Our Take:

Prince Pipes and Fittings (PPFL) is India's 6th largest plastic pipe manufacturer with a strong track record of industry leading volume growth. It has reported a 10-year revenue and volume growth of CAGR 17% and 10% respectively (despite weak FY21). The company has three decades of experience in polymer pipes segment. Its product portfolio encompasses all four different polymers which includes UPVC, CPVC, PPR and HDPE. In has the largest range of 7200 SKUs across multiple polymers with a strong presence in retail channel comprising of almost 90% of its overall revenues which are mainly driven by over 1500+ distributors across India (~80% are exclusive in nature).

Apart from this, it has a strong presence on margin accretive fittingsspace. PPFL has one of the highest fittings to Pipes ratio in the industry with contribution from fittings at ~35% of the revenue as on FY21. PPFL products have varied applications across sewage, drainage and agri piping systems which comprises of plumbing systems, borewell, agriculture pipes, water storage tanks, industrial piping, and electrical conduit pipes etc. Agriculture segment comprises of ~1/3rd of its revenue while high margin CPVC segment stood at 22% as on FY21. PPFL has strong Pan India presence with manufacturing facilities spread North (42% of capacity); West (35% of capacity) and South India (23% of capacity).

The company has strong positioning in the Northern and Western India though its brand “Prince” while in southern India it operates though brand “Trubore”. In 2012, it had acquired premium brand Trubore brand from Chemplast Sanmaar. PPFL is adding new products (DWC (Double wall corrugated pipes), storage tanks, valves, industrial pipes etc) to expand its product basket which will aid in driving premiumisation. The technical tie-up with Tooling Holland, the global leader in mould helps in manufacturing products of global standards.

Valuation & Recommendation:

PPFL earnings grew at a CAGR 17% over FY17-21. Going forward, we are positive on the future growth prospects and expect PPFL to be ahead of the category performance. In our view, PPFL’s revenue and PAT is likely to record a growth of 21% and 16.7% CAGR over FY21- 23E. Along with this we expect the company to generate consistent FCF with consistent high ROEs. Also market share of organized pipe players has improved from ~50% in FY10 to ~67% in FY21.

We expect, PPFL to benefit from consolidation in the plastic piping industry on back of it’s a) robust balance sheet b) tighter working capital norms (receivable days has come down from 86 in FY16 to 40 in FY20 and 62 in FY21) c) vast pan India distribution and manufacturing network and d) diversified product portfolio. We feel investors can buy the stock in the band of Rs. 740-750 and further add on dips at Rs. 663 for a base case fair value of Rs. 825 (28x FY23E) and bull case fair value of Rs. 885 (30x FY23E) for a time horizon of 2 quarters.

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