Finolex Expects OFC Margin Lift After Preform Stabilizes in Q2

Finolex Cables Limited — Q4 & FY26 Earnings Conference Call (held 29 May 2026; results for quarter ended 31 Mar 2026)

1. Overall Tone of Management: Optimistic

• Management highlights strong topline and profitability improvement: “Revenue… up by about 22%” (QoQ/YoY) and “EBITDA… 22% quarter-on-quarter”; “PAT… 19% better quarter-on-quarter”.
• Despite margin pressure from late-quarter shocks, they frame it as temporary and operationally manageable: “margins were slightly under pressure” due to Middle East/RM/currency, but also emphasize improving segment performance and commissioning progress.
• They repeatedly express confidence in medium-term demand for OFC/data centers/defense and capacity ramp: “should improve beyond what we have seen this year”, “reasonably good growth over the next few years”.

2. Key Themes from Management Commentary

• Electrical cables (strong volume-led growth, pricing actions):
• Electrical segment Q4 revenue at “INR 1,697 crores… highest”, +22% YoY and +21% QoQ.
• Auto batteries/industrial flexibles/power show “high-double digit growth in volume terms”.
• Building wire: “marginal volume growth” due to copper pass-through resistance.
• Agricultural applications: volume down “about 15%-16%” due to monsoon impact.
• Price actions: “close to 14 price changes, all upwards”; effective price change “about 24%-25%” in most SKUs.
• OFC / Communication cables (demand shock + supply constraints):
• Fiber prices hardening due to “explosion of data center applications in the U.S. and in Europe” and “military obligations”.
• Management expects revenue improvement in “second half of this year” but notes fixed-price long-term contracts delay benefit.
• Backward integration: preform plant commissioned; draw capacity expansion to complete by July; trials/settling expected to drive benefits in Q2/Q3 onward.
• Supply chain bottlenecks: fiber/preform availability constrained; germanium supply is a specific risk.
• Margin pressure near year-end (macro shock):
• “shock from the Middle East” → “cost increases across the board”, rupee depreciation, higher RM costs, inventory coverage leading to higher inventory costs.
• JV EHV with Sumitomo turning profitable:
• “turned profitable this year” with “INR 21 crores” profit on “INR 450 crores” revenue; utilization/capacity and order book improving.
• Capex and cash flow:
• FY25 capex ~INR 240 cr; FY26 expected additional ~INR 200 cr (capacity expansion) + ~INR 100 cr (remaining preform/fiber-related), total “INR 300 crores” (also clarified in Q&A).
• OCF down vs last year due to inventory prebuying after Middle East disturbances.

3. Q&A Analysis

Theme A: Communication cables—growth outlook, margin trajectory, and timing of benefits

• Core questions
• How should growth/margins evolve in Communication cables given high fiber prices and supply constraints?
• When will preform/draw capacity benefits flow through to EBIT margins (FY27/FY28)?
• Management response
• Growth is large but visibility is limited: “not able to commit to a number… difficult… at this point in time”.
• Margin expectation: EBIT “about 6%” ended FY26; “should improve beyond what we have seen this year” and “should benefit… timeframe… around second quarter”.
• Timing: preform commissioned in March; plant stabilization “3 to 4 months” → earliest benefit end of Q2 / Q3; draw capacity commissioning end of Q2 → benefits in second half.
• Contract structure: long-term fixed-price contracts delay fiber-price benefit until renegotiation.
• Notable / evasive elements
• They avoid quantitative FY27 margin guidance despite being asked directly; repeatedly cite war/supply chain uncertainty.
• They provide a range for margin accretion from backward integration later (“5% to 10% better than market”) but not a firm EBIT target.

Theme B: OFC capacity utilization, revenue potential, and operational constraints

• Core questions
• Current utilization and target utilization; when will 8 million km mark be reached?
• Revenue potential at full capacity (INR 750 cr claim) and whether revenue is price-driven.
• Management response
• Draw capacity: “4 million kilometers” currently; “should cross 8 by… end of second quarter” → 8 million available from Q3.
• Utilization: “close to three and a quarter” (≈3.2/4 million); for FY27 margin improvement “subject to no supply chain constraints”.
• Revenue potential: “can be beyond INR 750 crores” (and clarified INR 750 cr is overall capacity after expansion to 8 million km).
• Revenue depends on SKU complexity/fiber count: “depends on what that order configuration looks like”.
• Notable / strong elements
• Clear operational milestones (preform stabilization window; draw commissioning by end of Q2; 8 million km by Q3).

