Sharekhan maintains a Buy rating on Finolex Cables Limited, with a revised price target of Rs 1,300, reflecting confidence in the company’s long-term growth potential. While Q2FY25 revenues rose 10.5% YoY to Rs 1,312 crore, operating profit margins declined to 8.1% from 12.3%, primarily due to lower copper prices, channel destocking, and high-cost inventory. The company’s leadership in cables and wires (C&W), as well as its planned Rs 500 crore capex, underline its strong growth trajectory. The underpenetration of optic fiber cables in India and expansion into fast-moving electrical goods (FMEG) and railways remain key catalysts for future growth.

Sharekhan Reaffirms Buy Rating on Finolex Cables

Recommendation Overview
Sharekhan has reiterated its Buy recommendation for Finolex Cables with a revised price target of Rs 1,300. The positive outlook is driven by robust growth in key segments and a healthy balance sheet.

Q2FY25 Performance: Mixed Results Amid Margin Pressures

Revenue Growth

Consolidated revenue increased by 10.5% YoY to Rs 1,312 crore, driven by a 12% growth in electric cables.
FMEG revenue grew by 10% YoY, supported by new launches in fans, water heaters, and appliances.
Decline in Profit Margins

Operating profit fell by 27.5% YoY to Rs 106 crore, while net profit declined by 24% YoY to Rs 118 crore.
Operating profit margins (OPM) contracted to 8.1% from 12.3%, reflecting lower copper prices and inventory challenges.

Segment-Wise Performance

Electric and Communication Cables

Electric cable revenue grew 12% YoY, though volumes rose by a modest 2% due to copper price fluctuations.
Communication cable revenue declined by 20% YoY, with optic fiber cable (OFC) volumes increasing 53%, offset by a 9% decline in metal-based products.
FMEG Segment

FMEG revenue rose 10% YoY with management targeting Rs 300 crore in revenue for FY25.
New product launches and entry into underpenetrated markets continue to drive growth in this segment.

Strategic Capex Plans

Upcoming Investments
Finolex plans to invest Rs 500 crore over two years, with Rs 300-400 crore allocated for FY25. Major projects include:

E-beam Facility: Awaiting regulatory approvals, expected to add Rs 500 crore in revenue potential.
Pre-Form Facility: Scheduled for commissioning by January 2025.
Expansion of Auto Wire Capacity: Located in Uttarakhand to meet growing demand.

Growth Catalysts

Optic Fiber Cables

India remains underpenetrated in optic fiber cables, presenting significant growth opportunities, especially with the government’s Bharat Net initiative.
New Market Entries

Plans to diversify into railways, instrumentation cables, and high-margin FMEG products offer avenues for revenue expansion.
Strong Fundamentals

A debt-free balance sheet and tight working capital management position the company to capitalize on growth opportunities.

Valuation and Outlook

Valuation Metrics

Finolex trades at 18x FY27E earnings, reflecting a balanced valuation given its growth prospects.
Net sales are projected to grow at a 13.8% CAGR over FY24-FY27, with OPM expected to stabilize at 12.1% by FY27.
Long-Term Potential

The Indian C&W industry is expected to grow to Rs 90,000-95,000 crore by FY26, driven by infrastructure and industrial demand.
Organized players like Finolex are well-positioned to benefit from increasing market consolidation.

Risks to Watch

Raw Material Volatility

Fluctuations in copper prices could impact margins and earnings stability.
Demand Weakness

Inflationary pressures or subdued demand in certain segments, such as communication cables, could weigh on performance.