Finolex Cables Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from Finolex Cables Ltd (FINCABLES) Q4 FY22 Earnings Concall

Q&A Highlights:

• Avinash from Profitmart Securities asked about the outlook on copper, FINCABLES main raw material. Mahesh Viswanathan CFO said FINCABLES does not take a long call on the metal pricing at all. The company buys the metal on the month average. This helps in moving FINCABLES costs in line with what is happening on the market. And secondly, as the company buys and converts the metal, it still has an opportunity to change the selling prices if required.

• Avinash from Profitmart Securities also asked about the working capital being significantly reduced and if it will be sustained in FY23. Mahesh Viswanathan CFO said these numbers are definitely sustainable. But for businesses with long gestation period then there are set credit periods. And again if there is exposure to govt. then that number can climb more.

• Avinash from Profitmart Securities enquired about the demand scenario currently. Deepak Chhabria EC said that the worst is over and things are coming back to normal. In the last two years, FINCABLES saw pricing going up, but volumes not going up. The market is quite good at the moment, it’s not bad. The company hopes it keeps improving this way, and it should be a good year.

• Rahul Agarwal from InCred Capital asked why at a company level, gross margins are 19% for the quarter, which are like lowest in so many years. Mahesh Viswanathan CFO said overall 19% is on account of the dealer incentives being fully passed on. The second reason was that FINCABLES had taken some provisions for material that has been with it for a long time, certain SKUs which have not moved.

• Rahul Agarwal from InCred Capital asked about the gross margin for FY23. Mahesh Viswanathan CFO replied that the outlook for FY23, if there is not too much of volatility in the metal pricing, then FINCABLES should slowly head back towards the 22%, 23% numbers.

• Shubham Agarwal from InCred Capital also asked about the distribution to wires and has the company lost any market share in wires over the past two years in the core markets. Deepak Chhabria EC replied that the company doesn’t believe it has lost any market on wires. FINCABLE added that it would have increased its reach over the last two years with distributors and channel partners selling its products.

• Shubham Agarwal from InCred Capital asked about the margins on wires, if the company could trend back to 14% over next one year. Mahesh Viswanathan CFO replied that FINCABLES does think so. Even at 13%, if one looks at FINCABLES and compare with its peers, the company is still top of the heap there.

• Shubham Agarwal from InCred Capital asked about the short term margin guidance for communication cable. Mahesh Viswanathan CFO said in the short-term, it would be between 7% and 10%. But long-term, should climb back to around 11%, 11.5%, as volumes improve.

• Shubham Agarwal from InCred Capital asked about any guidance on capex and working capital. Mahesh Viswanathan CFO replied there is no change in the capex guidance vs. what’s said earlier. By end of 2023, FINCABLES would have spent about INR200-odd crores. Nothing new has been added to the list.

• Ashwani Sharma from ICICI Securities enquired about the volume growth taken during FY22 across products. Mahesh Viswanathan CFO said that for FY22, on wires, the volume increase is about 7%. On communication product lines, different product lines have different growth rates. But the most significant one is optic fiber, where the growth is about 32%.

• Ashwani Sharma from ICICI Securities also asked about price hike taken during FY22. Mahesh Viswanathan CFO said there were, 5 or 6 price changes that the company made during the year. And each time, it was between 3% to 3.5%. So overall, maybe about 14% to 15% change.

• Ashwani Sharma from ICICI Securities enquired about the driver of profit from associates which saw a jump of INR157 crores in 4Q and sustainable number for FY23. Mahesh Viswanathan CFO replied that this profit comes from FINCABLES participation in Finolex Industries. FINCABLES holds 32.5% of Finolex Industries. Sustainability will depend on how oil and polymer market goes.

• Ashwani Sharma from ICICI Securities asked about the breakup between government and private clients in overall business. Mahesh Viswanathan CFO clarified that government would be about 20%, plus minus 10% and balance private.

• Chintan Sheth from Sameeksha Capital asked that on electrical wires, how much is sales through distribution and other means. Mahesh Viswanathan CFO replied that majority sale is through distribution. 10% of the business would be through project sale, but majority of that would be like funded through a channel partner. So no credit really going in this distribution business to the end customer.