finolex cables ltd share price Management discussions

Management Discussion & Analysis

ECONOMIC REVIEW GLOBAL ECONOMY SCENARIO

The global economy is showing signs of resilience in 2023 after a turbulent year in 2022. However, inflationary pressures,

tighter monetary conditions and the prolonged war between Russia and Ukraine continue to weigh on economic activity. Inflationary pressures are eroding real incomes, triggering a global cost-of-living crisis and substantially weakening investment growth. Furthermore, the global banking crisis in the United States has raised concerns over macroeconomic stability across the markets and an impending global recession. With the central banks efforts to curb inflation by tightening monetary policy, global inflation is projected to decrease from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024. Key factors in the improvement in economic activity and sentiment in 2023 are the rebounding of Chinas economy, the gradual unwinding of supply chains and the recent decline in energy and food prices.

Notwithstanding the headwinds, the real Gross Domestic Product (GDP) grew in the United States, the European Union

and major emerging market and developing economies.

The real GDP of the United States grew by 2.1% in 2022, on the back of increased private investment and consumer spending. It is projected to grow by 1.6% in 2023 and 1.1% in 2024. The European economy recorded 2.7% growth in

2022 and is projected to grow at 0.8% in 2023 before rising to 1.4% in 2024.

The International Monetary Fund (IMF) has projected global GDP growth to decline from 3.4% in 2022 to 2.8% in 2023 and rise to 3.0% in 2024. The growth of Advanced Economies (AEs) is projected to decline sharply from 2.7% in 2022 to 1.3% in 2023 before rising to 1.4% in 2024. Economic prospects for Emerging Markets and Developing Economies (EMDEs) are, on average, stronger than those for Advanced Economies. EMDEs grew at 4.0% in 2022 and are expected to grow at 3.9% in 2023 and 4.2% in 2024. The Asia-Pacific region will be the most dynamic of the worlds major regions in 2023, predominantly driven by the buoyant outlook for China and India, which will be the major contributors to global economic growth in 2023.

Source: IMF World Economic Outlook, April 2023

Growth Projections (Real GDP growth, percent)

INDIAN ECONOMY SCENARIO

India continues to be among the fastest-growing economies in the world. Despite the spill overs of the global slowdown, the Indian economy is exhibiting resilience and overall

economic activity remains strong. As per the second advance estimates released by the National Statistical Office (NSO), Indias GDP growth is estimated at 7% in FY 2022-23, as compared to the 9.1% growth achieved in FY 2021-22. Furthermore, despite the weakening external demand, the merchandise exports have registered the highest-ever annual exports of US$ 447.46 billion with 6.03% growth during FY 2022-23 surpassing the previous year record of US$ 422.00 billion in FY 2021-22.

As per the IMF, Indias GDP per capita at current prices is US$ 2,600 in 2023, leading to a surge in household consumption.

The economic growth rate is projected to decline to 5.9% in FY 2023-24 due to inflationary pressures. Higher inflation remains a challenge and the Reserve Bank of India (RBI) increased the repo rate by 25 basis points in FY 2022-23 to tame inflationary pressures. As a result, Indias CPI inflation rate eased to 5.66% in March 2023 from 6.95% in March 2022.

India has a long runway for growth, and as per the IMF, the Indian economy is expected to grow at 6.3% in FY 2024-25. Factors such as a conducive domestic policy environment, various dynamic reforms undertaken by the government such

as higher capital expenditure, production-linked incentives (PLI) scheme and Atmanirbhar Bharat initiative, a focus on domestic manufacturing and infrastructure development, strong domestic demand, export growth, technology-enabled development, and energy transition, among others, will stimulate growth in FY 2023-24.

Source: National Statistical Office; Ministry of Commerce & Industry; Groww.in; Ministry of Statistics and Programme Implementation; IMF World Economic Outlook, April 2023

Outlook

Expanding infrastructure spending occupies a central position in the governments strategy to assist overall economic growth. Investment in infrastructure is one of the seven priorities of the Union Budget 2023-24 and the government has increased capital investment outlay by 33.4% to Rs. 10 lakh crores in FY 2023-24 from Rs. 7.50 lakh crores in FY 2022-23 to boost the infrastructure sector. Furthermore, in the Budget, 66% increase in Pradhan Mantri Aawas Yojana outlay to Rs. 79,000 crores has been announced.

There is a surge in private investment in the real estate sector driven by increasing transparency and returns. In addition, the government has allowed FDI of up to 100% for townships and settlements development projects. Private equity investment in real estate remained stable in FY 2022-23 at US$ 4.2 billion, of which foreign investors contribution stood at more than 75% and 22% contribution came from domestic investors. The key regulatory reform, Real Estate (Regulation and Development) Act (RERA), is creating a culture of transparent transactions in the real estate sector. Other regulatory reforms such as the introduction of REITs in 2014, the Benami Transactions (Prohibition) Act, GST and the progressive relaxation of foreign direct investment (FDI) norms also led to increased capital flows. The governments thrust for public infrastructure development, higher allocation towards affordable housing and private investments are propelling the growth of the infrastructure and real estate sectors.

