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For 3QFY2011, Finolex Cables reported top-line growth of 21.4% yoy to `513cr
(`422cr), which was slightly below our estimate of `533cr. Lower gross margins
resulted in OPM declining by 87bp to 9.9% (10.8%) as against our expectation of
10.3%. PAT came in at `26cr, a growth of 113.1% yoy from `12cr in 3QFY2010.
Forex losses fell to `7cr from `11cr a year ago, while the tax rate was 14.0%.
Going ahead, we expect demand from user industries to remain strong. Hence,
we maintain a Buy on the stock.
Volumes flat, OPM declines yoy: Volumes in 3QFY2011 were more-or-less flat,
given that they were very high in 3QFY2010. The entire growth in top-line came
from increase in realisations. However, OPM declined by 87bp yoy on account of
higher raw material prices.
Outlook and Valuation: Demand from user industries continues to remain strong
for the company. We have revised our top-line estimates for FY2011 and FY2012
marginally downwards by 1.3% and 1.6% to `2,022cr and `2,419cr, respectively.
However, given lower-than expected depreciation and interest cost and forex
losses, PAT estimates for FY2011 and FY2012 have been raised by 4.0% and
0.2% to `84cr and `139cr, respectively. Going ahead, we expect sales to grow at
a CAGR of 22.2% over FY2010-12, while PAT is estimated to post 55.2% CAGR
over the same period. At the CMP, the stock is trading at attractive valuations of
4.8x FY2012E EPS and 0.8x FY2012E book value. We maintain a Buy on the
stock, with a Target Price of `82.
Sales maintains the strong growth momentum
The company has been performing well on the top-line front since the past few
quarters. In 3QFY2011 too, the company maintained this trend and posted robust
yoy growth of 21.4%. Over the past eight quarters, the company’s sales have
increased from `327cr to `513cr. Going ahead, we expect the sales growth to
remain healthy, as demand from the user industries remains robust. Moreover, the
HT cables plant would start contributing meaningfully to sales in the ensuing
quarters.
OPM increases sequentially
In the past two quarters, the company has seen subdued OPMs. In 3QFY2011
however, OPM expanded sequentially to 9.9% from 8.5%. On a yoy basis, OPM
reduced by 87bp from 10.8% in 3QFY2010. Going ahead, we expect OPM to
remain in this range, with OPM expectations of 9.2% and 9.8% in FY2011 and
FY2012.
PAT reported at `26cr
PAT has remained in the range of `19-26cr since 4QFY2010, when the company
had posted a loss of `5cr. In 3QFY2011, the company reported a PAT of `26cr,
vis-à-vis `12cr in 3QFY2010. Going ahead, as sales expand, we expect PAT also
to increase. PAT growth would also be boosted by declining forex losses.
Management call – Key takeaways
Volumes were flat in 3QFY2011, although for 9MFY2011, volumes increased
12-13%.
The demand scenario remains strong, with management expecting to achieve
volume growth of 10-15% on a sustainable basis.
Gross margins are expected to remain around current levels.
The HT cables plant is expected to contribute ~15-18% of the total sales of the
electrical cables segment. The EHV cables plant is nearing completion and is
expected to start commercial production in May this year.
Investment Arguments
Poised for high growth going ahead: Finolex Cables is poised to register robust
growth over the next few years owing to strong growth in the existing LT cables
segment and entry into the HT and extra high voltage (EHV) cables verticals. In LT
cables, we expect the organised players to gradually gain market share as their
distribution reach expands and customers increasingly demand higher quality and
branded wires. Entry into the HT cables segment gives accessibility to the
generation and distribution segment, where the market opportunity is estimated at
`37,000cr over the next 10 years.
Tax benefits from Roorkee plant to help turnaround of the company: The company
has shifted a major chunk of production to its Roorkee plant, which avails excise
duty and income tax benefits. Owing to this, we expect the company’s excise duty
and tax rates to remain low at 9% and 22.0% in FY2012, respectively. The
company has further enhanced capacity of this plant by 50%. The proximity to the
growing north Indian markets and tax benefits availed by this plant are expected to
boost the turnaround of the company.
Major capex already undertaken: The company has already incurred major capex
required to register growth over the next 4-5 years. Thus, on account of high
operating leverage and strong sales growth, we expect the company to increase its
net profit to `139cr in FY2012 from `58cr in FY2010.
Outlook and Valuation
We maintain our positive outlook on Finolex Cables, owing to robust demand from
its user industries. We have revised our top-line estimates for FY2011 and FY2012
marginally downwards by 1.3% and 1.6% to `2,022cr and `2,419cr, respectively.
However, given lower-than expected depreciation and interest cost and forex
losses, PAT estimates for FY2011 and FY2012 have been raised by 4.0% and 0.2%
to `84cr and `139cr, respectively. Going ahead, we expect sales to grow at a
CAGR of 22.2% over FY2010-12, while PAT is estimated to post 55.2% CAGR over
the same period. At the CMP, the stock is trading at attractive valuations of 4.8x
FY2012E EPS and 0.8x FY2012E book value. We maintain a Buy on the stock, with
a Target Price of `82.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Finolex Cables – 3QFY2011 Result Update
Angel Broking maintains a Buy on Finolex Cables with a Target Price of Rs. 82.
For 3QFY2011, Finolex Cables reported top-line growth of 21.4% yoy to `513cr
(`422cr), which was slightly below our estimate of `533cr. Lower gross margins
resulted in OPM declining by 87bp to 9.9% (10.8%) as against our expectation of
10.3%. PAT came in at `26cr, a growth of 113.1% yoy from `12cr in 3QFY2010.
Forex losses fell to `7cr from `11cr a year ago, while the tax rate was 14.0%.
