What’s holding Finolex Cables back?

The core business: Strong volumes, shrinking margins

Finolex’s electrical cables segment is the company’s engine. It delivered Rs 1,400 crore in Q3 revenue alone, up 44% year-on-year. The volume story was broad-based: electrical wires grew 28%, auto cables surged 42%, and solar cables are running at 80-85% of the capacity built last year.

But here’s the catch. The Earnings Before Interest and Tax (EBIT) margin has been sliding.

It used to be 15-16% a few years ago. Now, management is guiding for 11-12% as the sustainable level after the company shifted to a distributor-led model, which costs 2-3 percentage points in the form of distributors’ margins.

However, even that target has been elusive lately.

Electric cables: Segment data

Source: Finolex Cables Investor Presentations (Q4 FY25 to Q3 FY26)

The margin compression is structural, not cyclical. Two forces are at work here.

First, the sales mix has shifted towards project business (builders, infrastructure developers), which runs at 4-5% lower margins than retail. Project sales have gone from roughly 20-25% of wire revenue to about 40% over the past few years.

Copper prices, too, have been volatile. While the company has taken as many as 12 price hikes, those are passed on with a lag, which hits margins.

Competition is another concern. While management believes the industry still has room for multiple players, new entrants from large conglomerates could intensify pricing pressure over time.

If the outlook is so grim, why are we talking about the company? Here’s why.

The fiber bet: From dead weight to potential game changer

Finolex’s communication cables segment, which contributes roughly 8% of revenue, has been underwhelming. EBIT margins have hovered around 1.3% for four consecutive quarters, translating to negligible operating profits.

However, recent developments suggest a potential inflection point.

Global fiber prices, the key raw material for optical fiber cables (OFC), have surged from around $3 per fiber kilometer during Q3 to approximately $5 as of February 2026. In the latest conference call with investors, management said “neither fiber nor preform is available for literally any amount of money.”

That marks a reversal from FY25, when fiber prices hit a multi-year low of $2.50 due to Chinese oversupply.

Source: Management commentary across Q4 FY25, Q1-Q3 FY26 Earnings Calls

The timing couldn’t be better for Finolex, because two capacity investments are coming online simultaneously.

First, a glass preform factory is currently under production trials and expected to be commissioned by March 2026. This would make Finolex only the second company in India capable of manufacturing preforms domestically. It eliminates import dependence.

Second, fiber drawing capacity is expected to double from 4 million to 8 million fiber kilometers per year, with full capacity expected by the end of Q1 FY27.

The financial impact, if it plays out, is significant. Management has guided for a total OFC segment revenue of Rs 600-700 crore at full capacity, with EBIT margins recovering to 8-9%, the historical norm when utilisation exceeded 75%. That’s potentially Rs 50-60 crore of incremental EBIT from a segment currently generating Rs 5-6 crore annually. Put differently, this single segment could add 10-12% to the company’s total operating profit.

Source: Management guidance, Q2 & Q3 FY26 Earnings Calls

BharatNet Phase 3 adds further optionality. Finolex didn’t win any of the 16 direct BSNL tenders, but many winners lack their own fiber or cabling capacity and are now approaching Finolex for supply. With global fiber in short supply, Finolex’s bargaining position has strengthened.

But the risks remain. Fibre prices could soften if global supply normalises, telecom projects face delays, and backward integration into preforms introduces execution risk.

The promoter dispute

Beyond operations, governance remains a critical concern. The ongoing dispute between Deepak Chhabria and Prakash Chhabria over control of the company continues to cast a shadow. The matter is sub judice and has been in the courts for years.

When asked directly on the Q1 FY26 call whether the dispute has impacted business, management’s response was careful: “some impact, but not overall.”

Why does the outcome matter? Because control ultimately hinges on Orbit Electricals, which holds 30.7% of Finolex Cables. Prakash Chhabria controls ~78% of Orbit, giving him effective control over that entire block.

Finolex Industries, a separately listed associate company, holds another 14.51% of Finolex Cables. While Finolex Industries has its own board, Orbit also holds 18.80% of Finolex Industries, giving Prakash significant influence there, too.

At the September 2023 AGM, both Orbit and Finolex Industries voted against Deepak Chhabria’s reappointment as Executive Chairman. He was ousted with 72% of the votes against him. With promoter group shareholding at 35.86%, control of the company runs through Orbit. So, whoever wins the court battle over those shares effectively decides the future of Finolex Cables.

What it all adds up to

At roughly Rs 960 per share, Finolex Cables trades at about 18 times trailing earnings and 2.3 times book value. On a relative basis, too, the company trades at a big discount to peers.

Source: http://www.tijorifinance.com