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Finolex Cables, 19th February, 2013

Finolex Cables, 19th February, 2013

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Published by Angel Broking
19th February, 2013
19th February, 2013

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Published by: Angel Broking on Feb 19, 2013
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02/19/2013

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Please refer to important disclosures at the end of this report
 1 
Y/E March (
`
cr) 3QFY13 2QFY13
% chg (qoq)
3QFY12
% chg (yoy)
Total operating income 534 586
(8.8)
499
7.0
EBITDA 43 71
(39.1)
44
(2.4)EBITDA Margin (%) 8.0 12.0 (400)bp 8.8 (77)bp
Adj. PAT 24 57
(58.3)
14
75.0
 Source: Company, Angel Research
Finolex Cables (FCL) reported a mixed set of numbers for 3QFY2013. Its top-linereported a marginal growth of 7.0% yoy to
 ` 
534cr, as compared to our estimateof
 ` 
580cr. The EBITDA dipped marginally by 2.4% yoy to
 ` 
43cr while EBITDA margin was down by 77bp on a yoy basis to 8.0%. Nevertheless the adjustedPAT grew by a whopping 75% yoy to
 ` 
24cr vis-à-vis our estimate of
 ` 
18cr, onthe back of low interest cost (lower by 67.2% yoy) and exceptional item (lower by 42.4% yoy) of losses derived from derivative contracts. PAT margin too expandedfrom 2.7% in 3QFY2012 to 4.5% in 3QFY2013.
Growth in user industries to drive growth
:
FCL serves varied user industries,considering the wide usage of cables. With customers increasingly demandinghigh-quality and branded wires, FCL is poised to grow. The company, with itswide distribution reach and penetration in the market, is well poised to meetincrease in demand. Further, we expect the company’s initiatives like- 1) increasein advertisement spends 2) setting up of a solar power plant for captiveconsumption, and 3) reduction in sale of copper rods to third party, to boost itstop-line and enhance profitability going forward.
 Outlook and valuation:
 
 We expect the company’s sales to post an 11.3% CAGR over FY2012–14 to
 ` 
2,559cr, and EBITDA to register a CAGR of 21.0% over thesame period with margin at 10.0% in FY2014E. However, PAT is expected to posta higher CAGR of 25.6% over the same period owing to closure of the derivativescontracts (included in exceptional items).
With the recent correction, FCL isavailable at PE of 5.0x for FY2014E and hence the stock is upgraded to Buy with atarget price of
`
61 based on target PE of 6x FY2014E earnings.
 
Key financials
Y/E March (
`
cr) FY2011 FY2012 FY2013E FY2014ENet Sales 2,036 2,064 2,268 2,559
% chg 25.8 1.4 9.9 12.8
Net Profit 87 98 137 155
% chg 50.7 13.0 39.6 13.1
EBITDA Margin (%)
7.5 8.5 9.5 10.0FDEPS (
`
)
7.4 8.0 9.0 10.1P/E (x) 8.9 7.8 5.6 5.0P/BV (x) 1.1 1.0 0.8 0.7RoE (%) 12.1 12.3 14.8 14.6RoCE (%) 20.9 18.7 20.5 23.3EV/Sales (x) 0.3 0.3 0.3 0.2EV/EBITDA (x) 3.6 3.7 2.9 2.3
 Source: Company, Angel Research
 
BUY
CMP
 ` 
50Target Price
 ` 
61
Investment Period 12 Months
Stock InfoSectorNet Debt(155.3)Bloomberg CodeShareholding Pattern (%)Promoters35.7MF / Banks / Indian Fls29.3FII / NRIs / OCBs4.9Indian Public / Others30.2 Abs.(%)3m1yr3yrSensex5.47.220.0Finolex(1.9)40.3(2.0)Nifty5,686Reuters CodeFNXC.BOFNXC.IN Avg. Daily Volume81,501Face Value (
 ` 
)2BSE Sensex19,46852 Week High / Low64 / 29Cables-PowerMarket Cap (
 ` 
cr)770Beta0.6
 
Twinkle Gosar
+91 22 3935 7800 Ext: 6848Gosar.twinkle@angelbroking.com
Finolex Cables
Performance Highlights
3QFY2013 Result update | Power Cables
February 15, 2013
 
 
Finolex Cables | 3QFY2013 Result update
February 15, 2013
2
Exhibit 1:
 
2QFY2013 performance highlights
Y/E March (
`
cr) 3QFY132QFY13
% chg (qoq)
3QFY12
% chg (yoy)
9MFY20139MFY2012
% chgTotal operating income
534.3 586.0
(8.8)
499.5
7.0
1,638.3 1,459.2
12.3
Net raw material 393.2 432.2
(9.0)
384.3
 2.3
1,203.3 1,115.4
7.9(% of Sales) 73.6 73.8 76.9 73.5 76.4
Employee cost 20.1 19.1
 4.9
17.3
15.8
58.9 51.0
15.5(% of Sales) 3.8 3.3 3.5 3.6 3.5
Other Expenses 78.1 64.1
 21.8
53.9
 45.0
213.8 174.6
 22.5(% of Sales) 14.6 10.9 10.8 13.1 12.0
Total expenditure 491.3 515.4
(4.7)
455.5
7.9
1,476.0 1,340.9
10.1EBITDA
42.9 70.5
(39.1)
44.0
(2.4)
162.3 118.3
37.2
EBITDA Margin (%) 8.0 12.0 (400)bp8.8 (77)bp9.9 8.1 180bpInterest
2.6 2.2
 22.8
8.1
(67.2)
8.3 17.6
(53.2)
Depreciation 10.8 10.7
0.9
12.8
(16.1)
31.9 32.3
(1.2)Other income
1.6 14.2
(88.9)
4.0
(60.3)
17.6 27.0
(35.0)
PBT (excl. exceptional items) 31.1 72.0
(56.7)
27.1
14.9
139.6 95.4
46.4
Exceptional items 2.3 6.2 10.6 15.0 28.9PBT (incl. exceptional items) 28.8 65.8
(56.2)
16.5
74.6
124.6 66.4
87.7
(% of Sales) 5.4 11.2 3.3 7.6 4.6
Tax 4.8 8.3
(41.8)
2.8
72.2
18.1 12.8
 42.0(% of PBT) 16.8 12.6 17.0 14.5 19.2
Adjusted PAT 24.0 57.5
(58.3)
13.7
75.0
106.5 53.7
98.5
PATM (%) 4.5 9.8 2.7 6.5 3.7
 Source: Company, Angel Research
Exhibit 2:
 
