Recommendation From Other Electrical Equipment Prod Sector
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CABLING PROFIT
HERE IS WHY
Positive macroeconomic cues
Government measures on subsidy
Attractive valuations
The Indian electrical equipment industry comprises of two broad segments – generation equipment (boilers, turbines, generators) and transmission & distribution (T&D) and allied equipment like transformers, cables, transmission lines, switchgears, capacitors, energy meters, instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material, industrial electronics, indicating instruments, winding wires, etc. The generation equipment sector stands for around 28 per cent while the T&D equipment sector accounts for close to 72 per cent of the total industry base.
Universal Cables is in the manufacture and sales of electrical and other cables, capacitors, conductors and others. The company offers power cables, such as extra high voltage (EHV), medium voltage (MV), low voltage (LV) power and control cables, and light duty wires and cables for winding wires, flat cables and flexible cables. It has a product portfolio of specialty cables and caters to the original equipment manufacturers (OEMs) and infrastructural segment, such as railways, steel plants, petrochemical plants, cement plants, onshore and offshore oil ring manufacturers, ship building, heavy engineering and mining industries.
Envisioning an imminent change in the market structure where higher voltage cable demand would grow at a significant pace, Universal Cables has upgraded the manufacturing infrastructure to take advantage of this opportune moment and is optimistic to continue its growth in a sustainable and profitable manner. It has made heavy investments in the past for upgrading and modernising its technology and plant and machinery.
Universal Cables has performed better financially in the last five financial years. The company has witnessed turnaround in its bottomline and posted net profit of Rs.17.36 crore in FY16 as against a net loss of Rs.21 crore in FY12. Its revenue increased 3.84 per cent CAGR over these five fiscals. Universal Cables’ EBITDA also boosted 51.28 per cent CAGR in FY12-FY16.
On the financial front, Universal Cables’ revenue increased 6.52 per cent to Rs.567 crore in 9MFY17 as compared to the same period in the previous financial year. The company’s EBITDA too rose 6.31 per cent to Rs.54.45 crore in 9MFY17 on a yearly basis. Its net profit also boosted more than three times to Rs.22.98 core in 9MFY17 as compared to the same period in the previous financial year.
Universal Cables has cut down its total debt-to-equity ratio to 1.67x in FY16 from 3.33x in FY15. The company’s interest coverage ratio stood at 1.34x in FY16. The company’s ROE and ROCE stood at 13.21 per cent and 14.11 per cent, respectively, in FY16.
On the valuation front, the share price of Universal Cables is trading at trailing 12-month (TTM) PE of 9.01x as compared to peers such as Precision Wire India (13.25x), Aksh Optifibre (19.91x). At the same time, the company is trading at an attractive PE as compared to the industry PE of 23.14x. We recommend our reader-investors to BUY the stock.
