Anand Rathi
Finolex Cables (Buy)
CMP: ₹440.65
Target: ₹514
Key takeaways: a) GST implementation has benefited the regulated segment, management says, as the industry has not grown in FY19 but large regulated operators’ growth has been healthy. Management expects the industry to grow at twice that of India’s GDP growth.
a) After a weak FY19, the division is seeing some traction, post-elections. Globally, fibre prices crashed from $12 per fkm to $5in a short span since September 2018 after China postponed some of its tenders. In India, all tenders floated in H1 FY19 (30,000-35,000 fkm) were on hold due to the general elections. The roll-out of 5G in India from 2022 augurs well for mid-/long-term growth prospects.
c) In FY19 the JV for EHV cables suffered a ₹30 crore loss on ₹40 crore revenue. The key reasons for slow growth, per management, are great dependence on state utilities, which take long to make decisions. On the present ₹120-crore order book, the company aims at break even in FY20/21 crossing ₹250 crore in revenues. The JV now meets all criteria to bid for large tenders globally to supply cables up to 400 kV.
Valuation: We like Finolex for its leading position in electrical wires and debt-free status.
Risks: Demand disruption, keener competition, volatile copper prices.