Finolex Cables Ltd Management Discussions

Annexure A

ECONOMIC REVIEW GLOBAL ECONOMY

The global economy exhibited impressive resilience in 2023; however, the pace of growth remains slow. According to the International Monetary Fund (IMF), the global economy achieved a modest growth rate of 3.2% in 2023. Factors such as escalating geopolitical conflicts, higher inflation, prolonged higher interest rates, a sluggish recovery in China, and volatility in energy prices and food markets, have led to a slowdown in global economic growth. Furthermore, the Red Sea crisis has caused the biggest diversion of global trade in decades, leading to delays and heightened expenses for shipping lines.

Positive factors such as ongoing disinflationary trends and strong economic performance in the United States and several major emerging markets and developing economies indicate signs of stable growth and a reduced likelihood of a severe economic downturn. The US has witnessed the strongest recovery among major economies. Its GDP increased from 1.9% in 2022 to 2.5% in 2023, supported by a stronger performance in private consumption, swift containment of a looming banking crisis, a tight labour market, and rising wages. Despite experiencing a contraction in GDP growth of 0.4% in 2023, the Euro Area managed to avert recession and has shown fortitude in navigating through unprecedented shocks from the ongoing Russia-Ukraine war, surge in energy prices and the lingering effects of tight monetary policy.

Global inflation continues to recede at a faster pace from 8.7% in 2022 to 6.8% in 2023. While headline inflation has sustained a decline from its unprecedented peaks, core inflation has proven to be sticky and is expected to decline gradually. Advanced economies are returning to their inflation targets sooner than emerging market and developing economies, fostering optimism for continued easing of financial conditions and improvement of monetary policy frameworks.

Outlook

The global economy is expected to maintain its resilience in

2024, with the IMF projecting a growth rate of 3.2% for both 2024 and 2025. Advanced Economies (AEs) are projected to witness a modest uptick in growth from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. Emerging Markets and Developing Economies (EMDEs) are expected to experience a slight decline from 4.3% in 2023 to 4.2% in 2024 and 2025. Global headline inflation is expected to decrease to 5.9% in 2024 and 4.5% in 2025. With the improvement in the economic landscape, the World Trade Organisation predicts a moderate recovery in global merchandise trade volume, with growth rates expected to reach 2.6% in 2024 and further increase to 3.3% in 2025.

INDIAN ECONOMY

Amid a volatile global economic landscape, India shines as a beacon of stability. The Indian economy maintained a steady growth trajectory, solidifying its position as the fifth-largest economy in the world. According to the provisional estimates of gross domestic product (GDP) growth released by the National Statistical Office (NSO), Indias GDP growth rate has exceeded the second advance estimate and is estimated to reach 8.2% in FY 2023-24 compared to 7.0% in FY 2022-23. The fourth quarter of FY 2023-24 witnessed a robust growth rate of 7.8% Y-o-Y due to strong performance in the manufacturing sector. The overall economic growth was supported by strong domestic demand, increased investment, moderate inflation and a stable interest rate environment.

Source: Ministry of Statistics & Programme Implementation

Indias Index of Industrial Production (IIP) recorded a growth rate of 5.8% in FY 2023-24, marking an increase from 5.2% in the previous year. The Mining sector recorded the highest growth at 7.5%, followed by Electricity at 7.1%, and Manufacturing at 5.5% in FY 2023-24. The growth observed in the IIP, Goods & Services Tax (GST) collections, manufacturing Purchasing Managers Index (PMI), per capita income, and increasing private capital expenditure collectively signifies strong economic momentum. Indias per capita GDP in current prices is estimated at Rs. 2.11 lakhs in FY 2023-24, achieving healthy growth of 8.6%. Rising levels of disposable income have led to an upswing in household consumption, stimulating demand across sectors. Furthermore, headline inflation softened to 5.4% during FY 2023-24 from 6.7% in the previous year. However, volatile food prices hinder the trajectory of disinflation. The RBI opted to maintain the policy repo rate at 6.50% and remain vigilant to take effective measures to achieve the target of 4% inflation.

Outlook

Indias economic outlook remains promising, with the IMF projecting a GDP growth rate of 6.8% in FY 2024-25 and 6.5% in FY 2025-26. The economy is poised to benefit from the demographic dividend, increased capital expenditure, proactive government policies, robust consumer demand, and improving rural consumption prospects. As headline inflation eases towards the target, it is expected to stimulate consumption demand, especially in rural areas.

The governments continued emphasis on capital expenditure, and fiscal consolidation efforts, coupled with growing consumer and business optimism augur well for investment and consumption demand. Key government initiatives such as Make in India 2.0, Ease of Doing Business and PLI scheme are poised to bolster the infrastructural and manufacturing base, enhance economies of scale, boost exports and position India as a global manufacturing hub. Furthermore, the Interim Budget 2024-25 outlines a comprehensive economic management strategy, including infrastructure development, digital public infrastructure, taxation reforms, and proactive inflation management. These measures lay the foundation for achieving the vision of a developed and self-reliant India by 2047.