Source: IBEF; Ministry of Finance; Economic Times;

Economic Survey 2022-23

COMPANY REVIEW

Established in 1958, Finolex Cables Limited (hereinafter

referred to as "Finolex" or "the Company") is I ndias largest and leading manufacturer of electrical and telecommunication cables. The Company has established its reputation as an innovative leader and one of the most trusted brands in the cables and wires (C&W) industry through its strong innovation and technical capabilities, vast portfolio, manufacturing excellence and ability to provide quality products to its esteemed customer base. Its foray into the Fast-Moving Electrical Goods (FMEG) segment driven by its ambition of becoming a one-stop shop solution for all electrical products requirements provides diversification into the B2C business and new growth avenues for the Company.

The Company has five state-of-the-art manufacturing facilities located at Pimpri and Urse in Pune, Roorkee (Uttarakhand) and Goa. All these plants are ISO 9001 and ISO 14000 certified. The Goa plant manufactures Continuous

Cast Copper Rods (CCC rods), a key raw material input for producing copper-based electrical and communication cables. Backward integration ensures greater control over the raw material costs and quality of the final products. Most of the production in the Goa plant is used for the captive requirement of the Company, and the surplus is sold to third parties, the results of which are covered under the Copper segment.

The Company is adding capacity to its existing plants in Goa and Urse. The Company is also actively exploring setting up an additional plant to cater to the needs of the North and Eastern markets in India.

Major Products and Segments

Finolex is well-recognised as a Total Cable Solutions provider and caters to diverse electrical requirements in commercial, industrial and consumer markets through its wide range of electrical wires and cables. Furthermore, its FMEG product portfolio comprises LED lights, electrical switches, fans, water heaters, switchgear, irons and other products.

Product Portfolio

Group	Product Covered	Application
Electrical Cables	1100V PVC insulated cables	Electrification of industrial establishments, used by construction industry, electrical panel wiring and consumer electrical goods
	Motor winding PVC insulated cables	Submersible pumps and electrical motors
	Automotive/battery cables	Wiring harness for the automobile industry and battery cables for various applications
	UPS cables	For providing power from the UPS to the computer/ appliances in the networking environment
	Heavy-duty, underground, low voltage, power and control cables	Connection to the user point from the main supply of power
	Heavy-duty, underground, high voltage, power cable	Intra-city power distribution network
	Elevator cables	For use by the elevator industry
	Solar cables	Specially insulated cables for use in solar parks
Communication Cables	Optic fiber cables	Networks requiring high-speed transfer of large bandwidth for voice image and data transmission
	Optic fiber	The principal raw material for optic fiber cables
	Coaxial cables	Cable TV network solutions, microwave communications and mobile towers
	Local area network (LAN) cables	Indoor and outdoor networking, voice and data transmission and broadband usage
	CCTV cables	CCTV cables for better quality of CCTV images
	Speaker cables	Broadcasting applications in buildings and electronic goods
	Jelly-filled telephone cables (JFTCs)	Telephone line connections to exchanges and users
	PE insulated telephone cables (Switchboard cables)	Telephone instrument connections to EPABX
	V-SAT cables	For connecting V-SAT dish to a base station
Copper Rods	CCC rods of 8mm in diameter	Used as raw material for manufacturing copper- based cables
Electrical Switches	Premium and classic switches, sockets, regulators, etc.	For power supply to equipment in domestic, commercial and industrial environment
Lamp	LED bulbs and LED tube lights	Lighting for homes, hotels, shops, offices and factories (indoor and outdoor applications), street light applications
Electrical Fans	Ceiling fans, table fans, wall fans, pedestal fans, exhaust fans	For use in domestic, commercial and industrial environment
Switchgear	Miniature circuit breaker (MCB), residual current circuit breaker (RCCB), moulded case circuit breaker (MCCB), distribution boards (DB)	For use in voltage surge protection and safety applications in the domestic and commercial environment
Water Heater	Instant and storage water heaters	For use in domestic and commercial environment
Irons	Steam and dry irons	For use in domestic and commercial environment
Conduits	Conduit Pipes and Fittings	For use in domestic and commercial environment

Production

• Electrical Cables: 59,082 MT in FY 2022-23 compared to 48,166 MT in FY 2021-22.

• Communication Cables: Metal-based at 7,127 MT as against 5,961 MT in the previous year.

• Communication Cables: Optic fiber cables of 2,626,842 fiber kilometre (FKM) compared to 1,472,435 FKM in the previous year.

Revenue

• Electrical Cables: Rs. 3,683.5 crores as against

Rs. 3,193.2 crores in FY 2021-22.

• Communication Cables: Rs. 579.0 crores compared to Rs. 379.8 crores in the previous year.

• Copper Rods: Rs. 23.2 crores compared to Rs. 18.8 crores in the previous year.

