This One Smallcap Could be a Proxy for Multiple Megatrends

Roti, Kapda aur Makaan are our basic needs.

In India, while the first two are still affordable, the same can not be said about the third.

Having one's own house is a common dream for most in India.

With urbanisation, rising incomes, and increasing trend of nuclear families, there are structural positives for housing demand in India.

What's also adding tailwinds to it is the policy push by the government: Housing for all and the focus on infrastructure.

The real estate business seems to be in for a good time. This is quite evident in the way realty index has moved, beating the Sensex handsomely in last one and a half year.

Now one way to play this is to invest in real estate and construction companies involved in residential housing.

And indeed, a lot of money has been made on such stocks.

But in these markets, one needs to be careful. Stocks overall, are expensive.

Also, real estate is a cyclical industry. The down cycles can be brutal and long.

Hence, be mindful of balance sheet quality, cash flow health, and margin of safety in valuations.

But this checklist limits the investible opportunities when it comes to direct plays.

Well, here is the good news.

To play the upcycle, without getting burnt, you need not limit your options to the direct plays.

Trends in house sales is a leading indicator for other industries. A new house purchase or construction is likely to be followed by fresh demand for these products.

Think of paints, furniture, consumer durables (electronics, televisions, refrigerators, air conditioners and washing machines etc), tiles, wires and cables, smart meters/energy meters, and so on.

This offers a great opportunity to use proxy investing to diversify your investments.

In my recent articles, I have written about the ecosystem of the industries benefitting from the real estate and infra revival - proxy investments on the rise of electronics (AC/washing machines, domestic appliances) and on the smart meter theme.

Today, I want to share such proxy plays in the cables and wires industry.

The companies in this cable industry have reported median sales growth and profit growth of over 25%.

Not just real estate, but overall capex and infra investment - railway, telecom, transmission sector, data centers, renewable energy - bodes well for the cable and wire industry.

For example, the management of KEI Industries has guided for a growth of 16-17%. RR Kabel's management is expecting healthy domestic business and 20% growth in the exports. Apar Industries' management expects over 25% growth in the cable segment. You get the picture.

Overall, Indian cable industry is expected to grow at two times domestic GDP growth.

While cable and wires industry is a good proxy to infra and housing capex, it would be good to dig deeper into this industry's ecosystem.

Consider DDev Plastiks.

The company makes cable compounds and plastic compounds that are used in cable and wire, packaging, footwear, pipes, automobiles, consumer durables, electrical appliances, electrical and light fittings, and electronics.

Its clients include the likes of KEI Industries Ltd, Finolex Cables, Anchor, Torrent Power, Havells India Ltd, Apar Industries Ltd, KEC International Ltd, etc. This makes it a good proxy play for cable and wire industry growth.

By FY30, the management is targeting revenue of Rs 50 bn, versus Rs 24 bn in FY24.

In last five years, the revenue and net profit have grown at a compound annual growth rate (CAGR) of 9% and 60% respectively.

The company claims about 50% market share in Sioplas and about 33% in XLPE compounds. Both are used in the cable industry.

DDev is also among the two producers of halogen free flame retardant in India. It is a higher margin product, expected to replace PVC house wiring cables.

Unlike conventional cables, it has stronger insulation, does not create smoke, avoids suffocation and allows visibility in case of fire accidents.

As such, it is supported by the government to be used to public places like malls, metro stations, schools and hospitals.

It's the only domestic player manufacturing coating compounds for 132 KV cables, with rest being imported.

Do note that this discussion does not imply any view on the stock.

One needs to be mindful of the risks related to competition from global players, raw material prices, and exchange rate volatility.

However, given the prospects for the cable industry, it makes sense to make this company a part of the watchlist.

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Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)