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Finolex Industries Q4 Results Review - Result In-Line, Margin Improved While Soft Volume: Prabhudas Lilladher

Finolex Industries posted decent volume growth slightly below expectations, mainly due to agricultural pipe segment.

<div class="paragraphs"><p>PVC pipes manufactured by Finolex Industries Ltd. (Source: Company website).</p></div>
PVC pipes manufactured by Finolex Industries Ltd. (Source: Company website).

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Prabhudas Lilladher Report

Finolex Industries delivered decent volume growth slightly below expectations, mainly due to agricultural pipe segment (down about 3% year-on-year, as inventory filling happened in Q3FY23), while plumbing segment volume grew by about 6% year-on-year.

The company reported improvement in EBIT/kg to Rs 11/kg in P&F segment with favorable pricing and product mix. We believe Finolex has limited upside from current level as PVC-ECD spread is not favorable towards the company and soft volume growth guidance in agricultural.

We downward revised our fiscal 2024, 2025 earnings estimate by -5.8%, -5.9%, respectively and downgrade the rating to ‘Accumulate’ from 'buy' to factor in soft volume growth guidance of 10% in agri. segment for FY24, correction in PVC resin prices to $800/MT which will impact realization, and correction in PVC-EDC spread to $470-480/MT which will impact Ebitda margin.

We estimate FY23-25 sales, Ebitda and profit after tax CAGR of 6.1%, 64.8% and 51.1%, respectively, with volume CAGR of 10.5% and Ebitda margin of 16.1%, which is 350 basis points below pre-Covid-19 level. We revise our target price to Rs194 from Rs224 earlier, based on 19 times FY25 earnings per share plus 50% discount to Finolex Cables’ stake.

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Finolex Industries Q4 Results Review By Prabhudas Lilladher.pdf

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