Institutional Equity Research Sector Update PVC Pipes

Research Analyst:

Arafat Saiyed

Contact : (022) 41681371 / 9819503007Email : [email protected]

Research Associate:

Akshay Chaturvedi


Coverage Summary

Company Rating CMP (Rs)

2 Yr TP (Rs)

Upside (%)

Supreme Ind BUY 2,056 2,606 27

Finolex Ind BUY 150 200 33

Astral BUY 1,677 2,153 28

Prince Pipes BUY 488 710 45

Note: * CMP as on 27 April 2021

Price Performance

Mkt. Cap. Absolute Performance

Company (Rs bn) 1 M 3 M 12 M

Supreme Ind 261 (1.3) 16.7 102.6

Finolex Ind 90 18.1 16.1 69.0

Astral 336 (1.9) 35.4 147.9

Prince Pipes 54 18.0 68.3 394.4


Click Image for Video Presentation

PVC Pipes Sector Update | 28 April 2021Institutional Equity Research

We have made changes to our Recommendation and Target Price. Please refer to Page no. 73 at the end of the report.

Strong Recovery; Growth Momentum on Track

Key Sectoral TailwindsGovt’s thrust on agriculture, water distribution and real estate to boost demand of PVC

pipesHigher realization supported by sharp rise in PVC pricesNew opportunities in water tanks business

We released our initiation report on the pipe sector in May’20 amid uncertainty over the sectoral outlook led by COVID-led disruptions. After muted 1HFY21, the sector witnessed strong recovery in 2HFY21 with healthy growth in revenue and margin by pent-up demand and general recovery in the economic activities. There is clear visibility for demand revival and positive sentiment coming back to the broader economy. Considering this, we are coming up with a detailed sectoral update on PVC pipe companies. Our interpretation of the current scenario, post series of interactions with the companies, sectoral experts and channel check suggests strong sustainable recovery and better earnings visibility. In light of the above, we increase our valuation multiple by 20%-65% and upwardly revise the Target Price of the stocks under our PVC pipe coverage universe by 90-208%.

Key Highlights:1. We continue our positive stance on PVC pipe sector led by multiple initiatives of the

Government of India (GoI). Despite the COVID-led challenges and supply chain issues, all the companies under our PVC pipes coverage universe reported strong growth in 3QFY21 led by higher realization and pent-up demand. Notably, the organized players gained the market share in 9MFY21.

2. The PVC Pipe industry witnessed higher realization supported by sharp rise in PVC prices. Uptrend in the PVC prices continues with strong ~90% gain since Mar’20. Currently, the PVC prices hover at Rs135/kg, led by supply crunch.

3. The PVC prices, which are at historic high of US$1,400/tonne, are likely to correct in the near-term, as sharp spike is unlikely to sustain for a longer period.

4. We continue to believe that the sector is set to clock 10% CAGR over FY20-25E to reach >Rs500bn from the current level of ~Rs300bn driven by government’s initiatives like “Housing for All” by 2022, “Nal se Jal” by 2024, project AMRUT and Swachh Bharat Mission etc.

5. The demand outlook for non-agri pipes seems to be good for the next few quarters with major urban realty markets showing signs of sustainable recovery.

6. Plumbing and SWR were the key growth drivers during 3QFY21 with the strong uptick in real estate demand in major urban centers. The growth is likely to sustain in the near-term.

7. The thrust of the government on urban and rural water supply in the recent Union Budget through Jal Jeevan Mission along with higher capex for infrastructure growth is a big positive for pipe industry, particularly for the organized players.

Outlook & ValuationWhilst the second wave of COVID-19 along with resultant lockdowns/restrictions in a few states in Apr’21 is expected to impact the PVC pipe sector in the near-term, we expect it should be compensated once the restrictions are withdrawn in similar lines of the previous year. The PVC pipe companies under our coverage universe trade at 36x of FY23E and 31x of FY24E earnings vs. mean multiple of 30x and we expect higher valuation to sustain, going ahead as well. Factoring in strong overall growth in 9MFY21, rising market share from the unorganised players, market consolidation, higher PVC prices, healthy capex, we increase our earnings estimates of our PVC pipe coverage universe by 104%, 56% and 43% for FY21E, FY22E and FY23E. We introduce our estimate for FY24E with 8% revenue growth

Our Top Picks: Finolex Industries and Prince Pipes

https://youtu.be/R-mLzzUvCog

2

Table of Contents

Content Page No.

Sectoral Highlights 1-19

Investment Decision Matrix (IDM) 3

Environmental, Social & Governance Matrix (ESGM) 4

Channel Check 5

Key Charts 6

Change in Estimates, Rating & Target Price 7-8

Key Sectoral Updates 9-18

Company Section 20-72

Supreme Industries 20-32

Finolex Industries 33-45

Astral 46-58

Prince Pipes & Fittings 59-72

Parameters Supreme Ind Finolex Astral Prince Pipes

Score Risk Score Risk Score Risk Score Risk

Management Quality 8 Low 7 Low 8 Low 6 Low

Promoter's Holding Pledge 9 Low 5 Medium 9 Low 6 Low

Board of Directors Profile 7 Low 6 Low 7 Low 5 Medium

Industry Growth 6 Low 6 Low 8 Low 8 Low

Regulatory Environment / Risk 4 High 4 High 4 High 4 High

Entry Barriers / Competition 5 Medium 5 Medium 6 Low 6 Low

New Business/Client Potential 7 Low 6 Low 6 Low 6 Low

Business Diversification 8 Low 6 Low 7 Low 6 Low

Market Share Potential 6 Low 7 Low 7 Low 7 Low

Margin Expansion Potential 6 Low 6 Low 7 Low 7 Low

Earning Growth 7 Low 7 Low 6 Low 7 Low

Balance Sheet Strength 7 Low 6 Low 7 Low 7 Low

Debt Profile 5 Medium 3 High 7 Low 6 Low

FCF Generation 5 Medium 7 Low 6 Low 4 High

Dividend Policy 7 Low 7 Low 4 High 5 Medium

Total Score Out of 150 97 88 99 90

Total Score (%) 65% Low 59% Low 66% Low 60% Low

For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

Investment Decision Matrix (IDM)

For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

Environmental, Social & Governance Matrix (ESGM) Parameters Supreme Ind Finolex Astral Prince Pipes

Score Risk Score Risk Score Risk Score Risk

Environment

Climate Change and Carbon Emissions 4 High 5 Medium 5 Medium 5 Medium

Air & Water Pollution 5 Medium 5 Medium 5 Medium 5 Medium

Biodiversity 2 High 6 Low 4 High 4 High

Deforestation 5 Medium 6 Low 4 High 4 High

Energy Efficiency 7 Low 4 High 6 Low 6 Low

Waste Management 5 Medium 6 Low 6 Low 6 Low

Defence / Arms / Ammunition Exposure 10 Low 10 Low 10 Low 10 Low

Social

Customer Satisfaction 8 Low 5 Medium 8 Low 6 Low

Data Protection & Privacy 6 Low 6 Low 6 Low 6 Low

Gender & Diversity 2 High 2 High 2 High 2 High

Employee Engagement 6 Low 6 Low 6 Low 6 Low

Community Relations / Service 7 Low 7 Low 6 Low 3 High

Human Rights 6 Low 6 Low 6 Low 6 Low

Labour Standard 6 Low 6 Low 6 Low 6 Low

Governance

Audit Committee Structure 6 Low 7 Low 5 Medium 6 Low

Bribery & Corruption 6 Low 6 Low 6 Low 6 Low

Executive Compensation 3 High 6 Low 4 High 6 Low

Lobbying 6 Low 6 Low 6 Low 6 Low

Political Contribution 4 High 8 Low 8 Low 8 Low

Whistleblower Scheme 6 Low 6 Low 6 Low 6 Low

Total Score Out of 200 110 119 115 113

Total Score (%) 55% Low 60% Low 58% Low 57% Low

5

Channel Check TakeawaysWe conducted a channel check across value chain of PVC pipe industry to gain insights into current demand scenario, competitive environment and pricing dynamics. The key takeaways of our discussions with the companies, industry experts, and distributors/dealers are given in the following.

1. Agri: The demand for agri pipes remained decent in 4QFY21 despite all-time high PVC prices. As per our channel check, the second wave of COVID-19 is expected to have limited impact on agri pipes due to the essential nature of agriculture. Moreover, strong monsoon forecast also augurs well for segmental demand.

2. Non-Agri Pipes: The demand for non-agri pipes remained intact in 4QFY21 led by the GoI’s push for infrastructure spending along with strong revival of real estate sector. Notably, imposition of lockdowns/restrictions from beginning of Apr’21, especially in the urban centres has negatively impacted the demand for non-agri pipes, continuation of which for an extended period will worsen the demand scenario.

3. Geographical Scenario: Western and southern regions continued to witness their strong demand for PVC pipes in 4QFY21, followed by northern region. With several small unorganized players, eastern region continues to remain underpenetrated.

4. Market Consolidation: PVC pipes industry is also seeing market consolidation with smaller unorganized players facing supply side constraints due to the pandemic. Market consolidation is seen particularly in CPVC pipe space in the wake of imposition of anti-dumping duty (ADD) on CPVC resin from China and South Korea.

5. Pricing Scenario: The companies hiked prices by 3-5% in Apr’21 to pass on higher PVC prices. While the demand for agri-pipes is expected to be affected to some extent due to higher prices, the demand for non-agri pipes is expected to remain unaffected.

6. Competitive Environment: According to the dealers, Astral continued its leadership in CPVC pipe segment during 4QFY21 backed by strong demand from both project and retail segment. While Supreme continued to witness decent retail demand, Finolex sustained its leadership in agri pipe segment. PRINCPIP’s new CPVC flowguard pipe is aggressively competing with Astral in terms of prices.

6

Key ChartsExhibit 1: PVC Pipe Sector to Clock 11% CAGR over FY20-25E

Source: Prince Pipes RHP, RSec Research

Exhibit 2: Key Segments


Exhibit 3: CPVC Pipes to Clock 18% CAGR over FY20-25E


195

45 45 15

309

103 77

26

-

50

100

150

200

250

300

350

UPVC CPVC HDPE PPR

(Rs

bn)

FY20 FY25E

f We continue to believe that the sector is poised to clock 11% CAGR over FY20-25E to reach >Rs500bn by FY25E from ~Rs300bn currently, driven by the government’s initiatives like “Housing for All” by 2022, “Nal se Jal” by 2024, project AMRUT and Swachh Bharat Mission.

f The market size of CPVC is expected to increase to Rs103bn by FY25E from the current level of Rs45bn.

f CPVC, which is the fastest growing segment in the pipe sector, is expected to clock 18% CAGR over FY20-25E.

165 180205 225

250280 300 302

344391

445

514

0

100

200

300

400

500

600

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E

(Rs

bn)

Plastic pipes Industry

9.6

18.0

11.4 11.4

0

2

4

6

8

10

12

14

16

18

20

UPVC CPVC HDPE PPR

(%)

Exhibit 4: Stimulus Packages For Agriculture & Housing Announced by the Government Stimulus Package Amount (Rs bn) % of GDP

Agriculture & Allied Sector

Concessional Credit Boost to farmers through Kisan Credit Cards (KKC) 2,000 0.93

Creation of Agri Infrastructure Fund 1,000 0.47

Emergency working capital for farmers 300 0.14

Support to fishermen 110 0.05

Animal Husbandry infrastructure development 150 0.07

Housing

Credit Linked Subsidy Scheme for Middle Income Group (MIG) 700 0.33

Special refinance facilities for NABARD, SIDBI and NHB at policy repo rate 500 0.23

Total Package 4,760 2.21

Source: GoI, RSec Research

f The GoI has announced several packages for the agriculture and housing sector amounting ~Rs4,760bn (2.21% of the GDP) since the outbreak of COVID-19 pandemic.

7

Change in Estimates, Rating & Target PriceThe sector witnessed robust recovery in 3QFY21, led by strong up-tick especially in urban markets. Plumbing and SWR were the key growth drivers during the quarter with the strong up-tick in real estate demand in major urban centers. The growth is likely to sustain in the near-term. The thrust of the government on urban and rural water supply in the recent Union Budget through Jal Jeevan Mission along with higher capex for infrastructure growth is a big positive for pipe industry, particularly for the organized players. Currently, the PVC prices hover at historic high of US$1,400/tonne and likely to remain high in the near-term as well.

Factoring in strong all-round growth in 9MFY21, rising market share, market consolidation, higher PVC prices, healthy capex, we increase our earnings estimates of our PVC pipe coverage universe by 104%, 56% and 40% for FY21E, FY22E and FY23E and introduce our estimate for FY24E.

Exhibit 5: Revision in Estimates

FY21E FY22E FY23E

Revenue (Rs mn) Old Revised Change (%) Old Revised Change (%) Old Revised Change (%)

Supreme Ind 48,488 64,276 32.6 56,959 66,296 16.4 64,276 74,823 16.4

Finolex Ind 27,688 30,446 10.0 33,766 35,456 5.0 39,652 40,019 0.9

Astral 25,670 29,425 14.6 31,405 34,893 11.1 37,785 40,444 7.0

Prince Pipes 14,839 18,452 24.3 17,549 20,663 17.7 19,690 23,031 17.0

Total 1,16,685 1,42,599 22.2 1,39,679 1,57,308 12.6 1,61,403 1,78,317 10.5

FY21E FY22E FY23E

EBITDA (Rs mn) Old Revised Change (%) Old Revised Change (%) Old Revised Change (%)

Supreme Ind 6,546 10,396 58.8 8,316 10,939 31.5 9,976 12,196 22.3

Finolex Ind 3,405 7,252 113.0 4,561 6,864 50.5 5,545 7,766 40.0

Astral 4,020 5,641 40.3 5,089 6,525 28.2 6,226 7,524 20.8

Prince Pipes 1,741 2,876 65.2 2,334 3,079 31.9 2,698 3,501 29.8

Total 15,712 26,165 66.5 20,300 27,406 35.0 24,445 30,987 26.8

FY21E FY22E FY23E

PAT (Rs mn) Old Revised Change (%) Old Revised Change (%) Old Revised Change (%)

Supreme Ind 3,329 6,814 104.7 4,541 6,970 53.5 5,647 7,862 39.2

Finolex Ind 2,237 5,372 140.1 3,087 5,047 63.5 3,816 5,734 50.3

Astral 2,142 3,300 54.1 2,750 3,987 45.0 3,621 4,761 31.5

Prince Pipes 714 1,655 131.7 1,028 1,833 78.3 1,263 2,133 68.9

Total 8,422 17,141 103.5 11,406 17,837 56.4 14,347 20,490 42.8

Source: RSec Research

Exhibit 6: Changes in Rating and Target Price

Mcap Rating Target Price (Rs)

Company (Rs bn) Old New Old New Change (%)

Supreme Ind 261 BUY BUY 1,333 2,606 95.5

Finolex Ind 90 BUY BUY 98 200 103.3

Astral 336 BUY BUY 1,081 2,153 99.2

Prince Pipes 54 BUY BUY 230 710 208.5 Source: RSec Research

8

Exhibit 7: Revenue Trend

Rating 2 Yr TP IRs) Upside Revenue

Company (%) FY20 FY21E FY22E FY23E FY24E

Supreme Ind BUY 2,606 26.8 55,115 58,944 66,296 74,823 82,117

Finolex Ind BUY 200 33.3 29,860 30,446 35,456 40,019 43,665

Astral BUY 2,010 28.4 25,779 29,425 34,893 40,444 46,476

Prince Pipes BUY 710 45.4 16,357 18,452 20,663 23,031 25,337 Source: RSec Research

Exhibit 8: Key Valuations

PE (x) EV/EBITDA (x)

Company FY21E FY22E FY23E FY24E FY21E FY22E FY23E FY24E

Supreme Ind 38.3 37.5 33.2 28.4 25.1 23.8 21.3 18.3

Finolex Ind 17.3 18.4 16.2 15.0 26.2 23.6 23.5 24.2

Astral 102.1 84.5 70.8 58.4 59.8 51.4 44.2 37.5

Prince Pipes 32.5 29.3 25.2 22.7 17.5 16.3 14.2 12.7 Source: RSec Research

9

Key Sectoral UpdatesWe are optimistic on the PVC pipe industry on the back of the following premises.

f Multiple Govt Initiatives to Boost Demand of PVC Pipes

f Key Growth Drivers Remain Intact

f Sectoral Consolidation Bodes Well for Organized Players

f Higher Realization Following Sharp Surge in PVC Prices

f New Opportunities in Water Tank Business

f Strong 3QFY21 Performance of PVC Pipe Players

I. Multiple Govt Initiatives to Boost Demand of PVC PipesWe continue our positive stance on PVC pipe sector on the back of several initiatives of the GoI, which will certainly boost the demand in the next couple of years. We continue to believe that the sector is poised to clock 10% CAGR over FY20-25E to reach >Rs500bn by FY25E from ~Rs300bn currently driven by initiatives like “Housing for All” by 2022, “Nal se Jal” by 2024, project AMRUT and Swachh Bharat Mission.

