The September 2025 quarter showcased the company's ability to expand profitability despite modest topline growth, with net sales registering ₹1,375.79 crores, up 4.88% year-on-year but down 1.41% sequentially. The PAT margin stood at 11.82%, reflecting improved operational efficiency compared to 8.99% in Q2 FY25. However, the sequential decline in operating margin excluding other income—from 11.65% in Q1 FY26 to 10.55% in Q2 FY26—signals emerging pressure on core profitability. The company's reliance on other income, which contributed ₹37.46 crores in Q2 FY26, remains a notable characteristic of its earnings profile.
Finolex Cables operates in a competitive landscape dominated by larger peers such as Polycab India and KEI Industries, both commanding higher valuations and superior return metrics. The company's positioning as a small-cap player with a market capitalisation of ₹11,899 crores places it fourth in the cables and electricals peer group, trailing significantly behind industry leader Polycab India. The stock's bearish technical trend since August 2025 and substantial underperformance versus both the Sensex and sector indices have raised red flags for investors evaluating entry points.
| Quarter | Revenue (₹ Cr) | QoQ % | Net Profit (₹ Cr) | QoQ % | OPM (Excl OI) % |
|---|---|---|---|---|---|
| Sep'25 | 1,375.79 | -1.41% | 162.64 | +0.01% | 10.55% |
| Jun'25 | 1,395.52 | -12.48% | 162.62 | -15.17% | 9.77% |
| Mar'25 | 1,594.58 | +34.89% | 191.71 | +30.19% | 10.71% |
| Dec'24 | 1,182.11 | -9.88% | 147.25 | +24.90% | 11.65% |
| Sep'24 | 1,311.72 | +6.60% | 117.89 | -51.67% | 8.07% |
| Jun'24 | 1,230.48 | -12.17% | 243.92 | +31.07% | 10.31% |
| Mar'24 | 1,401.02 | — | 186.10 | — | 11.56% |
Financial Performance: Uneven Margin Trajectory Clouds Growth Story
Finolex Cables' Q2 FY26 financial performance presented a tale of contrasting dynamics. Whilst consolidated net profit of ₹162.64 crores demonstrated resilience with 37.96% year-on-year growth, the sequential stagnation (up a mere 0.01% from Q1 FY26) and revenue contraction of 1.41% quarter-on-quarter exposed underlying fragility. Net sales of ₹1,375.79 crores in Q2 FY26, though up 4.88% year-on-year, reflected tepid demand momentum in the electrical cables segment, particularly when contrasted with the 34.89% sequential surge witnessed in Q4 FY25.
The company's operating margin excluding other income deteriorated to 10.55% in Q2 FY26 from 11.65% in Q1 FY26, indicating cost pressures or pricing challenges. On a year-on-year basis, however, the margin expanded by 248 basis points from 8.07% in Q2 FY25, suggesting improved operational leverage over a longer timeframe. The gross profit margin of 13.24% in Q2 FY26 remained relatively stable but trailed the 15.40% achieved in Q1 FY26, pointing to fluctuating raw material costs or competitive pricing dynamics.
Other income of ₹37.46 crores in Q2 FY26, whilst down 30.76% sequentially from ₹54.12 crores in Q1 FY26, continued to play a meaningful role in bolstering overall profitability. The company's profit before tax stood at ₹206.20 crores, with an effective tax rate of 21.13%, lower than the 23.53% recorded in Q1 FY26. This tax efficiency contributed to the marginal improvement in PAT margin to 11.82% from 11.65% in the prior quarter.
On a half-yearly basis (H1 FY26), Finolex Cables reported net sales of ₹2,771.31 crores, representing moderate growth of 8.95% year-on-year compared to H1 FY25. Consolidated net profit for H1 FY26 reached ₹325.26 crores, significantly ahead of ₹361.81 crores in H1 FY25 when adjusting for the exceptionally high base created by one-time gains in Q2 FY25. The company's ability to sustain double-digit PAT margins across multiple quarters demonstrates operational resilience, though the volatility in quarter-to-quarter margin performance warrants close monitoring.
Operational Challenges: Margin Compression and Capital Efficiency Concerns
Beneath the surface of year-on-year profit growth, Finolex Cables faces notable operational headwinds. The company's return on equity (ROE) of 12.75% for the latest period, whilst positive, lags significantly behind industry leader Polycab India's 19.06% and even trails newer entrant Advait Energy's impressive 22.54%. This lower ROE reflects suboptimal capital efficiency and suggests the company is generating less shareholder value per rupee of equity compared to its more dynamic competitors.
