Shares of a cable manufacturer zoomed 9 percent on Friday’s trades to reach an intraday high of ₹ 1122.60 apiece on the National Stock Exchange. This happened after Jefferies raised its target price post the recent earnings call. At 03:12 PM, its shares were trading at ₹ 1058.00 apiece.
Finolex Cables reported a 34 percent increase in its consolidated net profit to ₹ 160.43 crores in the June quarter (Q1FY24), against ₹ 119.60 crores reported in the corresponding quarter last year (Q1FY23). However, its revenue declined to 1204.25 crores in Q1FY24, compared to ₹ 1,224.32 crores in Q1FY23.
Finolex Cables is a leading manufacturer of electrical and telecommunication cables in India. The company has also forayed into the manufacturing of Fast-Moving Electrical Goods (FMEG) and home appliances. Over the years, it has established itself as a preferred electrical solutions provider for retail and institutional markets in India and created a strong brand name.
The company has also announced a dividend of ₹ 7 per share (350 percent of the stock’s face value of ₹ 2). The record date for the same is Friday, September 22, 2023.
In the past year, the company’s share price increased from ₹ 469.20 apiece to ₹ 1122.60 apiece, delivering multibagger returns of 139.26 percent. Therefore, if an investor had invested ₹ 1 lakh in its shares a year ago, the value of their holdings would have been ₹ 2.39 lakhs today!
With a market capitalization of ₹ 15,725 crores, Finolex Cables is a small-cap company. It has a low return on equity of 12.16 percent and is almost debt free. Its shares were trading at a price-to-earnings ratio (P/E) of 28.85, which is higher than the industry P/E of 27.66, indicating that the stock might be overvalued as compared to its peers.
In its recent earnings call, the company mentioned that its existing order book has visibility for the next six months. The demand is expected to remain robust due to the 5G rollouts in the telecom sector. While the rollout has happened earlier, telecom companies typically place orders on a monthly basis. Moreover, the company has huge capital expenditure plans.
Jefferies has maintained a buy rating on the company’s shares with a target price of ₹ 1,270 apiece. This translates to an upside of 20.04 percent compared to the company’s share price of ₹ 1058.00.
The brokerage also raised the company’s earnings estimates as Finolex Cables will benefit from housing and capital expenditure in India, and from the e 5G rollout and allocation to last-mile connectivity under the Bharat Net programme.
The price of optic fibers fell approximately 30 percent in the last six months, thereby affecting the company’s volume growth and margins. Jefferies expects an anti-dumping duty of 5-15 percent imposed on imports from China, Korea and Indonesia by the Indian government to support pricing, going forward.
Jefferies has raised the company’s earnings per share estimate by 7 percent for FY24 and 8 percent for FY26, as it estimates sales to grow at a CAGR of 20 percent over FY 23-26.
Written by Simran Bafna
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