Source: IMF World Economic Outlook, July 2024

COMPANY REVIEW

Finolex Cables Limited (hereinafter referred to as "Finolex" or "the Company") is Indias largest and leading manufacturer of electrical and telecommunication cables. With a rich legacy spanning nearly six decades, the Company has established itself as an innovative pioneer and one of the most esteemed brands in the cable and wire (C&W) industry. Its reputation in the industry is a testament to its strong focus on innovation, technical expertise, diverse product portfolio, manufacturing excellence, and unwavering commitment to providing high-quality products to its valued customer base.

Finolex ventured into the Fast-Moving Electrical Goods (FMEG) sector with the aim of transitioning into a full-service electrical products company. This strategic move enables the Company to capitalise on emerging opportunities in the B2C consumer segment while also fostering diversification and exploring new growth avenues.

Finolex boasts five state-of-the-art manufacturing facilities situated in Pimpri and Urse (Pune), Roorkee (Uttarakhand) and Goa, all accredited with ISO 9001, ISO 14000 and 45001 certifications. The Goa plant manufactures Continuous Cast Copper Rods (CCC rods), essential raw materials for copper-based electrical and communication cables. Backward integration enhances control over raw material costs and final product quality. While the majority of production caters to the Companys captive requirement, the surplus is sold to third parties, and the results are covered under the Copper segment.

The Companys expansion plan for establishing its new manufacturing facility in Urse, Maharashtra, to manufacture specialised electrical cables using irradiated electron beam (E-beam) technology, is anticipated to be commissioned soon. These specialised electrical cables will initially target the solar industry and subsequently expand into railways and automobile markets. Additionally, Phase-I of the Preform facility is expected to become operational by the beginning of 2025. The Company has also added expansion of the auto-cable capacity at its Uttaranchal site.

Major Products and Segments

As a leading provider of Total Cable Solutions, Finolex caters to a broad spectrum of electrical requirements across commercial, industrial, and consumer markets with its comprehensive range of electrical wires and cables. Moreover, its FMEG product range comprises LED lights, electrical switches, fans, water heaters, switchgear, irons, and various 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
	FinoGreen Single Core HFFR industrial cables	For power and lighting systems and ideal for low- temperature applications
Communication Cables	Optic fiber cables (OFC)	Networks requiring high-speed transfer of large bandwidth for voice image and data transmission
	Optic fiber	The principal raw material for optic fiber cables
	Co-axial 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	Retrofit/non-retrofit CFL lamps and T5 tube lights and fittings, LED-based lighting solutions	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
Room Heater	Oil-filled room heaters, Quartz room heaters, Blower room heaters	For use in domestic environment
Iron	Steam and dry irons	For use in domestic and commercial environment
Conduits and Fittings	Conduit Pipes and Fittings	For use in domestic and commercial environment
Smart Home Solutions	Smart Door Locks and Smart Switches	Latest technological innovations for home automation

Production

• Electrical Cables: 68,248 MT in FY 2023-24 compared to 59,082 MT in FY 2022-23.

• Communication Cables: Metal-based at 7,830 MT as against 7,127 MT in the previous year.

• Communication Cables: Optic fiber cables of 17,12,351 fiber kilometre (FKM) compared to 26,26,842 FKM in the previous year.

Revenue

• Electrical Cables: Rs. 4,221.6 crores as against Rs. 3,683.5 crores in FY 2022-23.

• Communication Cables: Rs. 531.2 crores compared to Rs. 579.0 crores in the previous year.

• Copper Rods: Rs. 36.4 crores compared to Rs. 23.2 crores in the previous year.

• Other Products: Rs. 225.1 crores as against Rs. 195.3 crores in the previous year.

Finolex recorded total revenue of Rs. 5,014.3 crores in FY

2023-24 compared to Rs. 4,481.1 crores in FY 2022-23, marking an 12% YoY growth across all major segments. This growth was bolstered by factors such as growth in infrastructure and real estate sectors, domestic manufacturing and strong consumer demand among others.

The segment-wise revenue growth was:

• Electrical Cables - 14.6%

• Communication Cables -8.3%

• Other Products Segment - 15.3%

The Electrical Cables segment, accounting for 84.2% of the Companys total revenue, primarily serves the real estate sector. The performance of this segment is intricately linked with the performance of the real estate industry.

The governments focus on infrastructure projects, augmented investment, industrialisation, urbanisation, the development of smart cities, and favourable policy reforms are shaping the real estate sector. A surge in population and the expanding middle class with increasing disposable income have driven up demand for residential, commercial, and other real estate properties. The Indian real estate market is forecasted to reach a value of US$ 1.5 trillion by 2034, representing 10.5% of economic output.

