Stock Review: Finolex Cables

The price of Finolex Cables has come down to about Rs 50-52. At this point of time, it looks to be a good investment at the current price. This is a company which is into two segments; electrical cables and communication cables. It is one of the leading manufacturers of cable in the country and it is a brand which is visible at almost all electrical shops. This company has got extensive dealer network covering almost the entire country. The product is perceived as technically superior and it commands a market premium in the market compared to some of the regional players.

This company has fully backward integrated operations. The company manufactures copper rods which are used for manufacturing copper cables; they also make FRP rods which are used for drawing of fiber optic cables. Finolex is probably the only cable brand in the country, which is a super brand since 2004. So that's a big positive for the company.

Look at the financials of the company, FY10 sales were about Rs 1,600 crore, profit after tax was about Rs 58 crore, EPS was about Rs 4. In the first half of the current financial year, sales are up by about 35% to about Rs 970 crore, profit after tax is up by close to 17% to about Rs 42 crore. At the current price, if you take FY10 earnings, the price earning is about 10-12.

The interesting thing to note here is that the entire marketcap of the company is Rs 800 crore. This company has got investments in equities and cash of close to Rs 500 crore. So, you have a business which is giving a revenue of Rs 1,600 crore and out of Rs 800 crore marketcap you have the investments and the cash of close to Rs 500 crore which is more than 50% of the current marketcap.

The company, in the last few years, is not just the cable company, but it has introduced a number of other electrical products also which includes CFL, switches and other items. So, it has now become kind of a one-stop shop for all electrical needs.

The company is setting up a joint venture with a Japanese company for manufacturing high voltage cables upto 500 kilowatt which will be operational in the next three-six months. The company is also creating additional capacity for manufacture of tube light and CFL. There is an effort to grow the distribution network by associating both channel partners and dealers with the company.

The biggest positive, I see here, is the backing of the Finolex brand name which is a super brand. You have a company which has got a strong brand. The company has done a lot of product range expansion and has 20 years of dividend track record. At the current price of about Rs 50-52, the risk maybe just about 10-12% whereas the potential gains over a six months to one year period can be about 40-60-70% also. So, I think you have very little to lose from the current levels of about Rs 50-52. It maybe able to give a return of about 40-50% in the next six-nine months.