ICICI Securities research report on Finolex Industries
Finolex Industries (FNXP) has reported a tepid Q2FY24 pipe volume growth of 6.2% YoY (-31.7% QoQ, 4-year CAGR of 7.0%) on a low base due to lukewarm demand from agriculture segment (60% volume mix in Q2). Consolidated EBIDTA margin contracted 127bps QoQ to 11.7% (vs EBITDA loss of ~INR 1.4bn YoY) due to lower profitability in pipes segment (EBIT/kg down 21.7% QoQ to INR 10.7). Profitability for pipes was lower QoQ due to significant decline in volumes resulting in negative operating leverage. Management has guided for pipe volume growth of 15-20% YoY in FY24 as PVC prices have now stabilised (post INR 10 decline in Oct’23-TD).
Outlook
It has guided for EBIT/kg in resin at INR 7-8 and for pipes at INR 10-12 in FY24. We cut our PAT estimates for FY24E by ~5% (FY25E, FY26E remain broadly unchanged) and maintain BUY with a rolled over SoTP-based Dec’24E target price of INR 237 (vs INR 230 earlier).
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