Source: CII Media Releases, April 2024

With a growing trend towards homeownership and the prevalence of nuclear families, the housing sector is well positioned to benefit from government-led housing initiatives, such as the Pradhan Mantri Awas Yojana (PMAY), Housing for All, Credit-Linked Subsidy Scheme (CLSS) and the proposed construction of 2 crores more houses under the PMAY-Gramin in the Interim Budget 2024-25, which are expected to boost housing demand. Additionally, the RBIs decision to maintain the repo rate at 6.50% provides stability and confidence to homebuyers, ensuring steady loan terms and fostering an environment conducive to growth in the housing and real estate market. Furthermore, the anticipated increase in the proportion of High-Net-Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs) households in India from 3% to 9% by 2034 is poised to fuel substantial demand for luxury housing.

Source: CII Media Releases, April 2024

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

• As economic growth continues, the demand for commercial real estate is increasing not only in major cities but also in Tier 2 and 3 cities. These cities have seen a rise in both demand and supply for office real estate. The growing economic activity and formal employment are projected to necessitate ~2.7 billion sq. ft of office space by 2034.

Source: CII Media Releases, April 2024

• Growing income levels and consumer sentiments are boosting retail consumption, anticipated to stimulate growth in the retail real estate sector, including shopping malls and high streets. Retail leasing across malls and high streets surpassed 7 million sq. ft in 2023, reaching its highest level in a decade.

• The growth of the retail sector and the expanding e-commerce industry are driving the demand for warehousing facilities, thereby positively influencing the real estate market. Indias warehousing market is expected to witness a potential demand of 111 million sq. ft. by 2034.

Source: knightfrank.co.in/research

• The data centre industry in India is poised for further expansion, anticipated to drive the requirement for an additional 10 million square feet of real estate space by 2026.

• The implementation period for the governments initiative, the Smart Cities Mission, has been extended until June 2024, and all Smart Cities are anticipated to complete their projects within this timeframe, which is expected to positively impact the real estate sector.

Exports

Despite the global economic slowdown, Finolexs total exports stood at Rs. 35.3 crores in FY 2023-24 as against Rs. 39.9 crores during FY 2022-23, registering a decline of -11.7% 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 FY 2023-24, 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 www.finolex.com.

KEY DIFFERENTIATORS

• Robust Brand Presence: Leveraging over five decades of industry experience, Finolex has built a formidable brand presence through its manufacturing and technical excellence, superior product quality and pan-India distribution network. With its rapidly expanding FMEG segment, the Company has cemented its position as a consumer-approved Superbrand.

Furthermore, it consistently enhances brand visibility and reinforces its distinct identity through visual and digital media marketing campaigns.

• Diversified Portfolio: Finolex provides an extensive range of products, encompassing more than 50,000 SKUs across wires and cables, FMEG, and home appliances segments. Serving as a comprehensive electrical solutions provider, it fulfils all cabling and electrical needs for institutional and government clients. Its FMEG segment has gained significant market traction, steadily augmenting its share in the revenue mix.

• Superior Product Quality: The Company is committed to delivering high-quality products and enhancing customer satisfaction by adhering to the highest standards of quality, reliability, and durability. Its premium-quality products at competitive prices present an enticing value proposition to its customers. Remaining aligned with its slogan Behtar ElectriKAL Ke Liye, Finolex consistently invests in advanced manufacturing facilities, state-of-the-art machinery, modern technology, and vigorous research and development efforts. These investments bolster manufacturing capabilities and enable the delivery of innovative, superior products.

• Pan India Distribution Network: The Company boasts a robust distribution network, comprising 600 distributors, 5,000 channel partners and 2,15,000 retailers, spanning across India. This expansive reach empowers Finolex to effectively penetrate various markets and efficiently supply substantial product volumes nationwide. Additionally, Finolexs e-retail platform bolstered its presence in the retail sector and expanded its customer base. The Company operates 7 exclusive retail stores under the brand Finolex House and aims to increase this number in coming years.

• Backward Integration: As part of backward integration, Finolex manufactures key raw materials such as PVC compound, copper rods, optic fiber and FRP rods in-house. This approach provides the Company with greater control over the availability, pricing, and desired quality of raw materials, thereby ensuring the delivery of superior products at competitive prices.

• Technical Partnerships: The Companys collaboration with technology partners aids in adapting its products and processes to advanced technologies. These partnerships enable Finolex to deliver innovative solutions to meet the evolving requirements of consumers and the market.

BUSINESS ENVIRONMENT FOR PRODUCT SEGMENTS WITH OUTLOOK Impact of the Interim Budget 2024-25

The Interim Budget comprised the following initiatives, which would create opportunities in the real estate, power, telecom and other key sectors:

• Increased capital expenditure outlay by 11.1% to Rs. 11.1 lakh crore for FY 2024-25 for infrastructure development will boost the demand for wires and cables and other electrical products.

• Increased allocation of Rs. 80,671 crores for PM Awas Yojana for the development of affordable housing in the country.

• Allocation of Rs. 2.55 lakh crore for the Ministry of Railways, surpassing the previous years record of Rs. 2.4 lakh crore. Three major economic railway corridor programmes are identified under PM Gati Shakti.