• Other Products: Rs. 195.3 crores as against

Rs. 176.4 crores in the previous year.

Finolex registered total revenue of Rs. 4,481.1 crores in

FY 2022-23 as against Rs. 3,768.1 crores in FY 2021-22, registering a 18.9% YoY growth across all major segments, supported by growth in infrastructure and real estate sectors, domestic manufacturing and recovery in consumer demand among others.

The segment-wise revenue growth was:

• Electrical Cables - 15.4%

• Communication Cables - 52.5%

• Other Products Segment - 10.8%

The Electrical Cables segment, which contributes approximately 82.2% of the Companys total revenue, caters primarily to the real estate sector. The performance of the electrical cables segment is linked with the performance of the real estate sector.

The real estate sector has witnessed high growth in recent times, with a rise in demand for office as well as residential spaces and this momentum is expected to continue in FY 2023-24. The growth of the real estate sector can be attributed to factors such as rising urbanisation, increasing business activity, the importance of home ownership, population growth and rising incomes. The residential sector has gained momentum and will remain largely insulated as demand continues to be high. While higher interest rates and rising costs of commodities and construction-related products due to inflation may impact the real estate market to a certain extent; however, the industry is poised for steady growth in the coming years as consumer sentiment is likely to remain positive. The real estate sector is expected to reach a market size of US$1 Trillion by 2030, accounting for 18-20% of Indias GDP.

The following factors are expected to drive the growth of the real estate sector:

• The Office and residential markets in almost all the major cities of India are showcasing improvement, while the warehousing, manufacturing and retail sectors are witnessing a stable demand.

Source: https://www.jll.co.in/en/trends-and-insights/research/ pulse-real-estate-monthly-monitor-march

• The stock of organised retail real estate is projected to increase by 28% to 82 million sq. ft. by 2023.

Source: https://www.ibeh.org/industry/real-estate-india

• The expanding e-commerce sector is catalysing the demand for warehousing facilities, providing a positive thrust to the real estate market.

Source: https://economictimes.indiatimes.com/industry/ services/property-/-cstruction/demand-for-warehousing-to- continue-robust-growth-led-by-e-commerce-rise/ articleshow/84‘i95678.cms?From=mdr

• Due to the growing use of digital technology and the migration of IT infrastructure to third-party providers, Indias data centre industry has witnessed tremendous growth in recent years. It is expected to drive demand for 9.1 million sq ft of real estate space by 2025.

Source: Economic Times https://economictimes.

indiatimes.com/industry/services/property-/-cstruction/ indias-data-centre-industry-to-drive-9-1-million-sq-Ft-realty- demand-by-2025/articleshow/99462205.cms?From=mdr

• The governments ambitious initiative, the Smart Cities Mission might get an extension beyond the June 2023

deadline and benefit the real estate sector.

Source: Economic Times https://economictimes.indiatimes. com/news/india/amid-delays-government-may-extend-smart- city-mission-deadline/articleshow/994 742 52.cms?From=mdr

Exports

Despite the slowdown in the global economic activity, Finolexs total exports stood at Rs. 40 crores in FY 2022-23

as against Rs. 28 crores during FY 2021-22, registering a growth of 44% Y-o-Y.

Key Financial Ratios

Schedule V to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 requires reporting of

significant changes (change of 25% or more compared to the immediately previous year financial) in the key financial ratios, along with detailed explanations thereof. During the FY 2022-23 except inventory turnover ratio and unquoted

investment ratio none of the key ratios registered significant changes i.e., a change of 25% or more compared to the immediately previous financial year. Financial performance and key financial ratios for the last ten years are included elsewhere in the Annual Report and are available on the Companys website https://finolex.com/.

KEY STRENGTHS

• Strong Brand Positioning: With over five decades of industry expertise, Finolex has created a strong brand presence by leveraging its manufacturing and technical prowess, offering the highest quality products, high brand recall, and pan-India distribution network. The Companys foray into the fast-growing FMEG segment has successfully established it as a consumer validated Superbrand. It also continues to augment its brand visibility and strengthen its unique presence through visual and digital media marketing.

• Comprehensive Portfolio: The Company has a

diversified product portfolio comprising over 50,000

SKUs in wires and cables, FMEG, and home appliances segments. It has established itself as a one-stop solutions provider for all cabling and electrical requirements across institutional and government clients. Its FMEG segment has been generating encouraging market traction and steadily increasing its share in the revenue mix.

• Superior Product Quality: The Company continuously aims to deliver quality products and enhance customer satisfaction by adhering to the highest standards of quality, reliability, and durability. Its high-quality products at competitive prices provide a compelling value proposition to the customers. The Company stays consistent with its tagline Behtar ElectriKAL Ke Liye by consistently investing in advanced manufacturing facilities, machinery, modern technology and robust R&D to enhance its manufacturing capabilities and deliver innovative and highest quality products.