The GoI has allocated Rs1trillion in the Union Budget for infra, in which pipe segment’s pie is seen at ~Rs80bn. In bear case scenario also, even only 25% on ground execution is assumed, the market size would increase by Rs20bn (up 7-8% from the current level of Rs300bn) in addition to growth from other areas. This is likely to benefit strong up-tick in B2B pipe segment in next 1-2 years.

Exhibit 9: PVC pipe market expected to clock 10% CAGR over FY20-25E


Strong Stimulus

The GoI has announced several stimulus measures to generate employment and provide liquidity support to stressed sectors including construction and housing. The GoI has announced several packages for the agriculture and housing sector amounting ~Rs4760billion (2.21% of the GDP) since the outbreak of COVID-19 pandemic. The stimulus announced for agri, housing and infrastructure segments is likely to benefit the PVC pipe sector.

165 180205 225

250280 300 302

344391

445

514

0

100

200

300

400

500

600

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E

(Rs bn

)

Plastic pipes Industry

Exhibit 10: Stimulus Packages For Agriculture & Housing Announced by the Government Stimulus Package Amount (Rs bn) % of GDP

Agriculture & Allied Sector

Concessional Credit Boost to farmers through Kisan Credit Cards (KKC) 2,000 0.93

Creation of Agri Infrastructure Fund 1,000 0.47

Emergency working capital for farmers 300 0.14

Support to fishermen 110 0.05

Animal Husbandry infrastructure development 150 0.07

Housing

Credit Linked Subsidy Scheme for Middle Income Group (MIG) 700 0.33

Special refinance facilities for NABARD, SIDBI and NHB at policy repo rate 500 0.23

Total Package 4,760 2.21


10

A. Agriculture

• The GoI has increased the fertiliser subsidy by Rs650bn taking the total fertiliser subsidy to >Rs1,300bn for FY22E.

B. Housing

• The GoI has increased the allocation for the Pradhan Mantri Awas Yojana (PMAY) to Rs260bn for FY21 from Rs80bn announced earlier to boost the housing sector.

• The GoI also relaxed an I-T provision enabling the developers to reduce property rates by up to 20% compared to existing circle rates.

C. Infrastructure

• The GoI will infuse Rs60bn as an equity in National Investment & Infrastructure Fund’s debt platform, as India readies for a massive Rs111trillion infrastructure pipeline.

D. Measures to Boost Employment

• The GoI has allocated an additional Rs100bn for the PM Garib Kalyan Rojgar Abhiyaan to boost rural employment.

E. Stimulus for Stressed Sectors

• The GoI has extended the Rs3,000 Emergency Credit Line Guarantee Scheme (ECLGS) till March 31, 2021. During FY21, Rs2,000bn has been sanctioned under this scheme.

• It also extended the scope of this scheme to include firms in 26 stressed sectors, as identified by the RBI.

11

II. Key Growth Drivers Remain Intact PVC pipes are primarily used in irrigation, Water Supply & Sanitation (WSS) and plumbing. The government-undertaken projects are the major demand drivers. Despite sluggish demand from the real estate sector, PVC pipe segment continues to maintain healthy growth momentum led by affordable housing and strong government/regulatory initiatives to drive real estate development. Moreover, with thrust on improving coverage area under irrigation from the current level (50% of net sown area), PVC pipe segment is expected to be benefitted in the next couple of years. Replacement demand, which accounts for 25% of total demand, has also supported the demand for PVC pipes to large extent.

Exhibit 11: Demand Drivers for PVC Pipe

Source: RHP of Prince Pipes

Exhibit 13: Investment in Irrigation


I. Irrigation Sector: The irrigation sector is the key user of PVC pipes with ~47% contribution to total sales. Out of India’s 142mn ha of cultivated land, only 50% is irrigated. Under Prime Minister Krishi Sinchai Yojna (PMKSY), the GoI is likely to spend Rs500bn in the next five years. The scheme also includes earlier schemes like AIBP, Integrated Watershed Management Programme, Per Drop More Crop and Har Khet Ko Pani etc.

Over the years, initiatives to increase land under irrigation led by several government schemes like PMKSY and AIBP augured well for the domestic PVC pipe sector. PMKSY envisions adding ~0.5mn ha of land under micro-irrigation per year, which could be a huge growth driver for agricultural pipes.

590 591 577682

830 855920

998 1,083

1,175 1,275

0

200

400

600

800

1000

1200

1400

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

(Rs

bn)

Investment in Irrigation

12

Exhibit 14: PMKSY

Source: PMKSY.gov.in, RSec Research

Exhibit 15: Micro Irrigation – Investment Under Per Drop More Crop Scheme

Source: PMKSY.gov.in, RSec Research Source: PMKSY.gov.in, RSec Research

Exhibit 16: Investment in WSS

Source: PMKSY.gov.in, RSec Research Source: PMKSY.gov.in, RSec Research

II. WSS & Plumbing: WSS and plumbing contribute 35-40% to total PVC pipe market in India. The GoI's expenditure towards WSS has clocked ~11% CAGR to Rs416bn over last five years led by several schemes. Looking ahead, the investments in WSS are likely to to clock ~10% CAGR over the next few years.

6.6 5.7

5.0

8.0

12.0

16.0

14.0

4.3 4.3 5.7

8.4

10.5 11.6 11.8

2.1

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2

4

6

8

10

12

14

16

18

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

(Are

a in

Lak

h H

a)

Target Achivemnet

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10 10

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20

23

-

12 10

11

15 16

18 19

14

-

5

10

15

20

25

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

(Rs

bn)

Financial Target Financial Achievement

244277

189

259

391416 409

458513

575

644

0

100

200

300

400

500

600

700

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

(Rs

bn)

Investment in WSS

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III. Urban Infrastructure: WSS projects will account for 47% of total urban infrastructure investments over the next few years led by government-backed programme in several states.

• Swachh Bharat Mission: The GoI’s 2 flagship schemes i.e. Swachh Bharat Mission and National Mission for Clean Ganga (NMCG) are likely to boost investments in WSS. Swach Bharat Mission comprises two sub-missions i.e. Swachh Bharat Mission (Gramin) and Swachh Bharat Mission (Urban). The mission’s components are: construction of households, community and public toilets, including conversion of insanitary latrines into pour-flush latrines.

• Atal Mission for Rejuvenation & Urban Transformation (AMRUT): The GoI has approved replacement of JNNURM with AMRUT in May’15. The focus of AMRUT is to provide basic infrastructure services i.e. water supply, sewerage, storm water drains, transport and development of green spaces and parks.

• Smart Cities Mission: The Ministry of Urban Development has guided for formulation, approval and execution of projects under the Smart Cities Mission. Core infrastructure elements of a smart city include adequate water supply, sanitation and affordable housing.

IV. Real Estate: Real estate sector is one of the key consumers of plastic pipes and fittings. Over the last few years, the end-user demand for real estate has been sluggish with the developers delaying the possession of projects due to approval delays and liquidity crunch. However, with the implementation of Real Estate Regulatory Authority (RERA), the sector is looking for stable growth. Pradhan Mantri Aawas Yojana (PMAY) was launched in Jun’15 to minimise the housing shortage of urban poor. The Ministry of Housing and Urban Poverty Alleviation has estimated a shortage of ~20mn dwelling units for the urban poor.

The government has set the target of ‘Housing for All by 2022’. It has also announced multiple policies to facilitate affordable housing projects. Offering of interest subsidy of up to Rs2.67 lakh has proved to be a major demand booster, aided by lower interest rates.

Several tax benefits including reduction in GST rate on affordable homes to 1%, under construction homes to 5% with zero GST for ready homes and hiking exemption limit of interest on home loans to Rs3.5 lakh provided further impetus to affordable and mid-income housing.

III. Sectoral Consolidation Bodes Well for Organized PlayersIn recent times, several smaller players in PVC pipes sector have been impacted by volatility in PVC prices, liquidity crisis and working capital constraints, which led them to close their operations. At the same time, the financials of other players like Kisan, Prince SWR, and Skipper (polymer division) have been significantly impacted. It has been observed that the market share of Top 5-6 players has increased due to shutdown of operations by the smaller unorganized players. This creates an opportunity for sectoral consolidation, while the recently imposed ADD may force the larger organized players to consolidate their operations.

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Exhibit 17: Financial Performance of Smaller Players over the Years

(Rs mn) FY16 FY17 FY18 FY19 FY20

Revenue

Jain Irrigation (Plastic) 16,811 17,968 19,929 21,307 11,306

Kisan 4,644 4,797 5,593 5,337 2,477

Skipper (Polymer) 1,525 1,980 2,149 1,598 1,363

Prince SWR 2,867 3,511 3,946 3,551

EBIT

Jain Irrigation (Plastic) 1,325 1,386 1,997 2,303 119

Kisan 320 372 469 308 (134)

Skipper (Polymer) 165 165 151 (28) (3)

Prince SWR 304 346 393 405

Margin (%)

Jain Irrigation (Plastic) 7.9 7.7 10.0 10.8 1.1

Kisan 6.9 7.8 8.4 5.8 (5.4)

Skipper (Polymer) 10.8 8.4 7.0 (1.7) (0.2)

Prince SWR 10.6 9.9 10.0 11.4

PAT

Jain Irrigation (Plastic) 486 1,762 2,213 2,542 (7,151)

Kisan (153) (9) 4 (97) (421)

Skipper (Polymer) 951 1,115 1,178 312 413

Prince SWR 45 48 49 23

Source: Company; RSec Research

ADD on Imports of CPVC Resin/Compound from China & South Korea: The GoI has imposed ADD on imports of CPVC resin/compound from China and South Korea for five years (Feb’20-Feb’25). Earlier, it was imposed on provisional basis for 6 months since Aug’19 till Feb’20. The share of imports from China and South Korea declined since Aug’19, which benefitted the larger players especially from 2HFY20 onwards.

Exhibit 18: CPVC Resin Import from China & South Korea over the years

Source: GoI

0

1000

2000

3000

4000

5000

6000

FY16 FY17 FY18 FY19 FY20

(Rs

bn)

From China From South Korea

15

IV. Higher Realization Post Sharp Surge in PVC Prices The PVC prices uptrend started since May’20 especially after partial ease in lockdown restrictions in most parts of the world. Uptrend in the PVC prices continues with strong ~90% gain since Mar’20. The prices have increased by ~30% in 3QFY21, after witnessing 19% rise in 2QFY21. Currently, the PVC prices hover at Rs115/kg. While the higher PVC price has given strong boost for the organised PVC pipe players, the unorganised players continue to face issues in supply chain disruption apart from high working capital requirement.

Exhibit 19: PVC Price Trend

Source: Bloomberg

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160

May

-18

Jul-1

8

Sep-

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Nov-

18

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9

Sep-

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-20

May

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Jul-2

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Nov-

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Mar

-21

(Rs/

kg)

PVC Price

Exhibit 20: Quarterly realization of key PVC playersFY19 FY20 FY21

Company 1Q 2Q 3Q 4Q FY19 1Q 2Q 3Q 4Q FY20 1Q 2Q 3Q

Realisation (Per KG)

Supreme Ind 107 121 114 113 113 105 120 113 121 115 102 127 149

Finolex Ind 93 104 100 102 99 93 108 105 101 100 96 115 110

Astral 147 169 170 151 159 144 153 158 146 150 142 156 182

Prince Pipes 122 126 122 112 125 127 130 123 122 131 150

Realisation growth (%)

Supreme Ind 6.8 12.7 10.4 (1.0) 6.5 (1.8) (0.7) (0.7) 7.5 1.1 (3.2) 6.2 31.0

Finolex Ind (3.4 ) 15.5 15.4 7.1 7.3 (0.2) 3.6 5.0 (0.7) 1.0 3.2 6.6 4.9

Astral (7.5) 14.7 16.4 0.2 5.8 (2.0 ) (9.5) (7.0) (3.3) (5.5) (1.3) 1.9 15.5

Prince Pipes 4.4 3.3 1.1 9.2 4.0 17.6


V. New Opportunities in Water Tank Biz Most PVC pipe companies are entering into water tank business, which is in sync with the PVC pipe with only slight modifications in the existing process. PVC pipe companies are also leveraging the distribution network and sales channel, as most pipe dealers also deal with water tanks. The opportunity in water tank business is ~Rs50bn, which is witnessing ~10% CAGR for past few years. The water tank business is dominated by the unorganized players (70% market share), which provides attractive opportunity for the organized players to build their stronghold. We expect the water tank segment to clock ~12% CAGR in the next five years compared to 10% CAGR in PVC pipe segment.

Sintex is the market leader in water tank business with ~50% market share followed by Vectus (16% share and Supreme (5% share). However, Sintex has been facing supply side issues and liquidity challenges for past few years, which impacted the quality of the product, while the unorganised players have been impacted by COVID-19 pandemic. Prince has recently entered into water tank business and looking for key launches over the next 12 months. Astral too recently announced its entry into the water tank with an investment of Rs750mn. Astral is looking to buy the brand “Sarita” and assets of Shree Prabhu Petro (Aurangabad) for Rs510mn including land, building, machineries and certain intangible assets. The company is also adding new capacity of plastic storage tanks at its existing unit in Gujarat, which is likely to start in the near-term.

16

Exhibit 21: 3QFY21 & 9MFY21 Performance

Revenue EBITDA

Company (Rs mn) 3Q FY21 3Q FY20 YoY (%) 9M FY21 9M FY20 YoY (%) 3Q FY21 3Q FY20 YoY (%) 9M FY21 9M FY20 YoY (%)

Finolex Ind 10,669 6,994 52.5 22,147 22,199 (0.2) 3,467 1,384 150.4 5,797 3,440 68.5

Astral 8,975 6,641 35.1 20,485 19,490 5.1 1,920 1,176 63.3 3,899 3,293 18.4

Supreme Ind 18,438 13,733 34.3 42,725 40,811 4.7 4,016 2,209 81.8 7,745 5,611 38.0

Prince Pipes 5,490 3,959 38.7 13,102 12,049 8.7 1,029 534 93.0 2,148 1,712 25.5

Aggregate 43,572 31,327 39.1 98,459 94,548 4.1 10,432 5,303 96.7 19,589 14,055 39.4

PAT EBITDA Margin (%)

Company (Rs mn) 3Q FY21 3Q FY20 YoY (%) 9M FY21 9M FY20 YoY (%) 3Q FY21 3Q FY20 YoY (%) 9M FY21 9M FY20 YoY (%)

Finolex Ind 2,594 905 186.7 4,271 2,657 60.8 32.5 19.8 1,270 26.2 15.5 1,068

Astral 1,239 679 82.5 2,321 1,980 17.2 21.4 17.7 368 19.0 16.9 214

Supreme Ind 3,123 1,234 153.1 5,278 3,501 50.7 21.8 16.1 569 18.1 13.7 438

Prince Pipes 668 243 175.1 1,246 842 47.9 18.8 13.5 528 16.4 14.2 219

Aggregate 7,624 3,061 149.1 13,115 8,980 46.1 23.9 16.9 701 19.9 14.9 503


Supreme Industries: Revenue grew by 34% YoY to Rs18.4bn in 3QFY21 led by 10% YoY growth in volume to 1,11,584 MT. EBITDA increased by 82% YoY to Rs4bn, while EBITDA margin increased by 570bps YoY to 21.8% led by inventory gain, higher volume and better realization across segments. PAT grew by 153% YoY to Rs3.1bn. The overall turnover of value-added products increased to Rs7.6bn (up 33% YoY), which also supported margin expansion.