• Allocation for the Ministry of New and Renewable Energy (MNRE) increased by 25.7% to f 128.5 billion in FY 2024-25.

• Allocation of Rs. 600 crores for the National Green Hydrogen Mission and Rs. 8,500 crores for the development of solar power grid infrastructure.

• The initiative Pradhan Suryodaya Yojana (PMSY) aims to install rooftop solar power systems in one crore households, enabling them to obtain up to 300 units of free electricity each month.

• Focus on expanding and strengthening the electric vehicle ecosystem by supporting manufacturing and charging infrastructure.

• Allocation of Rs. 6,903 crore for semiconductor and display fabs to establish India as a global hub for chips and electronics manufacturing.

• Increased outlay for the Production Linked Incentive (PLI) scheme by 33.5% to Rs. 6,200 crore will boost large-scale electronics manufacturing.

Source:

1. Ministry of Finance https://pib.gov.in/ PressReleaseIframePage.aspx?PRID=2001 130 https:// www.indiabudget.gov.in/doc/bh1.pdf https://pib.gov.in/PressReleseDetailm. aspx?PRID=2001 110

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

3. Economic Times https://energy.economictimes. indiatimes.com/news/renewable/budget-boost- for-clean-energy-solar-allocation-soars-to-8500- cr-green-hvdrogen-funding-doubles/107339830

4. ET Government https://government.economictimes. indiatimes.com/news/economy/india-an- emerging-global-hub-for-chips-electronics- manufacturing-rbi-report/1 10579255

5. Money control https://www.monevcontrol. com/news/business/budget/interim-budget- boosts-electronics-pli-scheme-allocating-rs-6200-crore- for-2024-2025-12172921.html

The Company strives to capitalise on the abundant opportunities in infrastructure, real estate, power, and telecommunications sectors, among others. It aims to fortify its position and gain a competitive advantage in the market by enhancing its capabilities, consistently expanding capacity and refining its project execution strategy to meet the dynamic needs of the market.

Electrical Cables

The electrical cables segment is Finolexs core business, constituting the largest share of the revenue mix. The Company manufactures high-quality, light-duty electrical cables and power and control cables that adhere to stringent international standards.

• Light-duty electrical cables are primarily used for general lighting and are also utilised in industrial settings for electrical panel wiring, facilitating electrification in various industrial facilities. Additionally, these cables have applications in consumer goods, automobiles, agricultural pumps, and small generators.

• Finolex manufactures high-voltage power and control cables, designed exclusively for underground applications. These cables are insulated with fire retardant compounds and adhere to international technical and quality specifications. The Company has the capability to manufacture cables ranging from 1.1 kV to 66 kV. While power cables below 3.3 kV are used to connect user points with the main power supply, cables above this threshold are extensively utilised in intra-city electricity distribution networks.

Furthermore, the Company launched FinoGreen Eco-Safe Single Core Halogen Free Flame Retardant (HFFR) Industrial cables, with a strong focus on safety and sustainability. FinoGreen wires boast low smoke and zero halogen emissions, enhancing their eco-friendly attributes.

Performance

Revenue from the Electrical Cables segment in FY 2023-24 stood at Rs. 4,221.6 crores as against Rs. 3,683.5 crores in the previous year. It accounted for 84.2% of total sales in FY 2023-24. In FY 2023-24, the volume of Electrical Wires increased by ~15%, while Cables grew by 26%.

The growth in the real estate and infrastructure sectors has bolstered the Companys sales volumes. The distribution network is proving advantageous, with active engagement from retail outlets resulting in heightened sales volume. Additionally, a concentration on project sales has spurred growth in sales volume during FY 2023-24. Despite sustained cost pressures, the Electrical Cable EBIT margin increased from 12.42% in FY 2022-23 to 12.73% in FY 2023-24.

Growth Drivers

The cables and wires (C&W) industry is expected to grow at 12% CAGR from FY 2020-21 to FY 2025-26, primarily driven by strong traction in the infrastructure, real estate and power sectors. The demand for wires and cables in India is growing rapidly due to several factors, including the governments consistent focus on infrastructure and development projects, heightened investment, increased construction activities, industrial expansion, rural electrification initiatives, expansion of renewable energy generation, upgradation of transmission and distribution infrastructure, smart grid initiatives, metro railway projects, and the growth of data centre sector.

Furthermore, the increasing exports of cables from India present significant opportunities for domestic players.

The Indian wires and cables industry is well-positioned to benefit from the "China plus one" strategy as India is an attractive alternative due to its competitive manufacturing costs, skilled labour and the growth in the manufacturing sector, as part of the Make in India initiative aimed at establishing India as a global manufacturing hub.

