Fundamental Analysis Of Paramount Communication: The infrastructure sector is an integral part of the Indian economy. Strong infrastructure growth is essential to achieve India’s ambitious goal to be a US$ 5 trillion economy by FY25. A significant amount of funding has been set aside by the Indian government for infrastructure, with an emphasis on power, roads, railroads, infrastructure, and renewable energy sources.
As India gets more & more developed, the need for better connectivity increases. That’s where the Company we will talk about today fits in. The Company is a cable manufacturer with nearly 6 decades of experience. Let us learn more about the Company and understand its financials and judge whether it is a lucrative investment.
Table of Contents
Fundamental Analysis Of Paramount Communication – Company Overview
Paramount Communications is part of the Paramount Cables group, which is India’s leading wire & cable manufacturing company. In the last 6 decades of operations, the group has a portfolio spanning High Voltage to Low Voltage power cables. Telecom, railway, and specialized cables such as data & fire survival cables.
The Company has a strong clientele spreading across power, telecom, railway, Information Technology, construction, defense, and space research. Major clients of the Company include the government, institutions, and major private companies with both national and international presence.
Established in 1955, the Company began its journey as a small-scale cable manufacturing unit set up by late founder Mr. Shyam Sunder. This Company was named Paramount Communications in 1978 and in the same year started supplying telecom cables to the Department of Telecommunications.
Paramount has strong exports which contribute to 50.3% of the revenue it earned in FY23. Some of the major export markets for the Company are the UK, Spain, Russia, South Africa, the Middle East, Chile, and other countries in Asia.
The Company also provides an integrated range of turnkey project services that involve the use of complex technology at difficult locations. Paramount will construct, design, supply, engineering, installation testing, and commissioning. These Engineering Procurement & Construction contracts contribute to 2.8% of the Company’s revenue.
Industry Overview
India has become one of the largest synchronous interconnected electricity grids in the world with 4,71,817 ckm of transmission line and 11,85,058 MVA of transformation capacity (as on April 2023). 1,77,641 ckm of transmission line and 6,28,329 MVA of transformer capacity are added in FY 2022-23. This has led to 1,12,250 MW inter-regional power transfer capacity with a staggering increase of 212% since 2014.
The wires and cables (W&C) industry constitutes approximately 45% of the electrical industry in India. The domestic W&C market is expected to grow at an impressive CAGR of 12% over FY 2021-26.
The rapid rise of the organized sector and the government’s focus on investment in infrastructure and development projects would promote large-scale growth across sectors, such as infrastructure, power, telecom, transmission and distribution, and automotive.
Growth in renewable power generation, expansion and revamping of Transmission & Distribution (T&D) infrastructure, increasing investments in metro railways and smart grid projects, and growth in the data center sector will also contribute to a robust demand for wires and cables in India.
Increasing urbanization and commercialization are expected to bolster investments in the real estate industry and drive the demand for low-voltage insulated wires and cables.
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Fundamental Analysis Of Paramount Communication – Financials
Revenue & Net Profit
Paramount Communications reported a revenue of Rs. 797 Cr in FY23, which increased by 37% from Rs. 581 Cr in FY22. The spike in revenue was due to higher sales of domestic power cables, which contributed to 42.5% of the revenue in FY23, as compared to FY22. However, since FY21 paramount’s revenue has scaled at the rate of just 6.7% CAGR.
Net Profits on the other hand jumped by over 5.82x from just Rs. 8.2 Cr in FY22 to a whopping Rs. 48 Cr in FY23. The extraordinary jump in Net Profits comes as a result of lowered manufacturing costs which resulted in an increase in margins. Other Income of Rs. 16 Cr also aided the jump in Net Profits.
| Fiscal Year | Gross Revenue | Net Profit |
|---|---|---|
| 2023 | ₹ 796.46 | ₹ 47.76 |
| 2022 | ₹ 580.93 | ₹ 8.20 |
| 2021 | ₹ 519.08 | ₹ 3.10 |
| 2020 | ₹ 606.20 | ₹ 26.30 |
| 2019 | ₹ 614.46 | ₹ 29.15 |
| 4-Year CAGR | 6.70% | 13.14% |
Profit Margins
The Company operates on razor thin margins of under 10% on its products. In FY23, due to lowered operating costs the Company saw its margins jump from 4.13% in FY22 to 7.9% in FY23. Operating margins crept to a 5 higher of just 3.68% in FY21, from which it has now recovered.
