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Universal Cables
Our verdict on Universal Cables isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
See the verdict — free →How durable is the business?
The company strengthened its technological moat by completing the modernization and technology upgradation of its EHV Power Cable Plant, increasing production capacity by 45%. (1 expanding)
“Post modernisation and technology upgradation the production capacity of Extra High Voltage (EHV) Power Cables has increased by approximately 45%”
The manufacturing segment saw a decline in revenue, primarily due to a planned shutdown of the Extra High Voltage (EHV) production lines for capacity upgrades. However, the Capacitors sub-segment recorded impressive growth of approximately 48% YoY. (1 contracting, 2 expanding across 1 engine)
“Sale of Manufacturing Products (Predominantly Electrical Cables and Capacitors): 187365.58 [Total Revenue from Contracts with Customers: 237984.08]”
Export revenue saw a slight decline in absolute terms and as a percentage of total revenue, dropping from 4.9% to 5.04% of total turnover (note: while the percentage of turnover is slightly higher, the absolute value in lakhs decreased). (1 contracting, 1 expanding)
“(b) Outside India: 20901.93 [Total: 237984.08]”
EPC revenue contracted significantly by 18.44% during the year, reflecting a shift in project execution timelines or a more selective approach to turnkey projects. (1 contracting, 1 expanding)
“Revenue from operations during the year was ` 2408.39 Crores as compared to ` 2020.67 Crores during the previous year registering a increase of 19.19%.”
EPC revenue continued to contract as the company shifted focus toward manufacturing and faced a high base from previous years. The segment's share of total revenue also decreased. (1 contracting across 1 engine)
“Engineering, Procurement and Construction Contracts/Works Contracts: 50618.50 [Total Revenue from Contracts with Customers: 237984.08]”
See the full cited Business Model analysis of Universal Cables
What could break the thesis?
The risk remains high as management anticipates even greater volatility in copper prices for FY 2024-25, though they are actively pushing for price variation clauses in contracts. (2 intensifying, 1 high-severity)
“The cable industry continues to navigate a highly volatile raw material landscape, marked by sharp and unpredictable fluctuations in the prices of metals and polymers... While many customers have aligned with industry requests to include raw material price variation clauses in contracts, a substantial portion of the customer base continues to operate under firm price agreements.”
The risk has intensified as the JV recorded a steep decline and a loss of ₹ 1,336.62 lakhs for the year due to subdued global demand and unremunerative prices. (2 intensifying)
“Birla Furukawa Fibre Optics Private Limited, a joint venture company... recorded a decline in financial performance and incurred a loss during the year under review due to significant demand supply imbalances in optical fibre market. The downturn in financial performance during the year under review was primarily driven by global price erosion and persistent demand stagnation.”
The expansion risk is stable but significant; the EHV plant modernization is complete and operational, but a new ₹ 277 Crore expansion plan for Satna and Goa is now underway through FY 2025-26. (1 stable, 1 intensifying)
“To address this, the Company has expanded the scope of its ongoing capacity expansion projects at the Satna (M.P.) and Verna (Goa) facilities, by increasing the total capital outlay from ₹ 277 Crores to over ₹ 505 Crores.”
The company is dependent on the infrastructure and industrial sectors, which are cyclical. If the government changes its spending policies or if there is a general economic slowdown, demand for cables could drop sharply. [DEMAND]
“Historically, the demand of power cables has been cyclical in pattern. Your Company is dependent on the infrastructural sector, industries and original equipment manufacturers. The Government policies have a direct bearing on the demand.”
The risk is stable; management acknowledges that statutory obligations for right-of-way are outside their control and can cause project deferment and blocked receivables. (4 stable, 1 easing, 1 high-severity)
“A significant portion of raw materials, both domestic and imported, are priced in foreign currencies. Consequently, fluctuations in exchange rates, particularly of the Indian rupee against the US dollar and euro, have further compounded cost pressures. This currency volatility has emerged as a major vulnerability.”
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