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Result Synopsis

FNXP’s reported benign volume growth of 6%YoY & degrowth of 32%QoQ to 62,914Te for Pipe segment. Strong growth in pluming segment aided the volume growth while declining resin prices encouraged dealers to maintain low-level of inventory in agri-segment which is more price sensitive market. Volumes of Non-Agri to total pipes & fittings for the quarter stood at 40% Vs 37% in Q2FY23. Pipes realization came in at Rs136/kg as compared to RsRs135/Rs125 in Q2FY23/Q1FY24 respectively. For pipes, EBIT/Kg declined sequentially to Rs11/kg as compared to Rs14.

Resin production during the quarter was impacted due to constrain in EDC/VCM supplies from Middle East supplier that led to steep volume decline of 31%YoY & 19%QoQ to 37,516Te. Due to improved PVC-EDC spread/PVC-VCM spread, EBIT/kg for resins improved to Rs5/kg in Q2FY24 as compared to Rs1/kg in previous quarter. With restoration of constant supply, management expects resin production to stabilize from Q4 onwards. Management has lowered their resin volume guidance 200,000-220,000Te from 230,000Te. Further, company expects resin segment to register ~Rs7-8/kg of EBIT for FY24.

We reckon that pipe division will deliver decent volume growth 13%CAGR over FY23- 25E, owing to strong industry tailwinds & company's rapidly growing presence in nonagri segment. Resin segment is expected to remain under pressure due to ongoing supply chain issues & margins will also be under check due to contracting PVC-EDC & PVC-VCM delta as resin prices have reduced drastically in Oct'23. We reckon FNXP will continue to underperform Vs its peers & with no major improvement in business performance, we remain pessimistic on Finolex Industries Ltd. At CMP the company trades at P/E(x) of 22.2x on FY25E EPS of Rs9.1, we have revalued the company at P/E(x) of 18x (5-year avg) on FY25E EPS & continue to maintain our SELL rating on the stock.

Result Highlights

* Company reported consol revenue of Rs8.83Bn, a degrowth of 6%YoY & 25%QoQ.

* EBITDA Margin came in at 11.7% v/s 12.9% in Q1FY24 & negative 15.2% in Q2FY23 (impacted due to sharp inventory loss). Absolute EBITDA declined by 33%QoQ to Rs1.03Bn.

* PAT stood at Rs980Mn, a degrowth of 15%QoQ. 

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