Finolex Cables is the flagship company of the Finolex group. The company has a diverse product portfolio of cables and wires comprising light duty cables, power and control cables and communication cables.
The electrical cable business has been the main driver of the company’s revenue and profitability. This division manufactures light-duty electrical cables and power and control cables. The communication cables division comprises traditional telephone cables, optical fibers and new generation communication cables. With the increase in use of broadband for internet, the focus of Finolex is expected to shift to optical fibre, while production of JFTC (Jelly Filled Telecom Cables), which is primarily utilised for fixed-line phones may eventually be reduced.
Finolex Cables Business Strategy - Long-term plan is to maintain leadership in the domestic cables market by being the largest cable manufacturing company in terms of capacity and the most diversified in terms of its product portfolio.
Valuation of Finolex Cables - Historically the stock has traded on a PE in the range of 10-15x, but with the market correction, the fall in copper prices and the forex loss overhang the stock had fallen below its trough multiple of 5x. The stock has since recovered and is currently trading at 5-10x because of Flat Growth in EPS for FY 2011 at Rs 6.55.
Havells is India’s leading consumer electrical equipment company with a diverse product portfolio comprising cables and wires, switchgears, and electrical consumer durables such as fan switches and lighting and fixtures.
Havells is a market leader in building circuit protection devices in the domestic market and among the top 10 in the world. It is also the second largest selling brand of power cables and wires and energy saving lamps in India. Cables and wires contributes c44% of the total revenue. The company reported a volume CAGR of c18% from FY05 to FY09. Sales for the same period grew at a CAGR of c38% supported by the rise in copper prices.
Havells acquired Sylvania in April 2007 in an all cash deal valued at cUSD300m. SLI Sylvania is a designer and provider of lighting systems with sales
also in European and Latin American markets.
Although Havells may report a loss at consolidated level in FY10 due to one-time restructuring expenses incurred at Sylvania, we expect Sylvania will turn profitable in FY11. We estimate a net loss of INR1.9bn in FY10 and a net profit of INR2.6bn in FY11 for Havells consolidated. Based on the target PE of 12x and Sept-11 earnings, we arrive at a target price of INR575.
Courtesy: HSBC
