KNOW ABOUT COMPANY
Wire and cable companies are performing well over the past few months, with the top five stocks from the industry surging more than 30 percent. It’s expected to get better from here, with operations expected to improve as supply chains stabilise with the easing of lockdowns from Q2FY22. With demand coming back from sectors like housing, power, and infrastructure, this is one sector that could outperform in FY22.
Finolex Cables is one of the oldest companies in the wires and cables business, in operations for more than fifty years. Apart from electrical and communication cables, it forayed into light fittings a few years ago. In the last two years, the company has introduced many FMEG (fast-moving electrical goods) products.
Most of the leading cable companies like Havells, Polycab & V-Guard have over time diversified into FMEG products like fans, geysers, and light fittings, and Finolex Cables is the latest to join the bandwagon. The competition here is not restricted to cables and wires alone, but also in building brands around FMEG products. Will this strategy of increasing penetration of FMEG products help Finolex Cables outperform its peers in the future?
The company posted its highest-ever annual net profit in FY21 at Rs 461.5 crore.
Revenue from the FMEG vertical increased 73% YoY in FY21 to Rs 113.6 crore
The June 2021 quarter was impacted due to the second wave of Covid-19 with partial and complete lockdowns in different states
Expansion of products in the FMEG category is expected to increase Finolex Cables’ market share in FY22
Highest ever annual profits in a challenging year
Though the company saw has seen declining revenues over the past two years, it registered the highest ever net profits in FY21 at Rs 461.5 crore. The electrical cables business is primarily driven by a pickup in real estate activities, which in the last two-quarters of FY21 helped this segment grow, despite being affected by the pandemic. Communication cables sales were impacted, which saw a decline in YoY revenue contribution. This was because of a fall in fibre prices internationally leading to lower selling prices, impacting margins, and deferred spending on communication cable projects by customers.
In a pandemic affected FY21, Finolex Cables continuously improved sales in every quarter from Q2FY21 to Q4FY21. The second wave of Covid-19 impacted the performance in Q1FY22, and with most states in partial or complete lockdown during the months of April and May, sales across verticals were affected.
Despite being able to operate only for a limited number of days or limited hours per day in Q1FY22, electrical wires volumes for Finolex increased by 7%, while the volumes of power cables rose by 23%. In the communication cables segment, volumes of metal-based products rose improved by 71% and Optic Fiber Cable volumes grew by over 290% during the quarter. All new products within the FMEG sector grew by more than 21% each.
Electrical cables constitute a lion’s share of revenue with more than 80% contribution. Within this segment, the building wires used in homes, offices, etc. generate more than half of the revenues.
Agriculture and automobile wires segment has a share of 20% and power cables with 20% share complete the pie of electrical cables.
With the focus on expanding the range and distribution of FMEG products, the management expects these products to contribute to 15% of sales by the end of FY22. Stepping up efforts in this direction, the company is expanding the distribution reach of the FMEG products by enlisting existing distributors.
Expansion plans and new product launches on track for FY22
According to the management, despite the lockdown, the company has not scaled down or slowed the Rs 200-crore capex (capital expenditure) plan which is underway in the Urse plant near Pune where they will make radiation technology-based solar cables, auto wires for the engines instrumentation cables using thin copper wires & telecom fibres for residential use.
In Q4FY21, it launched inverter LED bulbs & LED concealed down lights to add to its range. The inverter LED bulbs are designed to switch on automatically in the absence of power. These bulbs operate with 100 lumens per watt output during power supply & work at a reduced lumen level of 40-50% at times of power outages. The company expects this product to do well as it resolves a problem faced by customers during unexpected power cuts and sees potential demand in rural areas as well as urban centres with higher power outages.
Peers ahead of Finolex cables on many metrics
The results for the Q1FY22 look encouraging for most of the companies in this sector and this may be one of the outperforming sectors in FY22.
Finolex Cables' 79.1% YoY growth in revenues in Q1 FY22, came behind Polycab’s highest jump in revenue growth. The latter ended the quarter with a loss. V-Guard, despite having the lowest YoY revenue growth, grew its net profits by 6X.
Except for #KEI , which is purely a cable manufacturing company, all the others have diversified into FMEG products from voltage stabilisers, lights, fans, electrical switches, etc.
While #HAVELLS , #POLYCAB and #VGUARD have been present in the FMEG segment and already have a piece of the market share, Finolex Cables' strategy to gain market share in the FMEG segment will play a critical role in its growth in the coming months.