• Pan India Network: The Companys wide distribution network, comprising 600 distributors, 5,000 channel partners and over 2,00,000 retailers, has a pan-India presence. This empowers Finolex to penetrate deeper into the market and efficiently supply large volumes of products to all the key markets across India. The Company has also launched an e-retail site to capitalise on the growing e-commerce trend, increase its presence in the retail segment and expand its customer base. The Company currently has 6 exclusive retail stores named Finolex House and further plans to launch 15 stores by FY 2024. The Company aims to increase its retail touchpoints from the current 2,00,000 to approximately 2,50,000.

• Backward Integration: Finolexs backward integration and in-house manufacturing of key raw materials such as PVC compound, copper rods, optic fiber and FRP rods enable it to ensure the uninterrupted availability of key raw materials at a lower cost and desired quality. This enables the Company to deliver superior products at competitive prices.

• Technical Collaborations: The Companys partnerships with several competent and technologically superior companies enable it to deliver dynamic solutions with

advanced technologies to cater to the emerging needs of consumers and create new growth avenues.

BUSINESS ENVIRONMENT FOR PRODUCT SEGMENTS WITH OUTLOOK

Impact of the Union Budget 2023-24

The Budget, inter alia consisted of the following initiatives that would provide lucrative opportunities in the real estate, power and telecom sectors:

• Increased capital investment outlay of Rs. 10 lakh crores in FY 2023-24 for infrastructure development

will bolster the demand for wires and cables and other electrical products.

Source: Ministry of Finance https://www.indiabudget.

gov.in/doc/bh1.pdf

• Reduction in custom duties on several components and extension of the concessional custom duty on several

input parts by one more year will promote electronics manufacturing in India.

Source: EconomicTimeshttps://economictimes.indiatimes.com/ news/economy/policy/domestic-manufacturing-gets-a-push-in- budget-with-changes-in-custom-duty/articleshow/97521125. cms?utm_source = contentofinterest&utm_ medium=text&utm_campaign=cppst

• Increased allocation of Rs. 79,000 crores for PM Awas Yojana for the development of affordable housing in the country.

Source: Ministry ofFinance https://pib.gov.in/PressReleasePage. aspx?PRID=1895315

• Push for creating urban infrastructure in tier 2 and tier 3 cities through Urban Infrastructure Development Fund (UIDF) of Rs. 10,000 crores per annum.

Source: Ministry of Housing & Urban Affairs https://www.pib. gov.in/PressReleasePage.aspx?PRID=1914187

• A new tax exemption for the notified Affordable Rental Housing Projects to promote the supply of affordable

rental housing for migrant workers.

Source: https://www.bankbazaar.com/tax-beneFit-on-home-loan.html

• Allocation of Rs. 97,579 crores, an increase of 19% over the revised estimates of FY 2022-23 to the Department of Telecommunications (DOT) under the Ministry of

Communications, mainly for financial support to BSNL.

Source: PRS https://prsindia.org/Files/budget/budget_parliament/ 2023/Telecom_DFG_Analysis_2023-24.pdF

• Set-up of 100 labs across the country for developing

5G applications for various verticals such as smart

classrooms, precision farming, intelligent transport systems and healthcare.

Source: https://www.ey.com/en_in/alerts-hub/2023/02/

budget-2023-telecom-sector

• Allocation of Rs. 10,222 crores to the Ministry

of New and Renewable Energy to boost the renewable energy sector.

Source: Ministry of New and Renewable Energy https:// www.indiabudget.gov.in/doc/eb/sbe71.pdf

• Adequate funds to support the Vehicle scrapping policy to

scrap and replace old vehicles of the central government will generate higher demand for Auto cables.

Source: Economic Times https://economictimes.indiatimes. com/industry/auto/auto-news/adequate-funds-allocated-for- scrapping-and-replacing-old-govt-vehicles-says-fm/ articleshow/97519523.cms

The Company is focussed on deploying efforts to benefit from the exponential opportunities in the infrastructure, real

estate, power and telecom sectors, among others. It aims to upscale its capabilities and project execution strategy to strengthen its position and gain a competitive edge in the market. Furthermore, the Company has consistently

been enhancing capacity in existing product lines basis the foreseen opportunities.

Electrical Cables

The electrical cables segment is the core business of Finolex, commanding the largest share of the revenue mix. Finolex manufactures high-quality, light-duty electrical cables and power and control cables that meet stringent international standard benchmarks.

• Light-duty electrical cables are primarily used for general purpose lighting. They are also utilised in industrial establishments and electrical panel wiring in various industrial facilities for electrification. These cables also find application in consumer durable goods, automobiles, agricultural pumps and small generators.

• The Company manufactures high-voltage power and control cables, designed exclusively for underground

applications. These cables are insulated with fire retardant compounds and meet international technical and quality specifications. Finolex is equipped to manufacture cables from 1.1 kV to 66 kV While power cables below 3.3 kV are used for connecting user points with the main power supply, cables above this threshold find extensive applications in intra-city electricity distribution networks.

