1QFY2013 Result update | Power Cables

August 16, 2012

Finolex Cables
Performance highlights
Y/E March (` cr) Net sales EBITDA EBITDA (%) PAT 1QFY2013 518 49 9.4 25 4QFY2012 605 58 9.6 45 % chg (qoq) (14.3) (16.2) (21)bp (43.7) 1QFY2012 461 34 7.5 20 % chg (yoy) 12.4 41.6 194bp 24.1

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Power Cables 601 0.9 47/21 46,064 2 17,657 5,363 FNXC.BO FNXC@IN

`39 `61
12 Months

Source: Company, Angel Research

For 1QFY2013, Finolex Cables (Finolex) reported a 12.4% yoy growth in its top-line to `518cr. The companys operating profit increased by a whopping 41.6% yoy to `49cr. The OPM expanded by 194bp yoy to 9.4%. The PAT came in at `25cr, up 24% yoy. Going ahead, the business outlook remains positive, given the growth prospects in user industries and higher sales from the high-tension (HT) cables plant. We maintain our Buy rating on the stock. Margins and PAT improve yoy: Finolex announced a good set of numbers for its 1QFY2013 results. Net sales grew by 12.4% yoy to `518cr on back of strong sales in the electrical segment. The electrical cables segment registered a 21.4% yoy growth in revenue to `456cr. The companys other two segments communication cables and copper rods continued with their poor run witnessing only 8.3% yoy growth and 32.9% yoy decline in revenue. The EBITDA increased by 41.6% yoy to `49cr on the back of higher revenue and margin expansion. The EBITDA margin expanded by 194bp yoy to 9.5% on the back of lower raw material costs. The raw material cost as a percentage of sales declined to 73.0% in 1QFY2013 compared to 79.3% in 1QFY2012. PAT increased by only 24.1% yoy to `25cr due to higher forex loss and lower other income. Other income declined by 72.6% yoy to `2cr while forex loss increased by 237% to `6cr. The PAT margin also increased by 45bp yoy to 4.8%. Outlook and valuation: We remain positive on the companys prospects going ahead, given the strong growth in user industries, which are showing no signs of abating. Higher sales from the HT cables plant and start of production at the extra high voltage (EHV) plant would further boost the companys growth. Overall, we expect the companys sales to post a 13.6% CAGR over FY201214E, while the PAT is expected to post a CAGR of 16.6% over the same period. At the current market price, the stock is trading at 3.8x its FY2014E EPS. We maintain our Buy rating on the stock with a target price of `61.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 35.7 12.0 0.9 51.5

Abs.(%) Sensex Finolex Cables

3m 9.9 10.5

1yr 5.5 (0.4)

3yr 14.6 (2.4)

Key financials
Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA Margin (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoACE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 2,036 25.8 87 50.6 8.4 5.7 6.9 0.8 12.8 13.6 0.3 3.5

FY2012 2,064 1.4 98 13.1 8.4 6.4 6.1 0.8 12.9 13.5 0.2 2.7

FY2013E 2,334 13.1 117 19.0 8.8 7.6 5.1 0.7 13.7 16.0 0.2 2.1

FY2014E 2,687 15.1 156 33.9 9.3 10.2 3.8 0.6 16.1 19.2 0.1 1.4

Sharan Lillaney
+91 22 3935 7800 Ext: 6811 Sharanb.lillaney@angeltrade.com

Please refer to important disclosures at the end of this report

Finolex Cables | 1QFY2013 Result update

Exhibit 1: 1QFY2013 performance highlights

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`)
Source: Company, Angel Research

1QFY2013 518.0 378.0 73.0 19.7 3.8 71.6 13.8 469.2 48.8 9.4 3.5 10.5 1.8 36.5 (6.5) 30.1 5.8 5.0 16.5 25.1 4.8 15.3 1.6

4QFY2012 604.8 453.1 74.9 18.5 3.1 75.0 12.4 546.5 58.2 9.6 7.5 7.1 9.4 53.0 (10.1) 42.9 7.1 (1.7) (3.9) 44.6 7.4 15.3 2.9

