Buy Finolex Industries; target of Rs 150: CD Equisearch

CD Equisearch's research report on Finolex Industries

Driven by higher pipe volumes and stabilization of PVC prices, operating profit rose by an astonishing 137% in Q4 when compared to that in Q3 , though it still declined 17.8% in Q4 of previous fiscal. EBIT of Finolex’s PVC business (Rs 117.25 crs in Q4 Vs a meager Rs 12.43 crs in Q3) reflects stabilizing PVC resin prices; average PVC prices stood at some $920 / ton in Q4 as against $840/ton in Q3. As an indicator of profitability of PVC business, PVC-EDC delta stood at $632 / ton in Q4 when compared with $570/ton in Q3, though far off from $780/ton in Q1 of previous fiscal. With base effect coming into play, recovery in post tax earnings (year over year) - was hard to come by as earnings before tax plummet by 16.7% in Q4. As instance of dramatic changes in business scenario in the last one year, PVC prices (average) which stood at some $1563 per ton in Q4 of FY22 declined to $920 per ton in the last quarter, while PVC/EDC delta also tumbled to $632 /ton from $728/ton.

Outlook

On balance, we maintain our reduce rating on the stock with revised target of Rs 150 (previous target: Rs 109) based on 16x FY25e earnings over a period of 9-12 months.