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Stellar quarter performance; Growth plans intact

Finolex Industries (FIL) Q4FY21 results were above our estimates. Revenue grew by 62.5% YoY to Rs 1,249cr largely driven by better volumes from resin business and realization from both businesses. Resin segment posted growth of 112% YoY to Rs 920.2cr while the company’s pipes and fitting segment grew by 43% YoY to Rs 901.7cr.

EBITDA stood at Rs 410.1cr, up by 296% YoY while its margins witnessed strong improvement of 1936bps to 32.8%. Its net profit grew by 410% YoY to Rs 298.8cr with margin expansion of 1629bps. Further, the long term growth prospect of the company looks bright on the back of rise in demand for resin and increasing share of agri-pipes to overall revenue bodes well. Maintain Buy.

Result Update Q4FY21

* Net sales came in at Rs 1,249.3cr, with growth of 62.5% YoY. Revenue grew strong as both businesses posted better realization. In resin business revenue grew by 112% YoY to Rs 920.2cr. Its volume grew by 25% YoY to 75,281 MT while realization grew by 69% YoY. Its pipes and fitting business posted revenue of Rs 901.7cr which is a growth of 43% YoY. Its realization remained healthy with growth of 48% YoY while volume witnessed de-growth of 4% YoY.

* On the margin front, EBITDA margin improved by 1936bps to 32.8%, driven by better gross margins and better cost management by the company. Its EBITDA and PAT came in at Rs 410cr, up by 296% and Rs 298.8cr, up by 409.9%, respectively. Going ahead, the company's plans of increasing share from non-agri pipes and expanding resin manufacturing will aid in earning better margins.

* Key highlights: 1) 75% of the business is from Western and Southern region of India. 2) Repairing and maintenance Capex for FY22 will be 100cr. 3) Agri pipes demand is expected to increase led by government support and rising demand from the irrigation and agriculture segment.

Outlook & Valuation

FIL is well placed in the plastic pipe segment with a strong presence in agri pipes and manufacturing of resin. Going ahead, it has plans to grow in the non-agri segment, expand its manufacturing of PVC resin, increase distribution network and change product mix which will aid in earning better revenues as well as profits. Besides it has strong brand recall value, healthy balance and decent cash flow which bode well for the future growth of the company. So, we maintain a Buy rating on the stock with a target price of Rs 222.

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