Fast Cables is the leading cable manufacturer in the country with sales in excess of Rs 36 billion. Based on its market domination, it should have seen the market react positively to its listing. However, considering its share price performance, the company has failed to replicate its results in the market. Since Fast Cables was listed in the exchange back in June of 2024, the share price started at Rs 24, saw a low of Rs 20 and a high of Rs 28 before settling back at Rs 24 in the start of April 2025. In a space of 9 months, the share price has shown an underwhelming response and has been stuck between a tight range. In the same period, the KSE 100 index has increased by almost 60%.
Now it does seem that things are changing for the better due to internal and external factors which can have an impact on its future price performance. Will the market react to these changes? The first step seems to be in the right direction.
History of Fast Cables
The history of the company can be traced back to 1985 after which Fast emerged as a large player in the electrical wiring market by targeting both domestic and commercial customers directly. Up until this point there were very few companies that directly sold electrical cables to consumers who relied on contractors and wholesalers to get unbranded electrical wiring. Fast Cables shook things up in the country’s cable industry and soon bagged a number of large clients particularly in the oil, gas, and telecommunications sectors.
The company went public in December 2008 and based on the performance of the benchmark index, decided to get listed in the market with an Initial Public Offer (IPO) of Rs 3 billion carried out in June of 2024. The goal of the IPO was to capitalize on the KSE 100 index reaching new highs and to divert some of this enthusiasm towards the shares of Fast as well.
The purpose of going to the public was to raise funds which could be used to acquire new land, construct a state of the art factory building and to install new plant and machinery in order to increase production capacity. Additional funds were to be used to retire some of the debt taken and to meet any working capital requirements.
For a market leader, the underwhelming market performance does seem a little bit baffling. In terms of revenues, Fast cables has been able to post good topline numbers. In 2018, Fast cables registered revenues of Rs 5.4 billion which have grown steadily to Rs 36 billion by June of 2024. This is a growth of more than 6 times in a space of six years. This can be translated to a compound annual growth rate of 37%.
The good news for the company does not just end there. In terms of the gross profit margin, Fast has actually been able to increase its gross profit margin from 13.45% in 2018 to 18.69% in 2024. An expansion in gross profit margin shows that Fast has been able to increase its prices more than the increase it has seen in its costs.
With copper and aluminum prices increasing from 2018 to 2024, this is a positive point as the company was not able to maintain its gross profit margin but actually able to increase it. In 2018, copper price averages were hovering around $2.71 per pound which increased to $4.39 by the end of June 2024. Aluminum prices also saw a similar trend trading at $2,000 per ton in 2018 and increasing to $2,400 per ton by end of 2024.
The maintenance of this gross margin becomes even more monumental when it is considered that from 2018 to 2024, the dollar appreciates against the rupee going from Rs 120 per dollar to Rs 280 by the end of June 2024. In the face of increasing commodity prices and depreciating rupee, Fast Cables was able to import the raw materials while being able to expand its gross profit margin as well.
One of the biggest challenges the company has faced, however, is the fact that it has seen many of its indirect expenses increase during the same time which has led to its net margin actually falling while its gross margin has increased. In 2018, Fast cables was able to retain 1.6% out of its gross margin of 13.5%. In 2024, the net margin should have been around 7% with a gross margin of 18.7%.
The trend could not be copied and Fast was only able to show a net margin of 5.2%. The reason for this fall is the biggest hurdle that is faced by the company.
Operating cycle issues
The business model of Fast cables is such that it has a very long operating cycle. The operating cycle is the length of time it takes from procuring the raw materials to manufacture the product, sell it and then recover the money from the sales. For Fast Cables, the operating cycle was 58 days in 2019 which has worsened to 79 days in 2024. Breaking down this figure, it took the company 147 days to convert inventory into a finished product and around 77 days for the customers to pay back the amount that they owed. This meant that the company was out of cash or money for around 224 days. The saving grace during this time was its creditors were asking for their due amounts in 166 days. The result of this was that the company was out of cash for only 58 days.
The trend has shifted greatly since then. In 2024, it took the company 110 days to convert raw materials into finished goods while its debtors took 82 days to pay back their dues. In comparison, the creditors were asking for their dues back earlier which meant that Fast paid them back in 114 days. The result of this was that the operating cycle stretched to 79 days.
This performance of Fast Cables can be compared to another listed cable manufacturer called Pakistan Cables. In 2019, Pakistan Cables had an operating cycle of 146 days which has decreased to 100 days by 2024. In absolute terms, Pakistan Cables is worse compared to Fast Cables, however, the trend is opposite where Pakistan Cables is looking to shorten its operating cycle while it is being lengthened for Fast Cables.
The impact of longer duration in recovery of cash has a direct impact on the working capital. As the cash is taking longer to recover, Fast has to rely on borrowing in order to be able to raise the necessary working capital in order to operate. In 2021, the company had short term borrowings of Rs 3.2 billion on its books which had increased to Rs 8.3 billion by end of June 2024. The dependence on borrowing has continued as it had short term borrowings of Rs 11.4 billion by the end of December 2024.
As the borrowings started to mount, the finance cost began to rise. From 2021 to 2024, the interest rates were rising hitting a high of 22% from June 2023 to June 2024. The finance cost stood at around Rs 283 million in 2021 which increased to Rs 1.4 billion by end of June 2024. In order to put this into context, interest expense was 2% of sales in 2021 and ended up at 3.8% by the end of 2024. In terms of profits, interest rates made up more than 50% of net profits in 2021 and nearly three quarters by the end of June 2024.
From June 2024, the interest rates have been on a steady decline which should have led to a fall in the finance cost. However, Fast started to take out more debt in this period in order to fill the gap that existed in its resources. In 2023, the company had paid out around Rs 585 million for the 6 months ended December 2023. In the latest year, it has already raked up 50% higher cost of debt of Rs 900 million as it has increased its short term debt in the face of falling interest rates.
