Finolex Cables’ 2Q FY11 operating results were disappointing due to a sharp fall in EBITDA margin by 810bp to 8.5%. This was primarily a result of a rise in copper prices (key raw material), which was not passed onto customers deliberately in order to maintain market share (signalling competitive intensity).
Reported profit of INR189m (9% lower than our estimate) benefited from high other income of INR148m, while profit adjusted for forex loss of INR121m declined 43% y-o-y to INR267m.
Finolex reported a forex loss of INR121m (2.5% of sales) on derivative contracts in 2Q FY11. Management has guided that these derivative losses will continue till FY12, which constitutes a potential risk to earnings going forward
EPS Estimates of Finolex Cables for FY 11 6.8