The return on capital employed (ROCE) of 16.74% for the latest period, though respectable, has shown limited improvement trajectory, with the five-year average standing at 15.58%. For a manufacturing business in a growth sector, this level of capital productivity raises questions about the company's ability to deploy retained earnings effectively. The company's sales-to-capital-employed ratio of 0.96x indicates that Finolex generates less than one rupee of revenue for every rupee of capital deployed, pointing to potential overcapitalisation or underutilised assets.
Margin Pressure Alert
Operating margin excluding other income contracted 110 basis points sequentially to 10.55% in Q2 FY26, the second consecutive quarter of margin decline from the 11.65% peak in Q1 FY26. This compression, despite modest revenue growth, suggests either raw material cost inflation, pricing pressures from larger competitors, or operational inefficiencies requiring management attention. The company's reliance on other income to support overall profitability remains a structural concern.
Finolex Cables' balance sheet presents a contrasting picture of strength and caution. The company maintains a virtually debt-free status with long-term debt of just ₹0.80 crores as of March 2025, resulting in a net debt-to-equity ratio of -0.46, effectively making it a net cash company. Shareholder funds stood at ₹5,495.25 crores, up from ₹4,945.86 crores in the prior year, reflecting steady capital accumulation. However, the company's current assets of ₹3,784.12 crores, whilst healthy, include significant investments of ₹1,571.68 crores, raising questions about the optimal deployment of this capital for organic growth versus financial investments.
The company's working capital management appears adequate, with current liabilities of ₹361.01 crores representing a manageable proportion of current assets. Trade payables of ₹241.72 crores and other current liabilities of ₹111.21 crores indicate reasonable vendor relationships and operational liquidity. However, the relatively modest fixed asset base of ₹566.44 crores compared to total assets suggests limited recent capital expenditure, potentially constraining the company's ability to scale operations aggressively in response to market opportunities.
Industry Context: Losing Ground in a Competitive Landscape
The cables and electricals industry in India has witnessed robust growth driven by infrastructure development, real estate expansion, and government initiatives such as housing schemes and smart city projects. However, Finolex Cables' performance relative to sector peers reveals a concerning pattern of market share erosion and valuation discount. Over the past year, whilst the broader cables-electricals sector declined 10.40%, Finolex Cables underperformed dramatically with a 35.21% decline, resulting in negative alpha of 24.81 percentage points versus the sector.
The company's struggles are particularly evident when compared to industry leader Polycab India, which commands a price-to-earnings ratio of 46.51x and price-to-book value of 11.65x, reflecting investor confidence in its growth trajectory and market dominance. KEI Industries similarly trades at 48.72x earnings, whilst Finolex Cables languishes at just 19.62x, a valuation that ostensibly appears attractive but may reflect genuine concerns about growth prospects and competitive positioning rather than representing a value opportunity.
Competitive Positioning: The Scale Disadvantage
Finolex Cables' market capitalisation of ₹11,899 crores places it at #4 in the peer group, significantly behind Polycab India's commanding presence. This scale disadvantage translates into limited pricing power, reduced bargaining leverage with suppliers, and constrained ability to invest in brand building and distribution expansion. The company's ROE of 13.25% over the past five years trails the peer group average, indicating structural challenges in generating superior returns on invested capital.
The company's five-year sales growth rate of 17.52% and EBIT growth of 12.93%, whilst positive, lag behind the industry's more dynamic players. This slower growth trajectory, combined with margin volatility, has resulted in investor scepticism reflected in the stock's bearish technical trend and substantial price correction from its 52-week high of ₹1,343.25 to the current level of ₹786.45—a decline of 41.45%.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield % | Debt/Equity |
|---|---|---|---|---|---|
| Finolex Cables | 19.62 | 2.21 | 13.25% | 1.01% | -0.46 |
| Polycab India | 46.51 | 11.65 | 19.06% | 0.46% | -0.24 |
| KEI Industries | 48.72 | 0.62 | 14.53% | 0.10% | -0.22 |
| R R Kabel | 37.95 | 7.12 | 14.48% | 0.55% | 0.01 |
| Universal Cables | 21.05 | 1.39 | 6.15% | 0.56% | 0.47 |
| Advait Energy | 55.79 | 9.33 | 22.54% | 0.10% | -0.21 |
Finolex Cables' valuation discount versus peers is substantial: its P/BV of 2.21x compares to a peer average of approximately 6.0x, whilst its P/E of 19.62x sits well below the peer average of roughly 42x. This discount reflects market concerns about the company's lower ROE, slower growth, and competitive vulnerabilities. The company's dividend yield of 1.01%, whilst higher than most peers, offers limited compensation for the capital depreciation experienced by shareholders over the past year.
