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Demand scenario remains steady; better margin outlook

We visited the largest plant of Prince Pipes and Fittings (PRINCPIP) situated in Haridwar (Uttarkhand) on Sep 13-14, ‘23, and interacted with its management and its biggest pipe dealer of Haridwar. The Haridwar plant caters to markets primarily in North and East India. The plant has production capacity of 89,163 TPA and is currently running at ~78- 80% utilisation. As per the dealer, the demand in Haridwar plant has been driven by plumbing and agriculture segments. Management indicated demand scenario remains steady as seen in Q1FY24 and it is hopeful of achieving mid-double-digit volume growth for FY24. Operating margin is likely to normalise for the remaining 9MFY24 as PVC prices have largely stabilised. Management re-iterated it plans to grow double-digit pipe volumes with operating margin of 12-14% in the medium term. We maintain our estimates and ADD rating on the stock with a rolled over Dec’24 target price of INR 772 (earlier INR 749).

Pipe demand trend remains healthy

Management indicated demand for pipes has remained steady as was seen in Q1FY24. Demand is being driven by plumbing segment with agriculture and infrastructure segments too remaining healthy. The continued trend of lower PVC prices is enabling strong demand for pipe segment and is likely to continue in the near term. All ERP-related issues that had partially impacted Q1FY24 had been resolved by Jun’23 and now business is as usual. Management indicated it is on track to achieve its guidance of mid-doubledigit pipe volume growth in FY24. In the medium term, it aspires to grow pipe volumes in double digit, and in order to achieve that it is focusing on widening its distribution reach along with decentralisaiton of plants. We have modelled 12.8% pipe volume CAGR over FY23-26E. Management also highlighted working capital discipline will be maintained with debtor days improvement whereas inventory days would be maintained at ~65-70 days. Bathware business is seeing traction and may require 18-24 months to stabilise.

Pipe margins to be ~12-14% in medium term

Management expects pipe margins to improve from Q2FY24 itself (due to better product mix as CPVC sales are higher, and no inventory losses as PVC resin prices have been rising in Q2FY24). The company believes with increased focus on plumbing segment, where margins are higher, blended operating margins will improve in the medium term. Management believes 12-14% is sustainable margin range for pipe segment in the medium term. We have modelled pipe operating margins of 12.7%-12.9% over FY24-26E.

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