Torrent Cables Reports Weak Q4 Numbers

Torrent Cables, a Torrent Group company based in Ahmedabad, has reported a weak set of numbers for the fourth quarter of FY13. Its topline has witnessed a 29% Year-on-Year drop to touch Rs 79 crore in the quarter, while the net profit has declined by 28% to Rs 3.77 crore. The EBITDA margins have also fallen by 53 basis points. The company has, however, announced a dividend of Rs 3.50 per share on the face value of Rs 10, which gives a dividend yield of 4.4% at its CMP of Rs 79.45.

The transmission and distribution sector is going through a growth phase, and as this company makes cables for these sectors, naturally its topline was expected to rise. In this backdrop, the poor numbers reported are surely a bad sign. For the first three quarters of FY13, Torrent Cables had reported a rise in its topline on a yearly basis, and the halt in this streak and has surprised investors. Amit Agarwal, the CFO of the company commented that there is nothing wrong with the company, but declined to comment further on the results.

On the cost front, the firm has witnessed a 30% rise in material costs. As a percentage of sales, the cost of materials has declined from 70% a year ago to 69% in the quarter in review. Employee costs have increased by 55% YoY to Rs 3.60 crore.

The profitability of the company, however, has been hit due to the rise in the change in the inventory, which has become the second largest component of its costs. This has put pressure on the EBITDA margins, which stood at 9.63%. Correspondingly, in the December 2012 quarter, its EBITDA margins were at 10.53% while this stood at 10.16% in the March 2012 quarter.

On the balance sheet front, Torrent Cables has reported a fall in its fixed assets, which is something the management needs to explain. It has no long-term borrowings, while the short-term borrowings have registered a decline. Inventories have risen in FY13 and receivables have declined. The inventory conversion period has increased from 38 days in FY12 to 46 days in FY13. During the same period, its debtor days have shown an improvement. Creditor days, on the other hand, have declined from 32 days to 12 days, meaning that the creditors are asking for early payments.

All these numbers put together, we conclude that the company may be having some troubles in selling its products, which is why its inventory has increased and creditors are not ready to wait for payments. At its CMP of Rs 79.45, the stock is trading at a price-to-earnings multiple of 3.8x, which looks cheap. However, the business outlook looks grim at the moment, and hence we would advise against taking fresh exposure to the stock.