Valuation Analysis: Attractive Price or Value Trap?
At the current market price of ₹786.45, Finolex Cables trades at a trailing twelve-month P/E ratio of 19.62x, representing a significant 57.4% discount to the industry P/E of 46x. The stock's price-to-book value of 2.21x appears reasonable given the company's book value per share of ₹359.28, suggesting limited premium over net asset value. However, the critical question facing investors is whether this valuation discount represents an attractive entry point or reflects justified concerns about the company's competitive positioning and growth trajectory.
The company's enterprise value-to-EBITDA multiple of 17.45x and EV-to-EBIT of 19.18x sit at the lower end of the peer spectrum, ostensibly suggesting value. However, these multiples must be contextualised against Finolex Cables' lower ROE of 13.25% versus peer averages of 15-20%, and its slower five-year EBIT growth rate of 12.93%. The stock's current trading level represents a 41.45% decline from its 52-week high of ₹1,343.25, but only 9.22% above its 52-week low of ₹720.05, indicating limited technical support and substantial downside risk if operational performance continues to disappoint.
The proprietary Mojo Score of 36 out of 100, falling firmly in the "SELL" category (30-50 range), reflects the convergence of multiple negative factors: bearish technical trend, flat financial performance in recent quarters, and significant underperformance versus both the market and sector indices. Whilst the company's valuation grade is classified as "Attractive," this assessment must be weighed against the "Good" quality grade and concerning technical and financial trends.
A fundamental concern for value investors is the stock's negative risk-adjusted return of -0.91 over the past year, indicating that investors have borne high volatility (38.55%) for negative absolute returns (-35.21%). This compares unfavourably to the Sensex's positive risk-adjusted return of 0.44 with substantially lower volatility of 12.38%. The stock's high beta of 1.35 suggests amplified downside risk in market corrections, making it unsuitable for conservative investors seeking stability.
Shareholding Pattern: Institutional Caution and Promoter Stability
The shareholding pattern of Finolex Cables reveals a stable promoter base but mixed signals from institutional investors. Promoter holding has remained steady at 35.86% across the past five quarters, indicating confidence and commitment from the controlling shareholders. However, the relatively modest promoter stake compared to many Indian family-controlled businesses suggests limited skin in the game and potential governance considerations for minority investors.
| Shareholder Type | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 35.86% | 35.86% | 35.86% | 35.86% | 0.00% |
| FII | 9.90% | 2.19% | 10.57% | 11.00% | +7.71% |
| Mutual Funds | 10.70% | 9.92% | 9.91% | 10.06% | +0.78% |
| Insurance | 4.96% | 5.42% | 5.89% | 5.92% | -0.46% |
| Other DII | 0.22% | 8.71% | 0.27% | 0.26% | -8.49% |
| Non-Institutional | 38.36% | 37.91% | 37.50% | 36.90% | +0.45% |
Foreign institutional investor (FII) holding exhibited dramatic volatility, plummeting from 10.57% in March 2025 to just 2.19% in June 2025, before recovering to 9.90% in September 2025. This 7.71 percentage point sequential increase in Q2 FY26 suggests renewed interest from global investors, possibly viewing the stock's correction as a value opportunity. However, the earlier sharp reduction reflects concerns about the company's competitive position and growth trajectory that may resurface if operational performance continues to disappoint.
Mutual fund holding increased modestly to 10.70% in September 2025 from 9.92% in the prior quarter, indicating cautious accumulation by domestic institutional investors. However, the overall mutual fund stake remains relatively modest, with only 28 mutual fund schemes holding positions, suggesting limited conviction from the broader institutional community. Insurance company holdings declined to 4.96% from 5.42%, continuing a gradual reduction trend that signals diminishing confidence from this traditionally long-term investor category.
The substantial non-institutional holding of 38.36%, representing retail and high-net-worth individual investors, has been gradually increasing, rising from 36.90% in December 2024. This retail accumulation during a period of price weakness may reflect value-seeking behaviour, but could also indicate a lack of sophisticated institutional support. Overall institutional holdings of 25.78% remain healthy but unexceptional, providing limited validation of the investment thesis from professional money managers.