Performance

Revenue from the Electrical Cables segment in FY 2022-23

stood at Rs. 3,683.51 crores as against Rs. 3,193.21 crores in the previous year. It accounted for 82.20% of total sales for the year under review. Volumes sold increased by 16% compared to the previous year.

Revival in the Realty and Infrastructure sector has helped boost the sales quantities for the company in the current year. The distribution network is proving to be beneficial, with the active participation from retail outlets resulting in increased sales volume. Additionally, focussing on project sales has led to growth in sales volume during the current period.

Due to sustained cost pressures Electrical Cable EBIT margin decreased from 13.00% in FY 2021-22 to 12.42% FY 2022-23.

Growth Drivers

The cables and wires (C&W) industry is expected to grow at a compound annual growth rate (CAGR) of 12% over FY 202126 driven by the governments initiatives for the growth of the power and infrastructure sectors and upbeat construction activities in the housing sector. Furthermore, electrification in rural regions, improved transmission and distribution systems along with increased demand for renewable power generation will augment the demand for electrical wires and cables.

• Favourable government initiatives to improve electrification

The demand for electricity in India has been growing rapidly, driven by the growing population, urbanisation, accelerating industrial and economic activities, infrastructure development, rising electrification and per-capita consumption. The Governments initiative Power for All through several schemes such as Saubhagya, Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY), Ujjwal Discom Assurance Yojana (UDAY) and Integrated Power Development Scheme (IPDS) has accelerated capacity addition in the country. Increased power consumption in India which grew 9.5% to 1,503.65 BU Y-o-Y in FY 2022-23, is driving demand for electrical cables and other electrical products.

The government is pushing for SG (Smart Grid) and broadband connections in villages, which will drive growth in communication cables, including optical fiber cables.

• National Infrastructure Pipeline (NIP)

The government launched the National Infrastructure Pipeline (NIP) with a forward-looking approach and a projected infrastructure investment of around

Rs. 111 lakh crores during FY 2020-25 to provide high-quality infrastructure across the country. The NIP

currently has 8,964 projects with a total investment of more than Rs. 108 lakh crores under different stages of implementation. Additionally, PM Gati Shakti - National Master Plan and increased capital expenditure of Rs. 10 lakh crores for infrastructure will lead to the growth of the infrastructure sector, resulting in higher demand for wires and cables. Other initiatives such as Make in India and the PLI scheme will also attract capital investment and further benefit the W&C industry. Furthermore, increased investments in railway electrification and metro trains have created opportunities for the wires and cables industry. Electrification of 6,542 RKMs has been achieved during FY 2022-23 compared to 6,366 RKM in FY 2021-22, registering an increase of 2.76%.

Source: https://www.pib.gov.in/PressReleasePage.

aspx?PRID=1693183

• Clean energy transition

The government targets of achieving 450 GW of installed renewable energy capacity by 2030 and about 280 GW (over 60%) is expected from solar. Increasing renewable power generation is creating considerable demand for electrical and speciality solar cables. Additionally, the government has set a target of 30 GW of offshore wind turbine installations by 2030 to exploit the wind energy potential of the Indian Coast. These offshore wind turbines will require a large volume of power cables and subsea umbilical cables.

• Growth in urbanisation and the housing sector

Rapid urbanisation and housing demand will lead to increased infrastructure development, resulting in an increased requirement for wires and cables. The increased allocation of Rs. 79,000 crores for PM Awas Yojana for the development of affordable housing in the country and the push for creating urban infrastructure in tier 2 and tier 3 cities through Urban Infrastructure Development Fund (UIDF) of Rs. 10,000 crores per annum in the Union Budget FY 2023-24 will further boost the demand for wires and cables.

Outlook

Backed by significant growth drivers, the electrical cables segment is well-poised to witness strong demand growth in the coming years. The Companys electrical cables cater to the critical requirements of the core sectors such as Energy, Transportation, Real Estate, and Building Materials, among others. The government continues to provide substantial capital outlay and pro-policy support for the growth of these industries as they are crucial in the holistic economic

development of the country. Finolex is well positioned to benefit from these strategic investments by the government in the coming years. The governments thrust towards infrastructure projects, pick-up in construction and real estate activity, and healthy demand from the power sector augur well for the demand for cables and wires. The Company expects demand momentum to continue from the construction and realty segments for electric cables.

Communication Cables

Finolex manufactures state-of-the-art, new generation communication cables and traditional telephone cables.

• The communication cables segment includes Copper-Based Cables and Optical Fiber (glass-based) Cables (OFC). Copper-based cables are categorised into LAN cables, Coaxial cables, PE insulated switchboard cables, and V-SAT cables. LAN cables are used for high-speed data transfer, whereas Coaxial cables are used in microwave connections, mobile towers, and feeding content to TV receiving sets. PE insulated switchboard cables are used in telephone instruments and EPABX (voice communication) systems. V-SAT cables facilitate last-mile connectivity by establishing a connection between V-SAT dish and a base station. Furthermore, the Company has also launched innovative special cables used for image capture, CCTV cameras and in-power solutions to leverage the growing demand for video surveillance.

