Finolex Cables Q1 Results Review - A Healthy Quarter; Robust Industry Outlook: Systematix

Systematix Research Report

Finolex Cables Ltd.'s Q1 (revenue up 19% YoY; 12.2% Ebitda margin) was healthy and in line with expectations, driven by electrical cables (revenue up 22%, 13.1% Ebit margin).

Robust traction in wires industry is helping Finolex Cables to grow faster than in its earlier years. While we are upbeat on Finolex Cable’s growth in wires, market-share gains may be tough, as competition is taut among leading players.

Communication cables could benefit from 5G rollout. The anti-dumping duty on fiber imposed by Government of India is expected to restore normalcy in realisations and drive margins towards 10% in coming quarters (FY23: 2.2%).

A ~Rs 3 billion capex over 18-20 months mainly to boost capacities of fiber preform, auto cables and e-beam cables. Traction in fast moving electrical goods division is low; we are watchful of Finolex Cables’ Rs 5 billion sales guidance in two-three years.

We maintain our earnings estimates post Q1 result. After a low 10%/3%/9% compound annual growth rate in revenue/Ebitda/profit after tax over FY18-23, we estimate high 13%/20%/26% CAGR over FY23-25E, factoring in healthy traction in housing demand and 5G roll out.

After a ~20% rally in Finolex Cables’ scrip in last two months and at ~20 timesx FY25E price/earning on current market price, we maintain 'Hold' rating with a revised target price of Rs 1,049 (earlier 940), based on 22 times FY25E P/E to the core business at ~14% return on equity and ~23% return on invested capital.

Any positive surprise in earnings could further drive a re-rating.

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