Theme C: Electrical wires/housing wires—why volumes lag and what to expect

• Core questions
• Why housing wires aren’t growing despite real estate recovery; will FY27 see similar demand deferral?
• Management response
• Retail channel hit due to copper price escalation and stocking behavior: distributors/dealers reluctant because “price holds” risk.
• Project sales stable: “where the material is going to projects, we don’t seem to have a major issue.”
• FY27 demand: management refuses to predict—“I’m not going to put my neck out there… depends all on the price movements**”.
• Notable / evasive elements
• No demand forecast; relies on commodity-price uncertainty.

Theme D: Capex, cost structure, and guidance policy

• Core questions
• Capex breakup and future revenue/margin guidance.
• Whether employee/other expenses will revert after being low.
• Management response
• Capex clarified: “INR 200 crores” capacity enhancements + “INR 100 crores” remaining optic fiber preform-related → “totally INR 300 crores”.
• Guidance: explicitly declines: “I do not give out any guidance… volatile situation… war…**”
• Opex: expects annual cost ratios similar to current: “on an annual basis, it should be similar…”
• Notable / strong elements
• Capex numbers are consistent and specific after clarification.

Theme E: FMEG portfolio (PVC conduits, fans, distribution)

• Core questions
• Outlook and what’s being done to improve underperformance.
• Management response
• Fans: “did not grow in volume terms” due to unseasonal rains and BIS norm changes causing destocking.
• Conduits: “operating at close to 85%”.
• Underperformance acknowledged: “Our performance has been under par… relooking at the portfolio… strengthen the teams… distribution… continuous exercise”.
• Notable / positive
• More direct admission of underperformance vs earlier quarters’ more defensive tone.

Theme F: Exports

• Core questions
• Export growth and target export share.
• Management response
• Export team revamped; export revenue increased from ~INR 30 cr (FY24-25) to INR 52 cr (FY26).
• Target: export share “0.5% to just under 1%” historically → “2% to 3% over the next 2 years”.

4. Guidance / Outlook

Explicit guidance (quantitative)

• Capex (FY26): total “INR 300 crores”
• “INR 200 crores” capacity enhancements
• “INR 100 crores” remaining optic fiber preform-related; draw expansion to 8 million km completes by July/August (timing referenced in Q&A as July/August).
• OFC capacity milestone:
• Draw capacity “4 million kilometers” now; “cross 8 by end of second quarter” → 8 million available from Q3.
• Utilization currently “about 3.2 out of the 4”.
• Communication cable revenue potential (qualitative-to-quantitative):
• “overall capacity… could be around INR 750 crores” (after expansion to 8 million km), and “can be beyond INR 750 crores” depending on SKU mix/prices.

Implicit signals (qualitative)

• Margin improvement timing: preform/draw benefits expected “around second quarter” / “second half” of the year, assuming supply chain constraints ease.
• Demand outlook: “reasonably good growth over the next few years” driven by data centers, AI, and defense—tempered by war/supply chain disruptions.
• No formal guidance: management explicitly refuses to provide revenue/margin guidance due to geopolitical volatility.

5. Standout Statements (direct / high-signal)

• OFC demand + supply constraints: “fiber prices are fairly high… securing the required raw material also poses certain challenges.”
• Contract delay on fiber-price benefit: “until those contracts run out, we will not see the benefit coming into our financials.”
• Backward integration timing: preform commissioned March; benefit “from the earliest… end of quarter 2 or maybe quarter 3.”
• War-driven uncertainty: “war is ending tomorrow… no… it’s not ending” → “I do not give out any guidance”.
• OFC utilization and margin linkage: “subject to no supply chain constraints being there” for reaching guided margin levels.
• Preform flexibility: “It gives us flexibility… dynamic as the market demands” (sell preform only if cable orders are short).
• Germanium supply risk: “That is the challenge… supply chain difficulty” (though they claim inventory is sufficient for a few months).

6. Red Flags / Positive Signals

Red flags
– High uncertainty / limited forward visibility in OFC: repeated refusal to commit to numbers due to Middle East/war and raw material restrictions.
– Margin pressure drivers near year-end: “cost increases across the board” + rupee depreciation + higher inventory coverage.
– Retail channel fragility in wires: distributors/dealers reluctant due to copper price volatility (“risk… less people are willing to take”).
– Supply chain bottlenecks: fiber/preform availability constrained; germanium supply restrictions; import lead times.

