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Macro headwinds hurt performance

Earnings below our estimate

• Prince Pipes and Fittings (PRINCPIP) reported a muted quarter amid the ongoing challenges of volatile pricing and the early onset of monsoon, affecting demand. The company reported a marginal decline in revenue YoY due to lower realization (down 7% YoY), with volume growth of only 4% YoY to 43.7k MT. Its EBITDA margin contracted 280bp YoY to 6.8%, mainly hit by inventory losses(INR100-150m).
• Management anticipates a gradual recovery in the demand scenario in 9MFY26, which will lead to a high single-to-low double-digit volume growth (Jul’25 witnessed a healthy volume growth). This will result in a sequential recovery in margins to 12% by 4QFY26 (normalized levels), fueled by operating leverage and absence of inventory losses.
• Factoring in its weak 1QFY26 operating performance, we cut our FY26E/ FY27E earnings by 7% each. We value the stock at 30x FY27E EPS to arrive at our TP of INR440. Reiterate BUY.

Muted profitability due to adverse operating leverage

• Consolidated revenue declined 4% YoY to INR5.8b (est. INR6b), while the volume grew 4% YoY to 43.7k MT, which was offset by a decline in realization (down 7% YoY, to INR133/Kg). CPVC volume growth this quarter was in the high single digits YoY.
• Consolidated EBITDA declined -32% YoY to INR393m (est. INR359m) with an EBITDA margin of 6.8% (est. 6%), which contracted -280bp YoY. The EBITDA/Kg for the quarter was INR9/kg (-35% YoY). Adj. PAT declined 80% YoY to INR48m (est. INR66m).
• The bathware segment (Aquel brand) generated revenue of ~INR110m with a net loss of ~INR50m in 1QFY26.
• Net working capital days improved to 93 as of Jun’25 vs. 98 as of Mar’25. This was largely led by lower inventory (down five days) and receivables (down six days), offset by lower payable days (down five days).

Highlights from the management commentary

• Guidance: Management guided a recovery in demand from 2QFY26, fueled by healthy volumes in Jul’25. Its margin is likely to improve sequentially to 12% by 4Q. The bathware segment is expected to generate INR500-600m revenue, with break-even anticipated by mid-FY27.
• Capex: PRINCPIP incurred a capex of INR750m in 1Q and is likely to incur ~INR1.6-1.7b in 9MFY27. This will include capacity addition in Begusarai (Bihar), Bathware (Aquel), and maintenance. Begusarai plant utilization is expected to pick up from 2HFY26, with a total capacity of 60KTPA by Sep’25.
• Branding: PRINCPIP entered into a strategic partnership with Indian Railways to boost its brand presence across Vande Bharat and other premium trains, enhancing nationwide visibility and customer engagement. Further, management is focused on strengthening the distribution network and adding new products.

Valuation and view

• The last few quarters were challenging for the pipes industry and PRINCPIP, marked by macroeconomic pressures. However, they are expected to recover going forward, fueled by stabilization of PVC prices and favorable demand trends. Further, commissioning of the new Begusarai plant, coupled with geographical expansion in the bathware segment into southern and eastern markets, is expected to act as a catalyst for its renewed growth in the coming quarters.
• We expect PRINCPIP to clock 14%/37%/71% CAGR in revenue/EBITDA/PAT over FY25-28. We value the stock at 30x FY27 EPS to arrive at our TP of INR440. Reiterate BUY.

Highlights from the management commentary

Demand and Market Environment

• The quarter was impacted by subdued demand across core end-user segments such as agriculture and construction, along with a noticeable decline in government infrastructure spending.
• This environment led to inventory rationalization among key channel partners.
• A sharp correction in PVC prices during the quarter further contributed to destocking, which in turn weighed on operating profits.
• However, management indicated that channel sentiments have improved and PVC prices appear to have bottomed out, which could support demand revival going forward.
• Management remains optimistic about a gradual demand recovery in the coming quarters, supported by improving activity in residential real estate and anticipated momentum in government infrastructure projects.
• July has already witnessed a strong start in volumes, primarily driven by the residential building materials segment. However, the agri segment continues to lag.

