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Finolex Cables
Performance Highlights
Y/E March (` cr) Total operating income EBITDA EBITDA Margin (%) Adj. PAT
Source: Company, Angel Research
BUY
CMP Target Price
2QFY13 % chg (qoq) 586 71 12.0 57 (8.8) (39.1) (400)bp (58.3) 3QFY12 % chg (yoy) 499 44 8.8 14 7.0 (2.4) (77)bp 75.0
`50 `61
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Finolex Cables (FCL) reported a mixed set of numbers for 3QFY2013. Its top-line reported a marginal growth of 7.0% yoy to `534cr, as compared to our estimate of `580cr. The EBITDA dipped marginally by 2.4% yoy to `43cr while EBITDA margin was down by 77bp on a yoy basis to 8.0%. Nevertheless the adjusted PAT grew by a whopping 75% yoy to `24cr vis--vis our estimate of `18cr, on the back of low interest cost (lower by 67.2% yoy) and exceptional item (lower by 42.4% yoy) of losses derived from derivative contracts. PAT margin too expanded from 2.7% in 3QFY2012 to 4.5% in 3QFY2013. Growth in user industries to drive growth: FCL serves varied user industries, considering the wide usage of cables. With customers increasingly demanding high-quality and branded wires, FCL is poised to grow. The company, with its wide distribution reach and penetration in the market, is well poised to meet increase in demand. Further, we expect the companys initiatives like- 1) increase in advertisement spends 2) setting up of a solar power plant for captive consumption, and 3) reduction in sale of copper rods to third party, to boost its top-line and enhance profitability going forward. Outlook and valuation: We expect the companys sales to post an 11.3% CAGR over FY201214 to `2,559cr, and EBITDA to register a CAGR of 21.0% over the same period with margin at 10.0% in FY2014E. However, PAT is expected to post a higher CAGR of 25.6% over the same period owing to closure of the derivatives contracts (included in exceptional items). With the recent correction, FCL is available at PE of 5.0x for FY2014E and hence the stock is upgraded to Buy with a target price of `61 based on target PE of 6x FY2014E earnings. Key financials
Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA Margin (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 35.7 29.3 4.9 30.2
3m 5.4 (1.9)
FY2011 2,036 25.8 87 50.7 7.5 7.4 8.9 1.1 12.1 20.9 0.3 3.6
FY2012 2,064 1.4 98 13.0 8.5 8.0 7.8 1.0 12.3 18.7 0.3 3.7
FY2013E 2,268 9.9 137 39.6 9.5 9.0 5.6 0.8 14.8 20.5 0.3 2.9
FY2014E 2,559 12.8 155 13.1 10.0 10.1 5.0 0.7 14.6 23.3 0.2 2.3
Twinkle Gosar
+91 22 3935 7800 Ext: 6848 Gosar.twinkle@angelbroking.com
3QFY13 534.3 393.2 73.6 20.1 3.8 78.1 14.6 491.3 42.9 8.0 2.6 10.8 1.6 31.1 2.3 28.8 5.4 4.8 16.8 24.0 4.5
2QFY13 586.0 432.2 73.8 19.1 3.3 64.1 10.9 515.4 70.5 12.0 2.2 10.7 14.2 72.0 6.2 65.8 11.2 8.3 12.6 57.5 9.8
% chg (qoq) (8.8) (9.0) 4.9 21.8 (4.7) (39.1) (400)bp 22.8 0.9 (88.9) (56.7) (56.2) (41.8) (58.3)
3QFY12 499.5 384.3 76.9 17.3 3.5 53.9 10.8 455.5 44.0 8.8 8.1 12.8 4.0 27.1 10.6 16.5 3.3 2.8 17.0 13.7 2.7
% chg (yoy) 7.0 2.3 15.8 45.0 7.9 (2.4) (77)bp (67.2) (16.1) (60.3) 14.9 74.6 72.2 75.0
9MFY2013 1,638.3 1,203.3 73.5 58.9 3.6 213.8 13.1 1,476.0 162.3 9.9 8.3 31.9 17.6 139.6 15.0 124.6 7.6 18.1 14.5 106.5 6.5
9MFY2012 1,459.2 1,115.4 76.4 51.0 3.5 174.6 12.0 1,340.9 118.3 8.1 17.6 32.3 27.0 95.4 28.9 66.4 4.6 12.8 19.2 53.7 3.7
% chg 12.3 7.9 15.5 22.5 10.1 37.2 180bp (53.2) (1.2) (35.0) 46.4 87.7 42.0 98.5
FCL reported a mixed set of numbers for 3QFY2013. Its top-line reported a flat yoy growth of 7.0% to `534cr, as compared to our estimate of `580cr. The EBITDA dipped marginally by 2.4% yoy to `43cr while EBITDA margin was down by 77bp on a yoy basis to 8.0%. Raw material cost drop by 335bp yoy, however, was offset by total expansion of 336bp yoy in selling & administration and other expenses. Nevertheless the adjusted PAT grew by a whopping 75% yoy to `24cr on the back of low interest cost (lower by 67.2% yoy) and exceptional item (lower by 42.4% yoy) of losses derived from derivative contracts. The PAT margin too expanded from 2.7% in 3QFY2012 to 4.5% in 3QFY2013.
