Buy Finolex Cables; target of Rs 1019: Geojit

Geojit's research report on Finolex Cables

Finolex Cables Ltd. (FCL) is India's largest manufacturer of electrical (80% of revenue) and telecommunication cables (16%). FCL has a wide distribution network with a high brand recall. 9MFY24 revenue grew by 11% YoY, led by 14% YoY increase in wires. While communication cables segment de-grew by 8% YoY. EBITDA grew by 21% YoY, and EBITDA margins was up by 99bps YoY to 11.7%. Going ahead, robust construction activities will drive wires and cable volumes, while higher government capex will drive power cable demand. Further, the conclusion of the optic fibre tender in Q4FY24 will spur communication cable growth in FY25. As input costs have largely stabilized, EBITDA margins will gradually improve going forward, supported by higher volumes and an improved mix. Given a healthy balance sheet, strong cash flows, and a healthy earnings outlook of 18% CAGR over FY24E–26E, we maintain our positive stance on FCL.

Outlook

We value FCL’s core business at a P/E multiple of 18x as we roll forward to FY26E and value FCL’s investments in Finolex Industries at Rs.103 to arrive at a SOTP price target of Rs.1,019 and recommend to BUY.