Despite the Indian equity market experiencing a sharp decline in 2023 due to weak global cues and rate hikes by major central banks, a few stocks have delivered solid returns. This is in contrast to the Sensex and Nifty 50, which fell by over 5% in the current year so far.
Finolex Cables, the country's largest manufacturer of electrical and telecommunication cables, was one such top-performing stock in 2023. In CY22, the stock generated a modest return of 3.60%. However, the stock has made a strong comeback in the current year, having already delivered an impressive return of nearly 48% thus far.
The recent rally in the stock can be attributed to various factors, such as the company's impressive performance in the December quarter and the government's substantial increase in capex outlay by 33% to ₹10 lakh crore for FY24.
Since the Q3 FY23 earnings announcement on February 09, the stock has experienced a one-way rally from ₹548 apiece to ₹810, resulting in a fabulous return of 47%. On March 06, the company's shares climbed 9.93% to mark a new record high of ₹847 apiece.
Further, the stock has seen a meteoric rise of over 136% from its one-year low of ₹343 apiece, and it has produced a staggering return of 1676% in the last ten-year period.
Finolex is a mid-cap stock with a market cap of ₹12,394 crore. The company is principally engaged in the manufacturing of electrical cables, communication cables, and other electrical appliances. The company also manufactures lighting products, electrical accessories, switchgear, fans, and water heaters.
The company's electrical cables business is likely to benefit from the rise in capital expenditure in the real estate, construction, industrial, and automobile sectors.
In addition to that, the ongoing government programmes (Bharat Net Phase) are expected to improve broadband connectivity and related technologies, which will continue to drive growth for communication cables, according to analysts.
During the October-December quarter of FY23, the company reported a 42% YoY jump in its standalone net profit of ₹135 crore. The company's net profit was driven by strong operating performance, aided by higher other income.
The operating profit during the quarter came in at ₹141 crore, an increase of nearly 30% YoY, while the EBITDA margin expanded by 111 basis points to 12.3%.
The EPS (earnings per share) improved to ₹8.82 in Q3FY23 from ₹6.22 in the year-ago quarter. At the prevailing price, the stock trades at a price-to-earnings multiple of 22.4x, which is much lower compared to the industry P/E of 73.7x.
On the financial ratio front, the company has zero debt, Trendlyne data showed, while it had an ROE and RoCE of 12.39% and 15.97%, respectively, in FY22.
The promoters own 35.9% of the shares in the company, while foreign portfolio investors and domestic institutional investors each own 10.2% and 18.1%, respectively. Regular shareholders own 35.8%.
09 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.