(` cr)
(` cr)
300 200
5 0
(%)
30 20 10 0
513
539
461
499
499
605
518
586
51
40
34
40
44
58
49
71
43
100 -
534
(5) (10)
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
Revenue (LHS)
EBITDA (LHS)
Segment-wise performance
For 3QFY2013, the electrical cables segment reported a 12.3% yoy growth in sales to `469cr. The contribution of the segment stands at 88% in 3QFY2013 vis-vis 84% in 2QFY2012. The EBIT for the segment came in at `49cr (`45cr in 3QFY2012), 8.5% higher yoy. However, EBIT margin fell by 37bp yoy to 10.5%. The communication cables segment posted a growth of 13.1% yoy in its top-line, with sales of `46cr (`41cr in 3QFY2012) and contributed 9% to the total revenue. The margin of the segment expanded significantly by 564bp yoy to 11.8% from 6.2% in same quarter previous year. The copper rods segment reported a decline of 11.1% in its top-line to `136cr (`153cr in 3QFY2012) during the quarter. The segments contribution has been declining gradually since the company is reducing its exposure to third party owing to thin margins. The EBIT for the segment came in at `0.8cr, while margin stood at 4.1%, 233bp higher yoy.
3QFY13 469 46 136 38 688 154 534 10.5 11.8 4.1 (1.1)
2QFY13 514 48 175 44 780 194 586 12.2 19.1 4.1 (1.5)
3QFY12 % chg (qoq) % chg (yoy) 417 41 153 31 642 142 499 10.9 6.2 1.8 (7.3) (8.9) (4.1) (22.5) (12.0) (11.8) (20.7) (8.8) bp chg (169) (732) 1 39 12.3 13.1 (11.1) 22.3 7.3 8.4 7.0 bp chg (37) 564 233 613
3QFY13
(%)
400
10
40
New solar power plant to reduce power & fuel expenses by one-third
FCL is setting up a solar power plant at its Urse manufacturing unit with a capex of ~`40cr, scheduled to be operational in the coming six months. This power plant is expected to reduce the power cost of the company by one-third which will add to the EBITDA margin.
Investment arguments
Capex plans to complement rising demand
FCL has its manufacturing facilities located at Pune, Goa and Roorkee. Excluding the older plants, the new plants with updated technology have been operating optimally at ~85-90% capacity utilisation. With customers increasingly demanding high-quality and branded wires, FCL is poised to grow. The company, with its wide distribution reach and penetration in the market, is well poised to meet increase in demand. The company has planned a total capex of ~`100cr over the next 18 months (~`40-50cr in FY2013E) to expand the Roorkee plant and double its current capacity so as to support the rising demand. The same will lead to top-line growth for the company.
Financials
Exhibit 6: Key Assumptions
Particulars (%) Total Sales Growth Finished Products Volume growth Electrical cables Telephone Cables-Jelly Filled Optical Fibre Cables Continuous Cast Copper Rod Realisation growth Electrical cables Telephone Cables-Jelly Filled Optical Fibre Cables Continuous Cast Copper Rod Raw Material Volume growth Realisation growth
Source: Company, Angel Research
FY2013E 9.9
FY2014E 12.8
1,500 1,000
15 10
(` cr)
(`cr)
(%)
1,619
2,036
2,064
2,268
500 -
2,559
5 0
FY2010
FY2011
FY2012
FY2013E
FY2014E
FY2011
FY2012 Communication
Electrical cables
Revenue from the electrical cables segment is assumed to grow at CAGR of 15.2% while the communication cables segment (telephone jelly cables and optic fibre cables) is expected to post a CAGR of 12.1% over FY2012-14E. CCC rods (net of inter segmental) contribution is however expected to dip by CAGR of 29.7% for the same period.
