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Margin expands...demand outlook healthy

Prince Pipes & Fittings Ltd. (PPFL) is one of the leading manufacturers of plastic pipes in India, with 5.5% of the overall market share. Products are marketed under the brand names: Prince Piping Systems and Trubore.

* In Q4FY23, revenue declined by 15% YoY, largely due to a 27.5% YoY decline in RM prices.

* Gross margin improved by 570bps YoY on account fall in input costs. EBITDA grew by 6% YoY, and margin improved by 380bps YoY to 19.4%.

* Overall demand environment remains steady, driven by benign input costs and healthy demand from the agri. & housing segments.

* PVC prices have largely stabilized, and going ahead with the exhaustion of high cost inventory, margins are expected to stabilize in the range of ~15%.

* We value PPL at a P/E of 26x on FY25E and maintain Accumulate rating with a target price of Rs. 736.

Demand to remain healthy..

Revenue for Q4FY23 declined by 15% YoY, largely due to a 13% YoY decrease in realization on account of a 27.5% YoY fall in input costs. Q4 volume declined by 2% YoY. As per management, strong demand from the housing and agriculture sectors is continuing. However, PPL’s H1FY24 is expected to see some volatility due to the migration to a global ERP system. PPL has forayed into the bath ware and faucet segments; the entire range of these products is expected to be launched by the end of Q1 FY24. The planned capex is Rs150cr, of which Rs.80cr 80 crore will be spent on setting up a greenfield plant in Bihar as part of the expansion of east India, and Rs.80cr will be spent on maintenance. Going ahead, strong agri. and steady demand from the real estate sector will drive volumes for the company. We expect revenue to grow at a CAGR of 13% over FY23–FY25E.

Input cost eases….margins improves

In Q4FY23, gross margin expanded by 570bps YoY to 33.0% due to ease in input costs. Inventory gain during the quarter was Rs.25cr. Reported EBITDA grew by 6% YoY, while EBITDA margin improved by 380bps YoY to 19.4%. While EBITDA margin adjusted for inventory gain was at 16.1%, exceeding the previous five quarters. PAT grew by a modest 7% YoY. We believe that the worst impact on margins has passed, and we anticipate EBITDA margin to remain healthy at ~15% over FY24-25E. Going ahead, healthy demand from housing and agriculture pipes is expected to drive earnings growth

Valuations

We expect volume growth to continue, driven by the improvement in demand from the agriculture and construction sectors, affordable PVC prices, and lower inventory in channels. We value PPL at a P/E of 26x on FY25E and maintain Accumulate, with a target price of Rs. 736

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