Visit http://indiaer.blogspot.com/ for complete details For 2QFY2011, Finolex Cables posted top-line growth of 21.2% yoy to `491cr,
which was slightly below our expectations. Sales growth was backed by a strong
performance in the electrical cables and others segments, which grew by 38.8%
and 374.4%, respectively. However, OPM continued to remain subdued at 8.5%,
though it improved by 42bp qoq. Owing to strong demand and attractive
valuations, we maintain our Buy rating on Finolex.
Top-line growth remains robust, margins under pressure: In 2QFY2011, the
company’s sales increased due to strong performance in the electrical cables
segment, which showed high volume growth of 23.0%. However, owing to the
company’s inability to pass on high raw-material costs, OPM remained at 8.5%
for the quarter.
Outlook and valuation: Going ahead, demand for low-tension (LT) cables is
expected to remain strong due to bright prospects in its user industries. Sales
would receive a boost in FY2012 when high-tension (HT) and extra-high voltage
(EHV) plants start meaningful contribution to the company’s sales. However,
given the subdued margins in the recent quarters, we revise our OPM estimates
for FY2011 and FY2012 lower to 9.3% and 9.9% from 10.1% and 10.2%,
respectively. We expect PAT to register a 55.4% CAGR over FY2010–12E. At the
CMP, the stock is trading at 11.7x FY2011E and 6.8x FY2012E EPS, respectively.
We maintain Buy on the stock with a revised Target Price of `82 (`85).
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