Finolex Cables, a dominant player in India's electrical infrastructure ecosystem, has registered modest revenue growth, masking exceptional margin expansion. Anand Rathi Share and Stock Brokers has maintained a BUY rating with a 12-month target price of Rs 975, offering a compelling 30% upside from the current Rs 750 share price. Despite communication cables facing headwinds from fibre price volatility and agricultural demand headwinds, the company's strategic backward-integration initiatives position it for transformative earnings acceleration in the latter half of FY26. With a market cap of Rs 116 billion and a fortress balance sheet, Finolex stands poised to deliver sustained double-digit earnings growth through FY28, making it an intriguing contrarian opportunity for discerning equity investors seeking exposure to India's electrification and renewable energy expansion.

Finolex Cables: Revenue Modesty, Margin Excellence

The financial mathematics of Q2 FY26 paint a fascinating portrait of operational sophistication. While consolidated revenues expanded a mere 4.9% year-on-year to Rs 13.75 billion, EBITDA margins expanded dramatically by 248 basis points to 10.5%—a phenomenon driven by 265 basis points of gross margin improvement. This margin expansion reflects the company's surgical precision in managing commodity price swings and implementing selective pricing actions. Remarkably, profit after tax surged 10.6% year-on-year to Rs 1.2 billion, demonstrating that earnings accretion need not always correlate with topline exuberance.

The segment-wise divergence reveals the complex dynamics at play. Electric cable revenue expanded 7.6% year-on-year to Rs 11.8 billion, capitalizing on robust industrial and solar cable demand emanating from manufacturing hubs and renewable energy projects. Conversely, copper rods revenue delivered an impressive 39% year-on-year expansion to Rs 4.8 billion, reflecting both volume gains and improved commodity pricing dynamics. However, communication cables—a critical growth vector—contracted 21.4% year-on-year to Rs 1.06 billion, succumbing to depressed fibre prices and subdued telecom capex cycles.

The Segment Story: Winners and Cautioners

Industrial Cable Excellence Amid Agricultural Headwinds: The industrial cable segment showcased remarkable vitality, with volumes surging approximately 60% year-on-year. This impressive performance reflects the resonance of infrastructure projects, manufacturing renaissance, and solar installation tailwinds that have animated India's development narrative. Conversely, agricultural cables—historically contributing 10-12% of revenue—experienced meaningful softness due to prolonged monsoon patterns that dampened farm-level activities and rural purchasing momentum. Building wire expansion remained essentially flat, as India's real estate sector navigated moderation in fresh launches and deceleration in affordable housing momentum.

Communication Cables: The Patience Test: Within communication cables, volumes remained conspicuously muted, with metal-based products and optical fibre cables both languishing. The segment's EBIT margin deteriorated 47% year-on-year, bearing the brunt of persistent fibre price deflation. Despite nascent signs of global fibre price hardening, these international trends have yet to manifest meaningfully in domestic demand or pricing realization for Finolex.

The BharatNet opportunity—long anticipated as a transformative growth catalyst—failed to materialize substantively in Q2. The company secured no bids in the initial tender round and now pursues subcontracting arrangements with successful bidders while awaiting state-level tenders anticipated within 2-4 months. Notably, current factory booking stands at approximately 60% of capacity, suggesting latent manufacturing firepower awaiting deployment.

Strategic Capex: The Margin Transformation Machine

Backward Integration as Competitive Moat: Perhaps the most consequential development is the progressive commissioning of preform and fibre-draw facilities—investments that promise to reconfigure the company's communication cables economics. The preform facility stands ready for production trials, while the fibre draw tower approaches completion by March 2026. Management has articulated compelling confidence that communication cable margins shall gradually revert to the historical 8-10% range as these facilities stabilize and utilization improves.

These backward-integration investments yield substantial strategic benefits: duty savings on optical fibre imports, enhanced control over critical input availability, and the capacity to weather commodity price dislocations. The company incurred Rs 750 million and Rs 1 billion in capex during Q2 and H1 respectively, predominantly channeled toward backward-integration objectives.

FMEG Segment: Bottoming Out the Erosion Cycle

Challenges and Repositioning: The FMEG (Fans, Motors, Electrical Goods) segment confronted industry-wide pressures. The fans business experienced moisture-related headwinds from prolonged monsoon, while lighting segment faced relentless erosion from LED price compression—though management signals this deflation cycle approaches its nadir. Switches and switchgear divisions possess multiple novel models under development, with anticipated launches commencing next quarter. Refreshed fan and water-heater designs are slated for market introduction within the ensuing six months.

