Universal Cables - from the MP Birla Group, promoter of Birla Cables, Vindhya Telelinks, Birla Cables
The electrical connectors segment can be broadly split into following categories - wires (<1.1kV) & LV power cables (1.1kV), HV cables (11,33 & 66 kV), EHV cables (132,275 & 400 kV)
Higher the voltage level, lesser the number of manufacturers & hence lesser competition/higher margins. Below 1kV - the wires segment - many players exist & that is almost a commoditized biz
Universal Cables is into manufacturing of power cables (1.1kV to 400kV)
Triggers:
Renewables, EV charging infra, Smart City & Urbanisation trends are the key drivers for the upcoming exponential demand growth in underground power cables. Renewable farms - onshore solar/wind & offshore wind (GoI has a very ambitious growth plan for offshore renewable over the next decade) - require HV/EHV/HVDC underground cables for power collection & evacuation. Electrical charging Infra, Smart City & Increasing Urbanisation require underground HV/EHV cables to deliver power to demand centres where overhead lines are not possible due to lack of free space or right-of-way. All of this leads to exponential growth curve for power cables over the next decade & more.
Some pros:
For 400kV cable, a hi-tech specialized product, currently Universal Cables is the only manufacturer in India & one out of approx. ten worldwide (approx. 3 in EU, 1in US, 2 in Japan, 1 in China, 1in SK). For HV/EHV cables, there is a a very high dependence upon manufacturers, not just for the products but to provide guidance, consultancy, installation, commissioning, testing & fault diagnosis and repair. As such, it usually tends to be a high margin biz and there is a lot of customer stickiness.
Some cons:
Long working capital cycle. It takes a few weeks to months to manufacture an HV/EHV cable. Payment is usually post transportation to site, installation, commissioning & testing resulting in elongated WC cycle. That is a peculiar feature of this industry segment (in contrast, wires biz tends to be almost cash & carry types)
Financials & Valuations:
Current MCap - 865cr
Stake in other group companies Birla Corp, Vindhya Telelinks & Birla Cables:
= 450cr based on current market value (but based on equity method of accounting, stake value >=1000cr ,i.e., the core biz of power cables is available for free)
Working capital is almost 900cr; Debt ~700cr
From 2017 -Q1’23, company has grown revenue at 20%. The margins took a beating during Covid due to covid-related operational inefficiencies & raw material spikes. With both these issues getting resolved due to covid ending & sale price adjustments, expect EBITDA margin to revert back to 10-11%. Also, expect a big jump in operating cash flow in Fy23 as high value projects are expected to be delivered this year and the back-ended payments (as explained above) are received. Consequently, expect RoCE & RoE to head back to >16%
For Fy23, expected Revenue ~2200cr, normalised margins of 10%, core EBITDA ~220cr, other income ~80cr, estimated PAT is ~150cr ** implying a PE of ~6**
For Fy24, assuming conservative 16% growth, expected PAT is ~175cr, implying a PE of ~5
(I will try to add more info in due course)