Astral: Astral reported revenue growth of 35% YoY to Rs8.9bn. While plastic revenue rose by 33% YoY to Rs6.7bn, adhesive revenue grew by 42% YoY to Rs2.3bn. Volume of plastic segment increased by 15% YoY to 36,902MT, while realisation stood at Rs182/kg. EBITDA increased by 63% YoY to Rs1.9bn, while EBITDA margin improved by 370bps YoY to 21.4%. EBITDA margin of plastic segment improved by 400bps YoY to 24.2%, while adhesive business’ EBITDA margin saw a 410bps YoY rise to 15.9%. PAT increased by 83% YoY to Rs1.23bn.

Finolex Industries: Finolex Industries delivered a stellar performance in 3QFY21. Its total revenue increased by 53% YoY to Rs10.7bn led by strong growth in PVC resin segment. Revenue of PVC resin segment increased by 70% YoY to Rs6.9bn led by 15% YoY volume growth to 67,741 MT and 48% YoY realization growth to Rs102/kg. Revenue of PVC pipe segment increased by 31% YoY to Rs7.3bn led by 5% YoY growth in volume to 55,299MT, while realization improved by 25% YoY to Rs131/kg. Blended EBITDA increased by 150% YoY to Rs3.5bn, while EBITDA margin expanded by 1,270bps YoY to 32.5% due to better realization and lower cost coupled with strong volume in PVC resin segment. EBIT margin of PVC resin expanded by 1,545bps YoY to 35.5%, while EBIT margin of PVC pipe segment increased by 472bps YoY to 12.6%. PAT increased by 163% YoY to Rs2.6bn.

Prince Pipes & Fittings: Prince reported Rs5.5bn revenue in 3QFY21 (up 39% YoY) led by 18% YoY volume growth to 36,711MT. Realization also improved by 18% YoY to Rs150/kg. EBITDA increased by 93% YoY to Rs1.03bn, while EBITDA margin expanded by 530bps YoY to 18.8% led by inventory gains and improved operating efficiency. Advertisement and Promotion (A&P) investments increased to Rs190mn in 3QFY21 from Rs100mn in 3QFY20. PAT increased by 175% YoY to Rs668mn aided by higher other income and lower interest cost. Net cash on the books stood at Rs370mn in 3QFY21 (excluding IPO proceeds). The working capital days reduced to 28 in 9MFY21 from 51 in 9MFY20.

17

Exhibit 22: Capacity Trend Exhibit 23: Volume Trend

Source: Company, RSec Research Source: Company, RSec Research

Exhibit 24: Realization Trend Exhibit 25: Utilisation Trend


Exhibit 26: EBITDA per KG Trend Exhibit 27: Volume Growth Trend


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18

Exhibit 28: Quarterly Trend

FY19 FY20 FY21

Company 1Q 2Q 3Q 4Q FY19 1Q 2Q 3Q 4Q FY20 1Q 2Q 3Q 4QE FY21E

Volume (MT)

Supreme Ind 69,622 56,627 70,021 83,473 2,79,743 85,214 67,812 70,431 77,315 3,00,772 74,992 66,609 76,759 88,912 3,07,272

Finolex Ind 77,636 45,273 59,178 77,636 2,59,723 91,655 48,024 52,815 62,464 2,54,958 52,911 43,618 66,019 74,957 2,37,505

Astral 22,476 27,250 27,882 38,877 1,16,485 31,729 34,620 32,053 33,798 1,32,200 21,784 35,373 36,902 37,854 1,31,913

Prince Pipes - - 29,617 39,641 1,29,000 33,982 34,213 31,122 33,140 1,32,816 24,792 35,142 36,711 38,111 1,34,756

Revenue (Rs mn)

Supreme Ind 7,475 6,830 7,997 9,408 31,709 8,980 8,120 7,984 9,370 34,454 7,646 8,473 11,402 10,776 38,296

Finolex Ind 7,225 4,705 5,906 7,911 25,748 8,512 5,170 5,535 6,322 25,540 5,070 5,008 7,258 7,270 24,606

Astral 3,298 4,598 4,729 5,867 18,492 4,564 5,284 5,057 4,933 19,838 3,093 5,503 6,727 6,906 22,229

Prince Pipes - - 3,610 4,990 15,719 3,798 4,292 3,959 4,308 16,357 3,025 4,587 5,490 5,350 18,452

EBIT (Rs mn)

Supreme Ind 982 888 987 1,186 4,043 1,017 1,335 1,276 1,688 5,316 665 1,475 2,503 1,940 6,582

Finolex Ind 596 240 467 612 1,914 724 238 436 629 2,027 514 393 914 727 2,548

Astral 389 499 495 736 2,119 466 774 733 699 2,672 231 871 1,290 1,174 3,566

Prince Pipes - - 323 470 1,405 409 527 400 432 1,768 176 650 879 577 2,282

EBIT Margin (%)

Supreme Ind 13.1 13.0 12.3 12.6 12.8 11.3 16.4 16.0 18.0 15.4 8.7 17.4 21.9 18.0 17.2

Finolex Ind 8.2 5.1 7.9 7.7 7.4 8.5 4.6 7.9 10.0 7.9 10.1 7.8 12.6 10.0 10.4

Astral 11.8 10.9 10.5 12.5 11.5 10.2 14.6 14.5 14.2 13.5 7.5 15.8 19.2 17.0 16.0

Prince Pipes - - 9.0 9.4 8.9 10.8 12.3 10.1 10.0 10.8 5.8 14.2 16.0 10.8 12.4

Realisation (Per KG)

Supreme Ind 107 121 114 113 113 105 120 113 121 115 102 127 149 121 125

Finolex Ind 93 104 100 102 99 93 108 105 101 100 96 115 110 97 104

Astral 147 169 170 151 159 144 153 158 146 150 142 156 182 182 169

Prince Pipes - - 122 126 122 112 125 127 130 123 122 131 150 140 137

EBIT (Per KG)

Supreme Ind 14.1 15.7 14.1 14.2 14.5 11.9 19.7 18.1 21.8 17.7 8.9 22.2 32.6 21.8 21.4

Finolex Ind 7.7 5.3 7.9 7.9 7.4 7.9 5.0 8.2 10.1 7.9 9.7 9.0 13.8 9.7 10.7

Astral 17.3 18.3 17.8 18.9 18.2 14.7 22.4 22.9 20.7 20.2 10.6 24.6 35.0 31.0 27.0

Prince Pipes - - 10.9 11.8 10.9 12.0 15.4 12.9 13.0 13.3 7.1 18.5 23.9 15.1 16.9


19

COMPANY SECTION

20

Institutional Equity Research

All in the Name

Supreme Industries Pipes | India


BUY2 Year Target Price: Rs

CMP* (Rs) xxx

Upside/ (Downside) (%) xx

Bloomberg Ticker xxx IN

Market Cap. (Rs bn) xxx

Free Float (%) xxx

Shares O/S (mn) xxx Company Update | 28 April 2021

1. Supreme Industries (Supreme) is the largest player in Indian PVC pipes segment with ~11% market share. Higher distribution network and improved penetration across products supported the company’s market share gain in 3QFY21, as the smaller players moved out of the market.

2. Supreme has a diversified products portfolio, vast distribution network and healthy operational cash flow. It continues to innovate and launch newer products to maintain leadership position.

3. The company has acquired land parcels in Odisha and Tamil Nadu. The Assam plant is being constructed on lease agreement basis. The company aims to begin production at these new plants in FY22E.

4. With strong demand in place, the company’s capex plan is likely to remain strong in next couple of years as well. The company is also exploring opportunities in Assam and Tamil Nadu for plastic pipes business.

5. Contribution of value-added products (having higher EBITDA margin in the excess of 17% and higher RoCE of >25%) increased to ~38% in FY20 from 25% in FY10.

ESG Analysis: Analyzing Supreme on 20 key criteria under ESG Matrix, we have assigned an overall score of 55% to the company. Under “Environmental Head”, we have assigned 54% score, as being the largest plastic processor, it impacts the overall biodiversity despite adopting renewable energy in a big way. Under “Social Head”, we have assigned 59% score, as the company scores high on customer satisfaction, despite scoring low on gender diversity. Under “Governance Head”, the company scores 52% with decent performance across criteria barring executive compensation and political contribution (please refer to page no 22 & 23 for detailed ESG analysis).Outlook & ValuationLooking ahead, we expect Supreme to deliver strong performance over FY20-24E led by capacity expansion and higher revenue from value-added products. We expect, growth momentum and valuation re-rating to continue for Supreme led by higher capex, rising market share with expected volume CAGR of 9.6% over FY20-24E, lean working capital and high return ratio. We expect the company’s revenue, EBITDA and PAT to clock 11%/14% /18% CAGR, respectively over FY20-24E. Historically, the stock has been trading at 30x of 1-Yr Forward earnings, in-line with the industry average. Looking ahead, we expect the valuation to sustain, as the company has maintained leading position in overall pipe market aided by higher revenue from value added products. Considering expected higher revenue from value-added products, higher capex, rising market share, lean working capital and high return ratio, we maintain BUY on Supreme with a revised 2-Year Target Price of Rs2,606 (from Rs1,333 earlier), valuing the stock at 36x (from 30x earlier) of FY24E EPS.

Research Analyst: Arafat Saiyed


Research Associate:Akshay Chaturvedi


Key Financials

Y E/ Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E Sales 56,120 55,115 58,944 66,296 74,823 82,117 EBITDA 7,846 8,345 10,396 10,939 12,196 14,042 Net profit 3,814 4,674 6,814 6,970 7,862 9,198 EPS Rs) 30.0 36.8 53.6 54.9 61.9 72.4 P/E (x) 68.5 55.9 38.3 37.5 33.2 28.4 P/B (x) 12.1 11.6 10.0 8.9 7.8 6.9 RoE (%) 17.7 20.7 26.2 23.6 23.5 24.2

Source: Company, RSec Research

Share price (%) 1 mth 3 mth 12 mth

Absolute performance (1.3) 16.7 102.6

Relative to Nifty 1.3 17.8 47.7

Shareholding Pattern (%) Dec-20 Mar-21

Promoter 48.9 48.9

Public 51.1 51.1

1 Year Stock Price Performance



BUY2 Year Target Price: Rs.2,606

CMP* 2,056

Upside/Downside (%) 27

Bloomberg Ticker SI IN

Market Cap. (Rs bn) 261

Free Float (%) 51

Shares O/S (mn) 127

Key Triggers:Healthy balance sheet led by lean working-capital cycle and low leverage Strong brand equity with wide distribution network Presence across categories of polymers like UPVC, CPVC, PE and PPR with the largest

range of fittings in the industry Strategically located 27+ manufacturing plants (highest in the industry)

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21

Key Criteria Score Risk Comments

Management Quality 8 Low Very good management team with strong historical performance

Promoter's Holding Pledge 9 Low Promoter holds 48.85% stake; zero share pledging by the promoter; we do not expect the company to pledge share in future as well

Board of Directors Profile 7 LowIts board comprises of 3 executive directors (from Taparia family), 6 non executive independent directors and 1 non executive non independent director

Industry Growth 6 LowStrong industry growth prospects with expected 11% CAGR over FY20-25E; the pipe industry is expected to reach >Rs500bn by FY25E, while it is decent for other segments

Regulatory Environment / Risk 4 HighThe Ministry of Environment & Forests (MoEF) fixes standards for PVC pipes and fittings used for potable water supply, agriculture, drainage/sewage systems; it has recently specified extraction limit of lead from PVC pipes

Entry Barriers / Competition 5 Medium Limited entry barriers and moderate competition from the organized and unorganized players

New Business/Client Potential 7 Low Pan-India presence with strong distribution reach augurs well for new customer addition

Business Diversification 8 Low Well-diversified into plastic pipe, industrial packaging and other industrial/consumer products

Market Share Potential 6 LowIt enjoys strong market share of 10%/12.5%/11.75% in plastic pipe/plastic furniture/industrial products, respectively with decent potential for further growth

Margin Expansion Potential 6 Low EBITDA margin is expected to expand from ~15% in FY20 to 17% in FY24E

Earnings Growth 7 Low Earnings expected to clock 18% CAGR over FY20-24E

Balance Sheet Strength 7 Low Liquidity position remains good with Net Debt/Equity ratio of 0.08x and NWC of 35 days along with prudent working capital management

Debt Profile 5 Medium Total debt stood at Rs4.4bn as on Mar'20; significant rise in short-term debt in past few years

FCF Generation 5 Medium Moderate FCF generation over the years; FCF stood at Rs1.3bn in FY20 (2% of top-line)

Dividend Policy 7 Low Average dividend payout stands at 50% over FY15-20

Total Score Out of 150 97

Percentage Score 65% Low


22


Environmental

Climate Change & Carbon Emission 4 HighThe company is a leading processor of plastic polymers in India and its business segments include plastic pipes, packaging, industrial and consumer products; though the company's direct carbon emission is within the prescribed limit, non recyclable products have material impact on environment/climate change

Air & Water Pollution 5 MediumThe emission and waste generated by the company are within the permissible limits, which are continuously monitored, reviewed internally and reported; all units are certified for ISO 14001:2015 Environmental Management System and also BS OHSAS 18001:2007 standards and it is upgrading OHSAS as per ISO 45001

Biodiversity 2 HighThe long-term impact of plastic on the environment and all flora and fauna is well-documented; however, the company’s products are designed to limit the impact as much as possible

Deforestation 5 Medium The company's direct impact on deforestation activities is minimal; however, the long-term impact of slow plastic degradation on the ecology is material

Energy Efficiency 7 LowThe company installed roof-top solar panel at various factories; it is using solar power at Gadegaon, Jalgaon, Khopoli (Maharashtra); it plans to install more solar power plants at Silvassa, Hosur, Lalru and Noida units in FY21; the company is continuously putting efforts to improve energy management by regularly monitoring energy related parameters

Waste Management 5 MediumThe company received 8th Plasticon award in 2018 Plast India international plastic trade fair-cum-conference in the category of “Innovation in Polymer Waste Management & Recycling Technology”; although the company's waste management is highly focused and closely monitored, the long-term impact of the non recyclable products cannot be ignored

Defence / Arms / Ammunition Exposure 10 Low No exposure towards defence/arms/ammunition space

Social

Customer Satisfaction 8 Low

The company’s growth and success are directly linked with providing quality products to customers; it believes in implementing the customer feedback into product development and enhancing user experience; each complaint is brought to a final point of closure within the defined time span; it conducts customer experience surveys from time to time; consumer-related legal cases pending as at the end of FY20 were timely solved; strong customer satisfaction is evident from the company’s market leadership and acceptability of its products

Data Protection & Privacy 6 Low The company has implemented appropriate controls to protect from cyber attacks

Gender & Diversity 2 High Out of total workforce of 4,926 employees, only 114 (2.3%) are women employees and zero employee with disability

Employee Engagement 6 Low Regular safety and skill up-gradation trainings are given to both permanent and contractual employees through in-house and professional faculties

Community Relations / Service 7 LowAs against the prescribed expenditure of Rs117.2mn, the company spent ~Rs157.9mn on CSR activities in FY20; its CSR activities include education, sanitation, healthcare, drinking water supply, preservation of environment including watersheds, forests and wildlife

Human Rights 6 Low The company has a dedicated human rights policy in place

Labour Standard 6 Low No complaints were filed for child labour/forced labour/involuntary labour, sexual harassment or discriminatory employment in FY20; the company does not deal with any supplier/contractor if they violate human rights and employ any person below the age of eighteen; labourers’ dues are settled and no adverse views seen in this regard.