% chg (qoq) (14.3) (16.6) 6.4 (4.5) (14.1) (16.2) (21)bp (53.5) 47.6 (81.2) (31.1) (29.9) (396) (43.7) (253)bp (43.7)

1QFY2012 460.7 365.1 79.3 16.4 3.6 44.7 9.7 426.3 34.5 7.5 4.3 9.8 6.4 26.7 (1.9) 24.8 5.4 4.6 18.5 20.2 4.4 15.3 1.3

% chg (yoy) 12.4 3.5 20.0 60.0 10.1 41.6 194bp (20.0) 7.3 (72.6) 36.7 237 21.2 8.5 24.1 45bp 24.1

FY2012 2,064 1,595 77.3 69.5 3.4 225.8 10.9 1,890 173.8 8.4 25.1 39.5 36.4 145.6 (36.4) 109.3 5.3 11.1 10.1 98.2 4.8 15.3 6.4

FY2011 2,036 1,619 79.5 64.7 3.2 180.0 8.8 1,864 172 8.4 17.4 38.8 25.9 141.6 (34.4) 107 5.3 20.4 19.0 86.8 4.3 15.3 5.7

% chg 1.4 (1.5) 7.3 25.4 1.4 1.1 (2)bp 44.2 1.8 40.4 2.8 1.9 (45.7) 13.2 50bp 13.2

Segment-wise performance
The electrical cables segment reported a strong 21.4% yoy growth in sales to `456cr, driven by higher realization and contribution from the HT cables plant. The segments margin also expanded by 221bp yoy to 12.1%, with EBIT coming in at `55cr. The communication cables segment posted a mediocre growth of 8.3% yoy in the top-line, with sales of `38cr, as there was a considerable reduction in the number of tenders invited for the segment. The situation is expected to remain like this for some time. The segments margin improved by 333bp yoy to 7.8%. The copper rods segment reported a 32.9% yoy decline in its top-line to `192cr during the quarter. The EBIT came in at `0.2cr and the margin stood at 0.1%. The others segment registered a 19.5% yoy decline in sales to `40cr during the quarter.

August 16, 2012

Finolex Cables | 1QFY2013 Result update

Exhibit 2: Segment-wise performance

Y/E March (` cr) Total Revenue A) Electrical Cables B) Communications Cables C) Copper Rods D) Others Total Less: Inter-Segmental Rev. Net Sales EBIT Margin(%) A) Electrical Cables B) Communications Cables C) Copper Rods D) Others
Source: Company, Angel Research

1QFY2013 4QFY2012 1QFY2012 % chg (qoq) % chg (yoy) 456 38 192 40 726 208 518 12.1 7.8 0.1 (2.5) 506 37 231 35 809 204 605 12.7 10.3 1.0 (8.3) 376 35 286 50 747 286 461 9.9 4.4 0.7 (2.3) (9.8) 1.6 (17.1) 16.1 (10.3) 1.8 (14.3) (55)bp (253)bp (88)bp 580bp 21.4 8.3 (32.9) (19.5) (2.8) (27.2) 12.4 221bp 333bp (66)bp (19)bp

Sales up by 12.4% yoy

Finolex reported a 12.4% yoy growth in its top-line to `518cr during the quarter. Going ahead, we expect sales to grow, given the positive outlook for user industries and higher contribution to sales from the HT cables plant.

Exhibit 3: Sales Trend

700 600 500 491 513 539 461 499 499 605 518 25 20 15

(` cr)

300 200 100

5 0 (5)

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

Sales (LHS)
Source: Company, Angel Research

yoy Growth (RHS)

August 16, 2012

1QFY13

(10)

(%)

400

10

Finolex Cables | 1QFY2013 Result update

OPM expands yoy to 9.4%

The companys OPM expanded to 9.4% in 1QFY2013 from 7.5% in 1QFY2012. This improvement can be attributed to a lower raw-material cost. Going ahead, however, we expect the companys margin remain at current levels.