Finolex’s stock underperformed its peers over the past year. The government’s focus on affordable housing can lead to a resurgence in housing demand. With demand for housing expected to rise, there is scope for growth for the cable industry. The ramp-up of the number of distributors for the FMEG segment should help the company show results by the end of FY22. With these triggers, will Finolex Cables be able to deliver better returns to investors going forward?
One metric where Finolex Cables scores above its peers is the PE TTM (Price to Earnings, Trailing Twelve Months) ratio.
Looking at the overall picture, the wire and cable industry is slated for growth. Finolex Cables has the potential to be among the better-performing companies in the sector, both in terms of growth as well as investor returns in FY22. Investors need to keep a track of how Finolex Cables charges up the next few quarters.
*PM Modi On Improving India's Rural Infrastructure*
Over the past 5 years optical fibre has been reached to 2.5 lakh gram panchayats. People from villages are also in dire need of online services.
We have now decided that all 6 lakh villages will get optical fibre services.
*We have decided that in 1000 days, all India’s villages will get optical fibre*
View: Positive news for Sterlite, HFCL, Vindhya Telecom etc. and other cable business universal, finolex, polycab etc.
#HFCL #STRTECH #VINDHYATEL #FINCABLES #POLYCAB
**Finolex Cables** - Q4 FY20 (Audited –Cons)
Total revenue from operations 651 Cr
823 Cr (-20.89%) YoY | 702 Cr (-7.25%) QoQ
Year ending revenue: 2,877 Cr Vs. 3,077 Cr (-6.44%)
Net Profit of 64.4 Cr
124.1 Cr (-48.32%) YoY 102.7 Cr (-37.29%) QoQ
Year ending Net profit: 391 Cr Vs. 407 Cr (-3.98%)
EPS (in Rs.) 4.22
8.12 YoY |6.72 QoQ
Year ending EPS: 25.57 Vs. 26.62
View: Result is down and below expectation. YoY revenue declined and profit significantly declined in YoY and QoQ.
**Business Updates & Highlights**:
Q4FY20 EBITDA was around INR 80.5 Cr Vs. 144.4 Cr in Q4FY19 therefore declined by 44.2% in YoY. EBITDA margin is around 12.3% Vs. 20.5% in YoY.
FY20 EBITDA was around INR 302.4 Cr Vs. 386.7 Cr in FY19 therefore declined by 21.7% in YoY. EBITDA margin in FY20 was around 10.5% Vs. 12.6% in FY19.
Company is primarily operating into three main segment viz. Electrical cables – 58.8%, Communication cables – 11.5% and Copper Rods – 27%. YoY topline growth for Electrical cables – (24.1%), communication cables – (1%) and Copper Rods – (4.8%). YoY bottom line growth for Electrical cables – (30.7%), communication cables – (54.5%) and Copper Rods – 244% (not significant in bottom line)
The Board of Directors at its meeting held on 27 June, 2020, proposed a dividend of Rs. 5.50 (previous year Rs. 4.50) per equity share.
ROE and ROCE is around INR 15% and 23% respectively and book value per share is around INR 166 and share is currently trading at 1.8x of its book value. Company is currently trading at annualized PE of 12 which is average as per Industry benchmark. Promoter holding is around 35.9% in the company which is low but stable. FIIs and mutual fund hold around 7.5% and 19.2% in the company. Cash and cash equivalent from operating activities as of March 2020 is around INR 259 Cr Vs. 154 Cr as of March 2019. The good thing is company is virtually debt free and realization is also fair.
Position: Share support price is INR 270. Short term outlook is bearish. Long term investor based on their risk appetite can continue with the company.
**Share View**: Share price high 445 (52 week) and now 292. Finolex Cables Ltd is an Indian manufacturer of electrical and telecommunication cables based in Pune, Maharashtra. It is the flagship company of the Finolex Group, established in 1958. The company also manufactures polyvinyl chloride sheets for roofing, signage and interiors
Opportunities: Consistent performer and strong management group. Company is also at reasonable valuation. Company is debt free and no finance cost obligation. Paying good dividend and also increasing in YoY.
Risk: Covid – 19 outbreak Q1 and Q2 FY21 can further downslide due to lower sales and negative growth as mostly April and May was shut down the company operations.
Disclaimer: Views are shared based on market research and study and personal in nature. Others can take the different view and opinions. Please do the thoroughly study before enter or exit the shares.