Fundamental Analysis Of Finolex Cables: From the age-old saying, “Before running, learn to walk”, comes the rehashed and modern version, “Before Wifi, we had wires”. From telephone lines, internet connections, and electricity lines, a lot of data and energy transmission is done through cables — millions of miles of insulated cables that run underground right beneath our feet.

For our fundamental analysis pick of the week, we have Finolex Cables, a company that is integral to the manufacturing and distribution of cables with various industrial applications.

Industry Overview

The Indian Electrical equipment industry is set to see a growth rate of 9 percent CAGR between 2021-25. This would take the industry size from $33.7 billion to $70.6 billion in the same period. The sector is responsible for a 1.5 percent contribution to the Indian GDP.

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Currently, India’s power generation is adequate to keep the country running, but that doesn’t make up for the fact that a significant part of the country is still limited when it comes to internet and electricity access.

In urban areas, the growth of industrial and residential communities is a driving force behind the need for telecommunications and optics cables, a dominant segment of Finolex Cables. 

The demand for electricity is expected to grow by 5 percent every year until 2040 in India (International Energy Agency). Higher demand for power distribution and transmission would lead to more investments in infrastructure and the development of power grid lines across the country. 

Company Overview

Finolex Cables is one of the leading manufacturers in the electrical and optics cable manufacturing industry. The company was established in 1958 and has many firsts attributed to its name. For instance, the company was the first to make multi-strand wires in India.

They manufacture and produce various electrical products as well, diversifying from their cable business. These products, such as overhead and desktop fans, room heaters, and lighting products mark the company’s entry into the FMEG (Fast Moving Electrical Goods) sector. 

The company has 5 manufacturing sites and over 1,589 employees. As per their annual report, Finolex Cables has captured a 22 percent market share in the organized wire industry. The company has over 1.5 lakh retailers selling their products to various customers.

The company is debt free, and a small-cap stock by market capitalization. It has given an underwhelming positive return of around 15.1 percent in the past 5 years, currently trading at ~ ₹850 per share.

Fundamental Analysis Of Finolex Cables

Now that we have a better understanding of the the company and the industry in which it operates, let us dive deeper into the financials.

Finolex Cables – Financials

Revenue and Net Profit Growth

Finolex Cables manufactures and sells electrical products, mostly cables, and wires. Besides this, they also launched their FMEG product line which includes fans, heaters, and lights. Over 85 percent of the company’s revenues come from the electrical wires and cables segment. 

Financial YearTotal Revenue (Rs in Cr)Net Profits (Rs In Cr)
FY 20193159.4407.4
FY 20202968.8391
FY 20212845.1461.5
FY 20223,839.56599.14
FY 20234,598.85504.28

The revenue growth of the company is positive although slow. Finolex Cables earned ₹4,598.85 crores for the financial year of 2023, up from ₹3,839.5 crores in FY 2022. FY 2020 and FY 2021 saw the sales of the company stay more or less the same for both years, mostly due to the issues of the global pandemic and supply chain disruptions.

The profits of the company in FY 23 were ₹504.28 crores, down from ₹599.14 crores last year. Despite revenue growth year on year, the company’s profits didn’t follow the same trend.

Margins Analysis

Financial YearOperating Profit MarginNet Profit Margin
FY 201916.59.97%
FY 202015.1510.89%
FY 202114.78.59%
FY 202212.237.22%
FY 202312.99.69%

In the section above, we spoke about a fall in net profits, especially from FY 22 to FY 23, and the margin trend of the company in the past 5 years shows that the company’s operating margins have reduced from 16.5 percent (FY 2019) to 12.9 percent (FY 2023).

Falling margins have a direct effect on the profitability of the company, and tend to nullify the revenue growth of the company as they aren’t able to retain their earnings due to higher cost of operations. 

Return Ratios

Financial YearROEROCE
FY 201914.8817.65
FY 202013.0113.76
FY 202113.5111.23
FY 202215.2710.97
FY 202311.5312.46

Return ratios of Finolex Cables show that there is a downtrend from its figures in FY 2019, coming close to a 5-year low for ROE at just 11.5 percent and an average ROCE of 12.4 percent. Return ratios show the efficiency of capital used by the company for core business activities, which in the case of Finolex Cables, is manufacturing. 

Debt/Equity & Interest Coverage Ratio

Financial YearD/E RatioInterest Coverage Ratio
FY 20190555.17
FY 20200281.3
FY 20210537.12
FY 20220328.89
FY 20230505.73

Finolex Cables is a debt-free company, meaning that their entire operations are run without the use of debt and long term borrowings, and FY 23 saw the company’s interest coverage ratio leap from 328.8 to 505.73, taking the company’s interest cover closer to pre-pandemic levels. 

Future Plans For Finolex Cables

  • Capacity Expansion: The company has planned to expand the capacity of its Pune, Goa, and Roorkee manufacturing facility for communication cables, solar cables, and wire harnessing calves for the automobile and construction industry. 
  • The company has diversified its business into the FMEG sector, which includes the manufacturing and distribution of overhead fans, steam, and dry irons, and other home appliances. 
  • ₹200 Crore investment into the Pune plant for capacity expansion.
  • Entry into the solar power cables business, which has EV applications, and is also used in data centers and high-speed trains where the company is going to invest ₹100 crores.  
  • Fibre cable capacity expansion from 2 million fiber km to 3.5 million fiber km, optic fiber cable capacity from 2 million fiber km to 10 million fiber km. 
  • Growing retailer reach from 1,50,000 to 2,00,000 by the end of the financial year. 
  • Preparation for the implementation of 5G throughout India, by working with telecommunications and internet-providing companies like Jio (Reliance), Bharti Airtel, and Tata. 

Fundamental Analysis Of Finolex Cables – Key Metrics

Here are the key financial metrics of Finolex Cables:

CMP₹ 860Market Cap (Cr.)₹ 13,335
EPS₹ 33.0Stock P/E24.1
ROCE15.6 %ROE12.2 %
Face Value₹ 2.00Book Value₹ 286
Promoter Holding35.9 %Price to Book Value2.74
Industry P/E22.7Dividend Yield0.78 %
Net Profit Margin11.2 %Operating Profit Margin11.4 %

In Closing

Finolex Cables is a company with a notable presence in the wires and cables sector, imperative to taking the internet era to the next phase with the implementation of 5G in the upcoming years.

While they are a notable presence in their field, the company’s sales and profits have to grow if they have to capture the market and prevail over some of its much larger competitors. That’s all for our fundamental analysis of Finolex Cables. If you found it insightful, then leave a comment below on your opinions on the study. 

Written By – Karan N

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