Prince Pipes Q3 Results Review - Measures Taken To Re-Gain Lost Market Share From Q1 FY25: Systematix

Systematix Report

Prince Pipes and Fittings Ltd.'s lower-than-expected pipes-volume (down 2% YoY), revenue (down 12% YoY) and Ebitda margin (12.2%, down 212 basis points QoQ) led to a large miss in Q3 profit after tax (up 6% YoY). A Rs 100 million inventory loss (1.6% of revenue) and Rs 30 million fixed costs in bathroom division also weighed on margins. After losing market-share in a year due to enterprise resource planning transition, management is confident to strongly catchup volumes from Q1 FY25 with measures taken such as price cuts etc.

Project segment is growing well with faster approvals after Lubrizol tie-up. PVC prices are low and stable; Q3 adjusted Ebitda margin (~14%) is likely to sustain, in our view.

Along with Rs 1 billion capex on plant modernisation, the greenfield plant in Bihar (capex upped to Rs 2 billion for 50 kilo tonne integrated capacity incl. fittings) is likely operational by Q4 FY25 and will boost market-share in the fast-growing eastern market (~15% revenue mix).

Bathware (Q3 revenue Rs 60 million, fixed cost Rs 30 million) products are now present across 100 plus retailers in tier 2/3 markets in northern and southern India and would enhance company’s brand visibility.

Post weak 3Q, we cut earnings estimates by 10-20% and now estimate 12%/31%/41% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-26E, resulting in healthy operating cash flow and return on capital employed (25%).

Maintain 'Buy' with a revised target price of Rs 778 (earlier Rs 863), based on 25 times FY26E price-to-earnings. Strong volumes/margins are keys for a re-rating.

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