Finolex Cables ends a tough year; near-term earnings outlook remains muted

Financial year 2021 was particularly challenging for Finolex Cables Ltd. True, the firm’s performance for the March quarter was commendable with consolidated revenue growth at a robust 41% year-on-year to ₹921.4 crore. Of course, this was partly helped by a favourable base considering that revenues had declined in the March 2020 quarter.

The upshot: Despite the better March quarter performance, the company’s revenues for the last fiscal declined by 4% year-on-year. Finolex Cables’ FY21 performance was primarily impacted by the pandemic restrictions seen in the June quarter, subdued performance of the communication cables business and lower other income.

The company derives around 70% of its revenues from the electrical cables business, which did well for the March quarter and the year as a whole. For FY21, electrical cables Ebit (earnings before interest and tax) margin stood at around 15%. Note that the measure was at 18% in the March quarter. Analysts expect this segment to perform well, going ahead. “We foresee this segment to drive growth for Finolex Cables, as it could benefit from upswing in the housing cycle as well as capex investments. We estimate revenue CAGR of +10% over FY21-24,” said analysts from Jefferies India Pvt. Ltd in a report on 5 July. CAGR is the compound annual growth rate.

Coming back to the March quarter, the communication cables business saw 24% revenue growth on a year-on-year basis. On the other hand, revenues from copper rods fell by 34%.

Meanwhile, the Finolex Cables’ stock touched a new 52-week high on 23 June on the National Stock Exchange. So far in this calendar year, the company’s shares have meaningfully outperformed the broader Nifty 500 index. The stock now trades at around 16 times estimated earnings for financial year 2023, based on Bloomberg data. As such, valuations are not demanding. Even so, near-term earnings outlook remains muted.

“In view of Q1 disruption, we cut FY22 earnings per share (EPS) by about 10%. However, over FY23-24e, factoring upside from housing upcycle, new launches (PVC Conduits) and capex (Rs200 crore over next 18 months), we raise EPS by 1-5%,” pointed out Jefferies analysts. Live Mint