• Optic Fiber Cables (OFC) are glass-based cables, capable of carrying maximum bandwidth and transmitting data at high speed. They are primarily used for data distribution by telecom companies and multi-service organisations. They are also used as trunk cables for long-distance networks.

• Communication cables are critical for infrastructure development and digitalisation across the country due to their demonstrated ability to transmit digital data at high speed and high bandwidth.

• Traditional telephone cables include copper-based JFTCs, which are laid underground and primarily used for landline telephone connectivity. Finolex is gradually reducing its focus on this segment as there is a significant decline in demand for JFTCs due to the increasing penetration of smartphones and technically advanced substitute OFCs. However, the Company continues to manufacture JFTCs with broadband features for public and private telecom companies and export markets as per the clients requirements.

• The Company has introduced LAN Passive Components to its existing business of LAN cables. The product range includes patch cords, information outlet, patch card and faceplates. These components are especially useful in places like data centres, IT networks, conference rooms and branch office connections with high-density switches.

Performance

The communication cables segment (including optical fiber) recorded healthy sales of Rs. 579.0 crores in FY 2022-23 as against Rs. 379.8 crores in FY 2021-22. Fiber and fiber-based cables which almost doubled in volume and strong traction in optic fiber cables (52.5% YoY) contributed to revenue growth. Volume of all metal-based cables increased by 26%, and Optic Fiber cable volume grew by over 54.4%. However, margins in this segment were lower and more volatile than in wires. Communication cables continued to have poor profitability with EBIT margin of 2.2% compared to -3.4% in the previous year due to challenges faced by Indias telecom sector.

Growth Drivers and Outlook

The governments thrust on digitalisation, the Bharat Net Scheme initiative and the rapid rollout of 5G to provide high-speed broadband access in the country are key driving factors for the growth of the communication cables segment. There is a dire need to replace the existing cables with quality fiber optic cables for high-speed broadband accessibility and seamless 5G services. Furthermore, the burgeoning need for data across industries has attracted several new players to set up large data centres in India, which is expected to trigger demand for optic fiber cables.

Going forward, the communication cable segment is expected to gain growth momentum, driven by strong traction in optic fiber volumes as 5G gains traction, aided by the governments planned capex. The Company expects revenue from this segment to grow by 18% compound annual growth rate (CAGR) over FY 2022-24. Additionally, BSNLs Department of Telecommunications (DoT) is planning to purchase a large volume of communication cables in the coming period, which is likely to provide an opportunity for the Company.

Copper Rods

Finolex integrated backwards to manufacture Continuous Cast Copper Rods (CCC rods), which are used in the production of copper-based electrical and communication cables. The Company engages in long-term contracts with local players for bulk purchase and cost-effective procurement of copper cathodes,

the key raw material for copper rods. Production exceeding captive requirements is sold to third-party customers.

Performance

The Company consumes majority of the production of copper rod segment. Third-party sales during FY 2022-23 stood at Rs. 23.22 crores compared to Rs. 18.82 crores in the previous year. The Companys business of copper rods was impacted by higher premiums on copper cathodes and lower premiums on copper rods, which lowered margins for third-party sales of copper rods. Finolex restricted its third-party copper rod sales to already committed parties or contracts with acceptable margin levels.

Growth Drivers and Outlook

As a key input for all copper-based electrical and communication cables, the demand for copper rods is expected to grow in line with the growth of the C&W industry. The demand for copper rods in the electrical segment is growing due to rapid infrastructure development activities in the country. Furthermore, the Company intends to benefit from selling surplus copper rods to third parties under the GST regime. The surge in sales of domestic and consumer appliances, transportation equipment, industrial machinery and other durable goods has also been leading to an increased demand for copper rods.

Others (FMEG and Home Appliances)

a. Electrical Switches, Switchgears and Lighting

The Company strategically diversified into the margin accretive FMEG segment to increase its B2C sales and reduce dependence on the C&W industry. The FMEG product portfolio includes lighting products, electrical switches, and low-duty switchgear. Its electrical wire accessories include doorbell, extension boxes, spike guard, angle holders, and batten holders, among others. The Company is focussed on leveraging its strong brand equity, technical expertise, vast distribution network, and competent sales team to grow its FMEG segment. It continues to strengthen its distribution network and nurture relationships with channel partners to increase its reach. It also continues to focus on building a strong loyal customer base by supplying high-quality products. The segment recorded sales of Rs. 71.56 crores during FY 2022-23 compared to Rs 69.12 crores in the FY 2021-22. The increasing outreach with an ever-expanding distribution network and quality products provide a positive outlook.

