Finolex Industries Q3 Review - Stretched Valuations Compel Us To Maintain A 'Sell' Rating: Yes Securities

Yes Securities Report

Finolex Industries Ltd. registered strong volumes of 81,312 tonne, a degrowth of 10%YoY (high-base) and a robust growth of 29%QoQ (three-year compound annual growth rate stood at 14%), driven by plumbing and sanitation pipes.

Pipes average selling price declined to Rs 122/kilogram from Rs 136/kg in the previous quarter owing to fall in PVC resin prices. Consequently, Ebit/kg came in at Rs 9.1 as against Rs 10.7 in Q2 FY24. Resin business continued to remain under pressure wherein volumes declined by 32%YoY and grew by 17% QoQ (low base).

The ASP of this segment stood at Rs 73/kg, a decline of Rs 6/kg on sequential basis. Ebit/kg came in at Rs 7.1 versus Rs 5.4 in the previous quarter. Overall Ebitda margins remained flattish on a sequential basis at 11.8%.

At current market price, the stock trades at a rich price/earning ( times) of 27.2 times /25.1 times on FY25E/FY26E earning per share of Rs 8.5/Rs 9.2.

We continue to the company at a price/earning (times) of 20 times on FY26E EPS, arriving at a target price of Rs 185, maintaining our 'Sell' rating on the stock.

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