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We recently interacted with the management of Prince Pipes and Fittings (PRINCPIP). The management indicated that in the ongoing quarter (Q4FY23), plumbing demand remained healthy, but agri demand has started picking up from end-Mar’23 only, which will thus, result in a muted quarter YoY. The demand for agri pipes (~30-35% of PRINCPIP revenue) has been delayed due to higher channel inventory build-up in Jan- Feb’23 and the management is hopeful of it reviving from Apr’23 and thus, resulting inhigher growth in Q1FY24. PRINCPIP’s management believes pipe volumes can sustainably grow in double-digit in the medium term, driven by demand from housing,
agri segments and increasing its distribution reach in markets such as South and East India where it has comparatively lower presence. Operating margins should normalise in Q4FY23 as PVC prices were stable after a turbulent 9MFY23. Management has guided for 12-15% operating margins to be sustainable in pipe business over long term. The company indicated working capital remained under control and it targets to improve it further over the next few years (primarily through lowering debtor days). PRINCPIP had announced its foray into bathware segment and the company plans to rollout products from this segment by mid-Q1FY24 using outsourcing model in its stronghold markets of Northern and Western India. It plans to achieve EBITDA breakeven in this segment within 12-18 months from the launch. We tweak our PAT estimates for FY23-FY25E by ~1% and maintain BUY rating with a revised Mar’24E target price of Rs707 (earlier: Rs717).

* Pipe volumes to grow in double-digit over medium term: PRINCPIP’s management has guided for pipe volumes to grow at double-digit CAGR over medium term driven by sustained demand from housing and agri segments. It plans to deepen its distribution presence in Southern and Eastern markets which currently have lower share in revenues, and also strengthen its presence in certain pockets of Northern and Western
markets. Besides, the company plans to continue adding value-added products to its portfolio such as surface drainage system introduced in Q3FY23 which enables it to create better brand salience and have better margins, too. PRINCPIP’s management targets to improve its net working capital days by ~10-15 days over the next few years primarily driven by improvement in debtor days, with inventory days sustainable at ~60 days. We have modelled pipe volume CAGR of 13.4% over FY22-25E driven by demand from plumbing pipe segment.

* Pipe volumes to grow in double-digit over medium term: PRINCPIP’s management has guided for pipe volumes to grow at double-digit CAGR over medium term driven by sustained demand from housing and agri segments. It plans to deepen its distribution presence in Southern and Eastern markets which currently have lower share in revenues, and also strengthen its presence in certain pockets of Northern and Western markets. Besides, the company plans to continue adding value-added products to its portfolio such as surface drainage system introduced in Q3FY23 which enables it to create better brand salience and have better margins, too. PRINCPIP’s management targets to improve its net working capital days by ~10-15 days over the next few years primarily driven by improvement in debtor days, with inventory days sustainable at ~60 days. We have modelled pipe volume CAGR of 13.4% over FY22-25E driven by demand from plumbing pipe segment.

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