• Improved electrification across the country

The government has implemented various schemes such as SAUBHAGYA, Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Ujjwal Discom Assurance Yojana (UDAY) and Integrated Power Development (IPDS) schemes to ensure uninterrupted power supply and achieve universal household electrification across the country. With an investment of Rs. 1.85 lakh crores under these schemes, 18,374 villages have been electrified and electricity connections have been provided to 2.86 crore households. These initiatives have resulted in improved power supply availability in both rural and urban regions. Energy consumption, covering both domestic and industrial usage, has surged rapidly, with energy requirements growing by 7.5% in FY 2023-24. Furthermore, increased investments in railway electrification and metro train initiatives have boosted energy demand. The increased demand for energy has driven the need for wires, cables, and other electrical products in the domestic market.

• Rapid infrastructure development

The government has allocated an increased capital expenditure of Rs. 11.11 lakh crore for FY 2024-25 in the Interim Budget 2024-25 for infrastructure development.

The development of major railway corridors, new airports, railway modernisation, and expansion of the metro railway network are anticipated to create growth opportunities for the cable & wire industry. Furthermore, the National Infrastructure Pipeline (NIP) initiative has expanded to 9,288 projects with a total project outlay of f 108.8 lakh crore between 2020-2025, with the energy sector accounting for 25% of the projected infrastructure investments under the NIP. Moreover, the governments initiatives aimed at boosting domestic manufacturing and the industrial sector have paved the way for growth in the cable and wire industry.

• Emphasis on renewable energy

The governments focus on increasing the share of renewable energy in overall power generation is poised to accelerate the growth of the C&W industry. The government is actively promoting renewable energy through initiatives such as Inter-State Transmission System (ISTS) waiver, Renewable Purchase Obligation (RPO) trajectory until 2030, and Green Open Access Rules, among others. It is strengthening the transmission network to facilitate the effective integration of renewable sources. Furthermore, India is executing the worlds largest Solar and RE (renewable energy) park projects, including Bhadla Solar Park in Rajasthan and Khavda RE Park in Gujarat. As of 31st December 2023, 51 Solar Parks with an aggregate capacity of 37,740 MW have been sanctioned in 12 States, indicating promising opportunities for the C&W industry. Moreover, the initiative to install rooftop solar power systems in one crore households will bolster the demand for solar cables and wires. Additionally, the growing adoption of electric vehicles and the governments focus on EV infrastructure and charging facilities will further drive the demand for cables and wires.

• Urbanisation and expansion of the housing sector

Rapid urbanisation and surging housing demand are poised to fuel the demand for wires and cables. Government initiatives like the Smart Cities Mission, PMAY, NTR, DDA Housing Scheme, and AMRUT continue to drive growth in urban infrastructure and the housing sector, contributing to the expansion of the C&W industry. Furthermore, the allocation of Rs. 80,671 crore for the PMAY in the Interim Budget 2024-25 is expected to bolster the housing sector and stimulate demand for wires and cables.

Source: Ministry of Finance https://www.indiabudget.gov.in/doc/bh1.pdf

Outlook

The outlook for the Indian cables and wires industry is promising supported by the governments emphasis on infrastructure projects, increasing construction activities, and strategic government investments in the coming years. The rising need for robust power and transmission infrastructure, electrification projects, and connectivity solutions, will propel the demand for wires and cables. Additionally, Indias ambitious goals in renewable energy, the rising demand for renewable energy sources along with large Solar and RE (renewable energy) park projects, are expected to fuel the demand for specialised cables. As a leading market player, Finolex is strategically positioned to reap the benefits of the anticipated growth of the C&W industry.

The Companys electrical cables serve the critical requirements of key sectors such as Energy, Transportation, Real Estate, and Construction among others. With ongoing substantial capital allocation and supportive government policies, these industries continue to play a pivotal role in the holistic economic development of the nation. The Company anticipates that demand for electric cables from these sectors will persist. It foresees margin improvement in the future, driven by increased volumes from wires and communication cables and higher utilisation.

Communication Cables

The communication cables segment comprises state-of- the-art, advanced 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 utilised for high-speed data transfer, while Coaxial cables find application 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 enable last-mile connectivity by establishing a connection between V-SAT dish to a base station. The communication cables segment also includes 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, with the capacity to handle maximum bandwidth and transmit data at high speed. They are predominantly used by telecom companies and multi-service organisations for data distribution and serve as essential trunk cables for long-distance networks.

• Communication cables play a pivotal role in infrastructure development and digitalisation in the country due to their proven capability to transmit digital data at high speed and high bandwidth.

• Traditional telephone cables comprise copper-based JFTCs, typically installed underground, primarily used for landline telephone connectivity. Finolex is gradually shifting focus from this segment due to a significant decline in demand for JFTCs attributed to the increasing penetration of smartphones and the emergence of technically advanced alternatives, OFCs. However, the Company continues to manufacture JFTCs with broadband features to cater to the requirements of public and private telecom companies and export markets as per the clients requirements.

• LAN Passive Components are part of Finolexs existing portfolio of LAN cables, comprising products including patch cords, information outlets, patch cards and faceplates. These components serve critical roles in environments like data centres, IT networks, conference rooms and branch office connections with high-density switches.

