Buy Finolex Cables; target Rs 71: Nirmal Bang

According to Nirmal Bang's research report "Finolex Cables(FCL) reported revenue of Rs 632.1 cr for the quarter, a growth of 4.5 percent yoy led by Electrical cables (contributing 64 percent of revenue) which saw a muted growth of 7.9 percent yoy in Q4FY13 as compared to 21.4 percent, 24.7 percent and 7.0 percent yoy growth seen in Q1FY13, Q2FY13 and Q3FY13 respectively, which was mainly on account of lower demand from Auto and Power sectors. Electrical Cables contributed 64 percent to the gross sales, Communication Cables (CCS) contributed 5.9 percent, Copper business 23.2 percent and the rest was from Others. EBITDA for the quarter was Rs 66.5 cr, up 10.7 percent on a yoy basis. EBITDA margin came higher at 10.5 percent in Q4FY13 as compared to 8.0 percent in Q3FY13 and 9.9 percent in Q4FY12 on account of lower cost of material as commodities prices eased. PAT for the quarter was Rs 38.8 cr, down 13 percent yoy due to higher depreciation and tax. FCL reported a forex loss of Rs 8 cr, and from Q1FY14 onwards, no more forex losses are expected since all of FCL’s derivatives contracts expire.

Valuation & Recommendation: With the bottoming out of the Copper business, strong potential for Communication Cables business growth on higher optical fiber demand and digitisation, winding down of the loss making derivative contracts and likely breakeven of its Consumer business, we are positive on the long term growth prospects of the company. At CMP the stock trades at 4.9x its FY14E EPS and we maintain our buy rating on the stock with a price target of Rs 71," says Nirmal Bang research report.

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