Accumulate Finolex Industries Ltd For Target Rs.197 by Prabhudas Liladhar Capital Ltd
Subdued volume, Recovery Expected Ahead
P&F volumes declined 27% YoY in Q1FY27 due to PVC price volatility and channel destocking, with higher agri exposure further impacting volumes. Management refrained from providing FY27 volume guidance amid continued uncertainty but remains cautiously optimistic on recovery as PVC prices stabilize, while retaining EBITDA margin guidance at sub-15%. PVC prices increased by ~INR 12–13/kg following MIP implementation and withdrawal of the customs duty exemption, with most of the increase passed on to customers, supporting Q2FY27 realizations. We estimate revenue/adj PAT CAGR of 6.7%/1.6% for FY26-28E with P&F volume CAGR of 3.1% and EBITDA margin of 14.0% by FY28E. We have downgrade our earnings estimates for FY27/FY28E by 5.0%/5.7% and Maintained ‘Accumulate’ rating with revised TP of INR 197 (earlier INR 207) based on 18x Mar’28 earnings plus valued stake in the group listed entity Finolex Cables at 50% discount to consensus target market value.
Q1FY27 financial performance:
Revenue declined by 15.3% YoY to INR 8.8bn, (Ple: 12.5bn), mainly due to decline in volume by 26.5% YoY at 67,699 MT below our expectation of +4.4% YoY. Gross margins expanded by ~630bps YoY to 38.9% (PLe: 38.0%), despite the PVC-EDC spread declining from USD 521/MT to USD 503/MT. EBITDA reported INR 1.1bn up by 13.9% YoY (PLe: INR 1.7bn). EBITDA margins expanded by ~310bps to 12.1% (PLe: 13.7%). PBT stood at INR 1.5bn (Ple: INR1.9bn, 24.0% below). Adj PAT grew by 16.7% YoY to INR 1.1bn (PLe: INR 1.5bn)
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