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Result Synopsis

Finolex Industries Ltd registered revenue decline of 13%YoY & 21%QoQ to Rs9.41Bn. Though volume growth for PVC & Pipes segment came in at 4% & 7% YoY respectively, sharp contraction in PVC resin prices during the quarter lead to significantreduction in Avg.realizations. PVC realizations degrew by 29%YoY & pipes realizations declined by 17% over similar period. Owing to this steep fall in PVC prices (~35%), company witnessed inventory losses which resulted into EBITDA loss of Rs1.4Bn in Q2FY23.  

Going ahead, we believe demand from non?agricultural segment is expected to drive the growth in H2FY23. However, with lower PVC prices & pick?up in Government projects, agricultural demand is expected to revive from FY24E. Hence, we reckon Pipe/PVC volumes to grow by 13%/12% CAGR over FY22?FY24E respectively. On PVC prices, we do not foresee major contraction from hereon (fall of ~Rs5Kg is expected in coming months)  & therefore inventory losses are likely to get restricted from H2FY23. At CMP, the stock trades at P/E(x) of 16x on FY24E EPS of Rs8.4 (revised downwards by 10%). We continue to value the company at P/E(x) of 15x on FY24E EPS, arriving at a target price of Rs126 (previous Target Price: Rs139). Hence, we assign a REDUCE rating on the stock

Result Highlights

Pipe Volumes for the quarter came in at 59,218Te (in?line with our estimate of 61,000Te), reporting a 6.8%YoY growth but a decline of 18%QoQ (3?Year CAGR 17%). Resin volumes stood at 54,063Te (our estimate of 53,300Te), 4%YoY growth & sequential degrowth of 14%.

Pipe realizations stood at Rs135/Kg (Our estimate of Rs137/Kg), as compared to Rs162/Rs157 in Q2FY22/Q1FY23 respectively. Realizations of PVC resins came in at Rs89 in Q2FY23 Vs Rs126/Rs125 in Q2FY22/Q1FY23 respectively.

Company reported revenue of Rs9.41Bn, reporting a degrowth of 13%YoY & 21%QoQ. Pipes revenue came in at Rs8Bn, decline of 11%YoY & 29%QoQ. PVC resin revenue stood at Rs4.81Bn, a steep fall of 26%YoY & 28%QoQ.  

Owing to sharp contraction in PVC prices, company registered an EBITDA loss of Rs1.42Bn Vs profit of Rs 1.25Bn in Q1FY23 & Rs3.01Bn in Q2FY22. Pipes EBIT/Kg stood at (Rs8) Vs Rs10/Rs6 in Q2FY22/Q1FY23 respectively. PVC resins EBIT/Kg came in at (Rs20.5) as compared to Rs44/Rs11 in Q2FY22/Q1FY23 respectively.

Company’s Net loss for quarter stood at (Rs955Mn) as compared to profit of Rs992.2Mn in previous quarter & Rs2.3Bn in Q2FY22

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