Finolex Cables - Results in line with expectations; Auto, Infra sectors growth hold key to revival - Nirmal Bang

Finolex Cables Ltd (FCL) reported revenue of Rs 632.1 cr for the quarter, a growth of 4.5% yoy led by Electrical cables (contributing 64% of revenue) which saw a muted growth of 7.9% yoy in Q4FY13 as compared to 21.4%, 24.7% and 7.0% yoy growth seen in Q1FY13, Q2FY13 and Q3FY13 respectively, which was mainly on account of lower demand from Auto and Power sectors.

Electrical Cables contributed 64% to the gross sales, Communication Cables (CCS) contributed 5.9%, Copper business 23.2% and the rest was from Others.

EBITDA for the quarter was Rs 66.5 cr, up 10.7% on a yoy basis. EBITDA margin came higher at 10.5% in Q4FY13 as compared to 8.0% in Q3FY13 and 9.9% in Q4FY12 on account of lower cost of material as commodities prices eased.

PAT for the quarter was Rs 38.8 cr, down 13% yoy due to higher depreciation and tax. FCL reported a forex loss of Rs 8 cr, and from Q1FY14 onwards, no more forex losses are expected since all of FCL's derivatives contracts expire.

Electrical Cables business growth was muted for second consecutive quarter at 7.9% yoy, down from the double digit growth witnessed in the past few quarters. Communications Cables (CCS) business witnessed improvement with revenues growing by 36.0% yoy. Copper business continues to remain under pressure and registered a de-growth of 15.0% yoy. Others registered a 56.9% growth yoy on a low base.

Electrical cables division margins saw an uptick in margins with 100bps improvement yoy, and siginificant improvement from 10.5% level seen in Q3FY13. Communication Cables business also witnessed a significant improvement in its PBIT margins which clocked 13.4% for the quarter as compared to single digit margins in the past few quarters. The CCS margins have shown an improving trend in FY13. Margins are expected to remain in the 8-10% range in this segment. Copper rods business margins remained stable in the quarter, though improving sequentially.

Its JV, J Power Systems has bagged its first large order of Rs 39 cr from Maharashtra State Electricity Board.

We expect Electrical cables segment to grow at 13-14% in FY14E and CCS to maintain volume growth in FY14E. The copper business seems to have bottomed out and we expect copper business revenues to remain stable at close to FY13 levels.

Valuation & Recommendation

With the bottoming out of the Copper business, strong potential for Communication Cables business growth on higher optical fiber demand and digitisation, winding down of the loss making derivative contracts and likely breakeven of its Consumer business, we are positive on the long term growth prospects of the company. At CMP the stock trades at 4.9x its FY14E EPS and we maintain our BUY rating on the stock with a price target of Rs 71.

Source : Equity Bulls

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