Buy Finolex Cables; target Rs 61: Angel Broking

Angel Broking is bullish on Finolex Cables (FCL) and has recommended buy rating on the stock with a target price of Rs 61 in its February 15, 2013 research report.

"FCL reported a mixed set of numbers for 3QFY2013. Its top-line reported a marginal growth of 7.0% yoy to Rs 534cr, as compared to our estimate of Rs 580cr. The EBITDA dipped marginally by 2.4% yoy to Rs 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 Rs 24cr vis-à-vis our estimate of Rs 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.

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 company’s 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 company’s sales to post an 11.3% CAGR over FY2012–14 to Rs 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 Rs 61 based on target PE of 6x FY2014E earnings," says Angel Broking research report.

Institutional holding more than 40% in Indian cos

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