Going ahead, we expect demand from user industries to remain strong. Hence,
we maintain a Buy on the stock.
Volumes flat, OPM declines yoy: Volumes in 3QFY2011 were more-or-less flat,
given that they were very high in 3QFY2010. The entire growth in top-line came
from increase in realisations. However, OPM declined by 87bp yoy on account of
higher raw material prices.
Outlook and Valuation: Demand from user industries continues to remain strong
for the company. We have revised our top-line estimates for FY2011 and FY2012
marginally downwards by 1.3% and 1.6% to `2,022cr and `2,419cr, respectively.
However, given lower-than expected depreciation and interest cost and forex
losses, PAT estimates for FY2011 and FY2012 have been raised by 4.0% and
0.2% to `84cr and `139cr, respectively. Going ahead, we expect sales to grow at
a CAGR of 22.2% over FY2010-12, while PAT is estimated to post 55.2% CAGR
over the same period. At the CMP, the stock is trading at attractive valuations of
4.8x FY2012E EPS and 0.8x FY2012E book value. We maintain a Buy on the
stock, with a Target Price of `82.
Segment-wise performance
The electrical cables segment posted 31.8% yoy growth to `343cr (`260cr), mainly
on the back of increase in realisation. However, EBIT margin declined by 106bp
yoy and 89bp qoq to 12.3% on account of higher raw material prices. The
segment reported EBIT of `42cr.
Sales of the communication cables segment registered a 20.7% yoy decline in
sales to `53cr (`66cr). EBIT of the segment came in at `12cr (`11cr), implying an
EBIT margin of 23.1% (16.7%).
Copper rods segment also recorded a strong sales growth of 20.7% to `317cr
(`262cr). EBIT margins came in at a subdued 0.1%, vis-à-vis 2.3% in 3QFY2010.
During the quarter, the company did not book some of the credits from its
suppliers. Notably, in 2QFY2011, the segment had to absorb a sales tax outgo of
`4.2cr, owing to which it had suffered a loss of `6cr.
Others segment recorded sales of `41cr (`8cr), while it posted a loss of `1cr at the
EBIT level.
Sales maintains the strong growth momentum
The company has been performing well on the top-line front since the past few
quarters. In 3QFY2011 too, the company maintained this trend and posted robust
yoy growth of 21.4%. Over the past eight quarters, the company’s sales have
increased from `327cr to `513cr. Going ahead, we expect the sales growth to
remain healthy, as demand from the user industries remains robust. Moreover, the
HT cables plant would start contributing meaningfully to sales in the ensuing
quarters.
OPM increases sequentially
In the past two quarters, the company has seen subdued OPMs. In 3QFY2011
however, OPM expanded sequentially to 9.9% from 8.5%. On a yoy basis, OPM
reduced by 87bp from 10.8% in 3QFY2010. Going ahead, we expect OPM to
remain in this range, with OPM expectations of 9.2% and 9.8% in FY2011 and
FY2012.
PAT reported at `26cr
PAT has remained in the range of `19-26cr since 4QFY2010, when the company
had posted a loss of `5cr. In 3QFY2011, the company reported a PAT of `26cr,
vis-à-vis `12cr in 3QFY2010. Going ahead, as sales expand, we expect PAT also
to increase. PAT growth would also be boosted by declining forex losses.
Management call – Key takeaways
Volumes were flat in 3QFY2011, although for 9MFY2011, volumes increased
12-13%.
The demand scenario remains strong, with management expecting to achieve
volume growth of 10-15% on a sustainable basis.
Gross margins are expected to remain around current levels.
The HT cables plant is expected to contribute ~15-18% of the total sales of the
electrical cables segment. The EHV cables plant is nearing completion and is
expected to start commercial production in May this year.
Investment Arguments
Poised for high growth going ahead: Finolex Cables is poised to register robust
growth over the next few years owing to strong growth in the existing LT cables
segment and entry into the HT and extra high voltage (EHV) cables verticals. In LT
cables, we expect the organised players to gradually gain market share as their
distribution reach expands and customers increasingly demand higher quality and
branded wires. Entry into the HT cables segment gives accessibility to the
generation and distribution segment, where the market opportunity is estimated at
`37,000cr over the next 10 years.
Tax benefits from Roorkee plant to help turnaround of the company: The company
has shifted a major chunk of production to its Roorkee plant, which avails excise
duty and income tax benefits. Owing to this, we expect the company’s excise duty
and tax rates to remain low at 9% and 22.0% in FY2012, respectively. The
company has further enhanced capacity of this plant by 50%. The proximity to the
growing north Indian markets and tax benefits availed by this plant are expected to
boost the turnaround of the company.
Major capex already undertaken: The company has already incurred major capex
required to register growth over the next 4-5 years. Thus, on account of high
operating leverage and strong sales growth, we expect the company to increase its
net profit to `139cr in FY2012 from `58cr in FY2010.
Outlook and Valuation
We maintain our positive outlook on Finolex Cables, owing to robust demand from
its user industries. We have revised our top-line estimates for FY2011 and FY2012
marginally downwards by 1.3% and 1.6% to `2,022cr and `2,419cr, respectively.
However, given lower-than expected depreciation and interest cost and forex
losses, PAT estimates for FY2011 and FY2012 have been raised by 4.0% and 0.2%
to `84cr and `139cr, respectively. Going ahead, we expect sales to grow at a
CAGR of 22.2% over FY2010-12, while PAT is estimated to post 55.2% CAGR over
the same period. At the CMP, the stock is trading at attractive valuations of 4.8x
FY2012E EPS and 0.8x FY2012E book value. We maintain a Buy on the stock, with
a Target Price of `82.
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