Prince Pipes Q1 Results Review - Operationally Weak; Healthy Volume, Soft Margin Outlook: Systematix

Systematix Research Report

Prince Pipes and Fittings Ltd.’s weak operating results in Q1 (pipe volume up 14% YoY; Ebitda margin 9.6% and Rs 14.1/kg) was driven by a higher mix of lower margin agri products and advertising and promotion spend.

Demand in April/May was healthy; Jun was impacted due to channel destocking post sharp decline in PVC prices. Capacity constraint also led to some loss of volume. Plant capacity utilization stood at ~60%, near its peak level of 65-70%. Channel destocked inventory in July owing to volatile PVC price; retail demand stayed strong though. Range-bound PVC price augurs well for demand of pipes incl. agri segment.

Pan India manufacturing presence, after Bihar plant is operational in Q4 FY25, will drive volume and margins. TAM for Prince Pipes has expanded to ~Rs 600 billion spread over pipes, water tanks and bathware.

After expansion in the key tier-II and III markets of West and Northern India; the company plans to launch bathware products (Q1 revenue Rs 50 million, loss Rs 40 million) in East and South market in H2 FY25. Bihar greenfield plant (45kt capacity in phase1) is on track to start production in Jan-25 will boost supply in the fast growing eastern market.

It further plans to add ~40kt capacity across existing plants in two-three quarters. We cut earnings estimate by ~10%, factoring in lower margin outlook. We now estimate 18%/22%/21% CAGR in revenue/Ebitda/PAT over FY24-26E, on healthy volume (16% CAGR) and 12.5-13% Ebitda margin.

On low return on capital employed (~19% in FY26E) and at ~26 times FY26E P/E on CMP, we downgrade our rating to Hold with a revised target price of Rs 679 (28 times FY26E P/E, earlier Rs 779). Strong volumes and margin expansions are keys for valuation re-rating

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