Finolex Cables Limited, which is an IS/ISO 9001 certified organization and a leading Indian cables and wires industry player, has shown resilience and flexibility in the competitive market. Drawing from the Q2 FY ’25 Earnings Conference Call transcript dated November 14, 2024, and further contextual information, this analysis examines the company’s growth strategy, outlook, challenges, major breakthroughs, and assesses its investment prospects as of March 2, 2025.
Growth Strategy
Finolex Cables has identified a multi-faceted growth strategy emphasizing capacity growth, diversification, and market expansion:
1.Capacity Expansion in Key Segments:
- Optic Fiber Cables (OFC): The firm is building its optic fiber business by expanding fiber draw capacity from 4 million to 8 million kilometers in phases (first to 6 million by mid-2025). It is also setting up a preform plant (100 metric tons of glass, or 4 million kilometers of fiber), lessening reliance on third-party suppliers and earning more margins.
- Auto Cables and Wires: Upgrading of auto cable capacity in the Roorkee unit is in progress, doubling current capacity by December 2024. This addresses the increasing automotive industry demand.
- E-Beam Facility: Two e-beam accelerators (1 MeV and 1.5 MeV) have been installed, waiting for BIS certification (which is expected soon), to produce high-quality, ISI-marked products for niche applications.
2.Diversification into FMEG (Fast-Moving Electrical Goods):
- FMEG segment, including lighting, switches, fans, and water heaters, is a major growth driver. H1 FY ’25 revenue was INR 128 crores (versus INR 100 crores in H1 FY ’24), and a target of INR 300 crores for FY ’25—a 40% increase from INR 228-230 crores in FY ’24. Breakeven is expected at INR 250-260 crores, indicating near-term profitability.
3.Seizing Government and Infrastructure Opportunities:
- The firm is set to gain from BSNL’s BharatNet tender (3-year implementation period from February/March 2025), where its partners have achieved L1 position in some bids. Other tenders from states such as Gujarat, Maharashtra, Karnataka, and Andhra Pradesh in the next 3-6 months provide further growth opportunities.
- Prospective opportunities in 5G installations and data center are also coming up, though these are distant-term prospects.
4.Backward Integration and Cost Optimisation:
- Optic fiber making backward integration (preform plant) intends to minimize raw material costs and marginally improve profitability. This can either add to competitiveness or augment profitability based on market dynamics.
Future Prospects
The future for Finolex Cables is optimistic cautiously, with stabilizing margins, increasing demand, and strategic investments:
Revenue Growth:
- FY ’24 revenue was slightly above INR 5,000 crores. For FY ’25, the company estimates INR 6,000 crores if copper prices stabilize, based on H1 FY ’25 revenue of INR 2,600 crores and a historical trend of 60-65% of annual revenue in H2.
- FMEG’s path to INR 300 crores and increasing potential of communication cables from BSNL orders support this estimate.
Margin Recovery:
- Q2 FY ’25 margins fell 4% yoy and 1.5% qoq on account of copper volatility and high inventory expenses. But Deputy CEO and CFO Mahesh Viswanathan is convinced “the worst is behind us,” and margins are expected to stabilize at 10-12% in future quarters if copper becomes stable. Communication cables, which have been at 7-8% historically, can also bounce back with increased utilization.
Segment Performance:
- Electrical Cables: Consistent volumes with recovery cues anticipated from Q3 FY ’25, underpinned by housing and capex cycles.
- Communication Cables: 50% volume growth in Q2 FY ’25 on the back of lower realizations (fiber prices declined from $4/km to $2.6-2.7/km). Increased global fiber demand (e.g., 5G) may reverse this trend within 6-8 months.
- FMEG: Robust volume growth in lighting and conduits, while price deterioration in lighting is still an issue.
Capex Completion:
- INR 500 crores of budgeted capex is almost completed, with INR 160 crores incurred in FY ’24 and the majority in FY ’25. FY ’26 capex is pegged at INR 100-200 crores, with demand-driven expansion.
