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Pipe volumes at double digits… gains market share

SIL's Q3FY24 saw a strong 14% sales volume growth, driven by plastic piping and industrial products, which grew by 17% & 10%, respectively. Healthy demand from housing and agricultural pipes has been sustained, which is expected to continue. Consumer segment volume dipped by 3% YoY, due to a shift to premium products. Overall revenue grew by a modest 6% YoY, as realization declined by 7% YoY on account of a decline in PVC prices. Affordability improved with lower input costs. Looking ahead, we anticipate a 14% CAGR in volume and a 22% CAGR in revenue from FY24R– 26E

Margins to stabilize at ~15.4% during FY24-26E

In SIL's Q3FY24, gross margins improved by 430bps YoY to 33.0%, driven by favourable input prices. EBITDA grew by 25% YoY, and margins expanded by 230bps YoY to 15.5%. Reported a net profit of Rs.256cr, was up by 22% YoY but marginally missed our estimates due to the lower share of profits from Supreme Petro. Going ahead, volume growth is likely to remain robust, and benign input prices will support margins. We anticipate EBITDA margins to remain steady in the range of 15.4% over FY24-26E. We expect profitability to grow by a 22% CAGR over FY24-26E.

Other highlights...

• Acquired Parvati Agro with a capacity of 36000 tonnes at sangli, Maharastra at Rs.171cr. From Q4 onwards, normal operations will commence.

• Received BIS approval for supplying pipes for carrying natural gas.

Valuations

Despite premium valuation (SIL is currently trading at a 1 year forward P/E of 39x), we maintain a positive view on account of healthy infra & agri volumes that will drive revenue growth. While lower input prices will support margin expansion, we value SIL at a P/E of 37x as we roll forward to FY26E EPS and upgrade to Hold rating with a target price of Rs. 4,416.

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