Finolex Cables: Maintain ‘buy’ as volumes grow

By: |
February 19, 2021 9:01 AM

After four qtrs of YoY sales decline, FNXC saw a sharp recovery (+18%) in Q3. Volumes across most categories improved, both YoY and QoQ.

finolexPer FNXC mgmt, estimated market size is at Rs 15bn and company targets market share of 15-20% over time.

After four qtrs of YoY sales decline, FNXC saw a sharp recovery (+18%) in Q3. Volumes across most categories improved, both YoY and QoQ. Electrical wires grew by +7% and Communication Cables & New Products by +25%. B2C sales mix at 65-70%. FNXC’s strategy is to focus on better distribution for enhancing growth. Capex remains on track. Net cash at Rs 14.8bn. Factoring benefit from potential Housing upcycle, we raise FY22-24e by 4-5%. Valuation undemanding. Buy.

Performance: FNXC’s Q3FY21 standalone sales/EBITDA beat JEF, at Rs 8.3bn / Rs 1.1bn (+18%/15% YoY). Volumes across most product categories improved, both YoY and QoQ. However, op-margin was a tad weaker at 12.8% (-40bps), impacted by -160 bps dip in gross margin to 25.2%. Ad-spend at Rs 50mn (~1% of sales). PAT was in-line at Rs 0.8bn (+3%). New Product Launch: Conduit Pipe & Accessories (19″-32″ diameter in Light, Medium and Heavy stress specifications). Per FNXC mgmt, estimated market size is at Rs 15bn and company targets market share of 15-20% over time.

Electrical Cables (83% of Mix): Comprises, Construction Wires: 60%-65%, Auto, Agriculture, and Industrial (Flexible) at 25% and 3) Power at 10%. Q3 sales at Rs 6.9bn (+19% YoY). EBIT margin stood at 14.2% (-180 bps YoY). All sub-categories, except power cables, demonstrated healthy growth. While Wires saw 9% volume uptick, Auto cables grew by +30%. B2C accounts for 65-70% of FNXC’s sales mix, whereas B2B (30-35%) mainly comprises Communication (Optic Fiber), Power and Auto Cables.

Communication Cables (12% of Mix): Key product is Optic Fibre Cables (~60% of mix). Q3 sales grew by +7% YoY to Rs 958mn, while EBIT margin dipped by -90 bps to 3.2%.

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