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    Finolex Cables Limited

    FINCABLESNeutral
    Capital Goods·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

    8

    • 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

    1

    • LME Copper Price Volatility

    What Changed1

    vs Q2 FY25

    Risks discussed3 → 4 (+1)

    Key financials

    Single quarter

    04 metrics
    1. 01Revenue (Electrical Cables)₹1,031 Cr+2%YoY
    2. 02PAT₹122 Cr-7.6%YoY
    3. 03EBITDA Margin13%
    4. 04FMEG Revenue₹68 Cr

    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
    List

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    EHV Segment Revenue
    ₹240 crores
    		Medium
    Revenue
    E-beam Incremental Revenue
    ₹200 crores
    		Medium
    Capex
    Total Capex Outflow
    ₹500 crores
    		High
    Margin
    Long-term EBITDA Margin
    13-13.5%
    		Medium
    Margin
    Communication Cables Margin
    9-11%
    		Medium

    Risks & concerns

    6
    RiskSeverity

    LME Copper Price Volatility

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

    high

    Execution Delays in EHV Projects

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

    medium

    Global Fiber Price Erosion

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

    medium

    Regulatory Approvals for New Facilities

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

    low

    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

    “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

    1 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.