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Finolex Cables: Topline trouble

May 15, 2001

Finolex Cables has registered a modest topline growth for FY01. The company recorded 13.5% turnover growth for 4QFY01. The company's sales seem to have witnessed volatility in the fiscal ended March '01, as 2Q and 4Q were the only quarters with double-digit growths in FY01.

(Rs m) FY00 FY01 Change
Sales 5,534 6,046 9.3%
Other Income 227 232 2.4%
Expenditure 4,513 4,981 10.4%
Operating Profit (EBDIT) 1,021 1,066 4.4%
Operating Profit Margin (%) 18.5% 17.6%
Interest 152 182 20.1%
Depreciation 150 190 26.7%
Profit before Tax 947 926 -2.2%
Tax 240 201 -16.3%
Profit after Tax/(Loss) 707 725 2.6%
Net profit margin (%) 12.8% 12.0%
No. of Shares (eoy) 34 34
Diluted Earnings per share* 20.6 21.1
P/E Ratio 8.4

Operating expenses of the company have increased at a faster clip as compared to sales. This is mainly due to staff and other operating expenses, which grew by 21.8% YoY and 19.8% YoY respectively. Consequently, the OPM has come under pressure leading a fall of 90 basis points.

The rise in interest expense is largely due to a significant increase in interest costs during 1Q and 2QFY01. The company has been able to pull back on its interest costs in the last two quarters of FY01. This could be due to better working capital management, as the company has a high net working capital to sales ratio (FY00-56.6%). Interest expense in 4QFY01 has declined by 16.2%. However, the rise in interest and depreciation costs without a corresponding increase in operating profits and other income has led to a marginal fall in pre-tax profits.

Net profit has grown marginally largely due to a decline in tax liability. The effective tax rate of the company has fallen by 370 basis points in FY01 as compared to FY00. The company has announced a buyback at a maximum price of Rs 250 per share with a total of Rs 750 m allocated for this purpose. The buyback will be through market operations.

At Rs 178 the company trades on a multiple of 8.4x FY01 earnings. The company has a three-year average earnings multiple of 13.1x.

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