Stock Performance: Severe Underperformance Across All Timeframes
Finolex Cables' stock performance over the past year presents a sobering picture of sustained underperformance and capital destruction. The stock has declined 35.21% over the past twelve months, massively underperforming the Sensex's 5.50% gain by a staggering 40.71 percentage points of negative alpha. This underperformance extends across virtually all meaningful timeframes, with the stock down 33.39% year-to-date versus the Sensex's 7.34% gain, resulting in 40.73 percentage points of underperformance.
| Period | Stock Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | -0.10% | +0.49% | -0.59% | — |
| 1 Month | -2.07% | +1.66% | -3.73% | — |
| 3 Months | -6.80% | +4.05% | -10.85% | — |
| 6 Months | -10.36% | +5.56% | -15.92% | — |
| YTD | -33.39% | +7.34% | -40.73% | — |
| 1 Year | -35.21% | +5.50% | -40.71% | -10.40% |
| 2 Years | -15.70% | +29.22% | -44.92% | — |
| 3 Years | +52.87% | +35.73% | +17.14% | — |
| 5 Years | +183.05% | +92.39% | +90.66% | — |
The stock's underperformance versus the cables-electricals sector is equally concerning, with Finolex declining 35.21% over the past year compared to the sector's 10.40% decline, representing 24.81 percentage points of sector underperformance. This relative weakness suggests company-specific challenges beyond broader industry headwinds, including market share losses, margin pressures, and investor concerns about competitive positioning.
Technical indicators paint a uniformly bearish picture. The stock trades below all major moving averages: 5-day MA (₹784.17), 20-day MA (₹789.85), 50-day MA (₹816.05), 100-day MA (₹862.88), and 200-day MA (₹891.07). This alignment of moving averages in descending order represents a classic bearish configuration, suggesting continued downside pressure absent a fundamental catalyst. The MACD indicator shows bearish signals on both weekly and monthly timeframes, whilst the RSI provides no clear directional signal, indicating neither oversold conditions that might attract value buyers nor momentum strength.
The stock's high beta of 1.35 amplifies market movements, meaning Finolex Cables tends to fall more sharply during market corrections whilst participating less fully in rallies. This high-beta characteristic, combined with elevated volatility of 38.55% versus the Sensex's 12.38%, makes the stock unsuitable for risk-averse investors. The negative Sharpe ratio over the past year confirms that investors have borne substantial risk without commensurate returns, a textbook definition of poor risk-adjusted performance.
"When a stock underperforms both its sector and the broader market by over 40 percentage points whilst exhibiting bearish technical indicators across all timeframes, the burden of proof shifts decisively to bulls to demonstrate a credible turnaround catalyst."
Investment Thesis: Mixed Signals Tilting Negative
The investment thesis for Finolex Cables presents a complex mosaic of competing factors. On the positive side, the company maintains a virtually debt-free balance sheet with net cash position, generates positive free cash flow, and trades at a substantial valuation discount to peers. The promoter holding of 35.86% provides governance stability, whilst the recent increase in FII and mutual fund holdings suggests selective institutional interest. The company's dividend yield of 1.01%, backed by a conservative payout ratio of 18.78%, offers modest income support.
However, these positives are overshadowed by significant structural concerns. The company's ROE of 13.25% lags peer averages and indicates suboptimal capital efficiency. Operating margins have contracted sequentially for two consecutive quarters, raising questions about pricing power and cost management. The five-year sales CAGR of 17.52% and EBIT CAGR of 12.93%, whilst positive, trail more dynamic competitors. Most critically, the stock's sustained underperformance, bearish technical trend, and high volatility suggest market participants harbour deep concerns about the company's competitive positioning and growth trajectory.
The Mojo 4 Dots analysis reveals the investment dilemma: attractive valuation and good quality fundamentals are offset by flat near-term financial trends and decidedly bearish technical indicators. This configuration suggests a potential value trap rather than a compelling opportunity. The company's flat financial trend classification for Q2 FY26, following a negative trend in Q1 FY26, indicates inconsistent operational momentum that undermines investor confidence.
Key Strengths & Risk Factors
KEY STRENGTHS
- Debt-Free Balance Sheet: Net cash position of -0.46 debt-to-equity eliminates financial risk and provides flexibility for growth investments or shareholder returns.
- Valuation Discount: P/E of 19.62x represents 57% discount to industry average of 46x, potentially offering value for patient investors if operational performance stabilises.
- Established Brand: 67-year operating history since 1958 provides brand recognition and established distribution networks in the electrical cables market.
- Positive Cash Generation: Operating cash flow of ₹576 crores in FY24 demonstrates ability to convert profits into cash, supporting dividend payments and capital allocation flexibility.