Environmental, Social & Governance Matrix (ESGM)

23

Governance

Audit Committee Structure 6 LowThe audit committee comprises of 3 independent directors (including the chairman); 1 independent director resigned in Sep'19, in place of which 1 new independent director was appointed immediately; the committee met 5 times in FY20 with 100% attendance of all directors, who were the part of the committee at the time

Bribery & Corruption 6 Low The company has a policy relating to ethics transparency and accountability

Executive Compensation 3 HighAverage increase in the salaries of employees other than the managerial personnel was 9.7% in FY20, while the remuneration of managerial personnel was 12%; remuneration ratio of managing director and executive directors was as high as 308 and 306 to the median remuneration of employees, respectively

Lobbying 6 Low The company states that it does not indulge in any form of lobbying activities

Political Contribution 4 High The company contributed Rs27.5mn to Electoral Trust of India in FY20

Whistleblower Scheme 6 Low The company has a whistleblower policy under which the employees are free to report violation of applicable laws and regulations


Total Score (%) 55% Low

Score For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

Total Score (%) For < 50 Red High Risk For 50 Blue Medium Risk For > 50 Green Low Risk

24

Earnings Revision & RecommendationPVC prices are at historic high of US$1,400/tonne and likely to remain high in 4QFY21 as well. Several governments’ schemes like Nal se Jal, Swatch Bharat Mission along with real estate recovery are likely to drive the growth of PVC pipe segment, going forward. We expect the company’s volume to remain intact with ~2% growth in FY21E, which would lead to 25% YoY and 46% YoY growth in EBITDA and PAT, respectively. Factoring in strong all-round growth in 9MFY21, rising market share, market consolidation, higher PVC prices, healthy capex, we increase our earnings estimate by 105%, 54% and 39% for FY21E, FY22E and FY23E, respectively and raise target multiple to 36x from 30x given significant improvement in margin and profitability. We introduce our FY24E numbers with 9.7% revenue growth and EPS of Rs72.4. Considering expected higher revenue from value-added products, higher capex, rising market share, lean working capital and high return ratio, we maintain BUY on Supreme with a revised 2-Year Target Price of Rs2,606 (from Rs1,333 earlier), valuing the stock at 36x (from 30x earlier) of FY24E EPS.

1 Year Forward PE chart EPS and Target Price


Change in EstimatesY/E March Old Revised Change (%)Rs mn FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E Net Revenue 48,488 56,959 64,276 58,944 66,296 74,823 21.6 16.4 16.4

EBITDA 6,546 8,316 9,976 10,396 10,939 12,196 58.8 31.5 22.3

EBITDA Margin (%) 13.5 14.6 15.5 17.6 16.5 16.3

Net Profit 3,329 4,541 5,647 6,814 6,970 7,862 104.7 53.5 39.2

EPS (Rs) 26.2 35.7 44.4 53.6 54.9 61.9 104.7 53.5 39.2


Price Sensitivity EPS Growth Target P/E multiple (x) (Rs) (%) P/E (x) 32.0 34.0 36.0 38.0 40.0

FY17 29.6 67.0 949 1,008 1,067 1,127 1,186

FY18 34.0 14.6 58.4 1,087 1,155 1,223 1,291 1,359

FY19 30.0 (11.7) 66.1 961 1,021 1,081 1,141 1,201

FY20 36.8 22.5 54.0 1,177 1,251 1,324 1,398 1,471

FY21E 53.6 45.8 37.0 1,716 1,824 1,931 2,038 2,145

FY22E 54.9 2.3 36.2 1,755 1,865 1,975 2,085 2,194

FY23E 61.9 12.8 32.1 1,980 2,104 2,228 2,351 2,475

FY24E 72.4 17.0 27.4 2,317 2,461 2,606 2,751 2,896


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25

3QFY21 – Result Summary f Supreme reported the highest ever quarterly revenue of Rs18.4bn (up 34% YoY) in 3QFY21 vs.

our estimate of Rs16.6 bn. Total volume increased by 10% YoY to 111,584 MT, while blended realization improved by 23% YoY.

f While all segments reported volume and realization growth, plastic segment reported strong 43% YoY and 31% YoY growth in revenue and realization, respectively.

f The company also reported the highest ever EBITDA and EBITDA margin on the back of lower RM cost along with higher volume and better realization across segments. While EBITDA increased by 82% YoY to Rs4bn, EBITDA margin expanded by 570bps YoY to 21.8%.

f PAT came in at Rs3.1bn (up 153% YoY).

Exhibit 1: Key Quarterly Numbers

(Rs mn) 3QFY21 3QFY20 YoY (%) 9MFY21 9MFY20 YoY (%)

Revenue 18,438 13,733 34.3 42,725 40,811 4.7

Raw Material 11,610 9,432 23.1 27,641 28,362 (2.5)

% of Sales 63.0 68.7 64.7 69.5

Employee Cost 813 685 18.8 2,173 2,056 5.7

% of Sales 4.4 5.0 5.1 5.0

Other Exp 1,999 1,407 42.0 5,166 4,782 8.0

% of Sales 10.8 10.2 12.1 11.7

Total Exp 14,422 11,524 25.2 34,980 35,200 (0.6)

EBITDA 4,016 2,209 81.8 7,745 5,611 38.0

EBITDA Margin (%) 21.8 16.1 18.1 13.7

Other Income 3 8 (68.8) 6 14 (55.5)

Interest (12) 57 90 160 (43.4)

Depreciation 549 515 6.6 1,580 1,528 3.4

Profit of Ass. 528 8 757 242

PBT 4,009 1,653 142.5 6,837 4,179 63.6

Tax 886 419 111.5 1,560 678 130.0

Tax rate (%) 22.1 25.4 22.8 16.2

Adjusted Net Profit 3,123 1,234 153.1 5,278 3,501 50.7

Net Margin (%) 16.9 9.0 12.4 8.6

EPS (Rs) 24.6 9.7 153.1 41.5 27.6 50.7 Source: Company; RSec Research

26

Management Conference Call – Key Takeaways A. Operations: Business returned to normal in all operating segments. The company sold 1,11,584 MT of plastic goods and achieved net product turnover of Rs17.66bn in 3QFY21 against sales of 1,01,393 MT of plastic goods and net product turnover of Rs13.56bn in 3QFY20 with volume and product value growth of ~10% and 30%, respectively.

B. Quarterly Segmental Performance:

• Plastic pipe business achieved volume and value growth of 9% YoY and 43% YoY, respectively.

• Industrial products business achieved volume and value growth of 32% YoY and 38% YoY, respectively.

• Packaging products business achieved volume and value growth of 2% YoY and 3% YoY, respectively.

• Consumer products business achieved volume and value growth of 11% YoY and 12% YoY, respectively.

C. EBITDA Margin: The margin improvement was aided by inventory gain on account of rapid increase in the prices of PVC resin (Rs800mn) in 3QFY21. PVC resin prices rose by Rs23/kg and continue to remain even at elevated level. The company witnessed demand resistance from the agricultural segment due to higher prices. EBITDA margin without the inventory gains would have been 400bps lower at 17.4%. The overall turnover of value-added products increased to Rs7.6bn (up 33% YoY), which also supported margin expansion.

D. Demand Outlook:

• Supreme’s agri pipe business – which was impacted due to price rise – is expected to pick-up. The crop situation in the country is normal, which has boosted the rural income.The company witnessed healthy demand for its products in rural markets as well as Tier-III/IV cities.

• Housing sector also boosted the demand to certain extent. Several policy initiatives facilitated brisk sale of ready-to-occupy housing units. Demand for the company’s housing products revived in metro cities.

• The demand for furniture and material handling products was higher compared to previous year. With better off-take of consumer durables, the company witnessed good demand for its industrial components business also.

• Operation of the company’s packaging segment was affected due to higher raw material prices, which could be passed on to the end-users. Within the segment, protective packaging business fared better during the quarter led by improved demand from construction, consumer appliances, yoga mats and other segments. The company also introduced economy model of tarpaulin in cross laminated film segment having lower value addition.

E. Capex: Supreme’s capex plan is going on smoothly. Along with carried forward investment commitment of Rs1.82bn, the company plans to invest ~Rs4bn in FY21E. The said investment will be made mostly in its existing 7 plants, where additional construction activities are going on. Currently, the company is also setting up new plants at 3 locations. Land parcels have been already acquired in Odisha and Tamil Nadu. The Assam plant is being constructed on lease agreement basis. The company aims to begin production at these new plants in FY22E.

F. Debt: The company has net cash surplus of Rs4.32bn as of Dec’20 as against net borrowing of Rs2.17bn as of Mar’20.

G. Capacity Break-up: The company has added 58,000 MT of plastic pipe capacity during FY21 (plastic pipe: 499,111 MT, industrial products: 74,897 MT, packaging products: 90,554MT and consumer products: 30,848MT).

27

Investment RationaleOur investment thesis is based on the following premises:

f Largest PVC Player in India

f Decent Traction across Segments

f Capex Plan Remains on Track

I. Largest PVC Player in IndiaSupreme is the largest player in Indian PVC pipe market with a market share of 11% and capacity of 695,000 TPA. Higher distribution network and improved penetration across products supported the market share gain in 3QFY21, as the smaller players moved out of the market. Supreme has developed strong portfolio of products in various application of plastic with well-entrenched competitive advantages. The company is favourably-placed to capitalize on the incremental demand. Despite intense competition and multiple industry headwinds, Supreme has sustained its leadership position in the key segments on the back of sound business model, diversified products portfolio, vast distribution network and healthy cash flow from operations. It continues to innovate and launch newer products to maintain leadership position.

II. Decent Traction across Segments While consumption of PVC resin declined by ~10% YoY in 9MFY21, the decline in Supreme’s pipe volume was restricted at 2% only, which led to market share gain, as the company witnessed a robust recovery across segments in 3QFY21. The volume of plastic pipes, packaging products, industrial products and consumer products grew by 9%, 2.4%, 13.4% and 10.9% in 3QFY21. Higher realization led to revenue growth of 43%, 3%, 38% and 11.7% for plastic pipes, packaging products, industrial products and consumer products, respectively. We expect Supreme’s pipe business to witness healthy growth led by favourable monsoon, multiple government initiatives, recovery in real estate and market consolidation. The company expects larger support price from the government for rural and Tier-III/IV markets. Though the PVC prices remain high, the management expects the same to correct, going ahead.

III. Capex Plan Remains on Track Despite high base, Supreme added 86 distributors for pipes during 9MFY21 taking the tally to 1,300. The company’s total capacity stands at 695,000 TPA and it is operating at 60-65% of utilization currently. The management expects steady improvement in capacity utilization, going forward. Supreme has maintained its plan to incur Rs4bn capex in FY21 for greenfield and brownfield expansion. Land parcels have been already acquired in Odisha and Tamil Nadu. The Assam plant is being constructed on lease agreement basis. The company aims to begin production at these new plants in FY22E. Total cost of this plant is estimated at Rs1.4bn to be spent over 2 years including capacity addition. For water tank business, The company expects to achieve Rs2bn segmental revenue with that kind of capacity.

Outlook & Valuation Looking ahead, we expect Supreme to deliver strong performance over FY20-24E led by capacity expansion and higher revenue from of value-added products. We expect, growth momentum and valuation re-rating continue for Supreme led by higher capex, rising market share with expected volume CAGR of 9.6% over FY20-24E), lean working capital and high return ratio. We expect the company’s revenue, EBITDA and PAT to clock 11%/14% /18% CAGR, respectively over FY20-24E. Historically, the stock has been trading at 30x of 1-Yr Forward earnings, in-line with the industry average. Looking ahead, we expect the valuation to sustain, as the company has maintained leading position in overall pipe market aided by higher revenue from value added products. Considering expected higher revenue from value-added products, higher capex, rising market share, lean working capital and high return ratio, we maintain BUY on Supreme with a revised 2-Year Target Price of Rs2,606 (from Rs1,333 earlier), valuing the stock at 36x (from 30x earlier) of FY24E EPS.

Key Risks

f Volatility in raw material prices

f Any slowdown in housing demand

28

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Mar

-14

Jul-1

4

Nov

-14

Mar

-15

Jul-1

5

Nov

-15

Mar

-16

Jul-1

6

Nov

-16

Mar

-17

Jul-1

7

Nov

-17

Mar

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Jul-1

8

Nov

-18

Mar

-19

Jul-1

9

Nov

-19

Mar

-20

Jul-2

0

Nov

-20

Mar

-21

1YF PBV (RHS) Mean 1+SD 1-SD

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Mar

-14

Jul-1

4

Nov

-14

Mar

-15

Jul-1

5

Nov

-15

Mar

-16

Jul-1

6

Nov

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Mar

-17

Jul-1

7

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-17

Mar

-18

Jul-1

8

Nov

-18

Mar

-19

Jul-1

9

Nov

-19

Mar

-20

Jul-2

0

Nov

-20

Mar

-21


Exhibit 2: Revenue Trend Exhibit 3: EBITDA Trend


Exhibit 4: PBT Trend Exhibit 5: Profitability Trend


Exhibit 6: Debt Profile Exhibit 7: Return Ratios


Exhibit 8: PE Band Exhibit 9: PBV Band


10,3

60

13,2

00

16,9

10

20,6

00

21,13

1

15,8

50

24,6

70

27,2

90

31,7

30

34,4

54

38,2

96

44,4

81

50,7

66

56,4

01

(40)

(20)

0

20

40

60

0

10,000

20,000

30,000

40,000

50,000

60,000

FY11

FY12

FY13

FY14

FY15

FY16

(9M

)

FY17

FY18

FY19

FY20

FY21

E

FY22

E

FY23

E

FY24

E

(%)

(Rs

mn)

Revenue: Pipe Revenue Growth (RHS)

2,60

4

3,49

2

4,01

3

4,16

4

4,73

3

3,17

7

5,85

2

6,37

4

6,64

4

6,41

3

8,89

2

9,29

3 10,4

83 12

,264

-40

-20

0

20

40

60

80

100

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY11 FY12 FY13 FY14 FY15 FY16(9M)

FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E

(%)

(Rs

mn)

PBT Growth (RHS)

1,697

2,32

4

2,68

4

2,74

3

3,11

7

2,04

3

3,76

7 4,31

7

3,81

4 4,67

4

6,81

4

6,97

0 7,86

2

9,19

8

-60

-40

-20

0

20

40

60

80

100

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY11 FY12 FY13 FY14 FY15 FY16(9M)


(%)

(Rs

mn)

Adj PAT Growth (RHS)

31.5 33.6

30.5

26.6 25.9

15.2

22.4 22.8 20.8 20.7

26.2 23.6 23.5 24.2

0

5

10

15

20

25

30

35

40

45

FY11 FY12 FY13 FY14 FY15 FY16(9M)


(%)

RoE RoCE

Story in Charts

1,17

0

1,77

0 2,67

5

3,10

1

2,82

1

2,27

0

3,99

0

3,89

0

4,04

6

5,31

6

6,58

2

6,13

8 7,10

7 7,78

3

10

12

14

16

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20

0

1,000

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5,000

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7,000

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FY11

FY12

FY13

FY14

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FY16

(9M

)

FY17

FY18

FY19

FY20

FY21

E

FY22

E

FY23

E

FY24

E

(%)

(Rs

mn)

EBITDA Margin (RHS)

5,14

3

3,51

1

4,69

8

4,72

6

3,92

9

4,12

1

2,79

0

2,47

7

1,62

4

4,43

3 4,84

9

4,99

1

5,04

5

5,09

9

12

112

212

312

412

512

612

712

812

912

-

1,000

2,000

3,000

4,000

5,000

6,000

FY11 FY12 FY13 FY14 FY15 FY16(9M)


(%)

(Rs

mn)

Total Debt Interest (RHS)

