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Prabhudas Lilladher Report
We downward revise our FY24 earnings of Finolex Industries Ltd. by 9.7% to factor in lower volume growth and Ebit per kg, while marginally cut FY25/FY26 earnings by 2.9%/2% considering gradual improvement over coming years and revise target price to Rs 238 (Rs 243 earlier) based on 21 times September-25E earnings per share plus 50% discount to Finolex Cables' stake.
Finolex Industries reported soft volume growth of 6.2% in its seasonally weak quarter as 60% volumes came from agri segment which is highly price sensitive, thus, in anticipation of PVC resin price drop, sales volume impacted in Q2 FY24.
The company reiterated guidance of 15% volume growth in pipes and fittings segment in FY24. PVC-Ethylene Dichloride spread, which was $571/metric tonne in Q2 FY24, had improved Finolex Industries' gross margin to ~40% (Ebit/Kg was Rs 11.5).
The spread has since decreased to $450/mt in October 2023, even after management expects Ebit per kg to be Rs 11-12 for FY24.
We expect revenue/Ebitda/profit after tax compound annual growth rate of 12.1%/40.5%/39.8% for FY23-26E with pipes and firting volume CAGR of 13.9% and Ebitda margin of 13.7%/14.0% for FY25E/FY26E.
Maintain ‘Accumulate' rating.
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