- Stable Promoter Base: Consistent 35.86% promoter holding across multiple quarters indicates long-term commitment and governance stability.
- Institutional Interest: Recent increases in FII (7.71 percentage points) and mutual fund (0.78 percentage points) holdings suggest selective institutional accumulation at current levels.
- Dividend Income: Yield of 1.01% with conservative payout ratio of 18.78% provides modest income support whilst retaining capital for growth.
KEY CONCERNS
- Weak Capital Efficiency: ROE of 13.25% significantly trails peer averages of 15-20%, indicating suboptimal deployment of shareholder capital and limited competitive advantages.
- Margin Compression: Sequential decline in operating margin (excl OI) from 11.65% to 10.55% over two quarters signals pricing pressures or cost management challenges.
- Severe Stock Underperformance: 35.21% decline over past year versus Sensex gain of 5.50% represents 40.71 percentage points of negative alpha, indicating deep market concerns.
- Bearish Technical Setup: Stock trading below all major moving averages with bearish MACD signals suggests continued downside pressure absent fundamental catalyst.
- Competitive Disadvantage: Market cap of ₹11,899 crores (#4 in peer group) limits pricing power and investment capacity versus larger competitors like Polycab India.
- High Volatility: Beta of 1.35 and volatility of 38.55% create amplified downside risk during market corrections, unsuitable for risk-averse investors.
- Inconsistent Growth: Five-year EBIT CAGR of 12.93% lags sales CAGR of 17.52%, indicating margin erosion and operational leverage challenges over time.
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Margin Stabilisation: Reversal of sequential margin compression trend with operating margin (excl OI) returning to 11-12% range would restore investor confidence.
- Market Share Gains: Evidence of revenue growth outpacing sector averages, indicating competitive positioning improvements versus Polycab and KEI.
- Capital Deployment: Announcement of strategic acquisitions, capacity expansion, or enhanced shareholder returns utilising net cash position effectively.
- Technical Reversal: Stock reclaiming 200-day moving average at ₹891 with sustained volume would signal trend change and attract momentum investors.
- Institutional Accumulation: Continued increase in FII and mutual fund holdings above 30% combined stake would validate investment thesis and provide price support.
RED FLAGS
- Further Margin Erosion: Operating margin (excl OI) declining below 10% would signal intensifying competitive pressures and structural profitability challenges.
- Revenue Stagnation: Quarterly sales growth turning negative on year-on-year basis would indicate market share losses to larger, more aggressive competitors.
- Institutional Exodus: Reversal of recent FII/MF accumulation with holdings declining below 20% combined would remove critical price support.
- Technical Breakdown: Stock breaking below 52-week low of ₹720 with high volume would trigger stop-losses and accelerate selling pressure.
- ROE Deterioration: Return on equity declining below 12% would further widen gap versus peers and justify valuation discount expansion.
The forward outlook for Finolex Cables hinges critically on management's ability to arrest the margin compression trend and demonstrate competitive resilience against larger, better-capitalised peers. The company's debt-free status provides financial flexibility, but the question remains whether management possesses the strategic vision and execution capability to deploy this capital effectively for market share gains and margin expansion. The recent uptick in institutional holdings offers a glimmer of hope, but sustained accumulation will require tangible evidence of operational improvement in coming quarters.
The Verdict: Caution Warranted Despite Valuation Appeal
Score: 36/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the stock trades at an attractive valuation discount, the convergence of bearish technical trends, sequential margin compression, severe underperformance, and weak capital efficiency metrics suggests substantial downside risk. Wait for concrete evidence of operational turnaround—specifically margin stabilisation above 11% and sustained revenue acceleration—before considering entry. The stock's high beta and volatility make it unsuitable for conservative portfolios.
For Existing Holders: Consider reducing exposure on any technical bounce towards the 200-day moving average at ₹891. The stock's 35% decline over the past year, combined with flat financial trends and bearish technical setup, suggests the path of least resistance remains downward absent a fundamental catalyst. Reallocate capital to sector leaders with superior ROE profiles and positive momentum. Only long-term investors with high risk tolerance and conviction in management's turnaround strategy should maintain positions.
Fair Value Estimate: ₹720-750 (8-12% downside from current levels), based on 17-18x forward earnings assuming margin stabilisation and modest growth recovery. Upside scenario of ₹950-1,000 contingent on demonstrable market share gains and margin expansion to 12%+ levels.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The views expressed herein are subject to change without notice.
