Rating Rationale
February 28, 2019 | Mumbai
Finolex Cables Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.450 Crore (Reduced from Rs.500 Crore)
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA+/Stable (Reaffirmed)
Rs.50 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of Finolex Cables Limited (FCL) CRISIL has also withdrawn its rating on the Non Convertible Debentures of Rs. 100 crores and Long Term Bank Facility of Rs. 50 crores (See Annexure 'Details of Rating Withdrawn' for details) on confirmation from the debenture trustee as it is fully redeemed. The rating is withdrawn in line with CRISIL's policy.
FCL's revenue increased 14% year-on-year (YoY) in fiscal 2018 mainly due to increase in volumes of the company. Electrical wire grew by 5% and all communication cable grew by over 35%. Growth in electrical wire segment was impacted by slowdown in realty sector. The company's operating performance declined by 160 bps in fiscal 2018 on the back of increase in fibre prices and pre-agreed tender prices. However, Profit-After-Tax (PAT) margins remained relatively stable owing to a 66% rise in other income led by forex gain.
For the nine months ended December 31, 2018, FCL earned PAT of Rs. 259.19 crores (Rs. 276.44 crores over the corresponding period in the previous year) against income of Rs. 2254.71 crores (Rs. 2032.92 crores over the corresponding period in the previous year). FCL's operating income grew by 11% yoy led by a 9% volume growth in electrical and communication cables and 22% in others (consumer durables) segment. Margins declined by 70 basis points (bps) on a yoy basis owing to the volatility in raw material prices and provisioning for inventory.
Going forward, revenue is estimated to grow at 10-12% over the medium term driven by FCL's established market position in the domestic wire segment and a huge potential for digitization of cable networks across the country. Growth is also expected to be supported by traction in newer segments viz Fans, Switchgears and Waterheaters over the medium term.
The ratings continue to reflect FCL's stable business risk profile because of strong market position in the electrical cables segment backed by an established brand and integrated operations. The ratings also factor in FCL's healthy financial risk profile driven by strong accrual. These rating strengths are partially offset by vulnerability of profitability to volatility in raw material prices and to economic downturns, and exposure to intense competition.

Analytical Approach

For arriving at the ratings, CRISIL has moderately integrated the business and financial risk profiles of Finolex Cables Ltd (FCL) and Finolex J-Power Systems Pvt Ltd (FJPS), which is FCL's joint venture (JV) with Japan's J-Power Systems Corporation (JPS). This is because FCL has a stake of only 49 percent in the JV, with 51 percent being held by JPS. CRISIL has also moderately integrated the business and financial risk profiles of FCL and Corning Finolex Optic Fibre Pvt Ltd (Corning-Finolex), which is FCL's JV with Corning Inc, USA (Corning). Corning and FCL have equal shareholding in the JV, which is only a marketing JV. CRISIL believes that FCL will support its JVs only to the extent of its shareholding in them.

Please refer Annexure - List of entities consolidated , which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
* Stable business risk profile, driven by strong market position in the electrical cables segment, established brand, and integrated operations
FCL is among the leading electrical cable manufacturers in India. The company derives its strong market position from its established brand and robust distribution network comprising more than 30,000 dealers, over 4000 channel partners, and depots at 19 locations with an integrated SAP system connecting them all. FCL's strong distribution network gives it an edge over its competitors in the highly fragmented market. Further backward integration with in-house availability of copper rods ensures timely supply of quality raw materials and edge over small unorganized players.
* Steady growth prospects in core businesses
FCL's two major lines of business are electrical cables and telecommunication cables. The electrical cables business is expected to grow steadily based on FCL's increased geographical reach in Northern and Eastern India on account of expansion of its plant in Roorkee (Uttarakhand). The communication cables segment is expected to grow at a slightly faster pace than the electrical cables business over the medium term on account of increased demand from telecom, broadband, and DTH companies.
* Healthy financial risk profile
Financial risk profile remains healthy with Networth and gearing of Rs. ~2200 crores and 0.00 times respectively as on September 30, 2018. Debt-protection metrics were also comfortable with Interest Coverage and Net Cash Accruals to Total Debt at 474 and 485 times respectively as on September 30, 2018. Networth is expected to increase further over the medium term on the back of steady cash accrual, while gearing is expected to remain comfortable with capex of Rs. 200 crores planned over the medium term to be funded through internal accruals.
* Vulnerability to fluctuations in copper prices
FCL is susceptible to volatility in copper prices. Copper is the primary raw material used in the manufacture of cables and accounts for more than 75 percent of FCL's total raw material cost. Though the company revises the prices frequently based on raw material prices, however, the profitability would be impacted if the company is unable to pass on the price increase to its customers.
* Susceptibility to economic downturns
FCL is susceptible to the economic environment in India. Electrical cables contribute around 80 percent to FCL's revenue, and end-users of the product include construction (real estate) and automobile industries. Growth in these industries is, in turn, linked to the economic environment, which will drive demand. Estimated lower gross domestic product growth and effect of demonetization on the real estate industry could lead to moderation in demand for electrical cables from the above-mentioned sectors in the near term.
* Exposure to intense competition
The electrical cables segment is highly fragmented with a large number of unorganised players, constraining the pricing power of organised sector players. FCL also faces competition from organised sector players such as Havells, Polycab, and Kei Industries. CRISIL believes that though the domestic electrical market is becoming more quality conscious, competition from organised and unorganised players in the market may impact FCL's operating profitability.

