Finolex Cables Limited — Q1 FY25 earnings call

Call held 14 Aug 2024

Management summary

Finolex Cables faced a challenging Q1 FY25 characterized by election-related sentiment dampening, extreme summer weather, and significant copper price volatility. While revenues saw a marginal 2% YoY increase, profitability was pressured by price cuts and lower realizations in the communication segment. Management remains focused on long-term growth through substantial capex in E-beam facilities and optic fiber capacity, alongside a push for breakeven in the FMEG business.

Highlights

  • Revenue grew by 2% YoY, reaching ₹1,031 crores in the electrical cables segment vs ₹1,011 crores last year.

  • Profit After Tax (PAT) stood at ₹122 crores, a decline from ₹132 crores in the corresponding quarter of the previous year.

  • Overall company EBITDA margin closed at approximately 13%, with the electrical cable segment at 11%.

  • Copper prices exhibited extreme volatility, swinging 20% between a high of $10,857 and a low of $8,809 on the LME.

  • Management implemented a ~10% price reduction in June to address falling commodity prices and channel resistance.

  • FMEG segment (new products) recorded revenue of ₹68 crores, tracking toward an annual breakeven target of ₹250 crores.

  • Order book for the Extra High Voltage (EHV) segment is currently in excess of ₹300 crores.

  • Total planned Capex outflow remains at ₹500 crores, with bulk spending occurring in the current fiscal year.

Concerns

  • LME Copper Price Volatility

Key financials

  1. Revenue (Electrical Cables) ₹1,031 Cr +2%YoY
  2. PAT ₹122 Cr -7.6%YoY
  3. EBITDA Margin 13%
  4. FMEG Revenue ₹68 Cr

What they filed

Q1 FY27: revenue up 44.2%, net profit up 59.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,312 1,182 1,595 1,396 1,376 +5%1,599 +35%1,951 +22%2,013 +44%
EBITDA99 129 166 131 143 +44%153 +19%203 +22%248 +89%
Net profit146 124 152 139 187 +28%136 +10%161 +6%221 +59%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Electrical Cables
    ₹1,031 Cr Revenue11% Segment Margin60% Capacity Utilization
  • Communication Cables
    10% Optic Fiber Volume Growth13.5% Market Share (OFC)70% Capacity Utilization
  • FMEG
    ₹68 Cr Quarterly Revenue₹250 Cr Annual Breakeven Target

Guidance & targets

Revenue

  • EHV Segment Revenue Revenue · FY25 · Medium confidence ₹240 crores

    From ₹130 crores today

    Our target this year is 240.

    — Mahesh Viswanathan, Deputy CEO & CFO

  • E-beam Incremental Revenue Revenue · FY26 · Medium confidence ₹200 crores
    So, we are looking, we are talking about incremental full year revenue of 200 crores, maybe starting Fiscal ‘26.

    — Mahesh Viswanathan, Deputy CEO & CFO

Capex

  • Total Capex Outflow Capex · by FY26 · High confidence ₹500 crores
    Overall expenditure until next year would still be around 500 crores. Bulk of it would be spent this year.

    — Mahesh Viswanathan, Deputy CEO & CFO

Margin

  • Long-term EBITDA Margin Margin · Long-term · Medium confidence 13-13.5%
    But if you exclude that [associate dividends], 13%, 13.5% is something that you should work on.

    — Mahesh Viswanathan, Deputy CEO & CFO

  • Communication Cables Margin Margin · FY26 or FY27 · Medium confidence 9-11%

    From 1.5-2% today

    Yes, if the numbers, if the volume comes in, then I don’t see that as a major challenge.

    — Mahesh Viswanathan, Deputy CEO & CFO

Risks & concerns

  • LME Copper Price Volatility

    high

    A 20% swing in copper prices during the quarter led to channel freezing and forced price reductions.

    Management acknowledged

  • Execution Delays in EHV Projects

    medium

    Challenges include Right of Way (ROW) permissions and slow funding cycles for state utilities.

    Both acknowledged

  • Global Fiber Price Erosion

    medium

    Fiber prices remain sub-$4 globally, impacting realizations despite volume growth.

    Management acknowledged

  • Regulatory Approvals for New Facilities

    low

    Waiting for AERB (Atomic Energy Board) consent to operate the newly commissioned E-beam facility.

    Management acknowledged

Areas of evasion (2)

  • Specific market share in the solar cable segment (claimed product not yet released).
  • Specific EBITDA margins for the E-beam segment (stated they are still working on it).

Q&A highlights

3 direct
Impact of Copper Price Volatility on Channel Behavior Direct
In the meanwhile, quite a number of purchases had been made in the month of April and May by the channel. And there is still some of those stocks available in the channel... I think demand will start to pick up maybe once there is stability at the price level.

Explains why volume growth was muted despite price cuts, as the channel is still digesting high-cost inventory.

Asked by Rahul Agarwal, IKIGAI Asset Management

BharatNet Opportunity and Revenue Potential Direct
If you apply a 10% number on this, so you are talking roughly about 450 crores of cable revenue... per year I would say.

Quantifies the massive potential upside from the BharatNet tender, which could nearly double the current communication segment revenue.

Asked by Sonali Salgaonkar, Jefferies

E-beam Facility and Solar Market Entry Direct
The number is huge. We are talking of what, 50 Gigawatts of solar energy... Polycab has got a line. I think APAR has got a line. And I am not sure about the others yet.

Highlights the strategic entry into the high-growth solar cable market using advanced irradiation technology to compete with major peers.

Asked by Saket Kapoor, Kapoor & Company

1 min read 5 chapters

Detailed narrative

Commodity Volatility and Pricing Pressure

The quarter was heavily impacted by extreme volatility in copper prices, which fluctuated between $10,857 and $8,809 on the LME. This 20% swing caused channel partners to freeze orders as they held high-cost inventory from April and May. Consequently, Finolex had to implement a 10% price reduction in June, which pressured electrical cable margins down to 11% for the quarter.

Strategic Capex and E-Beam Expansion

The company is progressing with a ₹500 crore capex plan, with a significant portion dedicated to the new E-beam facility. Both E-beam accelerators (1 MeV and 1.5 MeV) are installed and commissioned, awaiting final AERB clearance. Management expects this facility to generate ₹200 crores in incremental annual revenue starting FY26, primarily targeting the solar and automotive sectors.

Communication Segment and BharatNet Opportunity

While optic fiber volumes grew by 10%, global price erosion kept realizations low, with fiber trading sub-$4. However, the BharatNet tender presents a major opportunity; Finolex has bid for 4 packages through a consortium. If successful, this could contribute approximately ₹450 crores in annual cable revenue over a three-year execution period.

FMEG Path to Profitability

The FMEG segment, comprising fans, water heaters, and appliances, recorded ₹68 crores in revenue for the quarter. Management reiterated that the breakeven point for this business is around ₹250 crores in annual revenue. At the current run rate, the segment is on track to achieve breakeven this fiscal year, barring any unforeseen disruptions.

EHV Segment Execution Challenges

The Extra High Voltage (EHV) segment, operated through a JV with Sumitomo, has an order book exceeding ₹300 crores. Despite a revenue target of ₹240 crores for FY25, management highlighted significant execution hurdles, including Right of Way (ROW) permissions and inconsistent funding from state utilities, which often extend project timelines from months to years.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Capital Goods earnings calls