Prabhudas Lilladher's research report on Finolex Industries
We downward revised our FY24/FY25 earnings estimate by -5.8%/-5.9% and downgrade the rating to ‘Accumulate’ from BUY to factor in 1) soft vol. growth guidance of ~10% in agri. segment for FY24, b) correction in PVC resin prices to USD 800/MT which will impact realization, and c) correction in PVC-EDC spread to USD 470-480/MT which will impact EBITDA margin. Finolex Industries (FNXP) delivered decent volume growth slightly below expectations, mainly due to agri. pipe segment (down ~3% YoY, as inventory filling happened in Q3FY23), while plumbing segment vol. grew by ~6% YoY. FNXP reported improvement in EBIT/kg to ~Rs 11/kg in P&F segment with favorable pricing and product mix. We believe FNXP has limited upside from current level as PVC-ECD spread is not favorable towards the company and soft vol. growth guidance in agri.
Outlook
We estimate FY23-25E Sales/EBITDA/PAT CAGR of 6.1%/64.8%/51.1%, with volume CAGR of 10.5% and EBITDA margin of 16.1% (350bps below pre-COVID level). We revise our TP to Rs194 (Rs224 earlier), based on 19x FY25E EPS plus 50% discount to Finolex Cables’ stake. Downgrade to ‘Accumulate’.
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