FCL has strong liquidity. The company had cash and liquid investments of Rs 1007 crores as on September 30, 2018. Available bank limit of Rs 200 crores remained unutilised in the 12 months through December 2018. With expectations of steady cash accruals of Rs. 390-420 crores over the medium term and absence of debt, liquidity is expected to remain healthy over the medium term as well. 

Outlook: Stable

CRISIL believes that FCL will maintain its stable business risk profile over the medium term, driven by its dominant position in the electrical cables segment. The company is expected to maintain its healthy financial risk profile supported by comfortable capital structure and healthy cash accruals.

Upside Scenario:
* If FCL significantly improves its scale of operations and diversifies its revenues, while sustaining its operating margin and maintaining its strong financial risk profile. 

Downside Scenario:
* In case of deterioration in the company's capital structure, driven most likely by large debt funded acquisitions or capital expenditure (capex) plans,
* If adverse business conditions result in a sharp decline in its revenues or profitability

About the Company

Established in 1956, FCL is the flagship company of the Finolex group, and among India's leading electrical cable manufacturers. FCL has a large product portfolio, which encompasses electrical, communication, and power distribution cables. The company also has presence in the electrical switches, compact fluorescent lamps and LED businesses, and the recently launched Fans, MCB's and Water Heaters. Its products find application across the residential, commercial, infrastructure, and industrial sectors. FCL has manufacturing locations in Maharashtra, Goa, and Uttarakhand.
In January 2008, FCL and JPS entered into a JV to form FJPS, to manufacture high-voltage (up to 500 kilovolts) cross-linked polyethylene insulated power cables, used in power distribution. FJPS also offers turnkey solutions in extra-high-voltage cable systems. FCL formed a JV with Corning in 2011-12 to market optical fibre to cable makers in India.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. Cr. 2815 2469
Profit After Tax (PAT) Rs. Cr. 358 316
PAT Margins % 12.7 12.8
Adjusted Debt/Adjusted Net worth Times 0.00 0.00
Interest coverage Times 390.78 111.82

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs Cr)
Rating Assigned
with Outlook
NA  Short Term Debt NA NA 7-365 days 50 CRISIL A1+ 
NA Cash Credit* NA NA NA 200  CRISIL AA+/Stable
NA Letter of credit & Bank Guarantee NA NA NA 250  CRISIL A1+
NA Long Term Bank Facility^ NA NA Dec-17 50 Withdrawn 
*Interchangeable with overdraft facility, bill discounting, cheque discounting, packing credit, and short-term loan
Annexure - Details of Rating Withdrawn
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Issue Size
(Rs Cr)
INE235A07029 Debentures Aug-10 9.10% Aug-15 100
Annexure - List of Entities Consolidated
Names of Entities Consolidated Extent of Consolidation
Finolex J-Power Systems Pvt Ltd Moderate
Corning Finolex Optic Fibre Pvt Ltd Moderate
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  0.00
CRISIL AA+/Stable      01-02-18  CRISIL AA+/Stable  27-02-17  CRISIL AA+/Stable  09-02-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
                    01-02-16  CRISIL AA+/Stable   
Short Term Debt  ST  50.00  CRISIL A1+      01-02-18  CRISIL A1+  27-02-17  CRISIL A1+  09-02-16  CRISIL A1+  CRISIL A1+ 
                    01-02-16  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  200.00  CRISIL AA+/Stable      01-02-18  CRISIL AA+/Stable  27-02-17  CRISIL AA+/Stable  09-02-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
                    01-02-16  CRISIL AA+/Stable   
Non Fund-based Bank Facilities  LT/ST  250.00  CRISIL A1+      01-02-18  CRISIL A1+  27-02-17  CRISIL A1+  09-02-16  CRISIL A1+  CRISIL A1+ 
                    01-02-16  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 200 CRISIL AA+/Stable Cash Credit* 200 CRISIL AA+/Stable
Letter of credit & Bank Guarantee 250 CRISIL A1+ Letter of credit & Bank Guarantee 250 CRISIL A1+
Long Term Bank Facility 50 Withdrawn Long Term Bank Facility 50 CRISIL AA+/Stable
Total 500 -- Total 500 --
*Interchangeable with overdraft facility, bill discounting, cheque discounting, packing credit, and short-term loan
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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