This is the key reason why Fast seems to be falling behind in terms of its performance. A major chunk of the profitability is being lost in the form of finance cost. Another metric which shows how the company is falling behind is by considering its cash flow from operations.This is the amount of cash that the company is gaining or losing based on its working cycle management. For Fast, the figure has been mostly negative from 2018 to 2024 with the latest year recording a net cash outflow from operations of Rs 4.1 billion.
This is the gap that is left once the creditors are paid off while the debtors take their time to pay back. Considering the operating cycle in a simple manner. Fast places an order with its creditors who send the relevant raw materials to the company over time. These suppliers are mostly in foreign countries while there are a few local suppliers that are used as well. Once the materials have been sent, the creditors start to count the days before they are supposed to be paid back. As the materials are sent, they have to be shipped and sent to the factory which then processes them. Once these are processed, they are sent to the branches and outlets selling Fast Cable products. After these are sold, the debtors take away the goods and then take their time to pay back the company.
While the recovery from the debtors has to be made, Fast needs to keep churning more revenue from the system which means it has to borrow to keep ordering and then get more materials for more products. As the cycle is slow to generate cash, the cycle keeps elongating with the use of banks and other short term debt options. This keeps on increasing the finance cost and eats into the profit margin being earned.
Fruits of IPO start to trickle in
When the IPO was carried out, the goal was to raise ample amounts of funds which could then be used to establish a new plant and to expand the production capacity of the company. On 15th of April 2024, the share price of the company started to rally and closed at a new high of Rs 25.5 which had not been seen for a few months. The impetus for the increase was the fact that Fast announced to the exchange that they had completed the commissioning of their new copper upcasting plant which would boost their production from 5,000 tons per annum to 10,000 tons per annum.
The plant had been in the works for some time and the funds raised from the public allowed the company to pay off some of its debt and establish the new plant. The new plant would add efficiency and would be used to meet growing demand for international and domestic market.
There is also a buzz around the fact that Fast is expanding into the exports market by targetting the Middle East in order to meet the international demand that is sprouting up in Saudi Arabia and adjoining Gulf states. The company has started to export to these markets and with added capacity, it will be able to meet the additional needs.
By looking to expand beyond the borders, Fast will be able to manufacture and export to countries while the local demand dips. The company was expecting the solarization drive and infrastructure development to be able to increase local demand. As the power sector of the country looks to take a breather, international markets can be explored and expanded into which will ensure growing revenues for the company going forward.
Fast Cables also has the privilege of being the first and only cable manufacturer in the country which has the British Approvals Service for Cables (BASEC) certification. The certification is given by the UK based organization after testing the cable manufacturing process and facilities of a company. The certification means that the product being manufactured meets quality and safety standards on an international level. The certification can be used to market the products into international markets and opens up an avenue for export into foreign markets.
In addition to better demand, there are also a few solutions that the company can contemplate which can look to improve the current situation existing at the company.
Ways to mend their ways
In order to get out of the debt spiral, there are certain solutions that can be carried out which can help in such a situation. The first option is to start using long term debt rather than short term debt to finance this gap. The interest rate on long term debt is usually lower and can help cut down on the cost that is being faced by the company. Fast used to rely on long term debt but has steadily paid it off in order to decrease this burden. Now it can look to use this avenue in order to take future loans.
In addition to that, Fast should also consider issuing long term finance certificates (TFCs) or even sukuks in order to finance their needs. Sukuks or TFCs are like bond issues that can be carried out by companies which allow banks and other corporations to invest in the bond. In comparison to loans, mutual funds and Shariah compliant asset management companies are also allowed to invest in these instruments as they give a steady flow of income against low risk. Fast Cables can use it like Mughal Steel does in order to finance working capital requirements. Steel industry is another industry which sees high working capital demands and uses sukuks and TFCs to fill this gap.
Sukuks or TFCs are flexible in terms of the tenor till their maturity and allow the company to gain access to a pool of funds which was not available to it before. TFCs are also favourable for investors as they can hold or sell these instruments in the market which allows them to recover their investment while a new investor is ready to hold onto this instrument. The company gets access to a new source of funds while the investors get access to a new financial instrument which yields a stable income to them.
Another avenue for improvement of the company is that it can sign contracts with foreign suppliers which can provide them a manner to shorten the operating cycle. The company does not have any long term contracts with its suppliers which can provide a guarantee that the suppliers will be paid in time which can extend the credit terms being offered to Fast. If such a contract was signed, it can decrease some of the burden to take out loans. This coupled with contracts for plant and machinery and engineering, procurement and construction (EPC) can decrease the cost and make sure they are completed on time.
One opportunity that has sprouted up for the company is the recent tariff war which can actually prove to be beneficial for Fast Cables. Around 92% of the cost of production of Fast is made up of its raw materials which have to be purchased. The tariff war has meant that copper and aluminum have seen their prices fall in recent days. Copper hit a high of $5.25 per pound slumping to $4 per pound in a matter of weeks. Similarly, aluminum was trading at $2,700 per ton falling to $2,300 per ton. Both these materials getting cheaper will be able to help the gross margin of the company in coming months.
Being the market leader and earning revenues in excess of Rs 36 billion, Fast should be a company that is performing much better in the market. Considering such a strong background, the stock market has not reacted to the share like it should have and there is a fair reason for this. The company has certain weaknesses internally which need to be addressed to counter some of the headwinds that have been faced by its performance. Depending less on short term debt and looking for more flexible alternatives will provide an impetus to the company going forward. In the short term, the commodity slump can provide some of the spark that is needed to take Fast cables in the right direction.
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