Finolex Industries Q2 Review - Insipid Result; Future Demand-Margin Scenario Remains Healthy: ICICI Securities

ICICI Securities Report

Finolex Industries Ltd. has reported a tepid Q2 FY24 pipe volume growth of 6.2% YoY (-31.7% QoQ, four-year compound annual growth rate of 7.0%) on a low base due to lukewarm demand from agriculture segment (60% volume mix in Q2).

Consolidated Ebitda margin contracted 127 basis points QoQ to 11.7% (versus Ebitda loss of ~Rs 1.4 billion YoY) due to lower profitability in pipes segment (Ebit/kg down 21.7% QoQ to Rs 10.7).

Finolex Industries' 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 Rs 10 decline in October 2023-to-date).

It has guided for Ebit/kg in resin at Rs 7-8 and for pipes at Rs 10-12 in FY24.

We cut our profit after tax estimates for FY24E by ~5% (FY25E, FY26E remain broadly unchanged) and maintain 'Buy' with a rolled over SoTP-based December 2024E target price of Rs 237 (versus Rs 230 earlier).

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