29

Profit & Loss Statement(Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E

Net Sales 56,120 55,115 58,944 66,296 74,823 82,117

Growth (%) 12.9 (1.8) 6.9 12.5 12.9 9.7

Total Expenditure 48,274 46,770 48,548 55,357 62,627 68,075

Cost of Materials 38,199 36,844 37,372 42,761 48,635 53,294

Employee costs 2,546 2,798 3,065 3,646 3,891 4,270

Others 7,529 7,129 8,111 8,950 10,101 10,511

EBITDA 7,846 8,345 10,396 10,939 12,196 14,042

Growth (%) (0.3) 6.4 24.6 5.2 11.5 15.1

EBITDA Margin (%) 14.0 15.1 17.6 16.5 16.3 17.1

Depreciation 1,835 2,057 2,135 2,311 2,466 2,621

EBIT 6,010 6,289 8,261 8,628 9,731 11,421

Growth (%) (3.1) 4.6 31.4 4.4 12.8 17.4

EBIT Margin (%) 10.7 11.4 14.0 13.0 13.0 13.9

Interest 260 202 133 175 172 173

Other Income 78 14 7 7 8 9

Profits of Associates 144 312 757 832 915 1,007

Exceptional items 672 - - - - -

PBT 5,300 6,413 8,892 9,293 10,483 12,264

Growth (%) (12.1) 21.0 38.7 4.5 12.8 17.0

Tax 2,158 1,739 2,077 2,323 2,621 3,066

Tax rate (%) 40.7 27.1 23.4 25.0 25.0 25.0

Reported PAT 3,143 4,674 6,814 6,970 7,862 9,198

Adjusted PAT 3,814 4,674 6,814 6,970 7,862 9,198

Growth (%) (3.9) 22.5 45.8 2.3 12.8 17.0

Net Margin (%) 6.8 8.5 11.6 10.5 10.5 11.2

Fully Diluted EPS (Rs) 30.0 36.8 53.6 54.9 61.9 72.4

Key Financials

30

Balance SheetY/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E

Share capital 254 254 254 254 254 254

Reserves 21,286 22,358 25,765 29,250 33,181 37,780

Net worth 21,540 22,612 26,019 29,504 33,435 38,034

Total borrowings 1,624 4,433 4,849 4,991 5,045 5,099

Total liabilities 23,164 27,045 30,868 34,495 38,480 43,132

Gross block 28,090 30,269 34,269 37,269 39,769 42,269

Less: Acc. depreciation 12,880 14,937 17,072 19,383 21,848 24,469

Net block 15,210 15,331 17,196 17,886 17,920 17,799

CWIP 900 929 836 753 677 610

Investments 2,223 2,073 2,104 2,135 2,167 2,200

Current assets 13,378 16,077 18,614 22,784 27,828 33,679

Inventories 7,504 8,906 9,689 11,261 13,325 15,748

Debtors 3,874 3,128 4,037 5,449 6,765 7,874

Cash 373 2,314 2,788 3,531 4,664 6,682

Loans and advances 1,626 1,729 2,099 2,543 3,075 3,375

Current liabilities 7,667 7,503 8,075 9,082 9,840 10,799

Provisions 78 113 242 400 676 742

Net current assets 5,633 8,462 10,297 13,302 17,312 22,138

Net Deferred Tax (1,204) (1,326) (1,392) (1,461) (1,535) (1,611)

Other non-current Assets 401 829 1,080 1,134 1,191 1,251

Total Assets 23,164 27,045 30,868 34,495 38,480 43,132

31

Cash Flow StatementY/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E

Cash flow from operating activity

PBT 5,300 6,413 8,892 9,293 10,483 12,264

Add: Depreciation 1,835 2,057 2,135 2,311 2,466 2,621

Add: Interest 260 202 133 175 172 173

Less: taxes paid (2,158) (1,739) (2,077) (2,323) (2,621) (3,066)

Add: other adjustments (667) (5,868) 3,915 16 16 17

Less: working capital changes 320 3,212 (5,462) (2,262) (2,876) (2,808)

Total operating cash flows 4,891 4,277 7,535 7,208 7,639 9,201

Operating CF w/o WC changes 5,915 1,065 12,997 9,471 10,515 12,009

Cash flow from investing activity

Capital expenditure (2,834) (2,953) (3,907) (2,916) (2,425) (2,432)

Change in investments (287) 151 (31) (32) (32) (33)

Total investing cash flow (3,121) (2,803) (3,938) (2,948) (2,457) (2,465)

Cash flow from financing activity

Share issuances - - - - - -

Change in borrowings (853) 2,809 417 142 53 54

Dividend (1,991) (2,140) (3,407) (3,485) (3,931) (4,599)

Interest payment (260) (202) (133) (175) (172) (173)

Total financing cash flow (3,104) 467 (3,123) (3,517) (4,049) (4,718)

Net change in cash (1,334) 1,941 474 743 1,133 2,018

Opening cash & CE 363 373 2,314 2,788 3,531 4,664

Closing cash & CE 373 2,314 2,788 3,531 4,664 6,682

32

Key RatiosY/E Mar FY19 FY20 FY21E FY22E FY23E FY24E

P/E (x) 68.5 55.9 38.3 37.5 33.2 28.4

P/BV (x) 12.1 11.6 10.0 8.9 7.8 6.9

P/CEPS (x) 46.2 38.8 29.2 28.1 25.3 22.1

Dividend yield (%) 0.8 0.8 1.3 1.3 1.5 1.8

EV/Sales (x) 4.6 4.7 4.4 3.9 3.5 3.1

EV/EBITDA (x) 33.2 31.3 25.1 23.8 21.3 18.3

Debt/Equity (x) 0.08 0.20 0.19 0.17 0.15 0.13

Per Share Data (Rs)

EPS 30.0 36.8 53.6 54.9 61.9 72.4

Cash EPS 44.5 53.0 70.4 73.0 81.3 93.0

DPS 15.7 16.8 26.8 27.4 30.9 36.2

Book Value 169.5 178.0 204.8 232.2 263.2 299.4

Returns (%)

RoCE 25.9 23.3 26.8 25.0 25.3 26.5

RoE 17.7 20.7 26.2 23.6 23.5 24.2

Days

Inventory Days 49 59 60 62 65 70

Debtor Days 25 21 25 30 33 35

Creditors Days 50 50 50 50 48 48


33


Leveraging on Agri Theme

Finolex IndustriesPVC Pipes | India



CMP* (Rs) xxx




Free Float (%) xxx

Shares O/S (mn) xxx Company Udate | 28 April 2021

1. Finolex Industries (Finolex) is the largest player in agriculture pipe segment and the second largest player in Indian pipe market with market share of ~9%. Finolex is an undisputed leader in agriculture pipe segment with strong brand equity for quality and pricing. It has a robust distribution network in agriculture pipe segment.

2. With strong brand equity in place, we expect agriculture pipe segment to clock ~12% CAGR over FY20-24E led by the government’s increased thrust on irrigation.

3. Looking ahead, Finolex is expected to sustain growth momentum and gain market share from the unorganised players in plumbing pipe segment on the back of backward integration.

4. The company’s current PVC pipes capacity stands at 370,000 TPA compared to 250,000 TPA in FY15. Its resin capacity stands at 272,000 TPA.

ESG Analysis: Analyzing Finolex on 20 key criteria under ESG Matrix, we have assigned an overall score of 60% to the company. Under “Environmental Head”, we have assigned 60% score, as impact of agri pipes is comparatively lower and it has an efficient waste management system. Although the company deals in plastic polymers, all its products are 100% recyclable. Under “Social Head”, we have assigned 54% score, as its score is poor on gender diversity front despite decent score on CSR front. Under “Governance Head”, we have assigned 65% score owing to good performance across criteria (please refer to page no 35 & 36. for detailed ESG analysis).

Outlook & ValuationThe government’s thrust on Jal Jeevan Mission, enhancement of agricultural credit and increased provision for rural infra development fund augur well for the domestic PVC pipe manufacturers. We are positive on the growth prospects of Finolex given its leadership position in agri pipes segment and proven track record and innovative capabilities. Considering healthy return ratios, cash flow and high dividend pay-out of 38% (average FY15-20), we expect the valuation discount of Finolex vis-à-vis its peers to narrow, going ahead. We expect Finolex to generate cumulative OCF of Rs16bn, despite capacity addition over the next three years. We expect revenue, EBITDA and PAT to clock 10%/17% /18% CAGR, respectively over FY20-24E. Historically, Finolex has been trading at 18x of 1-Yr Forward earnings (vs. industry multiple of 30x). We believe valuation discount to narrow, going ahead led by strong earnings potential led by market consolidation, as the company has maintained leading position in agri pipe segment along with backward integration of PVC resin. Considering strong earning momentum and significant improvement in margin and profitability, we maintain BUY on Finolex with a revised 2-Year Target Price of Rs200 (from Rs98 earlier), valuing the stock at 20x (from 16x earlier) of FY24E EPS.






Absolute performance 18.1 16.1 69.0



Promoter 52.5 52.5

Public 47.5 47.5




BUY2 Year Target Price: Rs.200

CMP* 150


Bloomberg Ticker FNXP IN


Free Float (%) 48

Shares O/S (mn) 620

Key Triggers:The largest player in agri pipe segment, which is likely to witness strong growth in next

couple of years Sole backward integrated PVC player in India with cash and carry model Healthy return ratios and cash flow

40

60

80

100

120

140

160

Apr-

20

May

-20

May

-20

Jun-

20

Jul-2

0

Jul-2

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20

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-20

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-20

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-20

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21

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-21

Apr-

21

Key Financials



34


Management Quality 7 Low Good management with stable track record

Promoter's Holding Pledge 5 Medium Promoter holds 52.47% stake; share pledging by the promoter stood at Rs7mn

Board of Directors Profile 6 Low Its board comprises of 3 executive directors, 5 non executive independent directors, and 2 non executive non independent directors

Industry Growth 6 Low Strong industry growth prospects with 11% CAGR expected over FY20-25E; the industry is expected to reach >Rs500bn by FY25E


Entry Barriers / Competition 5 Medium Not many entry barriers although market is seeing consolidation

New Business/Client Potential 6 Low Decent growth prospects from new businesses

Business Diversification 6 Low Finolex is looking to increase share of non-agri and CPVC pipes

Market Share Potential 7 Low Market leader in agri pipes with ~20% share; mulls increasing market share in non-agri pipe segment

Margin Expansion Potential 6 Low Potential for improvement in pricing and margin


Balance Sheet Strength 6 Low Liquidity position remains fairly stable with Net Debt/Equity ratio of 0.07x and NWC of 94 days with prudent working capital management

Debt Profile 3 High Debt Increased to Rs2.8bn in FY20 from Rs906mn in FY19

FCF Generation 7 Low FCF stood healthy at Rs3.1bn in FY20 (10% of top-line)

Dividend Policy 7 Low Average dividend payout stood at 61% over FY18-20




35


EnvironmentalClimate Change & Carbon Emission 5 Medium

Carbon emission is within the prescribed limits; its products are environmental friendly; although the company deals in plastic polymers, the PVC resin is majorly used for captive consumption and all final products being manufactured by the company are 100% recyclable

Air & Water Pollution 5 MediumThe company complies with all applicable pollution norms; it undertakes initiative i.e. tree plantation, energy conservation and water conservation, effluent recycling and rain water harvesting

Biodiversity 6 Low The company's impact on overall biodiversity is minimal

Deforestation 6 Low As the company is majorly into agri-pipes, any direct/indirect impact on deforestation activities is minimal

Energy Efficiency 4 HighThe company does not have any renewable energy sourcing project currently; however energy consumption is managed efficiently through efforts like replacement of MCT pump rotors and de-staging of boiler feed pumps, which save >2,900MW of electricity annually

Waste Management 6 LowThe emissions and waste are within the permissible limits given by central/state pollution control board; the company has successfully achieved its goal for zero discharge of its treated effluent by recycling ~50% and using the remaining for irrigation of trees within the plant premises


SocialCustomer Satisfaction 5 Medium No major complaints/cases are pending as of FY20-end; however, the company has a contingent liability pertaining to quality issues from a customer

Data Protection & Privacy 6 Low The company has implemented appropriate controls to protect itself from cyber attacks

Gender & Diversity 2 High Out of the total workforce of 1,330 only 30 (2.3%) are women employees, while there is no employee with disability

Employee Engagement 6 Low All employees, including women, are given mandatory safety training on job skills related training

Community Relations / Service 7 LowAs against the prescribed expenditure of Rs95.2mn, the company spent ~Rs119.2mn on CSR activities in FY20; the amount spent on CSR activities are towards eradicating, hunger, poverty and malnutrition, healthcare, water conservation, promotion of education, employment enhancing vocational skills, environment, and rural development


Labour Standard 6 LowNo complaints were filed for child labour/forced labour/involuntary labour, sexual harassment or discriminatory employment in FY20; the company does not deal with any supplier/contractor if they violate human rights and employ any person below the age of eighteen; labourers’ dues are settled and no adverse views seen in this regard


36

Governance

Audit Committee Structure 7 LowThe audit committee comprises of 6 directors out of whom 5 are independent directors (including the chairman) and 1 is non-executive non-independent director; 4 independent directors completed their terms in Sep'19 and 4 new independent directors were appointed immediately; the committee met 4 times in FY20, with 100% attendance by all independent directors, while the non-executive non-independent director attended 3 meetings

Bribery & Corruption 6 Low The company has in place a policy relating to ethics, bribery and corruption

Executive Compensation 6 LowAverage percentage increase made in the salaries of employees other than the managerial personnel in FY20 was 10.51%, while the remuneration of managerial remuneration decreased by 6.77%; remuneration ratio of chairman/managing director/director (finance) was as high as 146/50/40 to median remuneration of employees, respectively

Lobbying 6 LowThe company engages with industry bodies and associations to influence public and regulatory policy in a most responsible manner; however, the risk associated with lobbying for gaining unfair advantage is low

Political Contribution 8 Low No political contribution

Whistleblower Scheme 6 LowThe company promotes ethical behaviour in all its business activities and has put in place a mechanism for reporting illegal or unethical behaviour; it has a vigil mechanism (whistleblower policy) under which the employees are free to report violation of applicable laws and code of conduct





37

Earnings Revision & RecommendationSeveral governments’ schemes like Nal se Jal, Swatch Bharat Mission along with real estate recovery are likely to drive the growth of PVC pipe segment, going forward. We are positive on growth prospects of Finolex, given its leadership position in agri pipes segment, proven track record and innovative capabilities. We expect the company’s revenue to remain intact with ~2% growth in FY21E, which would lead to 24% YoY and 67% growth in EBITDA and PAT, respectively led by strong operating performance. Factoring in strong all-round growth in 9MFY21, rising market share, market consolidation and higher PVC prices, we increase our earnings estimate by 140%, 63% and 50% for FY21E, FY22E and FY23E, respectively. We introduce our FY24 numbers with 7.8% revenue growth and EPS of Rs46.9. Considering strong earning momentum and significant improvement in margin and profitability, we maintain BUY on Finolex with a revised 2-Year Target Price of Rs200 (from Rs98 earlier), valuing the stock at 20x (from 16x earlier) of FY24E EPS.



Price SensitivityEPS Growth Target P/E multiple (x) (Rs) (%) P/E (x) 14.0 16.0 20.0 22.0 24.0

FY17 5.8 24.9 93 105 116 128 140

FY18 5.0 (14.1) 29.0 80 90 100 110 120

FY19 5.7 14.0 25.5 91 103 114 125 137

FY20 5.2 (9.1) 28.0 83 93 104 114 124

FY21E 8.7 67.2 16.7 139 156 173 190 208

FY22E 8.1 (6.0) 17.8 130 146 163 179 195

FY23E 9.2 13.6 15.7 148 166 185 203 222

FY24E 10.0 8.2 14.5 160 180 200 220 240


8.0

13.0

18.0

23.0

28.0

33.0

38.0

Jun

-14

Sep

-14

De

c-14

Ma

r-15

Jun

-15

Sep

-15

De

c-15

Ma

r-16

Jun

-16

Sep

-16

De

c-16

Ma

r-17

Jun

-17

Sep

-17

De

c-17

Ma

r-18

Jun

-18

Sep

-18

De

c-18

Ma

r-19

Jun

-19

Sep

-19

De

c-19

Ma

r-2

0Ju

n-2

0Se

p-2

0D

ec-

20

Ma

r-2

1

1Y FPE 1Y Mean 1+SD 1-SD

5.8 5.0 5.7 5.2

8.7 8.1 9.2 10.0

116 100

114 104

173 163 185

200

-

50

100

150

200

250

0

2

4

6

8

10

12


EPS (Rs) Target Price (Rs, RHS)

Change in EstimatesY/E Mar Old Revised Change (%)

(Rsmn) FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23ENet Revenue 27,688 33,766 39,652 30,446 35,456 40,019 10.0 5.0 0.9

EBITDA 3,405 4,561 5,545 7,252 6,864 7,766 113.0 50.5 40.0

EBITDA Margin (%) 12.3 13.5 14.0 23.8 19.4 19.4

Net Profit 2,237 3,087 3,816 5,372 5,047 5,734 140.1 63.5 50.3

EPS (Rs) 3.6 5.0 6.1 8.7 8.1 9.2 140.1 63.5 50.3


38

3QFY21 – Result Summary f Finolex Industries delivered a stellar performance in 3QFY21. Its total revenue increased by

53% YoY to Rs10.7bn (vs. our estimate of Rs8bn) led by strong growth in PVC resin segment.

f Revenue of PVC resin segment increased by 70% YoY to Rs6.9bn led by 15% YoY volume growth to 67,741 MT and 48% YoY realization growth to Rs102/kg.

f Revenue of PVC pipe segment increased by 31% YoY to Rs7.3bn led by 5% YoY volume growth to 55,299MT, while realization improved by 25% YoY to Rs131/kg.

f Blended EBITDA increased by 150% YoY to Rs3.5bn, while EBITDA margin expanded by 1,270bps YoY to 32.5% due to better realization and lower cost coupled with strong volume in PVC resin segment.

f EBIT margin of PVC resin segment expanded by 1,545bps YoY to 35.5%, while EBIT margin of PVC pipe segment increased by 472bps YoY to 12.6%.

f PAT increased by 163% YoY to Rs2.6bn.



