finolex cable 4q fy 2013

7/30/2019 Finolex Cable 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 4QFY13 3QFY13 % chg (qoq) 4QFY12 % chg (yoy)Total operating income 632 534 18.3 605 4.5EBITDA 67 43 55.0 58 14.4

EBITDA Margin (%) 10.5 8.0 249bp 9.6 91bp

Adj. PAT 39 24 62.5 45 (12.6)Source: Company, Angel Research

Finolex Cables Ltd (FCL) reported a mixed set of numbers for 4QFY2013. The

top-line reported a flat yoy growth of 4.5% to`632cr, in line with our estimate of

`629cr. The EBITDA for the quarter grew by 14.4% yoy to `67cr while the

EBITDA margin expanded by 91bp yoy to 10.5%. Expansion was mainly due to

reduction in raw material cost and other expenses as a percentage of sales.

However, the net profit declined by 12.6% yoy to `39cr, owing to a tax expense of

16% (on PBT), which was absent in the corresponding quarter of the previous year.

Growth in user industries to drive growth: 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 companys 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 top-line and enhance profitability going forward.

Outlook and valuation:We expect the companys sales to post a 13.0% CAGR

over FY201315E to`2,899cr, and EBITDA to register a CAGR of 11.6% over the

same period with margin at 9.8% in FY2015E. However, PAT is expected to post a

moderate CAGR of 9.0% over the same period owing to end of 100% tax

exemption on Roorkee plant production (30% from FY2014E). At the currentmarket price, FCL is available at an attractive valuation of 4.4x PE for FY2015E. Aswe rollover to FY2015E, we maintain our Buy recommendation on the stock with arevised target price of `68 based on a target PE of 6x FY2015E earnings.Key financialsY/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ENet Sales 2,036 2,064 2,270 2,563 2,899% chg 25.8 1.4 10.0 12.9 13.1

Net Profit 87 98 145 154 173% chg 50.7 13.0 47.9 6.0 12.1

EBITDA Margin (%) 7.5 8.5 10.1 9.8 9.8FDEPS (`) 5.7 6.4 9.5 10.1 11.3P/E (x) 8.8 7.8 5.3 5.0 4.4

P/BV (x) 1.1 1.0 0.8 0.7 0.6

RoE (%) 12.1 12.3 15.7 14.5 14.0RoCE (%) 20.9 18.7 22.5 22.2 23.1

EV/Sales (x) 0.3 0.3 0.2 0.2 0.2

EV/EBITDA (x) 3.6 3.6 2.5 2.3 1.8

Source: Company, Angel Research

BUYCMP `50

Target Price `68

Investment Period 12 Months

Stock Info

Sector

Net Debt (202.0)

Bloomberg Code

Shareholding Pattern (%)

Promoters 35.7MF / Banks / Indian Fls 29.3

FII / NRIs / OCBs 4.9

Indian Public / Others 30.2

Abs.(%) 3m 1yr 3yr

Sensex (0.2) 14.1 13.5

Finolex (13.0) 49.2 (7.6)

Nifty 5,999

Reuters Code FNXC.BO

FNXC.IN

Avg. Daily Volume 87,566

Face Value (`) 2

BSE Sensex 19,736

52 Week High / Low 64 / 32

Cables-Power

Market Cap (`cr) 767

Beta 0.6

Twinkle Gosar+91 22 3935 7800 Ext: 6848

[email protected]

Finolex CablesPerformance Highlights

4QFY2013 Result update | Power Cables

May 2, 2013


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Finolex Cables | 4QFY2013 Result update

May 2, 2013 2

Exhibit 1:4QFY2013 performance highlightsY/E March (` cr) 4QFY13 3QFY13 % chg (qoq) 4QFY12 % chg (yoy) FY2013 FY2012 % chgTotal operating income 632.1 534.3 18.3 604.8 4.5 2,270.1 2,063.9 10.0Net raw material 465.9 393.2 18.5 453.1 2.8 1,688.6 1,568.5 7.7(% of Sales) 73.7 73.6 74.9 74.4 76.0

Employee cost 25.7 20.1 28.2 18.5 38.8 84.6 69.5 21.7

(% of Sales) 4.1 3.8 3.1 3.7 3.4

Other Expenses 74.0 78.1 (5.3) 75.0 (1.3) 268.1 251.3 6.7

(% of Sales) 11.7 14.6 12.4 11.8 12.2

Total expenditure 565.6 491.3 15.1 546.5 3.5 2,041.3 1,889.2 8.1EBITDA 66.6 42.9 55.0 58.2 14.4 228.8 174.8 30.9EBITDA Margin (%) 10.5 8.0 249bp 9.6 91bp 10.1 8.5 161bp

