Finolex Industries Q3 Review: Systematix Maintains 'Hold' On The Stock, Revises Target Price — Here's Why

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Systematix Research Report

Finolex Industries Ltd.’s Q3 FY25 (revenue/Ebitda/PBT down 2%/30%/21% YoY) was impacted due to continued soft demand and intense competition. Pipe volume/revenue grew 5%/0% YoY while Ebit contracted 57% YoY (Rs 3.7/kg, 3.2% margin).

Demand remained soft in Q3 and has stayed so in Q4 so far. Intense competition led to higher discounts and impacted on realization and margins. PVC resin volume/revenue grew 30%/34% YoY; Ebit remained low (Rs 6.9/kg, 9.1% margin).

Cash flows remained healthy with net cash of Rs 23 billion. After a low pipe volume growth in FY25, management sees double digit growth in FY26 on the back of several government schemes. Focus remains on increasing mix of non-agri products to 50% in few years (from 33% in Q3).

Annual capex of Rs 1-1.5 billion for two years will be to enhance capacity (50kt addition by H1 FY26 to reach 520kt). Location for the new greenfield plant is not finalized yet. After a weak operating result in Q3, we cut our Ebitda estimates by ~4% on lower margins expectations while keeping earnings estimates unchanged on higher other income.

We now expect 10%/8%/10%/10% CAGR in pipes-volume/revenue/ Ebitda/PAT over FY24- 27E (FY19-24: 10% /7%/-1%/5%). Given its low RoCE (~11%) and RoIC (16%) profiles in FY27E, we assign a lower target multiple (22x Pipes FY27E P/E vs. 35x+ for larger peers) and maintain Hold rating with a revised target price of Rs 214.

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