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Finolex Cables: BSNL effect

Jan 29, 2002

For the quarter ended December '01, Finolex Cables Ltd. has declared significantly improved results as compared to the preceding quarter. Strong growth in the first and third quarter has salvaged sales for the first nine months of the current fiscal. The second quarter was a wash out for the company, as Bharat Sanchar Nigam Ltd. (BSNL) delayed their purchase of telecom cables.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Net Sales 1,539 2,382 54.8% 3,750 4,119 9.8%
Other Income 18 65 265.5% 170 93 -45.6%
Expenditure 1,145 2,032 77.5% 2,870 3,396 18.3%
Operating Profit (EBDIT) 394 350 -11.2% 880 723 -17.9%
Operating Profit Margin (%)25.6%14.7%23.5%17.6%
Interest 49 43 -12.6% 152 108 -28.4%
Depreciation 36 51 41.2% 134 151 12.8%
Profit before Tax327321-1.7%765556-27.3%
Tax 89 50 -43.6% 184 104 -43.4%
Profit after Tax/(Loss) 238 271 13.9% 582 453 -22.2%
Net profit margin (%)15.5%11.4%15.5%11.0%
No. of Shares 34 34 34 34
Diluted Earnings per share*27.731.622.617.6
P/E Ratio 4.4 8.0
* annualised

The BSNL order did materialise in mid-October, which seems to have facilitated topline growth for the concerned period. We had mentioned it was likely to be challenging for the company to post topline growth in the current fiscal. However, with a jump in 3QFY02 sales, the numbers look achievable. The company will have to register a topline growth of 8.1% to report flat growth for the fiscal. Performance, for the quarter ended December '01, could have swung due to the delayed BSNL order. An indicator of the same could be the higher contribution to sales from telecom cables for the concerned quarter. Share of telecom cables in sales was 72% and 57% respectively for 3QFY02 and 9mFY02.

Higher sales have been accompanied with an even higher rise in operating expenses. This is largely due to the draw down in inventory with the BSNL order, which was scheduled for 2QFY02, coming through in the December '01 quarter. In fact, in the concerned quarter, raw material expense, which generally is the largest cost head, has declined by 1% YoY. However, for 9mFY02, all cost elements have registered a YoY increase. The rise in expenses has cut into the OPM, pulling back operating profits.

The company has continued with its efforts of reducing interest expense, which have declined in all the quarters of the current fiscal. This could be due to the company streamlining its working capital cycle. We had mentioned the high net working capital to sales percentage of Finolex Cables, which could be reduced to derive efficiency gains. While the company seems to be working on this business aspect, net working capital to sales for FY01 was 46.3%.

The effective tax rate of the company has reduced by 5.3 percentage points YoY during the nine months ended December '01. This could be due to higher fiscal benefits from operations at the new plant at Verna, Goa. At Rs 140 the scrip trades on a multiple of 8x 9mFY02 annualised earnings. This is in line with the valuations telecom equipment companies are attracting on the bourses.

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