Stock Pick From Cables- Telephone Sector

HERE IS WHY
Diversification of business activities
Inorganic expansion through acquisition of 
Unitape Mandovi
Attractive Valuations

Aksh Optifibre Ltd (AOL) is in the manufacture and sale of optical fiber cables; fiber reinforced plastic rods and impregnated glass roving reinforcement. The company's segments include manufacturing, services and trading of goods. It caters to both domestic and international markets. AOL provides e-governance services, fiber-tothe-home (FTTH) and Internet Protocol television (IPTV) services in North India.

 AOL expanded its capacity in the current year (2016) in optical fibers by 100 per cent, optical fiber cables by 50 per cent and fiber reinforced plastic by 200 per cent. The company also opened 1,0000 one-stop Aksh kiosks. AOL’s two key raw materials, optical fiber and FRP rod, constituting 70 per cent of cost of optical fiber cables, are manufactured in-house. This makes the company as one of the most cost-effective optical fiber cable manufacturer. It is now the largest FRP rod producer, supplying to all optical fiber cable manufacturers in 56 countriesacross six continents.

 AOL has acquired Unitape Mandovi and intends to maintain market leadership through this acquisition in the manufacture of FRP. Unitape has a production capacity of 2.16 lakh kms of FRP rods per year. AOL decided to buy Unitape as it was engaged in the business of manufacturing fiber reinforced plastic (FRP) rods. AOL has sought approval to engage inincidental business activities such as eye checking, optometry, contact lenses and other accessories and to import, export, deal in merchandise related to the eyewear business. It has already approved Rs.85 crore for the diversification of its product portfolio to manufacture 2 lakh pairs of ophthalmic lenses per day in phased manner to mitigate business risks. On the financial front, AOL’s revenue increased at a CGAR of 9.92 per cent in last five financial years ending FY16. The company’s EBIDA too rose 16.79 per cent CAGR within FY12-FY16. Its net profit also increased by a CGAR of 5.48 per cent since last five financial years. AOL’s topline increased 25.33 per cent to Rs.439 crore in FY16 as compared to the previous financial year.

 The company’s EBITDA jumped 43.88 per cent to Rs.65.91 crore in FY16 on a yearly basis. Its bottomline also rose 1.07 per cent to Rs.25.6 crore in FY16 as compared to the previous fiscal year. AOL posted revenue of Rs.195 crore in H1FY17 with a loss of 5.55 per cent on a yearly basis. The company’s EBITDA too declined 7.71 per cent to Rs.30.41 crore in H1FY17 as compared to the same period in the previous financial year. Its net profit also decreased 45.5 per cent to Rs.10.96 crore in H1FY17 on a year-on-year basis. On the stock’s valuation, AOL’s share price is trading at a PE multiple of 15.09x as compared to peers such as Precision Wire India (15.16x), Vindhya Telelinks (7.76x) which is quite attractive. The company’s PE multiple is also at a discount as compared to industry PE multiple of 16.35x. Its trailing 12-month (TTM) EPS is Rs.1.57 and PB multiple is 0.88x.