Finolex Cables Q2 Results Review - Healthy Demand Outlook; Margin Trajectory, Key Monitorable: Systematix
Decent profitability in fast moving electrical goods is taking long, given Finolex Cables’s slow ramp up.
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Systematix Research Report
Finolex Cables Ltd.’s consolidated profit after tax (down 62% YoY) was marred by high-cost inventory and inferior product mix (auto/industrial cables, ~100 basis points impact), resulting in ~250 bps QoQ margin contraction.
Continued traction in housing markets sustained the demand for house wires (volume/revenue up 10%/12% YoY). Led by optic fiber cables, the communication cables segment too revived (revenue up 58% YoY in H1 FY23); momentum will sustain on government’s thrust on digitisation and 5G rollout.
But, decent profitability in fast moving electrical goods is taking long, given Finolex Cables’s slow ramp up. Post a weak Q2, we have cut FY23E earnings per share by 17%, expecting lower margins and profit share from its joint ventures/associate (mainly Finolex Industries Ltd.), but broadly retain our FY24E EPS.
Despite 15% revenue compound annual growth rate, we expect flattish profit after tax over FY22-24E, as we expect profits in Finolex Industries to fall.
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