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Finolex Cables 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Finolex Cables (Finolex) reported a 2.6% yoy decline in its top line to Rs.499cr. The company’s operating profit declined by 18.8% yoy to Rs.41cr. OPM declined by 165bp yoy but improved by 29bp qoq to 8.3%. PAT came in at Rs.14cr, down 47.7% yoy and 30.6% qoq. Going ahead, the business outlook remains positive, given the growth prospects in user industries and higher sales from the high-tension (HT) cables plant.

Sales decline and margin dips: Finolex reported a 2.6% yoy decline in its top line to Rs.499cr.The main electrical cables segment reported strong growth of 21.6% yoy. However, the other two segments, communication cables and copper rods reported declines of 22.7% and 51.8%, respectively. Despite a yoy decline of 18.8% in operating profit, PAT declined by 47.7% yoy to Rs.14cr (Rs.26cr), while margin declined by 237bp yoy to 2.7% (5.1%). The decline in PAT was largely on the back of higher interest, depreciation and forex losses. Depreciation increased by 30.4% yoy to Rs.13cr (Rs.10cr), while interest cost increased by 60.9% yoy to Rs.8.1cr. Exceptional items, which included forex losses, increased by 15.8% yoy to Rs.8cr (Rs.7cr).

Outlook and valuation: We remain positive on the company’s prospects going ahead, given strong growth in user industries, which are showing no signs of abating. Higher sales from the HT cables plant and start of production at the extra high voltage (EHV) plant would further boost the company’s growth. However, in view of the company’s limited ability to effectively pass on copper price fluctuations, we have revised our OPM estimates for FY2012E and FY2013E downwards to 8.0% and 8.5%, respectively. Overall, we expect sales to post a 7.2% CAGR over FY2011–13E, while PAT is expected to post a CAGR of 18.5% over the same period. At the CMP, the stock is trading at 4.3x its FY2013E EPS. We maintain our Buy rating on the stock with a revised target price of Rs.48 (Rs.51).