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    Finolex Cables

    FINCABLESNeutral
    Capital Goods·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

    8

    • 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

    1

    • Copper Price Volatility

    What Changed1

    vs Q4 FY25

    Tone shiftGood → Neutral

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue₹1,312 Cr+10%YoY
    2. 02EBITDA Margin Contraction (YoY)400 bps
    3. 03Inventory Value₹604 Cr
    4. 04Inventory Days52 days
    5. 05FMEG H1 Revenue₹128 Cr+28.0%YoY

    Segment breakdown

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

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    FMEG Annual Revenue
    ₹300 crores
    		High
    Profitability
    FMEG Breakeven Revenue
    ₹250-260 crores
    		High
    Capex
    Total Capex Program
    ₹500 crores
    		High
    Capacity
    Fiber Draw Capacity Expansion
    6 million km
    		Medium
    Margin
    Steady State Margin
    11-12%
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Copper Price Volatility

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

    high

    Fiber Price Erosion

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

    medium

    Muted Demand in Electrical Wires

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

    medium

    Areas of Evasion(2)

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

    Q&A highlights

    3

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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. 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.