Birla Cable Ltd – High growth prospects driven by fast growing optical fibre cable demand
Birla Cable Ltd (BCL) is involved in manufacturing and sales of all types of Optical Fibre Cables, Copper Telecommunication Cables, Structured Copper Cables and specialty wires and cables. Company was amongst the earliest entrants into the optical fibre cables business in the early 1990s. Now with the massive growth in data consumption, company is seeing strong demand for its Optical fiber cable business (OFC). During FY18, company’s OFC division has grown at 34% yoy compared to FY17.
Data has become a main theme in any design and futuristic build-up of telecommunication network now. The industry is witnessing such a huge growth in data consumption which clearly warrants the usage of optical fibre cables in the network of all telecom service providers. The planning for capital expenditure by all telecom operators, is invariably optical fibre centric and without fibre based telecom networks, the huge bandwidth requirements can’t be met, which is evident from the fact that the global telecom industry roughly increased the consumption of fibre in the network by 3 times during the migration from 3G to 4G technology. This is expected to be increased manifold with the advent of 5G technology which offers ultra-high speed broadband experience.
The Government’s Department of Telecommunications (DoT) has already come up with Draft National Telecom Policy. As part of this ambitious policy, a thrust has been given on the roll-out of optical fibre, to achieve fibre based backhaul network for at least 60 % of base stations by 2022 to give a major boost in the roll-out of 4G as well as upcoming 5G technologies in the telecom networks. A major overhaul in the system of awarding RoW (Right of Way) is on the anvil, thereby paving the way for a smooth implementation of network building by the project owners.
The demand for optical fibre in India has already touched in 2017 to the tune of more than 28 Million fibre Kms as per the latest CRU reports and is expected to grow at very brisk pace, riding on the wave of huge optical fibre network expansion projects by both Government and private telecom operators. This is backed up by a very robust growth in the global demand during the year 2017 to the extent of 533 Million fibre Kms with the huge roll-out of 4G LTE (Long Term Evolution) network and FTTH (Fibre-To-The-Home) Network.
There are very few players in India who manufactures optical fibre cables. The demand is growing more than supply pushing players to expand their capacities. Birla cable is at the right spot to capture the huge growth opportunity. The numbers are already showing the business momentum. The same can be observed in the numbers of last few quarters. Company’s topline has more than doubled in Q1FY19 from Rs.51.6cr in Q1FY18 to Rs.117.5cr in Q1FY19. The company registered highest ever profit of Rs.11cr Q1FY19 as against loss of Rs.32laks during Q1FY18.
The company has seen sharp improvement in its fundamentals over the last few quarters. The margins have improved from mid-single digits to 15% during Q1FY19. For FY18, the RoCE and RoE stood at 19.5% and 14.9% respectively. Given the company’s strong fundamentals, and attractive growth opportunities we believe the company’s share price is trading at very low valuations. At CMP of Rs.129, the stock is trading at 13.5x of its TTM earnings.
The demand for optical fibre cables is growing at 15% across the globe and in India, it is growing at 20-25% rate. The company’s which manufactures ofc’s are growing at 35-40% rate. We believe BCL is the right investment bet with its strong fundamentals and attractive valuations.