touched ~75% last fiscal. Overall, capacities are expected to go up gradually by 20–22% by the end of fiscal 2027, of which nearly half will be added by new players. Majority of the funding will be through internal accruals and equity including for new entrants, having strong financial flexibility, thereby, keeping balance sheets strong and credit profiles stable.”

Higher raw material prices will also raise the working capital requirement which will be funded through channel financing and existing working capital limits. The ratio of debt to earnings before interest, tax, depreciation and amortisation and interest coverage are expected to sustain at 0.5–0.6 time and 16-17 times, respectively, driven by healthy cash flows.

Increasing competitive intensity and any slowdown in investments in end-user segments will, however, bear watching.

¹ Organised sector’s revenue forms two thirds of overall sectoral revenue