Revenue 10,669 6,994 52.5 22,147 22,199 (0.2)

Raw Material 5,863 4,252 37.9 12,870 14,417 (10.7)

% of Sales 55.0 60.8 58.1 64.9

Employee Cost 368 336 9.4 1,075 1,018 5.5

% of Sales 3.4 4.8 4.9 4.6

Other Exp 971 1,021 (4.9) 2,406 3,323 (27.6)

% of Sales 9.1 14.6 10.9 15.0

Total Exp 7,202 5,610 28.4 16,351 18,759 (12.8)

EBITDA 3,467 1,384 150.4 5,797 3,440 68.5

EBITDA Margin (%) 32.5 19.8 26.2 15.5

Depreciation 199 188 5.8 580 549 5.6

EBIT 3,268 1,197 173.1 5,217 2,891 80.5

Other Income 182 67 169.8 580 299 94.3

Interest 18 18 1.1 58 29 103.5

PBT 3,432 1,246 175.4 5,738 3,160 81.6

Tax 896 341 162.3 1,468 504 191.3

Tax rate (%) 26.1 27.4 25.6 15.9

Adjusted Net Profit 2,594 905 186.7 4,271 2,657 60.8

Exceptional Items - - - -

Net profit 2,594 905 186.7 4,271 2,657 60.8

Net Margin (%) 24.3 12.9 19.3 12.0


39

Management Conference Call - Key Takeaways A. Operating Performance:

• PVC Resin: The revenue of PVC resin increased by 70% YoY led by 15% YoY and 48% YoY increase in volume and realization, respectively. During the quarter, the PVC prices touched historic highs of US$1,400/tonne and are currently trading at US$1,350. The prices are still holding to this level and are expected to remain high in the coming months. High segmental EBIT margin of 35.5% is attributable to all-time high average PVC-EDC price delta, which stood at US$765 (PVC-US$1235, EDC-US$470) in 3QFY21 vs. US$653 (PVC-US$920, EDC-US$267) in 2QFY21. Global supply side constraints intensified during the quarter, which resulted in all-time high prices. The management expects these prices to sustain 4QFY21E as well, as the global PVC trade is still struggling with no trade from European Union (EU), although Asia Pacific and the US are witnessing recovery.

• PVC Pipes: The revenue from PVC pipe segment increased by 31% YoY with 5% YoY increase in volume, while realization improved by 25% YoY. Agri pipe volume increased by 4.5% YoY after a decent monsoon and subsequent increase in area under Rabi crop sowing. These are encouraging signs for agri pipes along with the government’s thrust on the Jal Jeevan Mission, enhancement of agricultural credit and increased provision for rural infra development fund. The management is hopeful that the high prices will not impact demand for this category. Non-agri pipe segment continued its better performance during the quarter with visible improvement in real estate demand. Its volume increased by 5.7% YoY during the quarter. CPVC volume stood at 3,004MT (up 20% YoY) and revenue came in at Rs915mn vs. Rs740mn in 3QFY20. The company continues its focus to grow its non-agri pipes business and increase its share in the product-mix from the current level of 30%.

B. EBITDA: Improvement in margin can be attributed to inventory gain and higher realization, as the PVC prices moved up sharply during the quarter.

C. Demand Scenario: The PVC prices are likely to sustain at current level in 4QFY21E. The management believes that this may impact demand for agri pipes a little, but is still confident of clocking growth. The management feels that impact of high PVC prices will be very limited on non-agri pipes, as its cost is negligible (2-3%) compared to the overall cost of real estate projects.

D. Distribution Network: The company’s retail touch-points increased to 21,000 from 18,000 in the beginning of the year. The management is looking forward to increase its reach in northern and eastern markets, which are still under-penetrated.

E. Capex: Finolex has not added any pipe capacity so far in FY21. Routine expansion will be seen from the next fiscal onwards. The management feels the CPVC capacity (20,000 MT) is also sufficient to meet the demand (10,000MT currently), while capacity expansion is not very difficult, if required.

40


f Strong Recovery & Margin Expansion in PVC Resin

f Healthy Demand Outlook for FY22

f Margin to Remain Healthy vs. Long-term Average

f Sustaining CPVC Prices Post Termination of Tie-up with Lubrizol

I. Strong Recovery & Margin Expansion in PVC Resin Finolex reported strong margin expansion in 9MFY21, which is likely to continue in the near-term. Revenue of PVC resin increased by 9% in 9MFY21, despite lower volume (down 10% YoY) led by higher realization (up 21% YoY). High segmental EBIT margin (35.5% is attributable to all-time high average PVC-EDC price delta, which stood at US$765 (PVC-US$1235, EDC-US$470) in 3QFY21 vs. US$653 (PVC-US$920, EDC-US$267) in 2QFY21. Global supply side constraints intensified in 3QFY21, which resulted in all-time high prices. The higher prices expected to have sustained in 4QFY21 as well, as the global PVC trade is still struggling with no trade from European Union (EU), although Asia Pacific and the US are witnessing recovery.

II. Healthy Demand Outlook for FY22EWe expect strong agriculture growth to drive the company’s performance in FY22E led by good Kharif and Rabi crops. The government’s thrust on Jal Jeevan Mission, enhancement of agricultural credit and increased provision for rural infra development fund augur well for the company’s agri pipe segment, while its non-agri pipes category is also expected to continue to recover along with the recovery in real estate sector. Expected volume recovery will support 16% revenue growth in FY22E.

III. Margin to Remain Healthy vs. Long-term AverageThe company has been reporting strong margin expansion over last 3 quarters, which we expect to sustain in the coming quarters as well given higher PVC prices. With the reduction in PVC-EDC price spread and rise in some discretionary spends, we expect average EBITDA Margin of 19.3% during FY22-24E, which is still higher compared to its average margin of 17.4% over FY16-20.

IV. Sustaining CPVC Prices Post Termination of Tie-up with Lubrizol The company terminated its tie-up with Lubrizol in Sept’20 to save cost and improve margin, as the brand “Finolex” is enough to continue its CPVC growth, going ahead. Notably, the company has maintained the prices of its CPVC pipes even after the termination of tie-up with Lubrizol.

Outlook & Valuation

The government’s thrust on Jal Jeevan Mission, enhancement of agricultural credit and increased provision for rural infra development fund augur well for the domestic PVC pipe manufacturers. We are positive on the growth prospects of Finolex given its leadership position in agri pipes segment and proven track record and innovative capabilities. Considering healthy return ratios, cash flow and high dividend pay-out of 38% (average FY15-20), we expect the valuation discount of Finolex vis-à-vis its peers to narrow, going ahead. We expect Finolex to generate cumulative OCF of Rs16bn, despite capacity addition over the next three years. We expect revenue, EBITDA and PAT to clock 10%/17% /18% CAGR, respectively over FY20-24E. Historically, Finolex has been trading at 18x of 1-Yr Forward earnings (vs. industry multiple of 30x). We believe valuation discount to narrow, going ahead led by strong earnings potential led by market consolidation, as the company has maintained leading position in agri pipe segment along with backward integration of PVC resin. Considering strong earning momentum and significant improvement in margin and profitability, we maintain BUY on Finolex with a revised 2-Year Target Price of Rs200 (from Rs98 earlier), valuing the stock at 20x (from 16x earlier) of FY24E EPS.

Key Risks

f Demand slowdown

f Volatility in prices of key raw materials including EDC, VCM and ethylene

f Poor hedging

41









24,762 28,431

26,024 27,378 30,913 29,860 30,446

35,456

40,019 43,665

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

-

10,000

20,000

30,000

40,000

50,000


(%)

(Rs

mn)

Net Revenues Growth (RHS)

1,896

4,044

5,631

4,839

5,764

4,481

7,252 6,864

7,766 8,359

0

5

10

15

20

25

30

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


(%)

(Rs

mn)

EBITDA EBITDA margin (RHS)

399

2,834

3,610 3,099

3,534 3,214

5,372 5,047

5,734 6,205

-20

-10

0

10

20

30

40

50

60

70

80

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


(%)

(Rs

mn)

Adjusted PAT Growth (RHS)

808

3,828

5,251 4,543

5,485

3,932

7,166 6,730

7,645 8,285

-100

-50

0

50

100

150

200

250

300

350

400

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


(%)

(Rs

mn)

PBT Growth (RHS)

6,371

2,116

942 1,007 906

2,827 2,685 2,551 2,424 2,302

-

100

200

300

400

500

600

700

800

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


(Rs

mn)

(Rs

mn)


9.5

19.8 22.1

15.1

19.2 18.1

26.9

23.0 23.4 22.8

-

5.0

10.0

15.0

20.0

25.0

30.0


(%)

ROE ROCE

8.0 28.0 48.0 68.0 88.0

108.0 128.0 148.0 168.0 188.0

Jun-

14Se

p-1

4D

ec-1

4M

ar-1

5Ju

n-15

Sep

-15

Dec

-15

Mar

-16

Jun-

16Se

p-1

6D

ec-1

6M

ar-1

7Ju

n-17

Sep

-17

Dec

-17

Mar

-18

Jun-

18Se

p-1

8D

ec-1

8M

ar-1

9Ju

n-19

Sep

-19

Dec

-19

Mar

-20

Jun-

20Se

p-2

0D

ec-2

0M

ar-2

1

1Y FPE 1Y Mean 1+SD 1-SD

1.3

3.3

5.3

7.3

9.3

11.3

13.3

15.3

17.3

19.3

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

Jun-

16Se

p-16

Dec-

16M

ar-1

7Ju

n-17

Sep-

17De

c-17

Mar

-18

Jun-

18Se

p-18

Dec-

18M

ar-1

9Ju

n-19

Sep-

19De

c-19

Mar

-20

Jun-

20Se

p-20

Dec-

20M

ar-2

1

PBV 1 YMean 1+SD 1-SD

Story in Charts

42


Net Sales 30,913 29,860 30,446 35,456 40,019 43,665

Growth (%) 12.9 (3.4) 2.0 16.5 12.9 9.1



Employee costs 1,344 1,426 1,490 1,773 2,001 2,183

Others 3,738 4,527 3,855 4,837 5,180 6,488

EBITDA 5,764 4,481 7,252 6,864 7,766 8,359

Growth (%) 19.1 (22.3) 61.9 (5.4) 13.1 7.6

EBITDA Margin (%) 18.6 15.0 23.8 19.4 19.4 19.1

Depreciation 701 738 789 854 904 953

EBIT 5,063 3,742 6,464 6,009 6,862 7,405

Growth (%) 19.6 (26.1) 72.7 (7.0) 14.2 7.9

EBIT Margin (%) 16.4 12.5 21.2 16.9 17.1 17.0

Interest 123 119 78 128 121 115

Other Income 544 308 591 639 676 742

Exceptional items (138) - - - - -

Share in profit of associate

- 190 208 229 252

PBT 5,623 3,932 7,166 6,730 7,645 8,285

Growth (%) 24.8 (30.1) 82.3 (6.1) 13.6 8.4

Tax 1,812 718 1,794 1,682 1,911 2,079

Tax rate (%) 32.2 18.3 25.0 25.0 25.0 25.1

Reported PAT 3,811 3,214 5,372 5,047 5,734 6,205

Adjusted PAT 3,673 3,214 5,372 5,047 5,734 6,205

Growth (%) 19.9 (12.5) 67.2 (6.0) 13.6 8.2

Net Margin (%) 11.9 10.8 17.6 14.2 14.3 14.2


Key Financials

43


Share capital 1,241 1,241 1,241 1,241 1,241 1,241

Reserves 24,521 18,619 21,842 24,870 28,311 32,034

Net worth 25,762 19,860 23,083 26,111 29,552 33,275

Total borrowings 906 2,827 2,685 2,551 2,424 2,302

Deferred tax (237) 783 470 282 169 101


Gross block 21,994 23,393 24,493 25,893 27,393 28,893


Net block 9,509 10,169 10,480 11,026 11,622 12,168

CWIP 903 73 66 59 53 48

Goodwill - - - - - -

Investments 13,619 6,429 6,750 7,088 7,442 7,740

Current assets 8,274 12,243 14,522 17,173 20,206 23,212

Inventories 6,205 8,578 10,844 12,628 15,130 16,748

Debtors 743 732 1,001 1,166 1,316 1,794

Cash 291 932 1,009 1,437 1,567 2,157

Loans and advances 1,035 2,001 1,668 1,943 2,193 2,512


Provisions 24 30 83 97 110 120


Net Deferred Tax (1,625) (1,357) (1,492) (1,642) (1,806) (1,986)

Total Assets 26,431 23,470 26,238 28,944 32,144 35,679

44



PBT 5,485 3,932 7,166 6,730 7,645 8,285

Add: Depreciation 701 738 789 854 904 953

Add: Interest 123 119 78 128 121 115

Less: taxes paid (1,812) (718) (1,794) (1,682) (1,911) (2,079)

Add: other adjustments (386) 257 236 231 237 237

Less: working capital changes (36) (663) (5,029) (1,551) (2,290) (2,286)




Capital expenditure (1,356) (568) (1,093) (1,393) (1,494) (1,495)

Change in investments 2,448 7,191 (321) (338) (354) (298)

Others (3,448) (10,179) 2,414 (269) (185) (185)

Total investing cash flow (2,356) (3,557) 999 (2,000) (2,034) (1,978)


Change in borrowings (102) 1,921 (141) (134) (128) (121)

Dividend (1,496) (1,285) (2,149) (2,019) (2,294) (2,482)


Others 59 - - - - -

Total financing cash flow (1,661) 517 (2,368) (2,281) (2,542) (2,718)

Net change in cash 57 624 77 428 130 529

Opening cash & CE 234 291 932 1,009 1,437 1,567

Closing cash & CE 291 915 1,009 1,437 1,567 2,096

45


Valuation Ratio (x)

P/E 25.3 29.0 17.3 18.4 16.2 15.0

P/CEPS 21.3 23.6 15.1 15.8 14.0 13.0

P/BV 3.6 4.7 4.0 3.6 3.1 2.8

Dividend yield (%) 1.6 1.4 2.3 2.2 2.5 2.7

EV/Sales 2.6 3.0 2.9 2.5 2.2 2.0

EV/EBITDA 13.9 19.8 12.1 12.7 11.1 10.2

Per Share Data (Rs)

EPS 5.9 5.2 8.7 8.1 9.2 10.0

Cash EPS 7.0 6.4 9.9 9.5 10.7 11.5

DPS 2.4 2.1 3.5 3.3 3.7 4.0

Book Value 41.5 32.0 37.2 42.1 47.6 53.6

RoCE (%) 19.2 15.9 24.6 20.8 21.3 20.8

RoE (%) 14.3 16.2 23.3 19.3 19.4 18.6

Growth (%)

Revenue 12.9 (3.4) 2.0 16.5 12.9 9.1

EBITDA 19.1 (22.3) 61.9 (5.4) 13.1 7.6

PBT 24.8 (30.1) 82.3 (6.1) 13.6 8.4

PAT 19.9 (12.5) 67.2 (6.0) 13.6 8.2

Margin (%)

Gross Margin 35.1 34.9 41.4 38.0 37.3 39.0

EBITDA Margin 18.6 15.0 23.8 19.4 19.4 19.1

PAT Margin 11.9 10.8 17.6 14.2 14.3 14.2

Days

Debtor Days 9 9 12 12 12 15

Inventory Days 73 105 130 130 138 140



46


Leader in CPVC Segment

AstralPipes | India



CMP* (Rs) xxx




Free Float (%) xxx


1. Astral has maintained its leadership position in the fastest growing CPVC pipes and fittings market in India.

2. Adhesive business is back on track with robust 42% YoY growth in 3QFY21 led by structural changes in distribution network, which are now yielding results. Though the segmental revenue declined by 8% in FY20 due to changes in distribution model, it expects strong sustainable growth in the coming years.

3. Astral is well-positioned to benefit from continuous shift in market preference and increasing geographical reach. It is the only backward-integrated CPVC player in India with several tie-ups with global players.

