Finolex Cables - Revenue growth and margin expansion helps boost the bottomline - Nirmal Bang

Finolex Cables Ltd (FCL) reported better than expected numbers with the topline growing by 17.4%, YoY. The company witnessed strong growth coming from its Electrical Cables, Communication Cables and Other segments which helped the topline grow. The Copper division however continues to remain under pressure and witnessed a de-growth on YoY and QoQ basis. Execution of a large BSNL order during the quarter leads to higher utilizations & margin expansion. With strong growth from its main business segments we are positive on the long term growth prospects of the company. At CMP the stock trades at 5.6x & 4.7x its FY13E & FY14E EPS and we maintain our Buy rating on the stock with a revised target price of Rs 75.

Net Revenues for the quarter grew by 17%, YoY to Rs. 586 cr. Electrical Cables contributed 66% to the gross sales, Communication Cables contributed 6%, Copper business 22% and the rest was from Others.

EBITDA for the quarter was Rs. 70 cr, up 76% on a YoY basis. EBITDA margins improved by 398 bps on a YoY basis to 12%. Margins expansion was helped by significant margin improvement from the Communications Cables business. This was due to the execution of a large BSNL order which lead to higher utilization levels.

PAT for the quarter was Rs. 58 cr, up by 191%, YoY. PAT margin saw a improvement of 574 bps, YoY to 9.6%.

Electrical Cables business continued with its strong growth of 24.7%, YoY. Communications Cables business witnessed a significant improvement with revenues growing by 33.6%, YoY. Copper business continues to remain under pressure and registered a degrowth of 33%, YoY. Others registered a 21.8% growth YoY.

Electrical cables division continued with its sustained margin performance while Communication Cables business witnessed a significant improvement in its PBIT margins which clocked 19.2% for the quarter as compared to sub 8% margins in the previous quarters. These margins are not sustainable and will come down to 10-11% in the coming quarters. Significant improvement witnessed by Communication Cables business was on account of a large BSNL order coming through and digitization of cable TV (set top boxes) which led to higher utilization in both fiber optic and copper cable plants.

With the JVs helping improve the growth momentum, improvement in the Communication Cables business and winding down of the loss making derivative contracts, we are positive on the growth prospects of the company.

Source : Equity Bulls

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