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Buy Finolex Industries Ltd For Target Rs.222 - Religare Broking
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Finolex Industries Limited (FIL) is a leading manufacturer of PVC pipes and fittings (installed capacity 3,70,000 MT per annum) and the only backward integrated player in PVC resin (installed capacity of 2,72,000 MT per annum). The company offers the latest range of PVC-U pipes and fittings which are used in agriculture, construction and industrial operations.
Further, for providing better service to customers, it has strategically located manufacturing plants at Urse and Ratnagiri in Maharashtra and Masar in Gujarat. For the distribution network, the company has over 900 dealers and 21,000 retailers' touchpoints.
Investment Rationale
* Increasing demand for PVC pipes to drive healthy sector growth
* Sole manufacturer of PVC resin is an advantage
* Mix of agri and non-agri pipes segment would help the company in earning strong revenue and margins
Key Risk and Concerns
* High volatility in commodity price i.e. raw materials for manufacturing PVC resin, can impact the profits of the company.
* Dispute in promoters over ownership of Finolex group.
Outlook & Valuation
FIL is the second-largest player in the organized plastic pipe segment (60-65% market) with a 9% share. FIL is well established in agri pipes and has plans to expand in non-agri segment, its backward integrated manufacturing of PVC resin, strong distribution network and changing product mix would aid in earning better revenues as well as profits.
Besides its strong brand recall value, growth plans and expansion in the PVC pipes segment are encouraging which makes it one of our preferred picks in this space. On the financial front, FIL has a healthy balance, decent cash flow and it has lowered its debt to comfortable levels over the years. We have initiated a BUY on the stock with a target price of Rs 222.
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