Finolex Cables Limited — Q2 FY25 earnings call

Call held 14 Nov 2024

Management summary

Finolex Cables faced a challenging Q2 FY25 characterized by significant margin pressure resulting from extreme copper price volatility and high-cost inventory liquidation. While revenue grew 10% YoY, profitability was squeezed as LME copper prices fell from over $10,000 in May to below $9,000 in August, necessitating price cuts. Management believes the worst of the margin correction is over and expects a recovery driven by upcoming BharatNet orders and the commissioning of new capex projects like the e-beam facility.

Highlights

  • Revenue reached ₹1,312 crores, representing a 10% YoY increase and 7% QoQ growth.

  • EBITDA margins contracted by approximately 400 basis points YoY and 150 basis points QoQ due to copper price volatility.

  • Electrical wires volume growth was muted at 2% for the quarter, impacted by channel destocking.

  • Communication cables saw a significant volume surge of 50% QoQ, though realizations were hit by falling fiber prices ($2.6-$2.7/km).

  • FMEG segment revenue stood at ₹128 crores for H1 FY25, on track for a ₹300 crore annual target.

  • Inventory levels normalized to ₹604 crores (52 days) from higher levels earlier in the year.

  • Total capex program of ₹500 crores is nearing completion, including e-beam and auto cable expansions.

  • Company partners secured L1 status in 3 BSNL/BharatNet bids; supplies expected to commence in Feb/March 2025.

Concerns

  • Copper Price Volatility

Key financials

  1. Revenue ₹1,312 Cr +10%YoY
  2. EBITDA Margin Contraction (YoY) 400 bps
  3. Inventory Value ₹604 Cr
  4. Inventory Days 52 days
  5. FMEG H1 Revenue ₹128 Cr +28%YoY

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 Wires
    2% Volume Growth
  • Communication Cables
    50% QoQ Volume Growth2.5% EBIT Margin
  • FMEG
    ₹128 Cr H1 Revenue

Guidance & targets

Revenue

  • FMEG Annual Revenue Revenue · FY25 · High confidence ₹300 crores
    Values have climbed, and I think we are on track to hit INR300 crores this year.

    — Mahesh Viswanathan, Deputy CEO & CFO

Profitability

  • FMEG Breakeven Revenue Profitability · FY25 · High confidence ₹250-260 crores
    And like I've always mentioned, breakeven should be around INR250 crores, INR260 crores. So this year, we should have that in hand.

    — Mahesh Viswanathan, Deputy CEO & CFO

Capex

  • Total Capex Program Capex · FY25 · High confidence ₹500 crores
    All told, approximately INR500 crores was to be spent on all these programs.

    — Mahesh Viswanathan, Deputy CEO & CFO

Capacity

  • Fiber Draw Capacity Expansion Capacity · FY26 · Medium confidence 6 million km

    From 4 million km today

    What remains is the expansion of the fiber draw capacity from 4 million to 6 million.

    — Mahesh Viswanathan, Deputy CEO & CFO

Margin

  • Steady State Margin Margin · Next few quarters · Medium confidence 11-12%
    If the volatility continues, then getting back to 12% might take a little longer... It will eventually go there.

    — Mahesh Viswanathan, Deputy CEO & CFO

Risks & concerns

  • Copper Price Volatility

    high

    Sharp swings in copper prices (from $11,000 to $8,200) lead to inventory losses and unpredictable trade behavior.

    Management acknowledged

  • Fiber Price Erosion

    medium

    Fiber realizations have dropped from $4/km to $2.6/km over two years due to global oversupply, particularly from China.

    Management acknowledged

  • Muted Demand in Electrical Wires

    medium

    Volume growth has been in single digits for the last 6-8 months, partly due to speculative trade behavior during price volatility.

    Both acknowledged

Areas of evasion (2)

  • Specific names of BharatNet partners
  • Granular breakdown of peer volume growth vs. their own

Q&A highlights

1 direct
Muted Volume Growth vs Peers Partial
Some of our peers have a much larger exposure to the cable market, whereas we do not... everyone has had an issue on the wires side this year.

Analysts challenged the 2% volume growth compared to peers reporting 20%+. Management attributed the difference to segment mix (power cables vs. retail wires).

Asked by Achal Lohade, Nuvama Institutional Equities

BharatNet/BSNL Order Details Partial
We had an understanding with one of the bidders that they would use our cables. And they have won, I think, 3 of the bids that they participated in.

The BharatNet project is a major upcoming revenue driver; management confirmed L1 status but remained vague on specific partners and contract values.

Asked by Sonali, Jefferies India

Communication Cable Margin Recovery Direct
If you go back a couple of years, we were averaging about 7%, 8% in margins from this business... there's no reason why we should not be able to do it again.

Current margins in this segment are depressed (2-2.5%); management expects a return to historical levels through higher utilization and backward integration.

Asked by Praveen Sahay, Prabhudas Lilladher

2 min read 5 chapters

Detailed narrative

Copper Volatility and Margin Compression

The quarter was heavily impacted by a 'difficult' environment where copper prices peaked at $10,130 in May before crashing to $8,963 in August. This volatility forced Finolex to liquidate high-cost inventory while simultaneously taking three price cuts totaling 11%. Consequently, EBITDA margins dropped by 4 percentage points YoY, though management believes the worst of the corrections is now behind them.

Muted Growth in Electrical Wires

Volume growth in the electrical wires segment was a modest 2% for the quarter. Management attributed this to speculative trade behavior where distributors destocked during the sharp copper price correction from May to August. Despite the slow quarter, the company maintains a steady market share of 18-20% in the organized wire market, which they estimate at ₹25,000 crores.

Communication Cables: Volume Surge vs. Price Erosion

The communication cables segment saw a 50% QoQ volume increase, yet realizations were hampered by falling global fiber prices. Fiber prices have declined from $4/km two years ago to approximately $2.6-$2.7/km currently. Segment EBIT margins remain low at 2-2.5%, but management expects a return to historical 7-8% levels as government procurement for BharatNet resumes and asset utilization improves.

FMEG Segment Scaling and Breakeven

The Fast Moving Electrical Goods (FMEG) segment reported H1 revenue of ₹128 crores, up from ₹100 crores in the previous year. The company is confident in reaching its ₹300 crore annual target for FY25. Management reiterated that the breakeven point for this segment is between ₹250-260 crores, suggesting the business will turn profitable on a full-year basis this fiscal.

Capex Execution and Capacity Expansion

Finolex is nearing the end of a ₹500 crore capex cycle. Key projects include the e-beam facility (awaiting BIS certification), expansion of auto cable lines in Roorkee (commissioning by Dec 2024), and a preform plant for fiber drawing. Fiber draw capacity is set to expand from 4 million km to 6 million km in Stage 1, with orders already placed for equipment arriving in Q1 FY26.

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

More Capital Goods earnings calls