b. Fans and Water Heaters

The Companys fans and water heaters segment

is well accepted in the market owing to its quality, performance, aesthetics, and value-for-money proposition. The Companys strengths of the brand and reach, along with its after-sales service available at the customers doorstep across the country have been supporting the product sales of this segment. This segment witnessed a sales of Rs. 52.8 crores in FY 2022-23 compared to Rs. 51.8 crores in the previous year. Volume growth in the appliances sector was impacted by inflationary pressures as well as subdued consumer sentiment. Furthermore, destocking due to anticipated changes in BEE (Bureau of Energy Efficiency) norms impacted the growth of the fans segment in FY 2022-23. The Company has launched new range of decorative and BLDC Fans. The innovative BEE 1-5 star rated BLDC fans deliver high energy efficiency, superior performance and premium aesthetics.

c. Irons

The Company launched Crease Free Irons in its home appliances segment. The 750W - 1600W range includes state-of-the-art steam and dry irons to provide consumers with affordable yet built-to-last products. The Company is optimistic about the positive performance of this product.

Outlook

The domestic demand for FMEG products is expected to remain robust. The Indian FMEG industry is poised to grow, driven by the governments thrust on supplying and ensuring energy supply across the country, urbanisation, evolving

consumer aspirations, increasing awareness, rising incomes, digital connectivity and a shift to value-added branded products. Furthermore, the rise in dual-income households due to growing population of working women, increased disposable incomes and fast-paced lifestyles has propelled the demand for household appliances. To capitalise on the growing popularity of e-commerce and increasing digital and distribution penetration in the country, Finolex has developed an in-house dedicated online retail store. Additionally, it has launched exclusive retail stores named Finolex Houses to improve its offline visibility. It has received positive response for both e-commerce and Finolex House channels.

The Company plans to achieve Rs. 500 crores of revenue

from the FMEG segment in the next two to three years and scale up significantly. The addition of new products such as irons and other products is likely to add incremental margins. The Company is also likely to pursue inorganic growth

opportunities in this segment.

FINANCIAL PERFORMANCE

(Rs. in Crores)

PARTICULARS	STANDALONE
	FY 2022-23	FY 2021-22
INCOME
Revenue from Operations (Net)	4481.1	3768.1
Other Income	198.1	151.8
Total	4679.2	3919.9
EXPENDITURE
Material Costs	3544.5	2966.3
Employee Benefit Expenses	162.7	146.1
Finance Costs	1.2	1.5
Depreciation, Amortisation and Impairment	46.4	38.8
Other Expenses	278.4	240.6
Total	4033.2	3393.3
Profit Before Tax	646.0	526.6
Tax Expenses:
Current Tax	145.0	127.9
Deferred Tax	(0.7)	(5.9)
Total Tax	144.3	122.0
Profit After Tax	501.7	404.6
Total Other Comprehensive Income / (Expense) for the year	35.9	(7.4)
Total Comprehensive Income for the year	537.6	397.2

Revenue

The Company achieved a revenue of Rs. 4,481.1 crores as against Rs. 3,768.1 Crores in the previous year, marking a growth of 19%.

Costs

Material Cost: For the most part, the year saw elevated commodity prices, especially copper. While the Company operates on a principle of "pass-through" i.e. passing cost increases in the value chain the transmission is gradual and could have temporary effect on margins mix.

Staff Cost: Employees expenses increased in proportion to increase in production activity as compared to previous year.

Other Expenses: Other expenses increased in proportion to increase in overall activity as compared to previous year.

Depreciation: Depreciation expenses did not see any significant change during the year.

Finance Cost: The Company remains debt-free and finance costs during the year pertain to bill discounting and other

finance charges.

Balance Sheet

(Rs. in Crores)

SUMMARY OF STATEMENT OF BALANCE SHEET	FY 2022-23
SOURCES OF FUND:
Shareholders Fund	3709.6	3263.8
Non-Current Liabilities	53.6	42.7
Current Liabilities	320.1	293.7
Total	4083.3	3600.2
APPLICATIONS OF FUND:
Fixed Assets	456.0	466.9
Investments	1712.7	1120.5
Loan & Other Non-Current	48.7	42.9
Assets
Current Assets	1865.9	1969.9
Total	4083.3	3600.2

Capital Expenditure and Investments in JV: During the year, the Company incurred Rs. 31.02 towards capital expenditure, predominantly towards the sustenance of existing capacity and product development activities. Of the above, the Company invested Rs. 10.78 crores in its Joint venture.

Liquidity: The Company continued with the "cash and carry" system of sales for all retail customers during the year. For institutional & OEM customers, the Company continued with the credit period mutually agreed as per the purchase order contract. The Company manages its liquidity through rigorous weekly monitoring of cash flows.

Profitability: The Companys profit before tax improved due to an increase in revenue in FY 2022-23, tighter control on

operating expenses and dividends received from Associates.

Credit Rating: The Companys debts have been rated by CRISIL as depicted below:

Agency	Long-Term Loan	Short-Term Loan
CRISIL	AA+/Stable	A1 +

During the year, the Company has serviced all its debt obligations on time.