Operational Performance

• Prince Pipes reported an inventory loss of INR150–200m in 1QFY26 due to the sharp PVC price correction.
• The interest cost for the quarter increased as the company capitalized most of the expenditure related to its Bihar facility. With the commissioning of the plant, interest outgo is expected to reduce going forward.
• Net debt currently stands at approximately INR1b.
• While return ratios have temporarily declined due to higher capex and margin pressure, the company remains confident of returning to its long-term ROCE range of 15–20% once profitability and utilization levels normalize.
• In Q1, CPVC volumes grew by high single digits and outpaced traditional PVC segments. CPVC now contributes over 25% of total revenue, up from 15% earlier, reflecting a strategic shift toward higher-value products.
• In terms of segment mix, agriculture contributes 30–35% of annual revenue, infrastructure accounts for 3–4%, water storage is around 1%, while the remaining share comes from building material segments such as plumbing and SWR.

Guidance and Outlook

• For FY26, the company has guided for high single-digit to low double-digit volume growth. Margins are expected to improve sequentially, with 4QFY26 margins projected to normalize around 12%. No further inventory losses are anticipated.
• The company is targeting total inventory days of 70–75. Raw material inventory days have improved from 45 days in March 2025 to 35 days in June 2025, with the target to maintain them at 30–35 days. Finished goods inventory days, however, increased from 35 to 40 over the same period, likely due to stocking for newer product lines and regional expansions.

Capacity Additions and Capex

• The company continues to execute its capex plans in line with its growth strategy. Capex in 1QFY26 stood at INR750m, with an additional INR1.6-1.7b planned over the remaining nine months of FY26, largely toward the Bihar facility and expansion of the Aquel bathware business.
• The 8th manufacturing unit in Begusarai, Bihar, which commenced operations last quarter, currently has a capacity of 58,000 MTPA and is expected to reach 60,000 MTPA by the end of September 2025.
• While utilization remains low as product ranges are being developed, the company expects a pickup from mid-Q2 or Q3.
• Bihar facilities' contribution to EBITDA is likely from Q3 onwards, although break-even on the Bihar investment is expected over a 5-year horizon at 70% utilization.

Bathware Business (Aquel)

• Aquel, the company’s bathware division, has expanded its footprint into South and East India after a successful launch in the North and West.
• In Q1FY26, the segment reported INR110m in revenue but incurred a loss of approximately INR50m.
• Management expects the bathware business to break even in the next four to six quarters, i.e., by mid-FY27. Revenue from this segment is projected to be in the range of INR500 to 600 crore in FY26, driven by contributions from newer geographies.
• The company is focusing on strengthening its distribution footprint in underpenetrated geographies like the South and East in its bathware offering.

Others

• Prince Pipes continues to invest in brand-building initiatives to deepen customer engagement. Advertising and marketing spend during the quarter was approximately 1.7–1.8% of sales and is expected to be maintained at ~2% for the full year.
• A key branding initiative included a strategic partnership with Indian Railways to enhance visibility across high-footfall platforms like Vande Bharat and other premium trains.
• The company retains strong market share positions in key states such as Gujarat, Uttar Pradesh, and Telangana.

Valuation and view

• The last few quarters were challenging for the pipes industry and PRINCPIP, marked by macroeconomic pressures. However, they are expected to recover going forward, fueled by stabilization of PVC prices and favorable demand trends. Further, commissioning of the new Begusarai plant, coupled with geographical expansion in the bathware segment into southern and eastern markets, is expected to act as a catalyst for its renewed growth in the coming quarters.
• We expect PRINCPIP to clock 14%/37%/71% CAGR in revenue/EBITDA/PAT over FY25-28. We value the stock at 30x FY27 EPS to arrive at our TP of INR440. Reiterate BUY

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