Finolex Cables can move beyond Rs 150: Rajen Shah

Rajen Shah, CIO at Angel Broking told CNBC-TV18, "Both the Finolex Group companies are doing exceptionally well. I had recommended Finolex Industries at a price of about Rs 60 with a target of 100 percent upside in 24 months. To our surprise the target was met in 4 months. Today I am recommending another group company which is also doing equally well and that is Finolex Cables."

He further added, "Finolex Cables' 90 percent of the turnover comes from electrical cables and 10 percent comes from communication cables. This company is basically trading at around the same level as Finolex Industries, Rs 57 what it was trading in January and we have got a same 100 upside target in 24 months."
"Once upon a time this was a blue chip company. If you see the late 80s and the 90s this company used to declare liberal dividends, it used to declare very liberal bonus issues every four years and was one of the pioneers of buybacks. It did two buybacks. I am talking about late 90s and early 2000s."
"If you see from 2006 onwards till date the company’s performance has been lackluster, not any meaningful growth in its businesses and profits. Now if we see the latest numbers which the company declared for the year ended March, it is turning around and it is all set to regain its lost glory. It reported about 10 percent growth in topline and about 45 percent growth in bottomline, the bottomline went up from Rs 98 crore to Rs 145 crore and this was despite last year being one of the most challenging for the corporate sector and power sector in particular."
"If you see the EPS works out to about Rs 9.5 at about 10-11 kind of PE multiple which it deserves because Finolex Industries itself is trading at 11 times the last year earnings, the stock is worth Rs 100. Even if you see the book value, by the end of this year, it will be around Rs 70. At 1.5 times book value the stock should be beyond Rs 100. So these are fundamental points on which the stock looks to be anyway going above Rs 100."
"If you see over the last four months Finolex Industries in which this company owns 33 percent stake, the market cap of that company moved up from Rs 750 crore to Rs 1,500 crore. And since this company owns 33 percent, the value of that stake works out to Rs 500 crore whereas the market cap of Finolex Cables is about Rs 870 crore."
"I will come to a very interesting point, the Government of India has floated an SPV called Bharat Broadband Network Ltd. (BBNL). The main objective of this SPV is basically to connect all the 2,50,000 gram panchayats. So they are forming a National Optic Fiber Network (NOFN) and this project  is set to get completed in about 24 months. But I think it will take 36-48 months because we all know how the government functions. The total project cost is said to be Rs 20,000 crore and huge amount of money is going to flow into optic fiber cable making. Last week the tender for this got over. The tender was for 4,00,000 cable kilometers of optic fiber cable and Finolex Cables and Finolex has bid for that."
"I spoke to company’s CEO Mahesh Viswanathan in just about 7-8 days back and they were sounding very optimistic. So I think that is one thing. Secondly in India we have this power transmission through overhead cables except for metros where its underground power transmission is happening. So the government is laying more emphasis on actually converting that overhead transmission network into underground power transmission network. That is again a huge opportunity and Finolex is also aggressively into it. So these all factors make us feel that over the next two-three years this stock could move beyond Rs 150."