Finolex as an organization loosing its moats factor to its competitor due to family dispute…Due to brand name of Finolex created by Prahlad & Kishan they are hanging in the market as Big Guys. New entrants like Sterlite, polycab, V-Guard started making dent. You can see it visibly in next 3-4 quarters…
1 Like
Hi tried reading your blog but the link is corrupted i guess. Could you please share a fresh link
1 Like
Interestingly with the current market cap of nearly 4500Cr(approx), the core business is available for around 2500 - 3000 Cr ( 32% holding in Finolex Industries + cash on BS ) . Market is punishing too much for the lack of growth. With economic revival , growth will definitely come back because of the brand value and recent diversification into FMEG. Only question is when will that happen.
Disclosure : Top holding(18%)
3 Likes
After adjusting for the cross holding in Finolex Industries, they are also sitting on 1000+ Cr of cash on the standalone balance sheet. The operating business is now available at < 1500 Cr , operating PAT of 250 Cr per annum.
This is as deep value as anything can get but the current market mood does not care about value, nor is it too enthused about the fight between the cousins. On a long enough time frame this will can pay off very well but the stock is likely to test one’s patience for some more time.
Disclosure: Invested, one of the very few value bets that I am willing to take in today’s market purely because of how much of a no brainer it is going by the numbers.
4 Likes
Talking from the opposite side of the camp… I would raise the following concerns…
- why is the growth slowing when peers like polycab are growing comfortably at 15%…
- are there any signs of erosion of market share…
- what is the road map for growth…
- if there is any roadmap, why are the fixed assets not reflecting them…
- why is capex= depreciation since 3-4 years…
- when there is no growth why is cfo going down from North of 300 crores to last year 150 odd crores…
- assuming there won’t be any growth even a pe of ten says it will take ten years to get back the cmp from earnings… Not tracking finolex cables…Interested to know your views
@Hao-ming You are spot-on. The growth is stagnant/slow because management is not aggressive at all. Compared with PolyCab/KEI , I see very less number of ads on finolex products as indicated by their advertising expense. But my bet is on the brand value and economic revival. The current price is cheap if we factor-in a growth of 8% which is possible with the brand name provided our GDP growth picks up. It might take a long time, but this stock is definitely not for growth pickers.
1 Like
Below are my responses to the best of knowledge:
- why is the growth slowing when peers like polycab are growing comfortably at 15%: Many moving parts in it. Finolex is a leader in house wires (retail dependent) and also having notable exposure to optical fibres. Both the segments going through slowdown (real estate slowdown and delay in 5G auctions). Polycab and KEI are also prominent in institutional segments i.e EHV cable etc and enjoying advantage of orders from govt and infra companies. Further, being a financially conservative companies, non-aggressive marketing campaign in comparison to polycab and KEI also creating subdued growth for Finolex. Understood from past concalls that company has mapped total customer touch points across India and attempting to bring them under its coverage gradually.
- are there any signs of erosion of market share: Polycab has 18% share in overall wires and cable segment, KEI has 9%. Unable to find for finolex.
- what is the road map for growth: Could not find any guidance.
- if there is any roadmap, why are the fixed assets not reflecting them: Capacity utilisation plays a deciding role in growth. Setting up of factories only doesnot decides company’s fate. Low capacity utilisation coupled with high operating cost is detrimental for margins.
- why is capex= depreciation since 3-4 years…: Most likely it is maintenance capex. Due to slackening demand, company not ramping up capacities aggressively.
- when there is no growth why is cfo going down from North of 300 crores to last year 150 odd crores: Due to rise in working capital requirement i.e rising inventories etc.
- assuming there won’t be any growth even a pe of ten says it will take ten years to get back the cmp from earnings… Not tracking finolex cables…Interested to know your views: There are two legs of PE growth: re-rating and earning growth. Sadly company is suffering on both the fronts. PE is only an indicator of company’s valuation. One needs to take comprehensive view of company’s fundamentals as well before deciding to take position.
4 Likes
With 5g rollout around the corners, this looks interesting. In ofc space this is an ethical company, rest all have ethical issues ( like aksh optifiber), or high debt ( like sterlite tech ).
5g would call 5x ofc as compared to current ofc penetration, as only 20% of today’s cables are ofc based and 5g can only work with ofc.
Current revenue of company - 13.5% comes from ofc space, although it is low compared to overall. They are at 75% capacity and plan to do capex for additional 60% increase. So they can increase their revenue proportion from ofc. They have a huge opportunity ahead if they act aggressive.
Need to evaluate the presence and pie size in ofc for other competitor like polycab .
Disc : recently added 2.5% in portfolio with 5g story as opportunity for next 5 years in mind
1 Like
BE AWARE PROMOTERS are LOCKING HEAD with each other!!
