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Finolex Cables: Wait 'n' watch - Views on News from Equitymaster
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  • Apr 6, 2001

    Finolex Cables: Wait 'n' watch

    The telecom equipment providers are facing a tough time in the international market. Consequently, this is reflected in the valuations accorded to the key players in the sector. Aksh, however, continues to trade at a premium to its peers.

    (Rs m) Quarter ended Dec '00
      St Optic** Aksh Finolex#
    Net Sales 3,222 312 1,726
    Operating Profit (EBDIT) 988.90 38.50 394.00
    Operating Profit Margin (%) 30.7% 12.3% 22.8%
    Profit after Tax/(Loss) 895 29 238
    Net profit margin (%) 28% 9% 14%
    No. of Shares (eoy) (m) 55.9 11.0 34.3
    Diluted earnings per share* 64.0 10.5 27.7
    P/E ratio 5.2 8.3 5.5
    ** Sterlite Optical Ltd.
    # Finolex Cables

    Finolex Cable shareholders had a good FY00. The company announced a 1:1 bonus in September '99, followed by a buyback of 10% post-bonus equity capital at Rs 275 in February '00 and ended the year with a dividend per share of Rs 7.5 (75%). The buyback was at a 14% premium to the average share price in January '00.

    The company, Finolex Cables, ended FY00 with a PAT of Rs 706 m. The per share earnings on a diluted basis stood at Rs 20.5. The buyback, at Rs 275, was announced just prior to the year ending FY00, which results in a multiple of 13.4x FY00 diluted earnings. This is an indication from the management regarding the value of the share. More importantly, though, it could signal the long term growth the management is comfortable with achieving (assuming PEG* = 1).

    The company in the current year has witnessed a top and bottomline growth of 7.6% and 3.5% for the first nine months. Nothing very impressive to write home about. This is despite the company commencing operations at its new plant in Verna, Goa during 3QFY00.

    However, the company has maintained strict vigil over costs that has enabled operating profits for 9m FY01 to grow by 18% YoY. Post tax profits have not grown as quickly, as the depreciation provisions have increased considerably. This could be due to the new plant coming onstream last fiscal and the depreciation now being passed through the income statement.

    One may need to tread with caution, as to why the sales have not grown despite a new plant coming onstream only in December '99. Also, another disturbing factor about the company is the efficiency, or the lack thereof, in its working capital cycle. Although, the net working capital to sales has declined. It stood at 56.6% for FY00. Consequently, the debtor days are very high. This is could be mainly due to the DoT delaying its payments to the company.

    Despite the negatives, the stock has provided a compounded return of 19% p.a. from January '99 till date. Over the same period the BSE Sensex has given a compounded return of 7.9% p.a. Nevertheless, past performance is not an indicator of future performance. Going by last year's dividend of Rs 7.5, at the current price of Rs 152.7 the dividend yield for this fiscal works out to 5%.

    In FY01, the stock has consistently seen its valuations slide from 21.1 in 1Q to 7.3 in 2Q and finally 5.5 in 3Q. Further, on 9m FY01annualised earnings the stock trades at a multiple of 6.8x.

    *PEG - P/E to EPS growth



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