4. Acquisition of well-established brands i.e. Resinova and Seal IT has helped Astral to foray into the UK and the US markets. Its adhesive business has created a niche, which was earlier dominated by Pidilite.

5. Astral has entered into the plastic water storage tank business with an investment of Rs750mn. Water tank operations will gradually commence by Apr’21 in its Aurangabad unit, while its Ghelot and Odisha units are expected to be operational by 1HFY22E.

ESG Analysis: Analyzing Astral on 20 key criteria under ESG Matrix, we have assigned an overall score of 58% to the company. Under “Environmental Head”, we have assigned 57% score, as it has strong exposure to reality sector and hence impact on overall biodiversity is material. Although the company deals in plastic polymers, all its products are 100% recyclable. Under “Social Head”, we have assigned 57% score, as Astral scores high on customer satisfaction, despite scoring low on gender diversity. Under “Governance Head”, the company scores 58% with decent performance across criteria barring executive compensation (please refer to page no 48 and 49. for detailed ESG analysis).

Outlook & ValuationWe believe that the faster-than-expected strong recovery seen in recent quarters is likely to sustain, going forward as well led by: (a) market consolidation and higher PVC prices; (b) opportunities in infra pipe segment, which is expected to pick-up by next year with the government’s strong emphasis on infrastructure in the recent budget; (c) strong growth potential of adhesives business after the completion of restructuring of its distribution network; and (d) new launches and foray into water tank business. We increase our earnings estimate by 54%, 45% and 32% for FY21E, FY22E and FY23E, respectively on the back of continuous expansion of installed capacity, higher realization, strong growth opportunities in adhesives and margin expansion due to higher operating leverage. We introduce our estimates for FY24E with 15% revenue growth driven by higher volume and realisation. Considering improved earnings visibility and healthy return ratios, Historically, the stock has been trading at 65x of 1-Yr Forward earnings. We believe Astral’s premium valuation to sustain, going forward led by leading position in CPVC market, continued focus on innovative and high-margin products, and restructuring of adhesive business. Considering strong earnings momentum and significant improvement in margin and profitability, we maintain BUY on Astral with a revised 2-Year Target Price of Rs2,153 (from Rs812 earlier), valuing the stock at 75x (from 45x earlier) of FY24E EPS.






Absolute performance (1.9) 35.4 147.9



Promoter 55.7 55.7

Public 44.3 44.3


Note: * CMP as on 27 Apr 2021


BUY2 Year Target Price: Rs.2,153

CMP* 1,677


Bloomberg Ticker ASTRA IN


Free Float (%) 44

Shares O/S (mn) 201

Key Triggers:Leadership position in CPVC pipes and fittings segment Set to benefit from shift in market preference and increasing geographical reachSole backward-integrated CPVC player in India with multiple global tie-upsAdhesive business is back on track; segmental margin to improve further

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Apr

-20

May

-20

May

-20

Jun-

20

Jul-2

0

Jul-2

0

Aug

-20

Sep-

20

Oct

-20

Oct

-20

Nov

-20

Dec

-20

Dec

-20

Jan-

21

Feb-

21

Feb-

21

Mar

-21

Apr

-21

Key Financials



47



Management Quality 8 Low Very good management team with outstanding historical performance

Promoter's Holding Pledge 9 Low Promoter holds 55.74% stake; zero share pledging by the promoter; we don’t expect the company to pledge share in future as well

Board of Directors Profile 7 LowIts board comprises of 2 executive directors (from Engineer family), 5 non executive independent directors, and 2 non executive non independent directors

Industry Growth 8 LowStrong industry growth prospects with expected 11% CAGR over FY20-25E; the industry is expected to to reach >Rs500bn by FY25E ; within plastic pipe segment, CPVC is expected to grow at the fastest rate of 18% CAGR over FY20-25E


Entry Barriers / Competition 6 Low Limited entry barriers for new players in the long-run despite sectoral consolidation

New Business/Client Potential 6 Low Decent growth prospects from new businesses/clients with good distribution reach; adhesives business also gaining decent traction

Business Diversification 7 LowAstral diversified into adhesives business few years back, which is expected to grow well post structural changes in its distribution chain. However, revenue contribution of Adhesive business remained at 23%.

Market Share Potential 7 Low Good potential for gaining market share from the unorganized players

Margin Expansion Potential 7 LowHealthy margin expansion potential particularly in adhesives business. Margin of Adhesive segment is likely to improve from 12.9% in FY20 to 15.5% in FY24E



Debt Profile 7 Low Total debt stood at Rs1.3bn as on Mar'20, which declined to Rs757mn by the end of Dec'20; debt level is steadily declining for past few years

FCF Generation/NWC 6 Low Decent FCF generation with moderate capex in the near-term; it generated FCF of sRs1.9bn (7.5% of top line) in FY20

Dividend Policy 4 High Average dividend payout stands at 5% over FY15-20



48



Environmental

Climate Change and Carbon Emission 5 MediumThe company's carbon emission is within the prescribed limits; its manufacturing process is environmental-friendly and compliant to applicable norms; although the company deals in plastic polymers, all products being manufactured by the company are 100% recyclable; however, as the company majorly caters to the real estate sector, it has an indirect impact on climate change through deforestation activities

Air & Water Pollution 5 MediumEmissions from the manufacturing process are moderate and within the prescribed norms; recycled water is used in plants; water harvesting wells are there in all plants

Biodiversity 4 High Substantial impact on flora and fauna due to strong exposure to realty sector

Deforestation 4 HighIts pipes and fittings are largely for real estate sector, which involve deforestation to some extent; thus the company has an indirect impact on deforestation activities; however its direct impact is minimal; the company has also planted saplings all along its boundary walls

Energy Efficiency 6 Low

The company has taken several initiates to conserve energy and promotes installation of programmable timer-based circuit in all street lights, shifting to LED lights, installation of centralized one material conveying pump by removing 20 individual pumps, and installation of energy saving heaters for machines to save energy etc.; installation of solar power roof top panel is under process; it installed 2,923.8 kwp at Santej, 2,248.6 kwp at Dholka, 825.66 kwp at Hosur, 518.76 kwp at Sangli and 1,458.6 kwp at Ghiloth; it also installed 2.2MW wind mill each at Santej and Dholka plants (Morbi) to get clean energy

Waste Management 6 LowThe products being manufactured by the company are 100% recyclable; generated waste during manufacturing process is being grounded and then blended with the raw material; the company uses recycled water for gardening and flushing in toilets


SocialCustomer Satisfaction 8 Low Customer satisfaction is the key to its growth and success; there are no customer complaints/consumer cases at the end of FY20

Data Protection & Privacy 6 Low The company has implemented appropriate controls to protect from cyber attacks

Gender & Diversity 2 High Out of total workforce of 1,639 employees, only 67 (4%) are women employees and only 8 (0.5%) are employees with disability

Employee Engagement 6 Low All employees, including women and differently-abled, are given mandatory safety training as well as the job skills related training

Community Relations / Service 6 LowAs against the prescribed expenditure of Rs36.1mn, the company spent ~Rs38.1mn on CSR activities in FY20; CSR activities include disaster management post COVID outbreak, healthcare, water conservation, promotion of education, employment enhancing vocational skills, environment, and rural development etc.


Labour Standard 6 LowNo complaints were filed for child labour/forced labour/involuntary labour, sexual harassment or discriminatory employment in FY20; the company does not deal with any supplier/contractor if they violate human rights and employ any person below the age of eighteen; labourers’ dues are settled and no adverse views seen in this regard

49




Governance

Audit Committee Structure 5 MediumThe audit committee comprises of 4 directors out of whom 3 are independent directors and 1 is executive director; however, 1 member ceased to be an independent director from Jan'20, thus as on 31st March, 2020 the committee consisted of 3 members; chairman of the committee is an independent director; the committee met 4 times in FY20 with 100% attendance of 3 remaining members, while the outgoing director attended 2 meetings

Bribery & Corruption 6 Low The company has suitable policy relating to ethics, bribery and corruption in place

Executive Compensation 4 HighAverage percentage increase made in the salaries of employees other than the managerial personnel in FY20 was 3%, whereas the increase in managerial remuneration was 17%; remuneration ratio of MD and CFO was as high as 159X and 114X to the median remuneration of employees, respectively

Lobbying 6 LowThe company engages with industry bodies and associations to influence public and regulatory policy in a most responsible manner; however, the risk associated with lobbying for gaining unfair advantage is low


Whistleblower Scheme 6 LowThe company promotes ethical behaviour in all its business activities and has a mechanism for reporting illegal or unethical behavior; it has a vigil mechanism (whistleblower policy) under which the employees are free to report violations of applicable laws and regulations and the code of conduct



50

Earnings Revision & RecommendationWe believe that the faster-than-expected strong recovery seen in recent quarters is likely to sustain, going forward as well led by: (a) market consolidation and higher PVC prices; (b) opportunities in infra pipe segment, which is expected to pick-up by next year with the government’s strong emphasis on infrastructure in the recent budget; (c) strong growth potential of adhesives business after the completion of restructuring of its distribution network; and (d) new launches and foray into water tank business. We increase our earnings estimate by 54%, 45% and 32% for FY21E, FY22E and FY23E, respectively on the back of continuous expansion of installed capacity, higher realization, strong growth opportunities in adhesives and margin expansion due to higher operating leverage. We introduce our estimates for FY24E with 15% revenue growth driven by higher volume and realisation. Considering improved earnings visibility and healthy return ratios, Historically, the stock has been trading at 65x of 1-Yr Forward earnings. We believe Astral’s premium valuation to sustain, going forward led by leading position in CPVC market, continued focus on innovative and high-margin products, and restructuring of adhesive business. We maintain BUY on Astral with a revised 2-Year Target Price of Rs2,153 (from Rs812 earlier), valuing the stock at 75x (from 45x earlier) of FY24E EPS.




FY17 7.2 241.4 467 503 539 575 611

FY18 8.8 22.4 197.2 572 616 660 704 748

FY19 9.8 11.8 176.4 639 688 738 787 836

FY20 12.4 26.3 139.6 808 870 932 994 1,056

FY21E 16.4 32.2 105.6 1,068 1,150 1,232 1,314 1,396

FY22E 19.8 20.8 87.4 1,290 1,389 1,489 1,588 1,687

FY23E 23.7 19.4 73.2 1,540 1,659 1,777 1,896 2,014

FY24E 28.7 21.1 60.4 1,866 2,010 2,153 2,297 2,440


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EBITDA 4,020 5,089 6,226 5,641 6,525 7,524 40.3 28.2 20.8

EBITDA Margin (%) 15.7 16.2 16.5 19.2 18.7 18.6 351 bps 250 bps 213 bps

Net Profit 2,142 2,750 3,621 3,300 3,987 4,761 54.1 45.0 31.5

EPS (Rs) 10.7 13.7 18.0 16.4 19.8 23.7 54.1 45.0 31.5


51

3QFY21 – Results Summary f Astral reported revenue of Rs8.9bn in 3QFY21 (up 35% YoY) vs. our estimate of Rs8.5bn. Plastic

revenue increased by 33% YoY to Rs6.7bn, while Adhesive revenue saw a robust growth of 42% YoY to Rs2.3bn.

f Volume of plastic segment increased by ~15% to 36,902 MT, while realisation stood at Rs182/kg.

f EBITDA increased by 63% YoY to Rs1.9bn, while EBITDA margin expanded by 370bps YoY to 21.4% due to lower other expenses and improved operating leverage. EBITDA margin of plastic segment improved by 400bps YoY to 24.2%, while adhesive business’ EBITDA margin saw a 410bps YoY rise to 15.9%.

f PAT increased by 83% YoY to Rs1.23bn.


(Rs mn) 3Q FY21 3Q FY20 YoY (%) 9MFY21 9MFY20 YoY (%)

Revenue 8,975 6,641 35.1 20,485 19,490 5.1

Raw Material 5,562 4,013 38.6 12,820 12,055 6.3

% of Sales 62.0 60.4 62.6 61.9

Employee Cost 524 431 21.6 1,435 1,335 7.5

% of Sales 5.8 6.5 7.0 6.8

Other Exp 969 1,021 (5.1) 2,331 2,807 (17.0)

% of Sales 10.8 15.4 11.4 14.4

Total Exp 7,055 5,465 29.1 16,586 16,197 2.4

EBITDA 1,920 1,176 63.3 3,899 3,293 18.4

EBITDA Margin (%) 21.4 17.7 19.0 16.9

Other Income 61 22 177.3 149 120 24.2

Interest 17 51 (66.7) 67 213 (68.5)

Depreciation 300 274 9.5 873 790 10.5


PBT 1,664 873 90.6 3,108 2,410 29.0

Tax 413 194 112.9 721 430 67.7

Tax rate (%) 24.8 22.2 23.2 17.8

Adjusted Net Profit 1,239 679 82.5 2,321 1,980 17.2

Net Margin (%) 13.8 10.2 11.3 10.2


52

Management Conference Call – Key Takeaways:A. Plastic Piping Biz:

• Recovery, which started in 2QFY21, further accelerated in 3QFY21 with 15% YoY volume growth.

• Volume increased by 70% YoY in Oct’20 due to huge pent-up demand and lower base. Good demand was also seen in Nov’20 and Dec’20 due to a mix of pent-up demand and re-opening of metro markets. The management expects good demand to continue in 4QFY21 as well, which is generally a strong quarter for the company. Value growth stood at 35% YoY in Jan’21.

• The management has guided for sustainable double-digit growth for this segment over the next 2-3 years.

B. Adhesive Biz:

• Adhesive segment also continued its strong performance in 3QFY21. The structural changes in distribution network over the past couple of years are showing results and now the company is confident of clocking 20-25% YoY growth over the next 2-3 years.

• Its UK and US subsidiary delivered excellent performance on demand and margin front despite pandemic restrictions in the UK.

• Resinova performed well and saw margin expansion during the quarter.

• The company is planning a small expansion in Dahej adhesive unit for backward integration.

C. Margin:

• Exceptional high margin of plastic pipe segment (24%) is attributable to inventory gain with all-time high PVC prices and better product-mix with greater share of value-added products. The inventory gains were lower compared to other players, as the company is majorly into CPVC. The management has guided that 15-16% EBITDA margin is easily sustainable for this segment for next 4-5 years with scope for further improvement with opportunities in infra piping, which is expected to pick-up by next year with the government’s strong emphasis on infrastructure in the recent budget. New launches and water tank business also provide good opportunities for revenue growth and margin expansion.

• Adhesive business saw strong margin expansion in 3QFY21 and the management expects this to sustain, going forwrd and may increase further with improved operating leverage.

D. Water Tank Biz:

• The company has completed acquisition of Shree Prabhu Petrochemicals and acquired assets of its water tank business for ~Rs510mn.

• From Dec’20, the company started billing of ‘SARITA’ brand of plastic water storage tanks under the Astral’s name from Aurangabad plant. The company is planning to start tank production in Ahmedabad from Apr’21 under ‘ASTRAL’ brand name.

• While tank operations in Aurangabad is expected to start by Apr'21, Ghelot and Odisha units are expected to be operational by 1HFY22E.

• Normal operating margin of this business is 14-15%, but the management expects it will take a year at least to set up the brand and margin will not be the focus in the initial years.

E. Odisha Plant: Construction of Odisha plant is going on in full swing and the project is as per the schedule. The company is planning to start production by 1HFY22E.

F. The company is planning to start manufacturing fittings at Hosur in 2QFY22E. Hitherto, the plant is in to manufacturing of pipe only.

G. Reducing Carbon Footprint: 1MW each solar project was commissioned at Santej and Dholka plant. Hosur unit is already having a solar project and all other plants too will get one in the coming 6-8 months.

H. Capex: The company spent Rs870mn capex (including acquisition of water tank business) up to 9MFY21.

I. Debt: Its gross debt stood at Rs757mn, while net cash surplus stood at Rs1.17bn as of Dec’20.

53


f Demand Outlook Continues to Remain Healthy

f Adhesive Biz Back on Track

f Margin Expansion to Continue

f Strong Balance Sheet

f Foray into Tank Business

I. Demand Outlook Continues to Remain HealthyWe expect demand for PVC pipe segment to remain healthy in the next few years led by government’s thrust on affordable housing and initiatives like Smart Cities Mission, Project AMRUT and Swachh Bharat Mission. With thrust on improving coverage area under irrigation from the current level, the PVC pipe segment is expected to get immensely benefitted. Replacement demand, which accounts for 25% of total demand, has also supported the overall demand for PVC pipes to a large extent. Based on these factors, we expect its revenue to clock 16% CAGR over FY20-24E.

