Jefferies sees a 31% upside potential in Finolex Cables stocks and has maintained a ‘buy’ rating on the scrip with a target price of Rs 1,219.10. “We view FNXC as a play to capex/housing and estimate sales/PAT CAGR of +16%/ +20% in FY23-26e. Better traction in margin-accretive segments and capacity expansions could support growth. Retain Buy with target price Rs 1,245 post roll over. Target PE stays is 24x, at a premium to the historical average,” said Jefferies in its report.
Jefferies’ report further added that, Cables and wires industry volumes are expected to grow in India at 1.5–2 times GDP, as demand in the second quarter is typically better than the first due to increased construction activity. Finolex Cables is expected to benefit from this. In the Electricals category, which makes up 80% of sales, Finolex Cables has achieved a sustainable operating profit margin (OPM) of 14%. Construction (65% of Electricals) and Agri (10%) segments have higher profit margins, while Auto (10%) and B2B-Power Cables (10%) segments have lower margins. The overall capacity utilisation is 60%, with auto cables having a higher utilisation rate.
“The company is expanding capacity in Roorkee, which is expected to commission next year. FMEG (5% of mix) can break-even at sales of Rs 200 crore (H1FY24 at Rs1bn). FNXC’s ad-spend is lower than peers at 1%. The company is ramping up distribution (700 distributors now) and has billed 66K retailers in Q2; In Q2, Rs 300 crore sales (25%) were clocked via secondary sales through retailers,” said the report.
The report further pointed out that the accelerated demand shift to organized players, post implementation of GST and E-Way Bill, as well as the government’s thrust on housing and rural electrification, are favorable factors for the company. In continuation of that, the expansion of the existing product line, with new launches, and the utilization of the existing cash pile for tapping growth opportunities would work as key catalysts in the company’s growth.
