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Finolex Cables 4QFY2014 performance highlights and results update

May 12, 2014, Monday, 18:21 GMT | 13:21 EST | 21:51 IST | 00:21 SGT
Contributed by Angel Broking

Finolex Cables Ltd (FCL) reported a mixed set of numbers for 4QFY2014. Its top-line reported a flat growth of 2.7% yoy to Rs.649cr, 10.9% lower than our estimate of Rs.729cr. The EBITDA for the quarter grew by 12.7% yoy while the EBITDA margin expanded by 103bp yoy to 11.6%, mainly attributable to lower raw material and employee costs. Owing to negative tax outgo coupled with strong other income, the bottom-line grew by 77.8% yoy to Rs.69cr while the PAT margin stood at 10.7%, higher by 451bp yoy.

Revival in user industries to drive growth: Current slowdown in the economy has fenced the growth of FCL’s user industries like construction, industrial, automotive and power sector. With an expectation of a stable government coming to power, we expect these user industries, catered to by FCL, to grow. Moreover, with the economy striving for developing a robust and stable infrastructure and customers increasingly demanding high-quality and branded wires, potential demand outlook for cables looks positive which would further drive the growth for the company.

Outlook and Valuation: We expect the company’s top-line and EBITDA to post a 13.1% and 14.3% CAGR over FY2014–16E to Rs.3,017cr and Rs.323cr respectively with EBITDA margin stabilizing at 10.7% in FY2016E. The bottom-line is expected to post a CAGR of 11.7% for the same period due to relatively lower tax outgo. Though the Communication cables (CC) segment has started reporting strong performance, the Electrical cables segment, which is considered to be a stable business of the two, is yet to witness a rebound in performance. Also, considering the recent run-up in the stock, we maintain a conservative stance and recommend Accumulate rating on the stock with a revised target price of Rs.169 based on 10x PE for FY2016E.