Finolex Cables Q4 results review

Finolex Cables Ltd. Q4 (revenue/Ebitda/profit after tax up 14%/11%/6% YoY) came inline with our estimates. Volume in electrical wires grew 16% YoY, driven by construction and infrastructure development activities. In FY24, volumes in wires and cables grew 15% and 26%, respectively.

Finolex Cables aims to grow two times of the nominal GDP growth in the cable and wires division. Volume of optic fiber cable in Q4 saw some pick-up. However, it was down 30% YoY in FY24 due to delay in tenders from the govt as well as from private telecom players.

5G roll out is taking time but it provides strong growth opportunity for several years. After a ~Rs 2.2 billion capex in FY24, it further plans to invest Rs 3.4 billion in FY25, mainly on the E-beam facility (phase-1 under commissioning; second line to be operational by Sep-24) and the Preform facility (should be operational by Dec-24).

Improving outlook of the electrical wire industry in last two-three years is benefitting Finolex Cables performance and driving its valuation re-rating.

We expect Finolex Cables’ large valuation gap with peers to narrow. We increase earnings estimates by ~5% and now expect 15%/21% CAGR in revenue/PAT over FY24-26E.

While we increase our target price to Rs 1,574 (~25x FY26E price/earning for 25% return on invested capital, earlier Rs 1,341 at ~23 times), we downgrade rating to Hold after a massive ~70% rally in its scrip since 14-Mar-24. Systematix