Interest 4.2 2.6 59.1 7.5 (43.7) 12.6 26.1 (51.7)

Depreciation 14.6 10.8 35.8 7.1 104.5 46.6 39.5 18.1

Other income 6.6 1.6 317.7 9.4 (29.5) 24.2 36.4 (33.6)

PBT (excl. exceptional items) 54.4 31.1 74.6 53.0 2.6 193.8 145.6 33.1Exceptional items 8.0 2.3 10.1 23.0 36.4PBT (incl. exceptional items) 46.4 28.8 60.9 42.9 8.2 170.8 109.3 56.3(% of Sales) 7.3 5.4 7.1 7.5 5.3

Tax 7.4 4.8 53.3 (1.7) (541.7) 25.5 11.1 130.5

(% of PBT) 16.0 16.8 (3.9) 15.0 10.1

Adjusted PAT 39.0 24.0 62.5 44.6 (12.6) 145.2 98.2 47.9PATM (%) 6.2 4.5 7.4 6.4 4.8


Exhibit 2:Actual v/s EstimatesActual v/s Angel's Estimates Actual (` cr) Estimate (` cr) % variationTotal Income (` cr) 632 629 0.4EBITDA (`cr) 67 52 27.8EBITDA Margin (%) 10.5 8.3 226bp

Adjusted PAT (` cr) 39 31 27.6Source: Company, Angel Research

For 4QFY2013, FCL reported a mixed set of numbers. The top-line reported a flat

yoy growth of 4.5% to `632cr, in line with our estimate of `629cr. The EBITDA

grew by 14.4% yoy to `67cr, better than our estimate of `52cr. Lower copper

prices during the quarter, resulted in a reduction in raw material cost as a

percentage of sales by 122bp. This, along with 222bp yoy lower other expenses as

a percentage of sales, aided the EBITDA margin to expand by 91bp yoy to 10.5%.

However, the net profit for the company declined by 12.6% yoy to `39cr, owing to

tax expense of 16% of PBT, which was absent in the corresponding quarter of the

previous year.


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May 2, 2013 4

Investment arguments

Capex plans to complement rising demand

FCL has its manufacturing facilities located at Pune, Goa and Roorkee. Excluding

the older plants, the new plants with updated technology have been operating

optimally at ~85-90% capacity utilisation. 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 an increase

in demand. The company has planned a total capex of ~`100cr over the next 18

months (~`40-50cr in FY2013E) to expand the Roorkee plant and double its

current capacity so as to support the rising demand. The same will contribute to

top-line growth for the company.

Product portfolio additions to facilitate growth & widen reach

FCL has a substantial market share of ~15-16% in both, electrical andtelecommunication cables segments. The company has a wide range of products

in its offering, ranging within 1.1kv to 66kv. Moreover, the company launched a

new range of speaker wires in the communication cables segment and latest

versions of T5 tube lights and fittings were launched in the lighting division.

Additions in the product portfolio by the company on the back of extensive

research and development are expected to facilitate growth in top-line for the

company going forward.

Strong growth in user industry to drive top-line

FCL serves varied user industries considering the wide usage of cables due to

electrification. The contribution from the construction sector is the largest while

other segments include industrial, automotive, power and agriculture.

The electrical cables segment contributes ~83% to the total revenue. Of this ~60%

revenue comes in from channel sales and 40% through institutional sales. On the

other hand, the telecommunication cables segment, which accounts for ~6-7% of

the top-line, derives its revenues majorly from institutional sales. The balanced

revenue mix in regards to user industry as well as institutional sales reduces the

concentration risk.Reducing third party sale of copper rods to boost margins

The copper rods segment was initially set up as backward integration for the

cables segment. The excess production after captive consumption is sold off to

third parties at market price. However, owing to thin and declining margins from

third party transactions, FCL is gradually reducing its exposure in the segment. The

contribution of the segment to the top-line has decreased from 21% in FY2010 to

~8% currently. This trend is expected to continue, thereby improving the overall

EBIT margin of the company.


