Multi Baggers

Finolex Cables

Finolex Cables Ltd (FCL) reported revenue of Rs 534.3 cr for the quarter, a growth of 7.0% yoy led by Electrical cables (contributing 68% of revenue) which saw a lower growth of 12.3% yoy in Q3FY13 as compared to 21.4% and 24.7% yoy growth seen in Q1FY13 and Q2FY13 respectively, which was mainly on account of lower demand from Auto and Infra sectors.

Electrical Cables contributed 68% to the gross sales, Communication Cables contributed 6.7%, Copper business 19.7% and the rest was from Others.

EBITDA for the quarter was Rs 43 cr, up 4.0% on a yoy basis. EBITDA margin came lower at 8.0% in Q3FY13 as compared to 12.0% in Q2FY13 and 8.1% in Q3FY12 on account of higher ad spend of Rs 8 cr during the quarter and a one-off gain in the Communication cables division in Q2FY13.

PAT for the quarter was Rs 24 cr, up by 75.0% yoy aided by lower forex losses (loss of Rs 2.3 cr as compared to a loss of Rs 7.9 cr in Q3FY12). PAT margin saw a improvement of 180 bps yoy to 4.5%. From Q4FY13 onwards, FCL is not expected to post any major forex loss since all its derivatives contracts expire. Electrical Cables business continued with its double digit growth of 12.3% yoy. Communications Cables business witnessed improvement with revenues growing by 13.1% yoy. Copper business continues to remain under pressure and registered a de-growth of 11.1% yoy. Others registered a 22.3% growth yoy.

Electrical cables division margins saw a marginal dip of 40 bps yoy, and was lower than 12.2% witnessed in Q2FY13. Communication Cables business witnessed a significant improvement in its PBIT margins which clocked 11.8% for the quarter as compared to sub 8% margins in the previous quarters, but it was lower than 19.1% margin in Q2FY13 (which was exceptional on account of a large BSNL order). Margins are expected to remain in the 9-11% range in the coming quarters in this segment. Copper rods business margins remained stable in the quarter.

FCL is setting up a captive 5 MW solar power plant at its manufacturing facility at Urse, Pune at a cost of Rs 40 cr. This will help reduce power cost by 20%.

We have revised our FY14E sales downwards by 2% on account of slower growth expected in the Electrical Cables segment due to slowdown in the auto and infra segments.

Valuation and Recommendation

With the bottoming out of the Communication Cables business, winding down of the loss making derivative contracts and likely turnaround of its consumer business, we are positive on the long term growth prospects of the company. At CMP the stock trades at 6.1x & 5.3x its FY13E & FY14E EPS and we maintain our BUY rating on the stock with a price target of Rs 71.

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