The electrifying run of wire and cable manufacturers

Shareholders of wire and cable companies are on the moon. In the last five years, the wire and cable industry has grown at an annual growth rate of 12 per cent, with all the major players witnessing a significant uptick in their profitability and topline.

Most wire manufacturers expect this present growth rate to continue until FY27 (source: annual report of KEI Industries). The market has also taken notice, and share prices of most wire and cable manufacturers have been on the rise. In fact, if you held a portfolio consisting of the top four wire and cable manufacturer stocks (equal weightage; Finolex Cables , Havells , KEI Industries and Polycab ), your investments would have quadrupled in the past five years .

Let's look at what is fuelling this stellar rally.

The capex boom

The present upcycle of the Indian economy has translated into higher spending on infrastructure from both the public and private sectors. This has boosted the consumption of wires and cables, visible in the increasing revenues of the top players.

Carving out a niche

The top players have been able to identify unique areas and attain leadership within the segment. This has led to secular growth in the segment despite the intense competitive intensity.

For example, Havells receives a majority of its wires and cables revenue from domestic-use wires. Similarly, Finolex Cables dominates industrials and telecommunications, and KEI is known for the overhead electricity wires.

Shift towards a more organised economy

The government's efforts to formalise the economy has aided organised players in most segment. The top cable and wire manufacturers identified this shift and amped up their spending on distribution and advertisement, which led to higher sales in the retail segment (a high-margin segment).

FMEG growth

Many wire and cable manufacturers have increased their focus on the high-margin FMEG segment (fans, lights, etc.), which has grown at 10 per cent annually for the last five years (source: annual report of KEI Industries). In fact, the FMEG (fast-moving electronic goods) segment is the largest revenue generator of Havells India.

Your takeaway

A huge factor behind the segment's growth has been the present strong economic growth of India. And there are ample reasons to remain bullish on India. Also, emerging industries of fibre optics, renewable energy, electric vehicles, etc., are expected to unlock new opportunities.

However, every economy is susceptible to downcycles. Investing purely based on ongoing trends in any industry can be hazardous to your portfolio. The secret lies in identifying fundamentally robust companies that can thrive during upcycles and hold ground during downcycles. Hence, before you rush to invest, always do the due diligence.

Also read: Indian chemical sector hits a rough patch