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Result Synopsis

Finolex Industries Ltd (FNXP), registered a strong quarter wherein revenue grew by 12%YoY & 20%QoQ. Pipe segment registered multi?quarter high volumes which stood at 90,936Te, a stellar growth of 92.4%YoY & 52.6%QoQ (3?year CAGR: 28%). The growth was driven by strong demand from agri segment coupled with some element of pent?up demand. However, ASP declined sequentially from Rs135/Kg to Rs119/Kg owing to declining PVC resin prices in first two months of Q3FY23. Similarly, inventory losses continued in the quarter which kept margins under pressure. PVC biz reported a revenue growth of 5%QoQ & decline of 20.6%YoY to Rs5.05Bn. ASP of resin biz, declined steeply from Rs146/Rs89 in Q3FY22/Q2FY23 respectively to Rs78 in Q3FY23. Fittings volumes increased by 31%YoY & 14.2%QoQ to 8,021Te & revenue stood at Rs2Bn. Management indicated that Q4 FY23 is likely to be lower than Q3FY23, owing to sluggishness in demand. Moreover, company reiterated that FY23 should be similar to Pre?COVID levels & demand is likely to improve in FY24. Though we believe demand from Agri?segment to remain strong, we expect higher competition from unorganized players will keep FNXP’s performance under check. Hence, we continue to value the company at 15x on FY24E EPS of Rs8.5 & assign SELL rating on the stock.

Result Highlights

Revenue for the quarter stood at Rs11.25Bn, a growth of 12%YoY & 19.5%QoQ. (above our est)

* EBITDA margins came in at 8.2% Vs 24.1%/?15.2% in Q3FY22/Q2FY23 respectively. Absolute EBITDA stood at Rs919Mn Vs loss of Rs1.42Bn in previous quarter & profit of Rs2.41Bn in Q3FY22.

* Net profit stood at Rs795Mn as compared to loss of Rs955Mn in Q2FY23 & Profit of Rs1.77Bn in Q3FY22.

* Pipes: Volumes stood at 90,396Te, a massive growth of 52.6%QoQ & 92.4%YoY (2?year CAGR: 28%). ASP came in at Rs119/Kg Vs Rs177/Rs135 in Q3FY22/Q2FY23 respectively. EBIT/kg stood at Rs7.6 Vs Rs11.7 in Q3FY22. Pipes revenue came in at Rs10.77Bn, growth of 29.5%YoY & 34.4%QoQ.

* PVC: Volumes stood at 64,696Te, a growth of 48.8%YoY & 20%QoQ (2?year CAGR:  ?2%). ASP came in at Rs78/Kg Vs Rs146/Rs89 in Q3FY22/Q2FY23 respectively. EBIT/Kg stood at Rs1.9 in Q3FY23 Vs Rs41 in Q3FY22.  

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