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Recommendations India

Finolex Cables Ltd 3QFY2014 performance highlights and results update

February 14, 2014, Friday, 05:45 GMT | 00:45 EST | 10:15 IST | 12:45 SGT
Contributed by Angel Broking

Finolex Cables Ltd (FCL) reported a mixed set of numbers for 3QFY2014. Its top-line reported a 5.4% yoy growth to Rs.563cr, 7.0% lower than our estimate of Rs.606cr. The EBITDA for the quarter grew marginally by 3.1% while the EBITDA margin contracted by 17bp on a yoy basis to 7.9%. Subsequently, the net profit declined by 7.0% yoy to Rs.24.5cr, still, better than our estimate of Rs.20.1cr while margins stood at 4.3%, lower by 58bp yoy.

Revival in user industries to drive growth: FCL serves varied user industries, considering the wide usage of cables. With customers increasingly demanding high-quality and branded wires, FCL is poised to grow. The company, with its wide distribution reach and penetration in the market, is well placed to meet increase in demand. Further, we expect the company’s initiatives like- 1) increase in advertisement spends 2) setting up of a solar power plant for captive consumption, 3) additions to product portfolio and 4) reduction in sale of copper rods to third party; to boost its top-line and enhance profitability going forward.

Outlook and valuation: We expect the company’s top-line and EBITDA to post an 11.2% and 11.8% CAGR over FY2013–16E to Rs.3,119cr and Rs.320cr respectively with EBITDA margin stabilizing at 10.3% in FY2016E. The Adjusted PAT too is expected to post a CAGR of 13.0% over FY2013-16, owing to closure of derivatives contracts (included in exceptional items). At the current market price, FCL is trading at 5.9x PE for FY2016E. As we rollover to FY2016E, we recommend a Buy rating on the stock with a revised target price of Rs.96 based on target PE of 7x for FY2016E earnings.