The company maintains a Rs 5 billion revenue aspiration for FY28 across FMEG verticals, with in-house manufacturing pursuits deferred until operational scale justifies such capital allocation—a decision management currently does not anticipate materializing within FY26.

Financial Architecture: A Fortress Balance Sheet

Below is the comprehensive financial scaffold that positions Finolex for sustained value creation:

The Estimate Revision Narrative

Recalibrating Expectations Post-Q2: Following Q2 results, Anand Rathi has moderately recalibrated its forward estimates. Revenue projections for FY26, FY27, and FY28 witnessed downward adjustments of 2.4%, 2.5%, and 3.5% respectively, reflecting realistic calibration to near-term demand headwinds. Correspondingly, EBITDA margin assumptions have been revised downward by 3.7%, 4.2%, and 4.7% respectively across the forecast period.

Despite these prudent revisions, the company remains positioned for compelling earnings expansion. Management guidance envisions revenue and net income expansion at 10% and 9% CAGR respectively over FY25-28, establishing the potential for meaningful return ratio expansion and shareholder value creation.

Shareholder Value Architecture: The Equity Investment Case

Valuation Derivation: Anand Rathi's revised sum-of-the-parts (SOTP) valuation assigns a 12-month target price of Rs 975, moderately reduced from the prior Rs 1,031 estimate. The valuation methodology applies a 20x multiple to September 2027 estimated EPS of Rs 54, valuing the core cable business at approximately Rs 1.08 trillion on an enterprise value basis.

The company's strategic Finolex Industries shareholding—representing 32.39% equity ownership with an associated market cap of Rs 111.2 billion—is valued at a 40% holding discount to reflect illiquidity and passive ownership characteristics. Post-discount valuation of this stake yields approximately Rs 66.7 billion in value creation.

The consolidated derived valuation framework generates an intrinsic equity value of Rs 149.1 billion, or Rs 975 per share—implying 30% upside from current quotations. At current valuations, Finolex trades at P/E multiples substantially compressed relative to category peers: Polycab at 40x and KEI Industries at 38x, suggesting meaningful valuation asymmetry favoring Finolex.

Demand Catalysts: The H2 Recovery Blueprint

Management's Optimistic Outlook for Second-Half Momentum: Finolex management articulates compelling conviction that H2 FY26 shall evidence meaningfully stronger demand dynamics. The anticipated recovery shall be underpinned by normalization of agricultural cable demand as monsoon patterns stabilize, acceleration of real estate activities as the market digests prior launches, commencement of state-level BharatNet tender cycles (independent of BSNL procurement processes), and progressive stabilization of optical fibre pricing architectures.

The company's aggressive new product launches within FMEG—alongside amplified brand investments to reinforce positioning within India's electrical ecosystem—further buttress medium-term growth visibility. Approximately 60% capacity utilization in communication cable manufacturing suggests substantial leverage to demand acceleration, with minimal incremental capex required to convert fixed cost bases into additional margin contribution.

INVESTMENT LEVELS AND TARGET FRAMEWORK
RECOMMENDATION: BUY (Anand Rathi Rating)

TARGET PRICE (12-Month Horizon): Rs 975

CURRENT PRICE: Rs 750

UPSIDE POTENTIAL: 30%

52-WEEK RANGE: Rs 748 – Rs 1,343

MARKET CAPITALIZATION: Rs 116 billion

SHARES OUTSTANDING: 153 million

KEY TAKEAWAYS FOR EQUITY INVESTORS
Margin expansion trumps revenue modesty—the Q2 performance evidences Finolex's capacity to generate earnings accretion independent of topline euphoria.

Backward integration promises transformational economics—the preform and fibre-draw facilities shall reconfigure communication cable segment profitability.

Valuation asymmetry versus peers remains compelling, with Finolex trading at substantial discounts to comparably-positioned companies.

H2 demand visibility appears constructive, supported by normalization across agricultural cables, real estate acceleration, and BharatNet opportunity revival.

Balance sheet fortress positioning facilitates strategic flexibility and shareholder distributions even amid cyclical demand headwinds.