Finolex Cables - Q4FY13 Result Update - Sushil Finance

Finolex Cables Ltd. (FCL) has reported decent set of numbers for the quarter ended March'13 which were in-line with our expectations. We interacted with the management and following are the key highlights which are summarized below:

Key Highlights of Q4FY13 & FY13 results

Revenues grew by modest 5% YoY to Rs.6321 mn in Q4FY13 largely backed by steady growth in Electrical Cable Segment (ECS) & strong growth in Communication Cable Segment (CCS). Despite challenging economic environment, ECS grew by 8% YoY to Rs.5462 mn which is the lowest in last many quarters; impacted by slowdown in Auto, Infra & Industrial segments. However, management expects some revival in ECS from H2FY14 & expects it to grow at a CAGR of ~10-12% over FY13-15E (our est. 9%).

CCS has delivered better than expected results in Q4FY13 wherein the segment grew by 36% YoY to Rs.504 mn. With likely higher spending by Govt. & private players like Reliance etc., management expects the segment to post healthy growth going ahead. Also, the Company is expanding its telecom optic fibre manufacturing capacity by nearly 70% to meet increasing demand with capex of ~Rs.500 mn.

Fall in copper prices led to better operating profit growth in Q4 which grew by ~14% YoY with margin improvement of ~90 bps to 10.5%. However, net profit declined by ~13% YoY to Rs.388 mn mainly on account of MAT credit availed by Company in corresponding quarter last year (it was evenly spread across quarters in FY13).

Increasing captive consumption of Copper Rods (CCCR) has resulted in lower contribution from this biz. Being conservative, we have not factored in any major contribution from this biz in our earnings estimates going forward. However, others segment (incl. Switches & CFL's) has been doing fairly well with top-line of Rs.1767 mn in FY13 (17% YoY growth) & EBIT loss of ~Rs.25 mn v/s Rs.90 mn loss in FY12. Management expects to break-even in FY14.

FY13 Results: Revenues grew by ~10% to Rs.22,706 mn wherein ECS grew by healthy 16% while CCS witnessed a strong growth of ~23% after a de-growth in FY11-12. Fall in raw-material prices coupled with better efficiencies led to 30% growth in operating profits to Rs.2288 mn while margins improved by 150 bps to ~10%. Waning derivative losses (Rs.230 mn v/s Rs.364 mn) along with lower interest burden led to robust net profit growth of ~48% at Rs.1452 mn (NPM 6.4% v/s 4.8%). EPS for FY13 stood at Rs.9.5 v/s Rs.6.4 in FY12.

OUTLOOK & VALUATION

FCL has reported decent set of numbers for the quarter ended March'13 which was in-line with our expectations. Increasing focus on ECS coupled with bottoming of CCS is likely to provide huge growth opportunities to the company in future. Also, turnaround of consumer segment is likely to provide further impetus to earnings growth. At the CMP of Rs.52, the stock is trading at an attractive valuation of 4.9x & 4.4x its FY14E & FY15E EPS of Rs.10.5 & Rs.12.0 respectively. Hence, considering the strong growth potential, we recommend 'BUY' on the stock with a target price of Rs.68, thus assigning a multiple of ~5.5x FY15E earnings which is lower than 3-year average of ~7.5x despite of worst getting over for the company.

Source : Equity Bulls

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