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Result Synopsis

Finolex Industries Ltd (FNXP) delivered a soft quarter as expected however, resin volumes were higher than expected but profitability in pipes segment remained weak. Overall, revenue remained flattish on YoY basis at Rs10Bn with operating margins of 8.3% as compared to 11.8%/1.3% in Q3FY24/Q2FY25 respectively. Resin revenue increased by 29%YoY (98% internal) while pipe revenue remained flattish over similar period. Resin volumes increased by 30%YoY to 56,830Te (2-year volume CAGR stood at -6%) and Pipe volumes improved by 5%YoY to 85,767Te (2-year volume CAGR stood at -3%). Resin ASP stood at Rs73/Kg, remaining flattish YoY and declined by 5%QoQ, Pipe realizations declined by 5%YoY & 2%QoQ to Rs115.7/Kg. EBIT/Kg for resin segment stood at Rs6.9 Vs Rs7.1/Rs8.9 in Q3FY24/Q2FY24 respectively. For pipes, EBIT/Kg reduced materially to Rs3.7 Vs Rs9.1 in Q3FY24 while the same improved QoQ Vs EBIT loss of Rs385Mn.

Management Guidance

Management has revised earlier guidance of ~10%YoY growth to single digit growth for FY25E but are confident of delivering a double digit growth in FY26E. Also, margins are likely to improve with better realizations.

Our View

We maintain our negative outlook on the company as we do not foresee FNXP delivering better than industry growth going ahead as well. For resin segment, we expect volume and revenue growth of 10% each over FY24-FY27E however, we believe that 97% will be consumed internally. For pipes, we expect volume/revenue growth of 8%/7% respectively over FY24-FY27E. In pipes, we reckon, EBIT/Kg should resort to normalcy of Rs10/Kg in FY26E/FY27E. Overall, we expect company’s earnings to grow by mere 4%CAGR over FY24-FY27E hence, we have revalued the company at P/E(x) of 20x on FY27E EPS of Rs8.6, arriving at a target price of Rs171, downgrading the stock to SELL.

Result Highlights

* Revenue for the quarter stood at Rs10Bn, remaining flattish YoY.

* EBITDA margins came in at 8.3% Vs 11.8%/1.3% in Q3FY24/Q2FY25 respectively. Absolute EBITDA, degrew by 30%YoY to Rs834Mn.

* Net profit stood at Rs940Mn, remaining flattish YoY, largely due to lower tax rate which stood at 19% Vs 30% in Q3FY24.

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