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Result Synopsis

Finolex Industries Ltd (FNXP) registered a muted growth in Q1FY25. Plastic pipes segment delivered a marginal volume decline of 2%YoY (Vs est of 5%YoY growth) to 90,620Te (2-year CAGR stood at 12%), wherein pipes volumes declined by 2%YoY & fittings volumes remained flattish over similar period. ASP improved to Rs124/Kg Vs Rs118/Kg in previous quarter largely owing to better growth in plumbing segment coupled with higher resin prices. ASP remained flattish Vs Q1FY24. Hence pipes revenue declined by 3%YoY to Rs11.23Bn. PVC (US$/Te) prices stood at 855 Vs 805 in Q1FY24 & PVC/EDC (US$/Te) delta came in at 533 as compared to 468. Consequently, EBIT/Kg stood at Rs14.8 Vs Rs13.7/Rs13.3 in Q1FY24/Q4FY24 respectively. For resin biz, total volumes increased by 51%YoY (on-low base) to 69,625Te (2-year CAGR stood at 5%). Higher resin prices resulted into better realizations and EBIT margins for the segment. Overall EBITDA margins came in at 18% (in-line with our estimates), as compared to 12.9%/16.9% in Q1FY24/Q4FY24 respectively. During the quarter, company had an exceptional gain of Rs4.17Bn, pertaining to net gains on transfer of rights on leasehold land of ~25.27 acres in Pune. Management maintained their annual volume guidance for plastic pipes at 10-15% in FY25E.

We expect pipes volumes to grow by 10%CAGR over FY24-FY26E & resin biz volumes to grow by 12% (incl captive) over similar period. The expected growth in pipes segment is lower Vs expected growth of peers which are likely to grow volumes by 18-20% over similar period, largely on account of capacity constraints. Though management stated that they are considering capex plans and can add capacities via de-bottlenecking, we reckon volume growth will be capped in near-term (at our volume estimate, capacity utilization will be ~76% factoring 20,000Te additional capacity in FY25E). We believe EBIT/Kg for pipes should come in at Rs13 over FY25E & FY26E & the same for resin biz is likely to stand at Rs10 for FY25E & FY26E. At CMP, the stock trades at rich P/E(x) of 36x on FY26E EPS (unchanged). Though we have revalued the stock at industry average of 30x on FY26E EPS, we maintain our SELL rating on the stock with a target price of Rs271.

Result Highlights

* Revenue for the quarter stood at Rs11.41Bn (12% below est), a degrowth of 3%YoY & 8%QoQ.

* EBITDA margins came in at 18.1% (est of 18%) Vs 12.9%/16.9% in Q1FY24/Q4FY24, respectively. Absolute EBITDA stood at Rs2.07Bn, a growth of 36%YoY & flattish QoQ.

* Net profit stood at Rs837Mn (excl exceptional item gain of Rs4.17Bn), a decline of 27%YoY & 49%QoQ.

* Company had gains of Rs4.16Bn pertaining to net gains on transfer of rights on leasehold land of ~25.27 acres in Pune.

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