Performance

The communication cables segment (including optical fiber) recorded revenue of Rs. 531.2 crores in FY 2024-23 compared to Rs. 579.0 crores in FY 2022-23. In the communication cables segment, the volume of optic fiber cable decreased by 30% during the fiscal year primarily due to delays in tenders, both from the government as well as from private telecom players. The profitability of communication cables remained weak, reflecting an EBIT margin of 2.1 %, compared to 2.2% in the previous year. Margins in this segment were lower and more volatile than in wires. During FY 2023-24, there was limited demand from the government, resulting in periods of idle capacity for the Company.

Growth Drivers and Outlook

The growth of the communication cables segment is driven by the governments strong emphasis on digitalisation and initiatives like the BharatNet project. With the rapid rollout of 5G technology, there is a growing demand for high-speed optical cables to support the widespread adoption of high-speed broadband and seamless 5G services across the country. Additionally, the development and deployment of 6G technology through Bharat 6G Vision, the establishment of hyperscale data centres and the advent of Edge Computing are further reshaping Indias digital landscape, promising enhanced connectivity and technological advancement.

Data centres in India are experiencing rapid growth, fuelled by the digitalisation of diverse industries and an unprecedented demand for robust data storage and processing capabilities. Projections indicate that Indias data centre capacity in the top seven cities will surpass 1 GW by 2024. Expansion of data centres and IT facilities is driving the need for wires and cables to ensure connectivity, high bandwidth data transfer speed, and increased reliability in data transmission.

The communication cable segment is poised for growth in coming years, propelled by the rising demand for optic fiber volumes with the adoption of 5G and the eventual deployment of 6G services. The Company expects a surge in demand in this segment and maintains optimism as it continues to invest in the optic fiber cable segment. Furthermore, BSNLs announcement of a Rs. 65,000 crore tender for the third phase of the BharatNet project offers a promising opportunity for the Companys growth trajectory. Additionally, the Company anticipates increased demand from states that were not previously included in the BharatNet Program but are slated to join in Phase 3. Recognising a disparity between potential demand and actual demand trends observed over the years, the Company perceives an opportunity for growth. Furthermore, Finolex has taken a substantial stride in expanding its footprint in Maharashtra, fostering growth and development by formalising a Memorandum of Understanding (MoU) with the Department of Industries, Government of Maharashtra. This strategic partnership sets the stage for the Companys significant investment of Rs. 580 crores, marking a notable milestone in its expansion efforts within the optic fibre cables industry.

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 over and above captive requirements is sold to third-party customers.

Performance

The Company consumes majority of the production from the copper rod segment. Third-party sales for FY 2023-24 stood at Rs. 36.4 crores, compared to Rs. 23.2 crores in FY 2022-23. The Companys copper rod segment faced challenges due to elevated premiums on copper cathodes and reduced premiums on copper rods, resulting in decreased margins for third-party sales. Finolex limited its third-party copper rod sales to agreements with existing partners or contracts that maintained acceptable margin levels.

Growth Drivers and Outlook

As an essential component for all copper-based electrical and communication cables, the demand for copper rods is expected to increase in tandem with the expansion of the C&W industry. The demand for copper rods in the electrical segment is surging, fuelled by rapid infrastructure development and construction activities and the increasing adoption of electric vehicles. The uptick in sales of domestic and industrial appliances, transportation equipment, industrial machinery, and other durable goods has also been driving an increased demand for copper rods. Furthermore, the Company intends to benefit from selling surplus copper rods to third parties.

Others (FMEG and Home Appliances)

a. Electrical Switches, Switchgears and Lighting

Finolex strategically diversified into the margin-enhancing FMEG segment to bolster its B2C sales and reduce dependence on the cables and wires industry. The FMEG product portfolio comprises lighting products, electrical switches, and low-duty switchgear. Its electrical wire accessories include doorbell, extension box, spike guard, angle holders, and batten holders, among others.

The segment witnessed healthy sales of Rs. 76.8 crores in FY 2023-24 compared to Rs. 73.1 crores in FY 2022-23. The expansion of the product range and distribution network has contributed to the improved revenues and volumes within these product segments. All new products within the FMEG segment, including appliances, conduits, lights, etc. exhibited significant volume growth during the fiscal year; however, price erosion was severe in Lighting. Although light, switches and switchgear segments showed improvement in volumes, they remained susceptible to price erosion.

While the Company has yet to scale its FMEG business, it remains optimistic about a positive outlook. It is focussed on leveraging its robust brand reputation, technical prowess, extensive distribution network, and skilled sales team to expand its FMEG segment. By consistently reinforcing its distribution network and fostering relationships with channel partners, it aims to expand its market reach while maintaining a steadfast commitment to delivering high-quality products and cultivating customer loyalty.

b. Fans, Water Heaters & Room Heaters

The Companys fans and water heaters segment has gained acceptance in the market, owing to its reputation for quality, performance, aesthetics, and value-for-money propositions. Leveraging the strength of its brand, extensive reach, and doorstep after-sales service available nationwide, the Company is poised to boost product sales in this segment.

