Recommendation from Cables Sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

PARAMOUNT COMMUNICATION: WIRED FOR GROWTH

HERE IS WHY
✓Infrastructure development to boost wire and cable industry
✓Strong presence in the power cable segment
✓Expansion plans on the anvil

The consumer electrical industry in India is growing at a rapid pace, driven by factors such as public and private investment outlay in infrastructure, continued growth of residential and commercial real estate sector, transition of automobiles and transport towards electric vehicles (EVs) and a push towards renewable energy. The wire and cable industry is also going to benefit from this trend. Paramount Communications Limited (PCL) from this sector is one such company that is positioned strongly with good growth potential. 

PCL is one of India’s leading cable and wire manufacturing companies. Established in 1955, it has a wide range of products catering to various industries. PCL has products for diverse sectors including power, telecom, real estate, railways, infrastructure, construction and defence. It also offers specialised services independently or in association with other established equipment manufacturers and construction companies in India and overseas. The company has a strong export base and has successfully carved a reputation in the international market.

The company’s association with 120dealers, 175 distributors and 681 retailers across India enables it to serve diverse customers. As on September 30, 2023, the company’s order book stood at ₹361 crore. Its revenue from operations as of H1FY24 stood at ₹462.98 crore which was largely contributed by the power cable segment (37 per cent), followed by exports (33 per cent), railway cables (11 per cent), domestic wires (6.7 per cent), telecom cables (6.3 per cent) and EPC projects (3.6 per cent), while others contributed the rest. 

The clients of the company include Power Grid Corporation of India Ltd. (PGCIL),National Thermal Power Corporation (NTPC), Bharat Heavy Electricals Ltd. (BHEL), Department of Atomic Energy, Government of India, Indian Oil Corporation Limited (IOCL), and many more. In Q2FY24, the company posted 18.76 per cent growth in its consolidated revenue at ₹252.44 crore compared to ₹212.57 crore from the previous year’s corresponding quarter. On a sequential basis its revenue grew by 19.90 per cent.

The EBITDA rose by 36.69 per cent YoY and stood at ₹23.21 crore from ₹16.98 crore. On a sequential basis it grew by 25.39 per cent. Net profit stood at ₹19.49 crore compared to ₹12.62 crore, a YoY growth of 54.44 per cent and a sequential growth of 34.04 per cent. The EBITDA margin improved at 121 bps YoY and 40 bps QoQ to 9.2 per cent. Net profit margin improved by 178 bps YoY and 81 bps QoQ to 7.7 per cent. At TTM, PCL is trading at a PE of 23.9 times, which is slightly lower compared to its three-year median PE of 26.1 times and in moderation compared to its peers. 

The company is trading at 3.74 times its book value and has a PEG ratio of 0.56 times. The company’s three-year compounded sales and profit growth stand at 13 per cent and 43 per cent, respectively. PCL has an interest coverage ratio of 9.48 times over debt-to-equity of 0.38 times. It has maintained a healthy average CFO and PAT of 1.31 times over the last five years. PCL is leveraging its strong domestic position to capture institutional business opportunities which will get stronger as India progresses on its infrastructure creation journey. The company is also expanding its network to penetrate deeper and grow the retail business. Considering these factors, we recommend BUY.