Accumulate Finolex Industries Ltd For Target Rs.207 by Prabhudas Liladhar Capital Ltd
Subdued volume, inventory gain drives margin expansion
P&F volume remained flat YoY in Q4FY26 due to weak agri demand, as farmers delayed purchases amid PVC price volatility and expectations of further price corrections, FNXP guided for higher single-digit to low double-digit volume growth in the P&F segment for FY27, while targeting EBITDA margins at sub-15% levels amid continued volatility in RM prices . The company reported an inventory gain of INR 350-400mn in Q4FY26. The company increased its inventory position to 91 days (up 22 days YoY, calculated on sales) at the end of Mar’26 due to volatility in raw material prices and in anticipation of strong agri-pipe demand in Q1FY27. We estimate revenue/EBITDA/adj PAT CAGR of 11.9%/1.9%/4.7% for FY26-28E with P&F volume CAGR of 8.3% and EBITDA margin of 13.7% by FY28E. We have tweaked our earnings estimates for FY27/FY28E and downgrade to ‘Accumulate’ rating with revised TP of Rs207 (earlier Rs 203) based on 18x Mar’28 earnings plus valued stake in the group listed entity Finolex Cables at 50% discount to consensus target market value.
Q4FY26 financial performance:
Revenue grew by 12.1% YoY to Rs 13.1bn, (Ple: 15.2bn). Pipe & fittings volume remained flat at 101,772 MT due to a slowdown in agri-pipe demand amid volatility in PVC resin prices.. Gross margins expanded by ~1330bps YoY to 47.8% (PLe: 43.4%), on account of PVC-EDC spread increased from USD 449/MT in Q3FY26 to USD 521/MT in Q4FY26 and inventory gain of Rs 350-400mn. EBITDA reported Rs 3.3bn up by 93.9% YoY (PLe: Rs 2.2bn) with EBITDA margins expanded by ~1070bps to 25.3% (PLe: 14.6%). PBT stood at Rs 3.3bn (Ple: Rs2.4bn). Adj PAT grew by 58.7% YoY to Rs 2.6bn (PLe: Rs 1.9bn). The company reported a robust cash (FCFF) of Rs 26bn
FY26 financial performance:
Revenue remained flat YoY at Rs 41.0bn, Pipe & fittings volume declined by 4.4% YoY to 332,736MT. Gross margins expanded by 630bps YoY to ~42%. EBITDA grew by 42.7% YoY to Rs 6.8bn. EBITDA margins expanded by ~500bps YoY to 16.5%. PBT declined by ~24% YoY to Rs 7.6bn. PAT declined by 25.1% YoY to Rs6.0bn, mainly due to one off the exceptional gain reported in FY25.
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