This segment recorded sales of Rs. 30.7 crores in FY 2023-24 compared to Rs. 43.3 crores in 2022-23. The fans segment has experienced slow growth in FY 2023-24 and facing intense competition; however, the Company is optimistic that its brand reputation will provide a competitive edge in the market. With the improvement in the product portfolio and expansion of distribution channels, the Company anticipates improvement in the fans segment.

c. Irons

In Finolexs home appliances segment, the I ron segment features Crease Free Irons. The 750W - 1600W range includes state-of-the-art steam and dry irons, providing both affordability and durability. The Company is optimistic about the positive performance of this segment.

d. Smart Home Solutions

The Company launched smart solutions, including smart door locks and a range of smart switches and switchgear, equipped with cutting-edge technology for home automation.

Outlook

The domestic demand for branded FMEG products is expected to remain strong in the coming years. The growth of the Indian FMEG industry will be driven by government initiatives ensuring energy accessibility nationwide, urbanisation, rural economic development, and digital connectivity. A robust resurgence in the housing sector, increasing per capita income, evolving consumer preferences, and a shift towards premiumisation and value-added branded products along with under penetration in various product categories, have paved the way for a sustainable growth trajectory in the FMEG industry. Additionally, the surge in dual-income households resulting from a growing population of working women enhanced disposable incomes, and fast-paced lifestyles has spurred demand for household appliances.

To capitalise on the burgeoning popularity of e-commerce and the increasing penetration of digital and distribution channels in the country, Finolex has developed an in-house dedicated online retail store. Additionally, its exclusive retail outlets Finolex Houses are available in seven cities, enhancing the Companys offline visibility. The response for both e-commerce and Finolex House channels has been positive.

With an ambitious target to achieve Rs. 500 crores of revenue from the FMEG segment in the next 2-3 years, followed by significant scaling up, the Company aims to drive growth through new product launches in the FMEG segment. It anticipates reaching a breakeven point when the annual revenue hits 180 crores. Upon the fan revenue crossing the Rs. 100 crores mark, Finolex plans to commence in-house manufacturing of fans and introduce new products in this domain. Furthermore, the Company is exploring opportunities for inorganic growth in this segment and is actively seeking suitable opportunities.

FINANCIAL PERFORMANCE

(Rs. in Crores)

PARTICULARS	STANDALONE
	FY 2023-24	FY 2022-23
INCOME
Revenue from Operations (Net)	5,014.4	4,481.1
Other Income	218.0	198.1
Total	5,232.4	4,679.2
EXPENDITURE
Material Costs	3,948.3	3,544.5
Employee Benefit Expenses	177.3	162.7
Finance Costs	2.0	1.2
Depreciation, Amortisation and Impairment	43.9	46.4
Other Expenses	308.1	278.4
Total	4,479.6	4,033.2
Profit Before Tax	752.8	646.0
Tax Expenses:
Current Tax	158.0	145.0
Deferred Tax	23.2	(0.7)
Total Tax	181.2	144.3
Profit After Tax	571.6	501.7
Total Other Comprehensive	31.7	35.9
Income / (Expense) for the year
Total Comprehensive Income for the year	603.3	537.6

Revenue

The Company achieved a revenue of Rs. 5,014.3 crores as against Rs. 4,481.1 crores in the previous year, marking a growth of 12%.

Costs

Material Cost: For the most part, the year witnessed elevated commodity prices, especially copper. Although the Company operates on a "pass-through" principle, where it passes on cost increases along the value chain, the transmission is gradual and may temporarily impact the margin mix.

Staff Cost: Employee expenses increased in proportion to the increase in production activity compared to the previous year.

Other Expenses: Other expenses increased in proportion to the increase in overall activity compared to the 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)

STATEMENT OF BALANCE SHEET	FY 2023-24	FY 2022-23
SOURCES OF FUND:
Shareholders Fund	4,205.9	3,709.6
Non-Current Liabilities	85.9	53.6
Current Liabilities	336.1	320.1
Total	4,627.9	4,083.3
APPLICATIONS OF FUND:
Fixed Assets	612.0	456.0
Investments	2,576.4	1,712.7
Loan & Other Non-Current Assets	70.9	48.7
Current Assets	1,368.6	1,865.9
Total i	4,627.9	4,083.3

Capital Expenditure and Investments in JV: During the year, the Company incurred Rs. 218.6 crores towards capital expenditure, predominantly towards the sustenance of existing capacity and product development activities. It invested Rs. Nil crores in its Joint venture in FY 2023-24.

Liquidity: The Company maintained the "cash and carry" sales system for all retail customers during the fiscal year. For institutional & OEM customers, the Company continued with the credit period mutually agreed as specified in the purchase order contract. The Company ensures liquidity management through diligent weekly monitoring of cash flows.

Profitability: The Companys profit before tax increased by 17% due to an increase in revenue in FY 2023-24, 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. 576.9 crores from its operations in FY 2023-24 compared to Rs. 356.3 crores generated in FY 2022-23.

