Stock of this company hits over 3-decade high; zooms 55% in one month

Shares of Finolex Cables (FCL) hit an over three-decade high of Rs 847.60, as they surged 10 per cent on the BSE in Monday’s intra-day trade amid heavy volumes on expectations of strong business outlook. The stock of electrical cables company traded at its highest level since March 1992. It had hit a record high of Rs 875 on March 24, 1992, the BSE data shows.

FCL is India’s largest manufacturer of electrical (80 per cent of revenue) and telecommunication cables (16 per cent). FCL has a wide distribution network with a high brand recall.

In past one month, the stock price of FCL has zoomed 55 per cent, after the company reported a good set of numbers for the quarter ended December 2022 (Q3FY23). In comparison, the S&P BSE Sensex was down 0.18 per cent, during the period. In past six months, the stock has skyrocketed 85 per cent, as against 2 per cent gain in the benchmark index.

Meanwhile, FCL said that the Union budget 2023 direct benefits to various segment of the company. More development would be seen across the country with a planned capital expenditure of Rs 10 trillion, a YoY increase of 33 per cent, attracting more investors.

“This would improve cash liquidity in the market, benefiting the real estate sector. These changes, therefore, would drive development in infrastructure housing sector, smart city projects, metros & telecommunication sector (5G). Hence, we believe that this is really a great opportunity for Finolex Cables to grow demand of various cables and other products,” the management added.

In Q3FY23, FCL, a fast moving electrical goods (FMEG), reported 42 per cent year-on-year (YoY) and flat quarter-on-quarter (QoQ) growth in profit after tax of Rs 135 crore, on the back of improved operational performance. Revenues, on the other hand, grew 6 per cent QoQ and 18 per cent YoY at Rs 1,150 crore.

“The distribution push is beginning to contribute into revenue share improvement. On communication cables segment, most product lines showed volume expansion. Volume of metal-based products improved by 27 per cent during the quarter and optic fiber cable volume grew by over 70 per cent,” the company said.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, meanwhile, returned to normalcy at 15 per cent during the quarter, the company said. However, EBITDA margins improved 207 bps sequentially, while down 311 bps YoY.

Going ahead, analyst at Geojit Financial Services expects a gradual improvement in margin as the high cost inventory has been exhausted. Further, higher utilization, led by improved volumes from wires and communication cable, will drive earnings. The brokerage firm upgrades EBITDA margin estimates by 170bps for FY23E to factor in improved margins. It expect PAT to grow by YoY 19 per cent over FY23E-25E.

“We expect volume growth to be supported by a revival in real estate volumes and traction in the optic fibre business. With ease in higher cost inventory and stable raw material prices, we expect gradual a improvement in margins. FCL’s long term growth outlook remains intact given its strong brand recall, expanding product portfolio, clean balance sheet, and strong cash flow generation,” analyst said in Q3 result update.

he stock, however, trades above the brokerage firm target price of Rs 784 per share.