(` cr)
(` cr)
150 100 50 195 0 FY2010 FY2011 EBITDA (LHS) FY2012 FY2013E FY2014E EBITDA margin (RHS) 173 175 214 256
6 4 2 0
(%)
(%)
Concerns
Competition from the un-organized sector is a concern since the products available from them are relatively cheaper and thus cannibalize into market volumes. Fluctuation in the price of copper which is the essential raw material (~86% of total raw material) is a key concern as it would directly impact operational efficiency. Although prices have fallen recently, but the volatility in commodity market persists.
('000 `/ MT)
Dec-11
Mar-12
Aug-12
Dec-12
Sep-12
Feb-12
Oct-12
Nov-11
May-12
Nov-12
Source: Bloomberg
Competition
The cables industry, both electrical and tele-communication, is highly competitive, with co-existence of both - organised and un-organised players. FCL has a market share of ~15-20% each in the electrical and telecommunication cables segments.
2,243
8.7
174 353 31
21 24
4.4 3.1
48 24.6
Feb-13
Jan-12
Jun-12
Apr-12
Jan-13
Jul-12
(`)
60 40 20 0
Feb-09
Feb-10
Feb-11
Feb-12
Aug-09
Aug-10
Aug-11
Price
Source: Company, Angel Research
4.0x
6.5x
9.0x
11.5x
Aug-12
Feb-13
Electrical Cables
Communication Cables
Others
LDEC
Copper Based
PVC
Power Cables
Switches
Traditional JFTC's
Source: Company
Applications Electrification in residential, commercial and industrial establishments Underground usage, main power supply
10
11
Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Total Loans Other Long term liability Net Deferred tax liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Long term Loans & Adv. Investments Current Assets Cash Loans & Advances Other Inventory Debtors Other current assets Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 802 384 419 29 280 415 37 86 292 221 71 193 222 950 826 422 403 19 14 245 538 21 106 411 281 130 291 247 928 871 442 429 12 4 237 534 49 90 395 281 114 194 340 1,022 915 486 429 12 4 259 631 46 102 483 358 125 187 444 1,148 970 532 438 12 4 277 715 49 115 551 410 141 207 508 1,239 31 613 643 275 32 950 31 687 717 126 54 31 928 31 770 800 155 35 33 1,022 31 893 923 147 45 33 1,148 31 1,033 1,064 136 18 21 1,239 FY2010 FY2011 FY2012 FY2013E FY2014E
12
FY2011
107 39 (26) (40) (20)
FY2012
109 39 (36) (65) (11)
FY2013E
163 42 (25) (107) (26)
FY1204E
219 44 (22) (61) (63)
2
(29) 34 24
59
(13) 21 26
36
(39) 18 36
47
(44) (21) 27
118
(55) (18) 22
29
0 (11) (9)
34
0 (96) (11)
16
0 11 (12)
(38)
0 3 (14)
(51)
0 (50) (14)
(22)
9 28 37 89
(109)
(16) 37 21 107
(24)
28 21 49 109
(11)
(3) 49 46 27
(64)
3 46 49 22
13
Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) (0.1) (0.2) 8.4 (0.2) (0.8) 7.0 (0.2) (0.8) 5.2 (0.2) (0.7) 14.1 (0.2) (0.7) 14.8 2.0 41 15 47 34 2.5 45 18 47 37 2.4 50 16 47 37 2.5 49 16 47 64 2.6 47 16 47 65 16.6 26.1 9.0 14.5 20.9 12.1 13.2 18.7 12.3 14.9 20.5 14.8 16.9 23.3 14.6 9.7 0.6 2.7 16.9 4.4 (0.1) 16.0 6.6 0.8 3.2 17.0 12.3 (0.2) 16.0 6.6 0.9 2.9 16.8 15.2 (0.2) 16.5 7.5 0.9 2.7 17.4 7.0 (0.2) 15.7 8.2 0.7 2.8 16.8 7.5 (0.2) 15.1 14.4 14.4 17.2 0.6 42.1 25.0 25.0 28.2 0.7 46.9 6.4 6.4 9.0 0.8 52.3 9.0 9.0 11.8 0.8 60.4 10.1 10.1 13.2 0.8 69.6 13.4 8.1 1.2 1.2 0.4 3.7 0.8 8.9 6.1 1.1 1.4 0.3 3.6 0.7 7.8 5.6 1.0 1.6 0.3 3.7 0.6 5.6 4.3 0.8 1.8 0.3 2.9 0.5 5.0 3.8 0.7 1.8 0.2 2.3 0.5 FY2010 FY2011 FY2012 FY2013E FY1204E
14
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Finolex Cables No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
15