Exhibit 4: OPM trend

70 60 50 8.5 7.4 9.9 7.5 8.0 8.3 12 9.6 9.4 10 8

(` cr)

30 20 10 0 41 51 40 34 40 41 58 49

4 2 0

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

EBITDA (LHS)

OPM (RHS)

Source: Company, Angel Research

PAT up by 24.1% yoy

Finolex reported a strong profit in the 1QFY2013 on the back of strong sales growth and margin expansion (which was somewhat offset by higher forex loss and lower other income). Other income declined by 72.6% yoy to `2cr while the forex loss increased by 237% to `6cr. The companys PAT increased by 24.1% yoy to `25cr.

Exhibit 5: PAT trend

50 45 40 35 30 25 20 15 10 5 0 45

(` cr)

26 19 19 20 20 14

1QFY13

25

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

Source: Company, Angel Research

August 16, 2012

1QFY13

(%)

40

Finolex Cables | 1QFY2013 Result update

Investment arguments
LT and HT cables segments to drive growth: Finolex is poised to register a moderate growth over the next few years, owing to growth in the existing lowtension (LT) cables segment and entry into the HT and EHV cables verticals. In the LT cables segment, we expect organized players to gradually gain market share as their distribution reach expands and customers increasingly demand high-quality and branded wires. Entry into the HT cables segment gives accessibility to the generation and distribution segment, where the market opportunity is estimated at `37,000cr over the next ten years. Tax benefits from Roorkee plant to help in the companys turnaround: The company has shifted a major chunk of production to its Roorkee plant, which avails excise duty and income tax benefits. Owing to this, we expect excise duty and tax rates for the company to remain low at around 24% going ahead. The company has further increased the capacity of this plant by 50%. Proximity to the growing north Indian markets and tax benefits availed by this plant are expected to boost the companys turnaround. Major capex already undertaken: Finolex has already incurred the major capex required to register growth over the next four to five years. The company plans to further spend `80cr towards increasing/rebalancing of capacities for manufacturing various wire and cable products at its manufacturing units at Roorkee and Urse over FY2013-14. Thus, on account of high operating leverage and strong sales growth, we expect the companys net profit to increase to `156cr in FY2014E from `98cr in FY2012.

Outlook and valuation

We remain positive on the companys prospects going ahead, given the strong growth in user industries, which are showing no signs of abating. Higher sales from the HT cables plant and start of production at the EHV plant would further boost the companys growth. Overall, we expect the companys sales to post a 13.6% CAGR over FY2012-14E, while PAT is expected to post a CAGR of 16.6% over the same period. At the current market price, the stock is trading at 3.8x its FY2014E EPS. We maintain our Buy rating on the stock with a target price of `61.

August 16, 2012

Finolex Cables | 1QFY2013 Result update

Profit and loss statement

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY10 1,619 20.7 1,422 1,221 28 59 113 197 93.5 12.2 37 160 153.5 9.9 19 24 14.6 165 102.5 76 89 32 35.4 58 58 134 63.8 3.8 3.8 FY11 2,036 25.8 1,864 1,619 34 65 147 172 (12.7) 8.4 39 133 (16.7) 6.5 17 26 18.3 142 (14.3) 34 107 20 19.0 87 87 121 (9.3) 4.3 5.7 5.7 50.6 FY12 2,064 1.4 1,890 1,568 38 69 214 174 1.1 8.4 39 134 0.9 6.5 25 36 25.0 146 2.8 36 109 11 10.1 98 98 135 11.0 4.8 6.4 6.4 13.1 FY13E 2,334 13.1 2,129 1,797 38 74 220 205 17.7 8.8 44 161 19.5 6.9 13 25 14.5 172 18.4 19 154 37 24.0 117 117 135 0.7 5.0 7.6 7.6 19.0 FY14E 2,687 15.1 2,438 2,069 44 85 239 249 21.7 9.3 46 203 26.3 7.5 6 25 11.3 222 28.7 16 206 49 24.0 156 156 172 27.3 5.8 10.2 10.2 33.9