Results of Operations: The Company registered a net cash inflow of Rs. 356.3 crores from its operations compared to Rs. 473.0 crores generated the previous year. Profit before

tax and exceptional items stood at Rs. 646.0 crores as against Rs. 526.6 crores in last year.

Taxation: Tax outflow during the year increased

proportionately with the increase in profit before taxation.

Cash Flow

(Rs. in Crores)

PARTICULARS	FY 2022-23	FY 2021-22
Profit from operations before tax	646.0	526.6
(Inc)/Dec in Net working capital	(158.0)	78.3
Income tax paid	(131.8)	(131.9)
Net cash flow from operating activities	356.2	473.0
Cash outflow for investing activities	(224.6)	(378.3)
Cash outflow for financing activities	(96.7)	(86.9)
Net cash flow / (Outflow)	34.9	7.8

RISK MANAGEMENT

The Company has a comprehensive risk management framework for the timely and effective identification,

assessment, and mitigation of key business and operational risks. It has a dedicated Risk Management Committee to oversee the risk management framework. The risk management committee regularly monitors the mitigation plans during the execution of the projects and ensures that risk management processes are strictly adhered to across all functional departments from the top management of the Company to managers operating at various execution levels. Furthermore, the Company also appoints external advisors to formulate strategies for managing key risks. While the segment-specific risks have been covered under Business Environment for Product Segments with Outlook, the key general risks and their corresponding mitigation measures are depicted below:

1. Competition Risk

The Company faces intense competition from both organised as well as unorganised players in the industry.

Mitigation

The Company has created a strong brand identity with its wide product portfolios and technical capabilities. It is strongly focussed in offering innovative and superior products that fulfil dynamic market requirements in

terms of quality parameters and technical specifications. Furthermore, superior control over key raw materials through backward integration enables the Company to sell its products at competitive prices. With its foray into FMEG segment, it has become a one-stop shop solution for all electrical requirements. These attributes provide the Company competitive advantage in the market.

2. Policy Risk

The changes in government regulations and policies pertaining to housing and infrastructure sectors may impact the Companys revenues, order book and profitability. Furthermore, unfavourable changes in monetary policy may result in a rise in borrowing costs and impact project viability.

Mitigation

The Company caters to diverse industries which reduces

the concentration risk of depending on an individual sector. It also positions Finolex to leverage growth in

these sectors supported by sectorial allocations by the government. The Companys diversification into the FMEG segment reduces its dependence on cables and wires industry and insulates the overall business from negative policies or sectoral downturn. It also continues to focus on increasing exports to reduce domestic market exposure.

3. Volatility in Cost of Raw Material Risk

Sharp volatility in prices of raw materials such as copper, aluminium and fiber optics may significantly impact the Companys manufacturing cost, further resulting in the inability to supply the products to customers at competitive prices. While fluctuations in raw material prices are a pass-through for the Company, increasing volatility, especially in copper prices can still reduce its margins and may lead to a loss in market share.

Mitigation

Raw material hedging is a key mitigation action for the Company, and it engages in long-standing relationships with key suppliers to procure bulk quantities at competitive rates. Furthermore, it maintains adequate inventory levels at optimal costs by forecasting based on past and present trends for seamless production. The Company strives to maintain margin levels by linking product sales price to the raw material costs to mitigate the impact of unforeseen price fluctuations.

4. Exchange Rate Volatility Risk

The Company is exposed to foreign exchange fluctuation

risk as it exports final products and imports key raw materials from the international markets. An adverse change in the currency exchange rate may result in lower realisations or higher input costs leading to lower profit margins.

Mitigation

The Company follows an efficient hedging policy to minimise the impact of adverse currency fluctuations.

It also engages in appropriate long-term contracts with

41

foreign customers and suppliers to safeguard revenue

and margins and lower currency rate risk.

5. Economic Risk

The geopolitical turmoil and global economic slowdown has a direct impact on the export business of the Company. In addition, supply chain disruptions may also restrict the export market and dampen customer demand.

Mitigation

The Company regularly assesses the geographical risks and feasibility of operating in a particular country or region through extensive market research to ensure low impairment risk. It also follows a lean operational and cost structure while proactively monitoring cash flows. Furthermore, it has established a comprehensive business continuity by leveraging the deep experience of its top management team to ensure agility and resilience in the crisis period. Additionally, the domestic

market will continue to provide sizeable business opportunities for the Company.

INTERNAL CONTROLS

The Company maintains a robust internal control system

commensurate with the size, nature and complexity of its business. The internal control system is responsible for addressing the evolving risks in the business, reliability of financial information, timely reporting of operational and financial transactions, safeguarding of assets and ensuring strict adherence to the applicable laws and regulations. The internal auditors of the Company are responsible for regular monitoring and review of these controls. In addition, it has also appointed an external team to ensure the adequacy and efficacy of the control mechanism. The Audit Committee periodically reviews the audit reports submitted by the internal audit team and ensures correction of any variances, as may be required. Key observations are communicated to the management who undertakes prompt corrective actions.