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Will underperform Vs peers, retain SELL!

Result Synopsis

Post a robust Q3FY23, Finolex Industries Ltd (FNXP) registered pipe volumes of 81,452Te, a growth of 4%YoY & a decline of 10%QoQ. Demand for pipes was strong from construction & agri segment. Resin biz’s volumes stood at 58,132Te, a degrowth of 27%YoY & 10%QoQ. External sales came in at 6% of total resins vols Vs 8% in previous quarter. ASP per Kg for Pipes came in at Rs135 Vs Rs162/Rs119 in Q4FY22/Q3FY23 respectively. For resins, ASP per Kg stood at Rs86 Vs 132/78 in Q4FY22/Q3FY23 respectively. With steady PVC prices, EBIT/Kg for pipes came in at Rs11 as compared to Rs12/7.6 in Q4FY22/Q3FY23 respectively. Resin’s EBIT/Kg came in at Rs20.2 Vs Rs19.8/Rs1.9 in Q4FY22/Q3FY23 respectively. Agri & Plumbing split for the quarter stood at 65% & 35%.

We believe that FNXPs performance has been underwhelming as compared to the volume growth reported by its peers. Going ahead, we believe the pipe segment’s volumes should grow by 7%CAGR over FY23-FY25E. This fiscal agri demand is likely to be healthy as in past 3-seasons the demand was muted, hence for this season, we believe there will be pent-up demand. Moreover, growing thrust on flagship programs like Nal-Se-Jal, Har-Ghar-Nal & lower PVC prices should keep demand momentum strong. Hence for FY24E we reckon volumes to grow by 10%YoY. However, the expected growth will be lower Vs its peers who are likely to grow by 15%YoY (avg). Moreover, with higher exposure to Agri segment, we expect Pipe margins to remain capped at Rs10-11/Kg. At CMP, stock trades at 19.5x on FY25E EPS of Rs9.4. We continue to value the company at P/E(x) of 15x on FY25E EPS & retain our SELL rating on the stock with target price of Rs140

Result Highlights

* Revenue for the quarter stood at Rs11.41Bn (v/s our est of Rs11.27Bn), declined by 28% YoY and muted growth of 1%QoQ.

* EBITDA margins came in at 19.1% Vs 16.6%/8.2% in Q4FY22/Q3FY23 respectively. Absolute EBITDA stood at Rs2,174Mn Vs Rs2,647Mn/ Rs919Mn in Q4FY22/Q3FY23 respectively.

* Net profit stood at Rs1,665Mn as compared profit of Rs4,951Mn/ Rs795Mn in Q4FY22/Q3FY23 respectively.

* Pipes: Volumes stood at 81,452Te, a growth of 4% YoY but declined sequentially by 10%. ASP came in at Rs135/Kg Vs Rs162/Rs119 in Q4FY22/Q3FY23 respectively. EBIT/kg stood at Rs11.1 Vs Rs12 in Q4FY22. Pipes revenue came in at Rs11.02Bn, registering growth of 2%QoQ but declined 14%YoY.

* PVC: Volume declined sharply by 27%YoY & 10%QoQ to 58,132Te. ASP came in at Rs86/Kg Vs Rs132/Rs78 in Q4FY22/Q3FY23 respectively. EBIT/Kg stood at Rs20.2 in Q4FY23 Vs Rs19.8 in Q4FY22.

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