Finolex Industries Q2 Review - Low Pipes Volumes, Overall Weak Results In PVC-Resin Hurts: Systematix

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Systematix Research Report.Finolex Industries Ltd.’s large revenue/profit after tax miss in Q2 was driven by volume miss in pipes (up 6% YoY versus 25% estimated) and PVC-resin (down 31% YoY; 40% miss), and weak PVC-resin Ebit (6.8%, Rs 5.4/kg). Lower pipes volumes were driven by channel destocking in the price sensitive agri segment in anticipation of further reduction in PVC prices. Healthy demand in non-agri segment (40% versus 37% in Q2 FY23) sustained though. Superior product mix aided to healthy pipes Ebit (7.9% margin, Rs 10.7/kg). Finolex Industries expects 15-20% volume growth in FY24E (H1: 18%) with Rs 10-12/kg Ebit (H1: Rs 12.5; aims Rs 14 in few years with rise in non-agri mix towards 50% from 30-35% currently). PVC-resin volume/revenue in Q2 fell 31%/38% YoY (~40% miss) mainly due to raw materials supply disruption from Middle East. The current low spreads (PVC-EDC: $450/t; PVC-VCM: $95/tonne) suggest weak margins in H2. We cut earnings estimates by 4% each for FY24E and FY25E mainly on lower than expected margins in PVC-resin segment. We now estimate 13%/63%/54% compound annual growth rate in Finolex Industries’ revenue/Ebitda/profit after tax over FY23-25E (FY18-23: 10%/-10%/-4% CAGR), as volume growth and margins in pipes segment likely normalise. Given its low return on capital emplyoyed profile (~13% in FY25E) and ~23 times FY25E price/earning, we maintain 'Hold' rating on the stock, with a revised target price of Rs 210 (earlier Rs 214), based on ~22 times FY25E P/E (26 times/15 times FY25E P/E for pipes/PVC-resin). High volatility in PVC resin margins could continue to supress Finolex Industries’ valuations versus peers. Higher-than-estimated margin would be a key upside risk to our call..Click on the attachment to read the full report:.Jyothy Labs - Embracing Transformation For Long-Term Growth: Axis Securities Initiates Coverage With A 'Buy'.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

Finolex Industries Q2 Review - Low Pipes Volumes, Overall Weak Results In PVC-Resin Hurts: Systematix

Healthy demand in non-agri segment (40% versus 37% in Q2 FY23) sustained though.

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