Finolex Sweats As Infrastructure Growth Hobbles
Finolex Cables Ltd, the flagship of the Finolex group, is one of the main private sector power cable manufacturing companies in India. The Pune-based firm produces almost all types of cables for telecom, power, automobile and construction sectors.
The company, which is celebrating its forty-first year of incorporation, continues to be steered by its original promoter, P P Chhabria. Its performance, however, was not quite encouraging in recent years.
Finolex's sales turnover declined by nearly 5 per cent in 1997-98. In the previous year, too, the company had recorded a similar decline in sales turnover. In 1995-96, the company had registered a near 27 per cent increase in sales.
While the company's operating profit posted a negative growth of nearly 8 per cent in 1996-97, it recorded a positive 7.6 per cent growth in 1997-98.
According to P P Chhabria, despite general the recessionary pressure in the economy, the company has achieved this feat by virtue tight control on costs and overall improvement in its efficiency of operations. Its profit before tax displayed a marginal decline due to a nearly 44 per cent increase in interest burden.
In the previous year, the profit before tax of the company had declined by more than 14 per cent. But in 1995-96, the same figure had increased by more than 16 per cent. Due to an over 3 per cent decline in tax provision, the growth rate in profit after tax of Finolex went up a touch _ by 0.5 per cent _ in 1997-98, compared with an over 12 per cent decline in 1996-97. In 1995-96, however, the figure had increased by 10.9 per cent.
In the first quarter of the current fiscal, Finolex further improved its performance. In spite of income from operations decreasing more than 12 per cent over the corresponding period of the previous year, the net profit of Finolex rose by 5.4 per cent. As the power cable manufacturing sector is highly dependent on the power generation sector, the disappointing performance of the company can be directly attributed to the crisis in the country's power generation sector.
The Eighth Plan had laid a lot of emphasis on private investment in the power sector. Consequently, public spending on this front declined substantially. This resulted in a 45 per cent shortfall in the revised Eighth Plan projections vis-_-vis the power sector investments.
At present, Finolex is one of the leading players in the electrical power cable and telecom sector, manufacturing a wide range of cables which includes jelly-filled telephone cables, fibre optic cables, light duty cables and heavy duty cables. It also manufactures poly vinyl chloride (PVC) sheets and copper rods.
The company continued its strategy of maintaining thrust on light-duty cables, power cables, communication cables and other speciality cables so as to progressively reduce its dependence on the Department of Telecommunication for jelly-filled telephone cables business.
The company, in order to synergise this thrust, not only has increased its capacity for production of light duty cables, but has also installed state-of-the art production facility for computer local area network (LAN) cables and co-axial cables at Urse near Pune.
Co-axial cables are being used by cable television networks for many years. The increasing demand for better reception and more channels has led to the requirement of superior quality co-axial cables. The company hopes that, with the commencement of production of co-axial cables, the product will be an import substitute with good future demand.
Finolex is the only Indian company to have received certification by Underwriters Laboratories Inc, United States, for computer LAN cables. This provides Finolex with greater export opportunities. Though the feeder industry to power generation and transmission has better long-term prospects, the short-term scenario does not seem very encouraging for the company.
The slowdown in the industrial sector and hobbling infrastructural segment will continue to affect the prospects of Finolex in the near future _ till such time that the government gives a major prop to infrastructure development.