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May 2, 2013 5

Financials

Exhibit 6:Key AssumptionsParticulars (%) FY2014E FY2015ETotal Sales Growth 12.9 13.1

Finished ProductsVolume growthElectrical cables 11.0 11.0

Telephone Cables-Jelly Filled 5.0 5.0

Optical Fibre Cables 5.0 5.0

Continuous Cast Copper Rod (10.0) (10.0)

Realisation growthElectrical cables 3.0 3.0

Telephone Cables-Jelly Filled 5.0 5.0

Optical Fibre Cables 5.0 5.0Continuous Cast Copper Rod - -

Raw MaterialVolume growth 9.5 9.5

Realisation growth 3.6 3.3


Exhibit 7:Revised EstimatesY/E March Earlier estimates Revised estimates % changeFY2014E FY2015E FY2014E FY2015E FY2014E FY2015ENet Sales (`cr) 2,559 2,899 2,563 2,899 0.2 0.0EBITDA Margin (%) 9.8 9.8 9.8 9.8 (4.5) 0.0

EPS (`) 10 11 10 11 2.9 0.0Source: Angel Research

Net sales to grow at CAGR of 13.0% over FY2013-15E

Owing to strong growth in varied user industries, additions in the product portfolio,

and strategic alliances entered into by the company, the top-line is expected to

post a CAGR of 13.0% over FY2013-15E to`2,899cr in FY2015E.

Exhibit 8:User industry growth to drive volumes


Exhibit 9:Segmental contribution


1,6

19

2,0

36

2,0

64

2,2

70

2,5

63

2,8

99

20.7

25.81.4

10.012.9

13.1

0

5

10

15

20

25

30

-

500

1,000

1,500

2,000

2,500

3,000

3,500

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

(%)

(`cr)

Net sales (LHS) Net sales growth ( RHS)

1,109

1,407

1,771

2,053

2,347

2,683

176 204 207 254280 308362

511

205 105 94 85

-

500

1,000

1,500

2,000

2,500

3,000

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

(`cr)

Electrical cable s Communication CCC rods


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May 2, 2013 6

Revenue from the electrical cables segment is assumed to grow at a CAGR of

14.3% while the communication cables segment (telephone jelly cables and optic

fibre cables) is expected to post a CAGR of 10.3% over FY2013-15E. CCC rods

(net of inter segmental) contribution is however expected to dip at a CAGR of10.0% over the same period.

EBITDA to post CAGR of 11.6% over FY2013-15E

FCLs EBITDA, on back of healthy top-line growth and improved operational

efficiency, is expected to post a CAGR of 11.6% over FY2013-15E. EBITDA is to

rise from`229cr in FY2013 to `285cr in FY2015E. Despite reduced contribution

from low margin copper rods, owing to volatility in copper prices, we expect

EBITDA margins to normalize at 9.8% in FY2014E and FY2015E.

Exhibit 10:EBITDA margin to normalise


Exhibit 11:PAT and PAT growth


End of tax exemption to restrict PAT CAGR at 9.0%

A robust top-line coupled with a healthy EBITDA is expected to aid PAT CAGR of

9.0% over FY2013-15E. The tax rate is expected to increase from 10.1% in

FY2012 to 15.0% in FY2013 and 28.0% in FY2014E and FY2015E owing to end

of 100% tax exemption on the Roorkee plant (30% exemption from FY2014E). As a

result, despite closure of derivative contracts, the bottom-line is expected to rise

moderately from`145cr in FY2013 to`178cr in FY2014E.

195 173 175 229 250 285

5.2 7.58.5

10.1 9.8

9.8

0

2

4

6

8

10

12

0

50

100

150

200

250

300

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)

58 87 98 145 154 173

(262.4)

50.7

13.0

47.9

6.0 12.1

(300)

(250)

(200)

(150)

(100)

(50)

0

50

100

0

20

40

60

80

100

120

140

160

180

200

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

(%)

(`cr)

PAT (LHS) PAT growth (RHS)


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May 2, 2013 7

Concerns

Competition from the un-organized sector is a concern since their productsare relatively cheaper, thus having a potential of cannibalizing into FCLs

volumes.

Fluctuation in the price of copper which is an essential raw material (~86% oftotal raw material) is a key concern as it would directly impact operational

efficiency. Although prices have fallen recently, but the volatility in commodity

market persists.

Competition

The cables industry, both electrical and tele-communication, is highly competitive,

with co-existence of both - organized and unorganized players. FCL has a market

share of ~15-20% each in the electrical and telecommunication cables segments.

