Finolex Cables Ltd (FCL) is one of India’s largest manufacturers of electrical and telecommunication cables with 9% market share across India. FCL holds a strong brand image and value and it has manufacturing facilities at Pimpri and Urse in Pune as well as at Goa & Uttarakhand and operates under three main divisions namely: ECS, CCS, CCR and Others. It has 3,500 dealers and distributors in its traditional strongholds of South and West India and recently added over 500 channel partners in North. We expect it to post healthy 18.3% revenue CAGR over FY14-FY17E. With strong backward integration coupled with product visibility in the west & southern region, operating margin is likely to improve by 58 bps, driving a net profit CAGR of 22.3% over FY14-FY17E.Lower working capital and capex would improve the return ratios and free cash flow in the near to longer time. We see upside momentum of FCL’s earning for FY15E. Therefore we initiate coverage on FCL with a “STRONG BUY” recommendation and a target price of INR 333.
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