Upbeat prospects for Finolex Cables; investors enthused

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Finolex Cables Ltd’s shares have gained 12% since the company’s meeting with analysts on 21 November. Finolex is widely viewed as a beneficiary of India’s focus on housing and capital expenditure. The company caters to high-growth sectors such as construction, automobiles, power, industrials, and telecommunications, which has buoyed the outlook for the maker of electrical and telecommunication cables given the increased activity in these sectors.

Finolex’s focus on these key sectors perhaps also explains the 86% gain in the stock so far in 2023. Construction wires account for more than 50% of Finolex’s sales, analysts at Jefferies India pointed out. Construction, which accounts for 65% of the electricals segment, has better margins, whereas the auto and power cables, each making up about 10% of the segment, have relatively lower margins, it added.

During the September quarter (Q2FY24) earnings call, Finolex highlighted increased activity in the construction sector, saying that could lead to better demand for its products. Typically, the second half of every year has always been better than the first as construction activity is stronger post the monsoon. On a consolidated basis, electrical cables accounted for the largest chunk (61%) of gross segment revenues in Q2, followed by copper rods (28%), communication cables (8%), and others (3%).

“Better traction in margin-accretive segments and capacity expansions could support growth," said analysts at Jefferies India. New products such as appliances, switchgears, and switches are margin accretive. During the Q2 earnings call, Finolex indicated that volumes for new product offerings in both lighting and conduit products were strong.