Exhibit 12:Relative ValuationTTM- Mar13 Sales(` cr) OPM(%) PAT(` cr) EPS(`) ROIC(%) PE(x) PBV(x) EV/EBITDA(x) EV/Sales(x)FCL* 2,270 9.0 165 10.8 22 4.7 0.9 3.0 0.3

Havells India ^ 4,104 13.0 353 28.3 48 24.0 4.8 14.5 1.9

KEI Inds^ 1,740 10.3 31 4.4 24 2.6 0.3 2.8 0.3

Source: Capital Line, Angel Research, * TTM ending Mar13, ^TTM ending Dec12


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May 2, 2013 8

Outlook and Valuation

We remain positive on the companys prospects going ahead, given the strong

growth in user industries, which shows no sign of abating. Strong growth in user

industries, additions in product portfolio, and strategic alliances are all to aid the

company in posting a CAGR of 13.0% in the top-line over FY2013-15E to

`2,899cr in FY2015E. The EBITDA is expected to post a CAGR of 11.6% to `285cr

while margins are to stabilize at 9.8% in FY2014E and FY2015E. PAT growth,

owing to end of tax exemption is expected to be restricted to a CAGR 9.0% of over

FY2013-15E to `173cr in FY2015E. At the current market price, the stock isavailable at a cheap valuation of 4.4x PE for FY2015E. As we rollover to FY2015E,we continue to maintain Buy recommendation on the stock with a revised targetprice of `68 based on target PE of 6x FY2015E earnings.Exhibit 13:One-year forward PE


0

20

40

60

80

100

120

140

160

180

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

(`)

Price 4.0x 7.5x 11.0x 14.5x


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May 2, 2013 9

About the company

FCL is Indias largest manufacturer of electrical and communication cables. The

company mainly operates through 4 divisions; 1) Electrical Cables (80%)

2) Communication cables (6.5%) 3) Continuous Cast Copper rods (9.5%) and

4) Others (4%)- comprising PVC sheets, switches and compact fluorescent

lamps manufactured through its facilities set up at Roorkee, Goa, and Pune

(at Pimpri, Urse).

Exhibit 14:Segments detail

Source: Company

Exhibit 15:Applications of different types of cablesCables ApplicationsElectrical CablesLDEC

Electrification in residential, commercial and industrialestablishments

Power Cables Underground usage, main power supply

Communication cablesCopper based LAN- high speed networks

Coaxial- content input to TV sets

PE Insulated to connect telephone instruments

V-Sat- Dish to base station

Optic Fibre/ glassbased

Maximum bandwidth and high speed

Trunk cables

Distribution by telecom companies

Multi service organisation and service provider

Traditional JFTC Laid underground 4 connecting land line telephone to exchanges

PVC Sheets Corrugated PVC SheetsRigid PVC Sheets


Segments

Electrical Cables

LDEC

Power Cables

Communication

Cables

Copper Based

Optic Fibre/Glass based

TraditionalJFTC's

Others

PVC

Switches

CompactFluoroscent

Lamps


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May 2, 2013 10

Profit and loss statement

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EGross sales 2,186 2,182 2,411 2,721 3,076Less: Excise duty 151 118 141 158 177Net Sales 2,036 2,064 2,270 2,563 2,899% chg 25.8 1.4 10.0 12.9 13.1

Net Raw Materials 1,575 1,568 1,689 1,914 2,163

% chg 33.6 (0.4) 7.7 13.4 13.0

Personnel 65 69 85 95 108

% chg 9.3 7.3 21.7 12.9 13.1

Other Mfg costs 82 84 113 127 144

% chg 14.7 2.6 33.2 12.9 13.1

Other 140 167 156 176 199

% chg 23.2 18.8 (6.7) 12.9 13.1

Total Expenditure 1,862 1,889 2,041 2,312 2,614

EBITDA 173 175 229 250 285% chg (10.9) 0.8 30.9 9.5 13.9

EBITDA Margin 7.5 8.5 10.1 9.8 9.8

Depreciation& Amort. 39 39 47 48 51

EBIT 135 135 182 202 234% chg (14.5) 0.5 34.7 11.1 15.5

(% of Net Sales) 6.6 6.6 8.0 7.9 8.1

Interest & other Charges 19 26 13 17 16

Other Income 26 36 24 31 24

(% of Net Sales) 1.3 1.8 1.1 1.2 0.8Recurring PBT 116 109 170 185 218% chg (16.8) (5.5) 55.3 9 18

Exceptional Expense/(Inc.) 34 36 23 - -

PBT (reported) 107 109 171 216 242Tax 20 11 26 62 69

(% of PBT) 19.0 10.1 15.0 28.0 28.0

PAT (reported) 87 98 145 154 173ADJ. PAT 87 98 145 154 173% chg 50.7 13.0 47.9 6.0 12.1

(% of Net Sales) 4.3 4.8 6.4 6.0 6.0

Basic EPS (`) 5.7 6.4 9.5 10.1 11.3Fully Diluted EPS ( ) 5.7 6.4 9.5 10.1 11.3% chg 50.7 13.0 47.9 6.0 12.1


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May 2, 2013 11

Balance sheet

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 31 31 31 31 31Preference Capital - - - - -

