Share Review Finolex Cables : Target Price Rs.60

Investment Guru Wednesday, May 09, 2012 0

For 4Q FY 2012, Finolex Cables (Finolex) reported strong 21.1% quarter on quarter and 12.1% year on year growth in its top line to Rs. 605 cr. The company’s operating profit increased by whopping

45.9%year on year to Rs. 58 cr. OPM expanded by 2.23% year on year and 1.36% quarter on quarter to 9.6%. PAT came in at Rs. 45 cr, up 139% year on year and 225% quarter on quarter.

Going ahead, the business outlook remains positive, given the growth prospects in user industries and higher sales from the high-tension (HT) cables plant.

We maintain our Buy rating on the stock.

Highest sales and PAT in the last eight quarters, while margins expand: Finolex reported

12.1%year on year growth in its top line to Rs. 605 cr. The main electrical cables segment reported

strong growth of 39.5% year on year and 21.3 % quarter on quarter to Rs. 506 cr.

However, the other 2 segments, communication cables and copper rods, reported declines of 27.4 % & 36.7%, respectively. The company’s EBITDA margin increased by 2.33% year on year to 9.6% on the back of lower raw material cost. Raw material cost as a percentage of sales declined to 74.9%

in 4Q FY 2012 compared to 80.2 % in 4Q FY 2011. PAT increased by 139% year on year to Rs. 45 cr

(Rs. 19 cr) on the back of margin expansion, lower Forex loss, higher other income & tax

adjustments.

Other income increased by 130 % year on year to Rs. 9 cr, while Forex loss declined by

15.6% to Rs.10 cr. Consequently, PAT margin increased by 3.91% year on year to 7.4 % (3.5 %).

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.

Overall, we expect the company’s sales to post a 13.6 % CAGR over FY 2012–14E, while PAT is expected to post a CAGR of 16.6 % over the same period.

At the CMP, the stock is trading at 3.5x its FY2014E EPS. We maintain