Margins on Net Profits remain even more dire as the Company was able to maintain a margin of just 5.88% in FY23. However, these margins touch a 5 year low of just 0.59% in FY21. Aided by higher other Income, Paramount reported its highest profit margin of 5.88% in FY23, while the 5 year average remained around 3.39%.
| Fiscal Year | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|
| 2023 | 7.90% | 5.88% |
| 2022 | 4.13% | 1.42% |
| 2021 | 3.68% | 0.59% |
| 2020 | 7.87% | 4.33% |
| 2019 | 7.41% | 4.72% |
| 5 Year Average | 6.20% | 3.39% |
Return Ratios
Although the Company operates on low margins, it is still able to maintain a relatively stable return on Equity in the past five years. Out of the last 5 years, Paramount reported an ROE higher than 10% in 3 years. Due to the extremely low reserve base of just Rs. 200 odd Crore, the Company could report ROE as high as 15% in FY23.
Return on Capital Employed on the other hand was at just 9.3% in FY23. The reason for low ROCE despite high ROE was due to the borrowings undertaken by Paramount. ROCE has increased from 8.7% in FY22 to 9.3% in FY23 as the debt burden on the Company is coming down relatively..
| Fiscal Year | ROE (%) | ROCE (%) |
|---|---|---|
| 2023 | 18.32% | 12.63% |
| 2022 | 3.63% | 3.47% |
| 2021 | 1.40% | 2.36% |
| 2020 | 12.48% | 8.70% |
| 2019 | 15.28% | 9.30% |
| 5 Year Average | 10.22% | 7.29% |
Debt Analysis
The Debt to Equity ratio of the Company is at 0.7x in FY23. Debt burden touched a 5 Year high of 1.81x in FY23, which is consistently coming down to 0.7x its debt obligation. Average Debt to Equity is around 1.14x.
Due to the consistent drop in debt to equity, the Company’s Interest Coverage ratio has been on an uptrend. In FY23, the Company reported a high Coverage of 7.65x in FY23, which was significantly higher than 2.28x in FY22. Here we have seen the financial highlights of Fundamental Analysis Of Paramount Communication.
| Fiscal Year | Debt / Equity | Interest Coverage Ratio |
|---|---|---|
| 2023 | 0.70 | 7.65 |
| 2022 | 0.77 | 2.28 |
| 2021 | 1.10 | 1.44 |
| 2020 | 1.30 | 3.50 |
| 2019 | 1.81 | 4.65 |
| 5 Year Average | 1.14 | 3.90 |
Fundamental Analysis Of Paramount Communication – Key Metrics
The Key Metrics of Paramount Communication are given below.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹ 81.65 | Market Cap (Cr.) | ₹ 3,054.74 |
| EPS | ₹ 2.40 | Stock P/E | 43.7 |
| ROE (%) | 18.32% | ROCE (%) | 12.63% |
| Promoter Holding (%) | 62.69% | FII Holding (%) | 1% |
| Debt to Equity | 0.70 | Price to Book Value | 6.28 |
| Operating Profit Margin | 7.90% | Net Profit Margin | 5.88% |
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Conclusion
In conclusion on the article Fundamental Analysis Of Paramount Communication, Paramount Communications is an established cable manufacturer in India with diverse product portfolio and strong clientele. While revenue growth has been modest, the company reported significant increases in FY23 driven by higher domestic power cable sales.
However, it operates on very thin margins despite stable return ratios. The declining debt levels and improved interest coverage are positive factors. Paramount appears well-positioned in the growing Indian wire and cable industry, but its ability to improve margins and sustain growth will be crucial for investment prospects.
Written by Nasir Hussain
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