“Mr. P G Pawar, Mr. Mahesh Viswanathan, Mr. M.L Jain and Mrs. Shruti Udeshi, Directors had offered themselves for reappointment at the last AGM held on 18th September 2019.All the resolutions proposed at that AGM were passed by requisite majority. However, two major corporate shareholders namely: Orbit Electricals Private Limited holding 30.7% and Finolex Industries Limited holding 14.5% aggregating to 45.2% of the paid up share capital of the Company voted against each of the resolutions for their respective re-appointments. Both the aforesaid major corporate shareholders are under the management control of Mr. Prakash Chhabria one of the promoters of the Company who is currently in dispute with Mr. D K Chhabria, another promoter who is in management control of the Company which explains the reasons for such negative votes being cast by those companies. A contention has been raised that these votes were cast contrary to the mandate under their constitutional documents/ contractual commitments, and these are the subject matter of challenge before the Court(s) and the matter is thus sub judice.”
Source AR 2019-20, Page 26
2 Likes
The debt-free company has good fundamentals in spite of family disputes.
Having a good FMEG product range also 5G opportunity.
Seems undervalued compared to its peers (Polycab) in each valuation aspect.
Does it eligible for rerating soon?
1 Like
The owners seems to be reconciling and putting their disputes behind. In the recently concluded AGM,there was no cross voting, all resolutions passed with requisite majority. The company has around 2000 crs of cash in books at MCAP of 7500 crs. How many companies in India have that kind of war chest for acquisitions . The management is extremely conservative and honest. They helped their dealers during covid by expanding the discounts. If anyone has heard Mr. Deepak Chabaria during concalls,he comes across as a very humble man and knows each and every aspect of finolex . He has taken care than even during the family fued “Finolex” brand is not tarnished. As a 70 year old man he in in sync with the current trends hiring Kiara and Kartik as brand ambassadors instead of ageing so called megastars.
5 Likes
Earnings-Call-Transcript-dated-11Nov-2022.pdf (314.3 KB)
Fiber optic turnover has jumped 100% during the last qtr primarily due to orders from Bharti and Jio. . Current price for fiber optic cable is 3.6/km which is at par with international prices. The subdued profits are due to share of loss of associates(finolex industries). Overall the company is quite communicative about results and is not shying away from sharing uncomfortable facts, nor they are over-promising . The management dispute seems to be over although Mr. Deepak Chabaria did not answer a direct question related to it. The sudden move after the AGM,of almost 25-30% the market seems to be sensing resolution. Interesting trivia—Mr. Prakash Chabaria is the son-in-law of Mr. Gopichand Hinduja. Hinduja’s themselves have lately resolved all their disputes.
4 Likes
Q3-FY 23 RESULTS HIGHLIGHTS.
Nine months standalone EPS equal to 90% of fy22 EPS, Q4 is usually very strong due to orders from govt. departments.
Primary supplier of OFC to Jio and Airtel resulting in 100% jump in revenues from OFC cables .
26% value growth and 20% volume growth in Metal Cables and 70% growth in OFC cable revenves.
Consolidated results look subdued due to loss posted by Associate- Finolex Industries in Q2-FY 23.
Market continues to value it at <15 PE despite of tremendous brand value largely due to perceived Management feud, which I feel is largely resolved.
finolex cables Q3-FY 23 RESULTS.pdf (5.0 MB)
3 Likes
Is this the main trigger for the rally in last 20 days.
An early resolution can be good for both Finolex industries and Finolex cables, though it is still a wishful thinking for now.
@Worldlywiseinvestors any view since you are tracking this name?
Disc: Invested (few months back) in both stocks for long term. Waiting for value unlock as soon as legal issue get settled which is kind of overhang.
1 Like
finolex ay-2023.pdf (3.4 MB)
Incidently ,stock made life high of 1150,on the same day that AY for 2023 is released.
Notable insight from the Ar is
1…life high capex of 500 crs in next 18 months.
2.Debt free status with liquid investments around 2500 crs.
2 Likes
Contrary to my belief the promoter disputes have escalated and now its an all out war between the two cousins.This is an inportant lesson for me as an Investor as well. The market knows much more than an individual Investor looking at results of a company and the perceived value of its brand. The time when I first invested in finolex cables, polycab was available at around 700 odd and finolex around 360,see the kind of returns polycab has made(almost 2.5x as compared to finolex). Family fued is taking its toll on the copany with no clear line of succession. I feel sad for Mr. Deepak Chabaria,he has given his
life and everything to this company and he comes across as a frank and honest man during concalls. I only wish that better sense prevail between the warring brothers.
finolex cables case status in SC and NCLT.pdf (2.2 MB)
Extremely unfortunate that Mr. deepak chabaria has been unceremoniously removed from the position of “Executive Chairman” from the compnay he nurtured. It would be very difficult to imagine what would be going on in his mind about the company which he helmed for over 25 years.when one listens to the cancalls one can realize that Mr. chabaria knew the intricate working of the comoany like the back of his hand.This episode also brings to fore the need for proper succession planninng between ndifferent branches of a family business.
finolex cables update.pdf (318.3 KB)