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Here's why JM Financials thinks Finolex Cables will gain 25% in a year

Here's why JM Financials thinks Finolex Cables will gain 25% in a year

Here's why JM Financials thinks Finolex Cables will gain 25% in a year
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By Ajay Vaishnav  Aug 20, 2019 2:45:53 PM IST (Published)

Finolex Cables shares traded at Rs 374.90, up by 0.85 percent on NSE at 2.16 pm with so far 10,191 shares changing hands.

Brokerage JM Financial expects a 25 percent upside potential in Finolex Cables in the next four quarters despite a disappointing set of numbers in the first quarter ended in June. The midcap cable company's revenue grew 2.1 percent year-on-year basis to Rs 807 crore. The topline growth was driven by 4.4 percent growth in its core electrical cable business, which forms over 82 percent of its total turnover.

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Volume growth at 3 percent too remained subdued in the electrical cable business, which is witnessing demand slowdown mainly from the real estate sector which contributes to over 60 percent of the total business, the brokerage said in a research report.
Also, the recent weakness in automobile volumes is compounding the growth challenges faced by this segment, it added.
The communication cables segment, which includes its optic fibre cable business, had a dismal quarter with segmental revenue declining 15 percent YoY, it said.
While linking the delay in finalising of orders to the general elections in the first quarter, Finolex management expects orders to pick up in next few quarters led by a stable government in power and push to improve broadband and telecommunication connectivity.
On the valuation front, the JM Financial report says that the stock has corrected 20 percent in the last three months amid the ongoing slowdown in the housing sector and concerns regarding the promoter tussle.
However, the current market price of Rs 360 per share trades at 16 times TTM P/E factors in most of the negatives, the report said.
But the brand has built a strong business franchise over the years with a diversified product profile, wide and expanding distribution reach, strong brand recognition and acceptance, high business-to-consumer business mix, cash and carry business model and strong core ROCE of over 28 percent.
“We forecast a PAT CAGR of 11% during FY19-21E, and maintain our BUY rating with a TP of INR 450, valuing it at 16x June’21E EPS,” it said.
Finolex Cables shares traded at Rs 374.90, up by 0.85 percent on NSE at 2.16 pm with so far 10,191 shares changing hands.
The stock has gained 4 percent in the last two days although the one-year return on the stock remains negative at 37 percent. The stock has returned over 833 percent to investors in the last 10 years.
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