Rationale

 The upgrade in the ratings for the debt programme of KEI Industries Limited (KEI) considers a healthy domestic demand for wires and cables in various end-user segments that are benefitting from both government infrastructure development activities as well as private capex. Thus, the increase in scale as well as the likely change in the revenue mix in favour of highermargin and low working capital-intensive retail business will help expand the operating profits. Moreover, the gross working capital cycle will be reduced in the medium term, strengthening the debt protection metrics further. The company is witnessing robust demand from urban and rural electrification, refinery expansion and upgradation, solar power projects, tunneling and ventilation projects on highways as well as railway and metro rail projects in addition to capacity expansion in renewable energy, steel, cement and real estate, including the housing sector. Additionally, KEI has lined up a significant capex of ~Rs. 800 crore over the next three-four years, likely to be funded by internal accruals, to tap the growing market size while increasing its share in the retail segment. Driven by robust demand prospects and likely capacity expansion over the medium term, ICRA expects the company to report OI growth of 15-20% YoY per annum over FY2023-FY2025. Further, while the total debt of the company slightly increased to Rs. 355 crore as on March 31, 2022 (PY: Rs. 333 crore), it became net debt free (PY: net debt of Rs. 115 crore). The ratings continue to factor in KEI's diversified product profile, which encompasses a wide range of cables, along with house wires, instrumentation and control cables. In the previous fiscal, the company has also forayed into electrical submersible pumps (ESP) & communication cables, further diversifying its product profile. Moreover, to boost its retail sales, KEI has increased its distribution network to 1,800 dealers pan India (PY: ~1,650) in addition to increasing its employee strength. KEI's order book of Rs. 2,714 crore as of July 2022 provides comfortable medium-term revenue visibility, as the cable orders have an execution tenure of three to four months. Most of the current order book is contributed by domestic cables at 52%, followed by EPC at 32%, EHV at 13%, while exports constituted 3%. The ratings continue to favourably consider the company's presence spanning over five decades, its well-entrenched market position in the cables and wires industry, its wide customer base and geographical presence, besides its established relationships with a reputed clientele. However, the ratings remain constrained by KEI's moderate profit margin profile due to the adverse movementsin raw material prices and foreign currency fluctuation and intense competition in the wires and cable industry, which limits its pricing power to an extent. However, despite the commodity headwinds in FY2022, KEI's margins remained protected on account of a partial natural hedge as the company maintains an inventory for 2-2.5 months and passes on majority of the raw material price hikes to customers. Also, KEI's working capital intensity remained elevated. The profitability also remains exposed to the unfavourable movement in foreign currency exchange rates. The Stable outlook on the rating reflects ICRA's opinion that KEI will continue to report steady revenue growth, driven by constant capacity addition as well as healthy demand prospects. Further, ICRA does not expect the debt levels to increase materially, thereby keeping the debt coverage indicators at healthy levels.