The Indian plastic pipe industry is likely to clock 10 percent CAGR over FY20-25E to reach Rs 50,000 billion by FY25E from Rs30,000 crore currently, driven by government’s initiatives like “Housing for All” by 2022, “Nal se Jal” by 2024, project AMRUT & Swachh Bharat Mission, Reliance Securities said in a note.
The stimulus package for Agri and Housing sector announced by the Finance Minister recently is likely to benefit the PVC Pipes segment. The government has announced stimulus packages in V tranches to fight against disruption of COVID19.
“We believe package III is likely to benefit Farmers and Housing sector,” said the note. Reliance Securities initiates coverage with a buy rating on Finolex Industries, and Astral Poly with a 2-year investment horizon.
The domestic brokerage house initiates a buy rating on Finolex Industries with a 2-year target price of Rs 492 while Astral Poly is also a buy with a 2-year target price of Rs 1081.
The note further added that the impact of COVID-led disruption was limited in 4QFY20 and significant in 1QFY21. As 1Q has historically been a lean quarter with low volume, Reliance Securities expects meaningful demand recovery in 2QFY21E.
Anti-Dumping Duty (ADD) on CPVC resin/compound:
The Government has imposed anti-dumping duty (ADD) on imports of CPVC resin/ compound from China and Korea for five years (February 2020-2025). Earlier, the ADD was imposed on a provisional basis for six months since August 2019.
The share of imports from China and South Korea declined by 6 percent during the Sept-Dec’19 period, which benefitted the larger players with strong margin expansion owing to low-cost inventory, especially in 3QFY20.
“We believe this high margin is unlikely to sustain, going forward due to price hike of CPVC resin in the near-term,” said the note.
Initiate Coverage with BUY Recommendation:
Finolex has increased its PVC pipes capacity to 370,000 TPA currently from 250,000 TPA in FY15, while resin capacity remains at 272,000 TPA.
It has forayed into the CPVC segment with a tie-up with Lubrizol in February 2017. Reliance Securities initiated coverage on Finolex with a buy recommendation and 2-Year Target Price of Rs492 (valuing it at 16x FY23E earnings).
The company is the leader in CPVC pipes and fittings market in India. Astral had innovated CPVC pipes in India 2 decades ago and gained significant traction by introducing the various applications.With the expansion in Odisha, its total capacity will increase to 250,000 MTPA by FY21E. Astral has entered the adhesives business through the acquisition of Seal IT and Resinova, which has helped to gain a strong base.Reliance Securities initiated coverage on Astral with a BUY recommendation and 2-Year Target Price of Rs1,081 (45x FY23E earnings).
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