 Actual v/s Estimates
Actual v/s Angel's Estimates Actual (
`
cr) Estimate (
`
cr)
% variation
Total Income (
`
cr) 534 580
(7.9)
EBITDA (
 ` 
cr) 43 50
(13.6)EBITDA Margin (%) 8.0 8.6 (53)bp
Adjusted PAT (
`
cr) 24 18
34.7
 Source: Company, Angel Research
FCL reported a mixed set of numbers for 3QFY2013. Its top-line reported a flatyoy growth of 7.0% to
 ` 
534cr, as compared to our estimate of
 ` 
580cr. The EBITDA dipped marginally by 2.4% yoy to
 ` 
43cr while EBITDA margin was down by 77bpon a yoy basis to 8.0%. Raw material cost drop by 335bp yoy, however, was offsetby total expansion of 336bp yoy in selling & administration and other expenses.Nevertheless the adjusted PAT grew by a whopping 75% yoy to
 ` 
24cr on the backof low interest cost (lower by 67.2% yoy) and exceptional item (lower by 42.4% yoy)of losses derived from derivative contracts. The PAT margin too expanded from2.7% in 3QFY2012 to 4.5% in 3QFY2013.
 
 
Finolex Cables | 3QFY2013 Result update
February 15, 2013
3
Exhibit 3:
 
Net sales growth trend
 Source: Company, Angel Research
Exhibit 4:
 
High Advertisement spends dent margin
 Source: Company, Angel Research
Segment-wise performance
For 3QFY2013, the electrical cables segment reported a 12.3% yoy growth insales to
 ` 
469cr. The contribution of the segment stands at 88% in 3QFY2013 vis-à-vis 84% in 2QFY2012. The EBIT for the segment came in at
 ` 
49cr (
 ` 
45cr in3QFY2012), 8.5% higher yoy. However, EBIT margin fell by 37bp yoy to 10.5%.The communication cables segment posted a growth of 13.1% yoy in its top-line,with sales of
 ` 
46cr (
 ` 
41cr in 3QFY2012) and contributed 9% to the total revenue.The margin of the segment expanded significantly by 564bp yoy to 11.8% from6.2% in same quarter previous year.The copper rods segment reported a decline of 11.1% in its top-line to
 ` 
136cr(
 ` 
153cr in 3QFY2012) during the quarter. The segment’s contribution has beendeclining gradually since the company is reducing its exposure to third party owingto thin margins. The EBIT for the segment came in at
 ` 
0.8cr,
 
while margin stood at4.1%, 233bp higher yoy.
Exhibit 5:
 
Segment-wise performance
Y/E March (
`
cr) 3QFY13 2QFY13 3QFY12
% chg (qoq) % chg (yoy)
Total Revenue
 A) Electrical Cables 469 514 417
(8.9) 12.3
B) Communications Cables 46 48 41
(4.1) 13.1
C) Copper Rods 136 175 153
(22.5) (11.1)
D) Others 38 44 31
(12.0) 22.3
Total 688 780 642
(11.8) 7.3
Less: Inter-Segmental Rev. 154 194 142
(20.7) 8.4
Net Sales 534 586 499
(8.8) 7.0
EBIT Margin (%)
bp chgbp chg
 A) Electrical Cables
10.5 12.2 10.9 (169) (37)
B) Communications Cables
11.8 19.1 6.2 (732) 564
C) Copper Rods
 4.1 4.1 1.8 1 233
D) Others
(1.1) (1.5) (7.3) 39 613
 Source: Company, Angel Research
   5   1   3   5   3   9   4   6   1   4   9   9   4   9   9   6   0   5   5   1   8   5   8   6   5   3   4
21.416.3(6.6)1.7(2.6)12.112.417.47.0(10)(5)0510152025-100200300400500600700
   3   Q   F   Y   1   1   4   Q   F   Y   1   1   1   Q   F   Y   1   2   2   Q   F   Y   1   2   3   Q   F   Y   1   2   4   Q   F   Y   1   2   1   Q   F   Y   1   3   2   Q   F   Y   1   3   3   Q   F   Y   1   3   (   %   )   (
        `
  c  r   )
Revenue (LHS)Revenue growth yoy (RHS)
   5   1   4   0   3   4   4   0   4   4   5   8   4   9   7   1   4   3
9.97.47.58.08.89.69.412.08.00369121501020304050607080
   3   Q   F   Y   1   1   4   Q   F   Y   1   1   1   Q   F   Y   1   2   2   Q   F   Y   1   2   3   Q   F   Y   1   2   4   Q   F   Y   1   2   1   Q   F   Y   1   3   2   Q   F   Y   1   3   3   Q   F   Y   1   3   (   %   )   (
        `
  c  r   )
EBITDA (LHS)EBITDA Margin (RHS)

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