Finolex Cables (CMP: Rs.59/ TP: Rs.85/ Upside: 45%)
Finolex Cables is poised for strong growth over the next few years, owing to entry
in the verticals of High Tension (HT) and Extra High Voltage (EHV) Cables and
market share expansion in the existing Low Tension (LT) Cables segment.
The rapid ramp up of production at the Roorkee plant has already started
delivering results. The company has further increased the capacity at this plant by
50%. The proximity to the growing North Indian markets and tax benefits from this
plant are expected to boost the turnaround of the company.
Company’s derivatives losses are expected to decline going ahead. By FY2012E,
these losses are estimated to decline to Rs 24cr from Rs76cr in FY2010.
We believe attractive valuations of 6.3x FY2012E EPS and 1.1x FY2012E BV
provides a good entry point for investors. We have valued the stock at 9x FY2012E
EPS which result into target price of Rs85. Moreover, the company has a holding in
Finolex Industries, which has a book value of Rs152cr but a market value of
Rs483cr. This is not captured in our target price, providing further upside potential.
Finolex Cables is poised for strong growth over the next few years, owing to entry
in the verticals of High Tension (HT) and Extra High Voltage (EHV) Cables and
market share expansion in the existing Low Tension (LT) Cables segment.
The rapid ramp up of production at the Roorkee plant has already started
delivering results. The company has further increased the capacity at this plant by
50%. The proximity to the growing North Indian markets and tax benefits from this
plant are expected to boost the turnaround of the company.
Company’s derivatives losses are expected to decline going ahead. By FY2012E,
these losses are estimated to decline to Rs 24cr from Rs76cr in FY2010.
We believe attractive valuations of 6.3x FY2012E EPS and 1.1x FY2012E BV
provides a good entry point for investors. We have valued the stock at 9x FY2012E
EPS which result into target price of Rs85. Moreover, the company has a holding in
Finolex Industries, which has a book value of Rs152cr but a market value of
Rs483cr. This is not captured in our target price, providing further upside potential.
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