August 16, 2012

Finolex Cables | 1QFY2013 Result update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Inventories Debtors Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 802 384 419 29 280 415 37 86 221 71 193 222 950 839 422 417 17 245 536 21 105 281 129 207 329 1,009 860 462 398 43 237 538 49 94 281 114 229 309 988 903 506 397 18 237 602 10 117 324 151 234 368 1,020 948 552 396 19 237 713 42 134 373 163 269 443 1,095 31 613 643 275 32 950 31 687 717 260 31 1,009 31 770 800 155 33 988 31 872 903 85 33 1,020 31 1,011 1,041 21 33 1,095 FY10 FY11 FY12 FY13E FY14E

August 16, 2012

Finolex Cables | 1QFY2013 Result update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation (Inc.)/ Dec. in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments (Inc.)/ Dec. in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY10 89 37 (81) 24 32 (10) (29) 34 1 24 30 (21) 11 21 (11) 9 28 37 FY11 107 39 (106) 26 20 (7) (25) 35 (19) 26 18 (15) 13 1 (27) (16) 37 21 FY12 109 39 35 36 11 136 (47) 8 11 36 8 (106) 18 7 (117) 28 21 49 FY13E 154 44 (76) 25 37 60 (18) (23) 25 (16) (70) 14 2 (82) (39) 49 10 FY14E 206 46 (30) 25 49 147 (46) (18) 25 (39) (63) 18 5 (76) 32 10 42

August 16, 2012

Finolex Cables | 1QFY2013 Result update

Key ratios
Y/E March (` cr) Valuation Ratio (x) P/E (on FDEPS) P/E (on basic, reported EPS) P/CEPS P/BV Dividend yield (%) Market cap. / Sales EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROCE (Post Tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) ROCE (Post-tax) Angel ROIC ROE Turnover ratios (x) Asset Turnover (Gross Block) Asset Turnover (Net Block) Asset Turnover (Total Assets) Operating Income / Invested Capital Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Gross debt to equity Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.4 0.2 0.8 8.5 0.4 0.3 1.1 7.6 0.2 0.1 0.3 6.0 0.1 0.0 0.1 12.2 0.0 (0.1) (0.3) 34.8 2.1 3.9 1.7 2.9 41 15 44 41 2.5 4.9 2.1 3.1 45 18 36 56 2.4 5.1 2.1 3.0 49 21 39 51 2.6 5.9 2.3 3.3 47 21 36 54 2.9 6.8 2.5 3.5 47 21 34 59 17.1 11.1 18.2 9.3 13.6 11.0 16.2 12.8 13.5 12.1 19.6 15.2 16.0 12.2 17.3 13.7 19.2 14.6 19.9 16.1 9.9 64.6 2.9 18.2 4.2 0.2 21.4 6.5 81.0 3.1 16.2 5.3 0.2 18.9 6.5 89.9 3.0 17.6 10.9 0.2 18.6 6.9 76.0 3.3 17.3 8.4 0.0 17.7 7.5 76.0 3.5 19.9 8.4 (0.0) 19.6 3.8 3.8 6.2 0.6 42.0 5.7 5.7 8.2 0.7 46.9 6.4 6.4 9.0 1.0 52.3 7.6 7.6 10.5 0.8 59.0 10.2 10.2 13.3 1.0 68.1 10.4 10.4 6.3 0.9 1.5 0.4 0.3 2.8 0.6 6.9 6.9 4.8 0.8 1.8 0.3 0.3 3.5 0.6 6.1 6.1 4.4 0.8 2.5 0.3 0.2 2.7 0.5 5.1 5.1 3.7 0.7 2.0 0.3 0.2 2.1 0.4 3.8 3.8 3.0 0.6 2.5 0.2 0.1 1.4 0.3 FY10 FY11 FY12 FY13E FY14E

August 16, 2012

Finolex Cables | 1QFY2013 Result update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Finolex Cables No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 16, 2012

10