Positive signals
– Operational milestones are on track (preform commissioning, draw expansion timeline).
– Demand tailwinds are concrete (data centers + defense applications) and management sees multi-year growth.
– JV turnaround: EHV JV “turned profitable this year” with improving utilization and order book.
– Cost discipline signal: employee/other expenses at lowest in 12 quarters; management expects annual stability.

7. Historical Comparison & Consistency Analysis (vs prior 3 calls)

a. Change in Tone Over Time

• Current (May 2026): More Optimistic
• Strong Q4/FY26 performance and clearer operational progress on OFC capacity.
• Prior calls:
• Feb 2026 (Q3/9M FY26): optimistic on OFC reversal (“fiber prices hardening”) and commissioning progress; still more cautious on timing.
• Aug 2025 (Q1 FY26): more mixed—communication cables “slightly depressed” and margin pressure attributed to mix/discounted project sales.
• Jun 2025 (Q4 FY25): cautious but improving—“margins were under pressure” and commodity volatility; expected catch-up via timing.
• Shift drivers
• Management now has actual commissioning progress (preform commissioned; draw expansion nearing completion) rather than “expected” timelines only.
• However, they also introduce new explicit uncertainty around defense-related raw material covenants and export restrictions—so optimism is tempered by new risk framing.

b. Tracking Past Commitments vs Outcomes

• OFC preform commissioning/trials
• Past (Feb 2026): “commission… within this fiscal”; trials expected to begin Feb and end in a month (stated in current call as prior guidance).
• Now (May 2026): “commissioned the preform plant… trials… performance encouraging”; benefit expected end of Q2/Q3.
• Status: ✅ Delivered on commissioning, ⏳ benefit timing still pending (benefits not fully in yet).
• Fiber draw expansion to 8 million km
• Past (Feb 2026): expected 8 million by end of Q1 FY26 (per Feb call narrative).
• Now (May 2026): “cross 8 by end of second quarter” → 8 million available from Q3.
• Status: ⏳ Delayed vs earlier “end of Q1” expectation (now pushed to Q3 availability).
• Margin guidance for electrical cables
• Past (Aug 2025): sustainable electrical cable EBIT margins “11% to 12%”.
• Now: electrical segment margin not explicitly re-quantified, but management continues to discuss mix/retail vs project and expects stability; no new firm target.
• Status: ⏳ Partially consistent (narrative remains: mix and competition constrain expansion; no clear “recovery delivered” claim).

c. Narrative Shifts

• Communication cables narrative pivot
• Aug 2025: OFC described as stagnant with low margins (1%-2%) and government program execution delays; backward integration framed as future margin improvement.
• May 2026: OFC now framed as demand-led (data centers/defense) with supply constraints and hardening prices, plus backward integration as a timing lever (fixed-price contracts delay benefit).
• Risk framing expanded
• New emphasis on defense application covenants and export restrictions on germanium/raw materials—not prominent in earlier calls.
• Electrical wires demand explanation refined
• Earlier: mix and project discounting.
• Now: retail channel hesitation due to copper volatility (stocking risk).

d. Consistency & Credibility Signals

• Medium credibility
• Strength: operational milestones are generally consistent (preform commissioning achieved; draw expansion still progressing).
• Weakness: timing slippage on fiber capacity availability (Q1 expectation → Q3 availability).
• Credibility is also affected by non-commitment on guidance due to war uncertainty—understandable, but it reduces predictability.

e. Evolution of Key Themes

• Demand (OFC): Improving
• From “depressed fiber prices / government execution delays” (Aug 2025) → “hardening prices + shortage” (Feb 2026) → “data center + defense pulling demand; supply constrained” (May 2026).
• Margins: Mixed
• Electrical: pressured by mix/retail vs project and commodity shocks.
• OFC: improving but still constrained by contract pricing and supply chain.
• Backward integration: Strengthening
• Preform plant and draw expansion move from “planned” to “commissioned/near completion,” with explicit margin mechanism described.

f. Additional Insights (cross-period intelligence)

• Inventory/cost management is becoming a recurring swing factor:
• Feb 2026: focus on inventory days improvement and supply chain squeezing.
• May 2026: inventory up “INR 300-odd crores” due to Middle East disturbances—suggesting the company is willing to carry working capital risk to protect production continuity.
• OFC margin upside is increasingly dependent on “contract expiry + renegotiation” rather than just capacity:
• This is a subtle but important shift—capacity alone won’t translate to margins until fixed-price contracts roll off.