Reserves& Surplus 687 770 894 1,033 1,206

Shareholders Funds 717 800 924 1,064 1,237Total Loans 126 155 162 151 140

Other Long term liability 54 35 54 22 9

Net Deferred tax liability 31 33 34 22 14

Total Liabilities 928 1,022 1,175 1,259 1,399APPLICATION OF FUNDS - - - - -Gross Block 826 871 937 993 1,072

Less: Acc. Depreciation 422 442 489 537 588

Net Block 403 429 448 456 484Capital Work-in-Progress 19 12 - - -

Goodwill - - - - -

Long term Loans & Adv. 14 4 17 17 17

Other non-current assets 245 237 324 331 364

Investments - - 19 19 19Current Assets 538 534 596 649 756

Cash 21 49 40 18 24

Loans & Advances 106 90 77 115 145

Other 411 395 479 516 588

Inventory 281 281 330 375 428

Debtors 130 114 150 141 159

Other current assets - - 0.0 0.0 0.0

Current liabilities 291 194 229 213 240

Net Current Assets 247 340 368 436 516Mis. Exp. not written off - - - - -

Total Assets 928 1,022 1,175 1,259 1,399


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May 2, 2013 12

Cash flow statement

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 107 109 171 216 242

Depreciation 39 39 47 48 51(Inc.)/ Dec. in Working Capital (26) (36) (24) (31) (24)

Less: Other income (40) (65) (37) (91) (73)

Direct taxes paid (20) (11) (26) (62) (69)

Cash Flow from Operations 59 36 131 80 127(Inc.)/ Dec. in Fixed Assets (13) (39) (72) (56) (79)

(Inc.)/ Dec. in Investments 21 18 (100) (6) (33)

Other income 26 36 24 31 24

Cash Flow from Investing 34 16 (148) (32) (88)Issue of Equity 0 0 0 0 0

Inc./(Dec.) in loans (96) 11 29 (56) (32)

Dividend Paid (Incl. Tax) (11) (12) (14) (14) 0

Others (2) (23) (7.2) - -

Cash Flow from Financing (109) (24) 8 (70) (32)Inc./(Dec.) in Cash (16) 28 (9) (22) 6

Opening Cash balances 37 21 49 40 18Closing Cash balances 21 49 40 18 24


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May 2, 2013 13

Key ratios

Y/E March FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 8.8 7.8 5.3 5.0 4.4P/CEPS 6.1 5.6 4.0 3.8 3.4

P/BV 1.1 1.0 0.8 0.7 0.6

Dividend yield (%) 1.4 1.6 1.9 1.9 -

EV/Sales 0.3 0.3 0.2 0.2 0.2

EV/EBITDA 3.6 3.6 2.5 2.3 1.8

EV / Total Assets 0.7 0.6 0.5 0.5 0.4

Per Share Data (`)EPS (Basic) 25.0 6.4 9.5 10.1 11.3

EPS (fully diluted) 25.0 6.4 9.5 10.1 11.3

Cash EPS 28.2 9.0 12.5 13.2 14.6

DPS 0.7 0.8 0.8 0.8 0.8

Book Value 46.9 52.3 60.4 69.6 80.9

Dupont AnalysisEBIT margin 6.6 6.6 8.0 7.9 8.1

Tax retention ratio 0.8 0.9 0.9 0.7 0.7

Asset turnover (x) 3.2 2.9 2.8 2.8 2.9

ROIC (Post-tax) 17.0 16.8 19.1 16.0 16.6

Cost of Debt (Post Tax) 12.3 15.2 6.6 8.2 8.2

Leverage (x) (0.2) (0.2) (0.2) (0.2) (0.2)

Operating ROE 16.0 16.5 16.4 14.6 15.0

Returns (%)ROCE (Pre-tax) 14.5 13.2 15.5 16.1 16.7

Angel ROIC (Pre-tax) 20.9 18.7 22.5 22.2 23.1

ROE 12.1 12.3 15.7 14.5 14.0

Turnover ratios (x)Asset Turnover (Gross Block) 2.5 2.4 2.4 2.6 2.7

Inventory / Sales (days) 45 50 49 47 47

Receivables (days) 18 16 16 16 16

Payables (days) 47 47 47 47 47

WC cycle (ex-cash) (days) 37 37 53 60 62

Solvency ratios (x)Net debt to equity (0.2) (0.2) (0.2) (0.2) (0.2)

Net debt to EBITDA (0.8) (0.8) (0.9) (0.8) (0.9)

Interest Coverage (EBIT/Int.) 7.0 5.2 14.5 11.8 14.6


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finolex cable 4q fy 2013

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