Profit before tax and exceptional items stood at Rs. 752.8 crores as against Rs. 646.0 crores in the previous year.

Taxation: Tax outflow during the year increased proportionately with the increase in profit before taxation.

Cash Flow

(Rs. in Crores)

PARTICULARS	FY 2023-24	FY 2022-23
Profit from operations before tax	752.9	646.0
(Inc)/Dec in Net working capital	(15.9)	(158.0)
Income tax paid	(160.1)	(131.8)
Net cash flow from operating activities	576.9	356.3
Cash outflow for investing activities	(439.6)	(224.6)
Cash outflow for financing activities	(111.7)	(96.7)
Net cash flow / (Outflow) 1	25.6	34.9

RISK MANAGEMENT

The Company has a comprehensive risk management framework to promptly and effectively identify, assess and mitigate key business and operational risks. A dedicated Risk Management Committee is in place to oversee the risk management framework. The committee consistently monitors mitigation plans during project execution, ensuring strict adherence to risk management processes across all functional departments, from top management to managers at various execution levels. Additionally, the Company engages external advisors to formulate strategies for managing key risks. While the segment-specific risks are addressed in the Business Environment for Product Segments with Outlook, the key general risks and their respective mitigation measures are depicted below:

• Competition Risk

The Company encounters fierce competition from both organised and unorganised players in the industry. Failure to deliver differentiated products with superior quality and competitive pricing could adversely impact its market share and profitability.

Mitigation

Finolex has established a robust brand identity through its extensive product range and technical expertise. Its commitment lies in providing innovative, high-quality products that meet dynamic market needs in terms of quality and technical specifications. Additionally, having control over essential raw materials through backward integration allows the Company to offer competitive pricing. With its expansion into the FMEG segment, it has become a one-stop-shop solution for all electrical requirements, providing it with a competitive edge in the market.

• Raw Material Risk

Fluctuations in the prices of raw materials like copper, aluminium, and fiber optics may significantly influence the Companys input costs, potentially hindering its ability to offer products to customers at competitive prices. While raw material price fluctuations are typically passed on by the Company, heightened volatility in copper prices, and the inability or delay in passing on price hikes to customers, could still diminish margins and result in a loss of market share.

Mitigation

The Company adjusts its selling prices to pass-through increases in input costs. It also engages in hedging strategies and procures raw materials, particularly copper, at average price. Additionally, it maintains adequate inventory levels at optimal costs to facilitate seamless production. The Company strives to maintain margin levels by aligning product sales prices with raw material costs to mitigate the impact of unexpected price fluctuations. Moreover, Finolexs backward integration and in-house manufacturing of essential raw materials, such as PVC compound, copper rods, optic fiber, and FRP rods, enable it to guarantee continuous access to key raw materials at a lower cost and desired quality.

• Policy Risk

Changes in government regulations and policies related to housing and infrastructure sectors have the potential to affect the Companys revenue, order book, and profitability. Additionally, unfavourable modifications in monetary policy might result in higher borrowing costs, impacting project viability.

Mitigation

The Companys diverse client base across various industries helps mitigate the risk associated with dependence on any single sector. Additionally, this positioning allows Finolex to capitalise on sectorial growth supported by government allocations. Furthermore, its expansion into the FMEG segment reduces reliance on the cables and wires industry, protecting the overall business from adverse policies or sectoral fluctuations. The Company also strives to increase exports to minimise exposure to the domestic market.

• Currency Risk

The Company is susceptible to fluctuations in foreign exchange rates due to its export of final products and import of key raw materials from international markets. Adverse changes in currency exchange rates may lead to lower realisations or increased input costs, resulting in lower profit margins.

Mitigation

The Company employs an effective hedging strategy to mitigate the adverse effects of currency fluctuations. It also enters into suitable long-term contracts with international clients and suppliers to protect revenue and margins while reducing exposure to currency rate volatility.

• Macroeconomic Risk

The geopolitical conflicts and global economic slowdown may adversely impact the export business of the Company. Additionally, high inflation and resurgence of supply chain disruptions could constrain the export market and dampen customer demand.

Mitigation

The Company evaluates the geographical risks and viability of operations in specific countries or regions through extensive market research, aiming to minimise impairment risk. It maintains a lean operational and cost structure while actively monitoring cash flows. Additionally, it has implemented a robust business continuity plan, leveraging the extensive experience of its top management team to ensure flexibility and resilience during periods ofcrisis. Moreover, the domestic market is expected to continue to offer substantial business prospects for the Company.

INTERNAL CONTROLS

The Company maintains a robust framework of internal controls tailored to the scale, nature and complexity of its business. This framework addresses evolving business risks, ensures the reliability of financial information, facilitates timely reporting of operational and financial transactions, safeguards assets, and rigorously adheres to applicable laws and regulations. The Companys internal auditors are responsible for regular monitoring and review of these controls. Additionally, an external team has been appointed 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 the correction of any discrepancies, as necessary. Key observations are communicated to the management who promptly undertake corrective actions.