Challenges
While strong, Finolex has a number of issues that may affect its growth path:
Commodity Price Volatility:
- Fluctuations in copper prices (e.g., $11,000 to $8,200-$8,900/ton) resulted in inventory losses, price reductions (11% in Q2 FY ’25), and margin squeeze. Ongoing volatility may push the recovery of margins to 12%.
Competitive Pressure:
- Peer companies such as Polycab (24-25% wire volume expansion) and KEI (20%+ wire expansion) surpassed Finolex’s 2% wire volume expansion in Q2 FY ’25. Finolex’s small share in the wider cable industry (INR 200 crores vs. a INR 25,000 crore industry) limits its competitive advantage.
FMEG Price Erosion:
- As volumes increase, lighting price erosion would cancel out gains unless the firm manages to scale fans and water heaters successfully.
Litigation Risks:
- Ongoing legal case on ownership of disputed shares in Orbit (suspended at NCLT) creates uncertainty around control and strategic focus, albeit no near-term financial impact is reported.
Execution Delays:
- BSNL order releases or capex commissioning delays (e.g., preform plant, fiber capacity) may stretch revenue timelines beyond FY ’25.
Key Advancements
Finolex has achieved notable progress in gearing up for future growth:
E-Beam Technology:
- The operational e-beam facility improves product quality and expands new markets (e.g., solar, automotive), with commercial production pending post-BIS certification.
Backward Integration:
- The preform facility minimizes dependency on foreign fiber, with the potential to lift margins by 2-3% in the communications division when it reaches full capacity.
Auto Cable Growth:
- Roorkee’s doubled capacity complements India’s automotive expansion, where utilization is already close to 80%.
Market Share Stability:
- Sustaining an 18-20% market share in the INR 25,000 crore wires market in the last 2-3 years demonstrates resilience against competition.
Is Finolex Cables a Good Buy?
Investment Analysis (as on March 2, 2025):
Financial Numbers:
- Revenue: INR 5,000+ crores (FY ’24), with a possible 20% growth to INR 6,000 crores in FY ’25.”.
- Margins: Traditionally 11-12%, currently held back at 7-8% but likely to return to 10%+ by Q3/Q4 FY ’25.
- Market Cap & Valuation: With a presumed market cap of INR 15,000-18,000 crores (using peers such as Polycab at INR 1,00,000 crores and KEI at INR 40,000 crores, adjusted for scale), Finolex is valued at a P/E of ~20-25x FY ’24 earnings. When margins improve and revenue reaches INR 6,000 crores, forward P/E might fall to 15-18x, implying value.
- Debt: Minimal, with internally funded capex improving financial strength.
Pros:
- Growth Drivers: FMEG (40% growth), optic fiber (BSNL, 5G), and auto cables provide diversified revenue streams.
- Margin Upside: Backward integration and improvement in utilization can drive margins above historical levels.
- Capex Completion: Short-term revenue from e-beam and auto cables, with optic fiber gains in FY ’26.
- Stable Market Position: 18-20% wire market share and accepted brand during India’s infrastructure growth.
Cons:
- Volatility Risk: Copper price fluctuations are a wild card; further falls may squeeze margins.
- Competition: Slowing volume growth relative to peers points to possible market share loss.
- Litigation Uncertainty: While not material at present, a negative NCLT result may interfere with governance.
Verdict:
- Short-Term (6-12 months): Moderately appealing. Investors will expect a 10-15% gain as margins level out and H2 FY ’25 revenues come into play, subject to copper being above $8,500/ton. Volatility and competitive headwinds, however, call for caution—more appropriate for those with an increased risk tolerance.
- Long-Term (2-3 years): Strong buy opportunity. Capex completion, FMEG profitability, and optic fiber expansion (BSNL, 5G) may generate 20-25% returns every year, taking the stock to INR 1,200-1,500 (from an assumed INR 1,000 today). Best suited for patient investors who are betting on India’s infrastructure and digitalization story.
Recommendation: Buy on dips (say, below INR 900-950) for long-term benefits, or a stop-loss if copper falls below $8,000/ton or litigation intensifies. Finolex is not a screaming buy today but presents an impressive risk-reward ratio for 2026-27.
This analysis takes advantage of the transcript data and coincides with market trends as of March 2, 2025, and presents a well-balanced view for prospective investors.