HSBC maintains underweight rating on Finolex

FINOLEX CABLES

RESEARCH: HSBC

RATING: UNDERWEIGHT

CMP: RS 51.70

HSBC maintain underweight rating on Finolex Cables, however raise the target price to Rs 52 from Rs 47. Finolex Cables reported disappointing Q4FY10 results with a net loss of Rs 54m, while the adjusted profit of Rs 102m was lower than the expectation by 70%.

The key reasons for the disappointment were: (1) lower than expected EBITDA margin. The adjusted FY10 net profit was Rs 1.1bn, which grew 150% y-o-y .

HSBC maintain their y-o-y sales growth estimates of 5% and 10% for FY11 and FY12, respectively. Based on higher sales and lower depreciation, HSBC increase their FY11/FY12 earnings estimates by 7% to Rs 6.8/Rs 7, respectively.

Management has indicated that forex loss on derivative contracts are likely to continue until FY12, which remains a key risk to the earnings. HSBC value Finolex Cables using PEand PB-based methodologies. The new target price of Rs 52 is the average of PB and PE multiple-based valuations.