Finolex Cables Ltd (FCL), the flagship company of the Finolex Group, was established in 1958 in Pune. It is one of India's leading manufacturer of electrical and communication cables.
The company's product portfolio includes PVC insulated industrial cables, FR-LSH PVC insulated industrial cables, PVC insulated single core and multi-core flexible industrial cables, rodent repellent multi-core flexible industrial cables, PVC insulated winding wires and 3 core flat cables, XLPE 3 core flat cables, power and control cables, high voltage power cables (up to 66KV), polyethylene insulated jelly filled telephone cables, auto and battery cables, co-axial and CATV cables, LAN cables, switchboard cables and fibre optic cables, among others. Finolex Cables Ltd has manufacturing facilities located at Pimpri and Urse in Pune as well as in the states of Goa and Uttarakhand.
The company operates in mainly four business segments: electrical cables, communication cables, copper rods and others (switchgears and CFL). The electrical cables division is the largest amongst these and it contributes about 87% to the top-line and is the main focus area of business for the company.
Communication cables has turned around
The communication cables segment, which had been on de-growth till FY12 primarily due to uncertainty over spectrum allocation leading to no investments by mobile service providers, however, turned around in FY13 and registered a growth of 22.7%.
In Q1FY14 too, the segment grew by 26%. The segment is expected to continue its growth rate of 20% to 25% on the back of recent developments in the telecom sector wherein the government announced a series of plans, including the creation a nationwide Optic Fibre Network to provide connectivity to village pachayats.
Electrical cables is expected to revive soon
FCL's electrical cables business has been giving a strong performance over the last four years. However, recently the growth tapered down due to a poor economic environment. The segment supplies cables to the auto and power sector.
We believe that with the slightest improvement in the automobile industry, the segment will come back to its old growth trajectory.
Finolex Cables is trading at an attractive valuation. Historically, the stock traded in the range of 6-8x. However, currently it is available at 4.7x and 4.3x on FY14E and FY15E earnings.
Entering New Segments
The company is continuously looking at developing new products to expand its portfolio as well as adapt to changing needs of the market. FCL has expanded into product segments that are complementary to the electrical cable market, that is, CFLs and electrical switches.
In the current fiscal, the company has already launched new lamp models including LED-based lighting systems meant for home use, street lighting and other commercial spaces. This move has brought additional market reach at minimal cost expansion. It also plans to enter the switchgear product segment and will launch a series of products within the MCB, ELCB and MCCB range during 2013-14.
Finolex expects to commission a 5MW solar power plant at its Urse facility. This initiative will result in substantial cost savings not only at the plant facility, but also reduce its dependence on grid power for manufacturing operations, effectively putting to use the existing land at the facility for productive purposes.
At the current market price, the stock trades at 4.6x and 4.3x its FY14E and FY15E EPS. It also trades at 3.4x and 2.6x its FY14E and FY15E EV/EBITDA. Over the last three years, Finolex Cables Ltd has traded in the range of 6-8x its EPS.
Source: Nirmal Bang's Beyond Market
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