At a time when the country will receive an additional power capacity of 62,213 MW over the next five years, Finolex Cables will be able to leverage the strong growth conditions in the power sector through a joint venture with Japan-based J-Power Systems to offer turnkey solutions in extra high voltage cable systems.
The latest development helped the stock rise 2.6 per cent to Rs 109.35 on Thursday despite the overall weakness in the market.
Meanwhile, in the September 2007 quarter, Finolex’s operating profit fell marginally on a y-o-y basis to Rs 39 crore, while its net sales rose 21 per cent to Rs 334 crore. Its operating profit margin also declined 260 basis points y-o-y to 11.7 per cent in Q2 FY08.
The pressure on its margins in the last quarter was due to its adjusted raw material costs as a percentage of net sales rising 360 basis points y-o-y to 79 per cent in the last quarter.
Analysts, however, highlight a high base effect in the first half of FY07. That’s because cable companies were able to report strong growth in the operating profit margins due to a sharp rally in copper prices on the London Metal Exchange.
In Q2 FY08, its copper rods division clocked a revenue growth of 30.4 per cent y-o-y and electrical cables business went up 8.4 per cent due to curtailed demand during the monsoon season.
It is understood that Finolex’s power cables plant in Uttarakhand, which was scheduled for commissioning by November 2008, will now go onstream by April 2009. The stock trades at a reasonable 19 times estimated FY08 earnings and 14 times FY09 earnings.
Source - Business Standard
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