II. Adhesive Biz Back on TrackAstral is adding few new products in adhesive segment, which we expect to drive growth over the next few years. Its overseas business (UK and US) is back to growth trajectory with higher margin. We expect its adhesive business to clock revenue CAGR of 21% over FY20-24E led by structural changes in distribution model and new product addition.

III. Margin Expansion to ContinueAstral reported exceptionally high margin in 3QFY21 partially led by inventory gains with all-time high PVC prices, cost savings and improved product-mix. The company is largely a CPVC player and notably, the CPVC prices have not seen sharp surge like that of the PVC prices. The company expects cost savings in other heads to continue in next few years except for the branding spend. The management has given a conservative margin guidance of 15-16% for the pipe business with scope for further margin expansion. We expect the company’s EBITDA margin to decline by 50bps YoY in FY22E to 18.7%, which is still higher compared to its average margin of 14.7% over FY16-20.

IV. Strong Balance SheetWhile most companies are facing issues with working capital management, Astral’s NWC days reduced significantly during the previous fiscal with lower debtors and inventory days. Creditor days were also lower due to significant repayment to foreign creditors in order to gain from favourable forex rate. As on Dec’20, Astral’s net cash surplus stood at Rs1.17bn (total debt of Rs757mn and cash of Rs1.93bn).

V. Foray into Water Tank BusinessThe company has completed acquisition of Shree Prabhu Petrochemicals and acquired assets of its water tank business for ~Rs510mn. From Dec’20, the company started billing of ‘SARITA’ brand of plastic water storage tanks under the Astral’s name from Aurangabad plant. The company is planning to start water tank production in Ahmedabad from Apr’21 under ‘ASTRAL’ brand name. Water tank operations will commence in Aurangabad by Apr'21 and will commence by 1HFY22E in Ghelot and Odisha. Normal operating margin in this business is 14-15%, but the management expects it will take a year at least to set up the brand and margin will not be the focus during the initial years.

54

Outlook & Valuation

We believe that the faster-than-expected strong recovery seen in recent quarters is likely to sustain, going forward as well led by: (a) market consolidation and higher PVC prices; (b) opportunities in infra pipe segment, which is expected to pick-up by next year with the government’s strong emphasis on infrastructure in the recent budget; (c) strong growth potential of adhesives business after the completion of restructuring of its distribution network; and (d) new launches and foray into water tank business. We increase our earnings estimate by 54%, 45% and 32% for FY21E, FY22E and FY23E, respectively on the back of continuous expansion of installed capacity, higher realization, strong growth opportunities in adhesives and margin expansion due to higher operating leverage. We introduce our estimates for FY24E with 15% revenue growth driven by higher volume and realisation. Considering improved earnings visibility and healthy return ratios, Historically, the stock has been trading at 65x of 1-Yr Forward earnings. We believe Astral’s premium valuation to sustain, going forward led by leading position in CPVC market, continued focus on innovative and high-margin products, and restructuring of adhesive business. Considering strong earnings momentum and significant improvement in margin and profitability, we maintain BUY on Astral with a revised 2-Year Target Price of Rs2,153 (from Rs812 earlier), valuing the stock at 75x (from 45x earlier) of FY24E EPS.

Key Risks f Slowdown in demand and higher raw material cost

f Failure of adhesives business to achieve the robust growth targets

55

Story in Charts Exhibit 2: Revenue Trend Exhibit 3: EBITDA Trend


1,683 2,068

2,602 3,168

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PBT Growth (RHS)

Exhibit 6: Debt and Interest cost Exhibit 7: Return Ratios


2,026 1,966

2,290

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1,324

756 680 612 551

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Total Loan Interest (RHS)

12.7 14.4

17.1 17.4 15.5

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16.0

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21.5 20.4 20.2

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14,299 16,778

18,947 21,058

25,073 25,779 29,425

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56

Key FinancialsProfit & Loss Statement

Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E

Net Sales 25,073 25,779 29,425 34,893 40,444 46,476

Growth (%) 19.1 2.8 14.1 18.6 15.9 14.9



Employee costs 1,391 1,752 2,016 1,972 2,309 2,681

Others 3,355 3,651 3,405 4,153 5,164 5,794

EBITDA 3,849 4,419 5,641 6,525 7,524 8,797

Growth (%) 21.5 14.8 27.7 15.7 15.3 16.9

EBITDA Margin (%) 15.4 17.1 19.2 18.7 18.6 18.9

Depreciation 814 1,079 1,176 1,215 1,368 1,524

EBIT 3,035 3,340 4,464 5,310 6,156 7,274

Growth (%) 16.9 10.1 33.7 18.9 15.9 18.1

EBIT Margin (%) 12.1 13.0 15.2 15.2 15.2 15.7

Interest 320 394 257 204 184 165

Other Income 154 121 210 210 375 581

Exceptional items 3 - - - - -

Share of Profit/(Loss) in JV (36) (6) (66) - - -

PBT 2,834 3,061 4,351 5,316 6,348 7,690

Growth (%) 13.5 8.0 42.2 22.2 19.4 21.1

Tax 861 565 1,051 1,329 1,587 1,922

Tax rate (%) 30.4 18.5 24.2 25.0 25.0 25.0

Reported PAT 1,973 2,496 3,300 3,987 4,761 5,767

Adjusted PAT 1,976 2,496 3,300 3,987 4,761 5,767

Growth (%) 10.8 26.3 32.2 20.8 19.4 21.1

Net Margin (%) 7.9 9.7 11.2 11.4 11.8 12.4


Balance Sheet Statement


Share capital 120 151 201 201 201 201

Reserves 12,657 14,878 17,963 21,751 26,274 31,753

Net worth 12,777 15,029 18,164 21,952 26,475 31,954

Minority Interest 150 168 168 168 168 168

Non-current borrowings 1,631 1,090 545 491 441 397

Non-current provisions 31 27 32 38 44 52


Gross block 13,320 15,894 19,833 22,007 24,230 26,509


Net block 11,054 12,549 15,508 16,468 17,323 18,079

CWIP 808 444 400 360 324 291

Other non-current assets 417 268 268 268 268 268

Current assets 8,712 9,630 9,180 12,619 17,324 22,292

Inventories 3,970 5,404 4,837 5,736 6,648 7,640

Debtors 3,391 2,278 3,225 3,824 4,432 5,093

Cash & Bank 981 1,301 393 1,912 4,693 7,267

Other current assets 370 647 726 1,147 1,551 2,292

Current borrowings 304 234 211 190 171 154


Provisions 29 39 121 143 166 191


Net Deferred Tax (532) (429) (472) (519) (571) (628)

Total Assets 14,589 16,314 18,909 22,648 27,129 32,572

57

Cash Flow Statement

(Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E


PBT 2,834 3,061 4,351 5,316 6,348 7,690

Add: Depreciation 814 1,079 1,176 1,215 1,368 1,524

Add: Interest 319 394 257 204 184 165

Less: taxes paid (768) (815) (1,051) (1,329) (1,587) (1,922)

Add: other adjustments (87) 147 962 53 59 65

Less: working capital changes 308 188 (608) (1,327) (914) (2,186)




Net Capital expenditure (2,196) (2,133) (3,894) (2,134) (2,187) (2,247)

Change in investments (792) (1,055) - - - -

Investment Income 54 11 - - - -

Total investing cash flow (2,934) (3,177) (3,894) (2,134) (2,187) (2,247)


Share issuances 2 - 50 - - -

Change in borrowings 354 (981) (568) (76) (68) (61)

Dividend (94) (240) (165) (199) (238) (288)


Total financing cash flow (50) (1,630) (941) (479) (490) (515)

Net change in cash 436 (753) 253 1,519 2,781 2,574

Opening cash & CE 435 892 139 393 1,912 4,693

Cash acquired from Amalgamating co 21 - - - - -

Other bank deposits 89 1,162 - - - -

Closing cash & bank 981 1,301 393 1,912 4,693 7,267

58

Key Ratios


P/E (x) 170.5 135.0 102.1 84.5 70.8 58.4

P/BV (x) 26.4 22.4 18.5 15.3 12.7 10.5

P/CEPS (x) 120.7 94.2 75.3 64.8 55.0 46.2

Dividend yield (%) 0.0 0.1 0.0 0.1 0.1 0.1

EV/Sales (x) 13.5 13.1 11.5 9.6 8.2 7.1

EV/EBITDA (x) 87.8 76.2 59.8 51.4 44.2 37.5

Debt/Equity (x) 0.13 0.07 0.03 0.02 0.02 0.01

Per Share Data (Rs)

EPS 9.8 12.4 16.4 19.8 23.7 28.7

Cash EPS 13.9 17.8 22.3 25.9 30.5 36.3

DPS 0.5 1.2 0.8 1.0 1.2 1.4

Book Value 63.6 74.8 90.4 109.3 131.8 159.1

Returns (%)

RoCE 20.8 20.5 23.6 23.4 22.7 22.3

RoE 15.5 16.6 18.2 18.2 18.0 18.0

Growth (%)

Revenue 19.1 2.8 14.1 18.6 15.9 14.9

EBITDA 21.5 14.8 27.7 15.7 15.3 16.9

PBT 13.5 8.0 42.2 22.2 19.4 21.1

PAT 10.8 26.3 32.2 20.8 19.4 21.1

Margin (%)

Gross Margin 34.3 38.1 37.6 36.3 37.1 37.2

EBITDA Margin 15.4 17.1 19.2 18.7 18.6 18.9

PAT Margin 7.9 9.7 11.2 11.4 11.8 12.4

Days

Inventory Days 58 77 60 60 60 60

Debtor Days 49 32 40 40 40 40



59


Opportunities Galore

Prince Pipes & FittingsPipes | India



CMP* (Rs) xxx




Free Float (%) xxx


1. Prince Pipes & Fittings (PRINCPIP) enjoys ~8% and ~5% market share in CPVC pipe and overall PVC pipe segment, respectively. It gained market share in 9MFY21 led by healthy performance across segments with market consolidation.

2. The new plant in Telangana, which started operations with an initial capacity of 4,000TPA, is expected to have total installed capacity of ~50,000TPA, which will be ramped up in a phased manner over the next 2-3 years.

3. Association with Lubrizol will significantly expand PRINCPIP’s capabilities and strengthen its agility in the marketplace. Its robust distribution network combined with Lubrizol’s brand equity is set to create a strong and sustainable partnership in the pipe industry, going forward.

4. The company has received the full and final refund of Rs400mn from Prince Marketing. Earlier, PRINCPIP paid an advance amount of Rs400mn to Prince Marketing for purchasing immovable property at Dadar (Mumbai), which is now cancelled.

ESG Analysis: Analyzing PRINCPIP on 20 key criteria under ESG Matrix, we have assigned an overall score of 57% to the company. Under “Environmental Head”, we have assigned 57% score, as it has strong exposure to reality sector and hence impact on overall biodiversity is material. Although the company deals in plastic polymers, all its products are 100% recyclable. Under “Social Head”, we have assigned 50% score, as the company scores poor on CSR and gender diversity front. Under “Governance Head”, we have assigned 63% score to PRINCPIP owing to good performance across criteria (please refer to page no 61 and 62 for detailed ESG analysis).

Outlook & ValuationPRINCPIP continued to deliver strong performance led by healthy growth in agri and plumbing segments, improved operating efficiency and cost optimization measures. It has made multiple strategies to embark on its journey to the next level and sustain the business in the long run with tie-up with Lubrizol and Tooling Holland. We expect PRINCPIP to expand its leadership with manufacturing expertise, leverage distribution and competitive agility. We expect its revenue, EBITDA and PAT to clock 14%, 14% and 20% CAGR, respectively over FY20-24E. Notably, PRINCPIP has limited trading history of 16 months. We maintain BUY on PRINCPIP with a revised 2-Year Target Price of Rs710 (from Rs230 earlier), valuing the stock at 33x (from 20x earlier) of FY24E EPS.






Absolute performance 18.0 68.3 394.4



Promoter 63.3 63.3

Public 36.7 36.7


Note: * CMP as on 27 Apr 2021


BUY2 Year Target Price: Rs.710

CMP* 488


Bloomberg Ticker PRINCPIP IN


Free Float (%) 37

Shares O/S (mn) 110

Key Triggers:Prince enjoys market share of ~8% in CPVC and ~5% in overall PVC pipe segmentLikely rise in contribution of fastest growing CPVC pipes augurs wellRobust return ratios; average RoE of 20% in last five yearsPartnership with Lubrizol provides further opportunities to growTechnical collaboration with Tooling Holland to improve operational efficiency

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Key Financials

Y E/ Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E FY24E Sales 15,719 16,357 18,452 20,663 23,031 25,337 EBITDA 1,841 2,288 2,876 3,079 3,501 3,826 Net profit 821 1,125 1,655 1,833 2,133 2,366 EPS Rs) 7.5 10.2 15.0 16.7 19.4 21.5 P/E (x) 65.4 47.7 32.5 29.3 25.2 22.7 P/B (x) 13.5 6.4 5.4 4.7 4.0 3.4 RoE (%) 20.6 13.4 16.8 15.9 15.9 15.2


60


Management Quality 6 Low Decent management team after addition of new members post listing

Promoter's Holding Pledge 6 LowPromoter holds 63.25% stake; no share is pledged currently, although 35% of total equity was pledged earlier against Rs2bn debt which was repaid in Dec'19

Board of Directors Profile 5 MediumIts board’s strength is 10, which consists of 3 executive directors (from Chedda family), 5 non executive independent directors and 2 non executive nominee directors

Industry Growth 8 LowStrong industry growth prospects with expected 11% CAGR over FY20-25E; the industry is ex-pected to reach >Rs500bn by FY25E; within plastic pipe segment, CPVC is expected to grow at the fastest rate of 18% CAGR over FY20-25E


Entry Barriers / Competition 6 Low Limited entry barriers for new players in the long run despite sectoral consolidation

New Business/Client Potential 6 Low Decent growth prospects from new businesses/clients with good distribution reach

Business Diversification 6 Low While PRINCPIP was a pure play piping company originally, it has recently diversified into tanks and cable pipes segment

Market Share Potential 7 Low Good potential for gaining market share, particularly in CPVC segment

Margin Expansion Potential 7 Low Potential for improvement in pricing and margin



Debt Profile 6 Low Total debt stood at Rs2.6bn as on Mar'20; debt level is steadily declining for past few years

FCF Generation/NWC 4 High FCF was negative at Rs83mn in FY20 due to high capex over last few years

Dividend Policy 5 Medium FY20 was the first year of dividend payment with dividend payout of 10%




61


Environmental

Climate Change & Carbon Emission 5 MediumThe company's carbon emission is within the prescribed limits; its products are environment-friendly and compliant to applicable norms; although the company deals in plastic polymers, all products being manufactured by the company are 100% recyclable; however, as the company majorly caters to the real estate sector, it has an indirect impact on climate change through deforestation activities

Air & Water Pollution 5 MediumEmission from the manufacturing process is moderate and within the prescribed limit; water consumption at various plants have reduced significantly due to re-use of recycled water in the manufacturing process

Biodiversity 4 High Substantial impact on flora and fauna due to strong exposure to realty sector

Deforestation 4 HighThe company's pipes and fittings are largely meant for the real estate sector, which involves deforestation to some extent; however, its direct impact is minimal; the company has planted saplings all along its boundary walls

Energy Efficiency 6 Low

The company is planning to utilize renewable energy sources at multiple factories; at Chennai plant, it has already started connecting wind energy; it will soon start harnessing solar power on completion of which, ~25% of Chennai plant will be running on renewable energy; it is further planning to harness solar power at Haridwar, Jaipur, Dadra and other plants in a phased manner; the company is continuously implementing energy conservation programmes and striving to achieve energy economy by investing in the best available technologies

Waste Management 6 LowThe company has in place a mechanism to recycle products and waste; approximately 10% of waste generated is recycled in-house; it strictly follows all rules and regulations relating to treatment of emissions/waste; further, it regularly undertakes tests to ensure the emissions are maintained within the permissible limits


Social

Customer Satisfaction 6 LowCustomer satisfaction is decent with no major pending customer complaints; the company has an adequate consumer feedback mechanism to address consumer concerns

Data Protection & Privacy 6 Low The company has implemented appropriate controls to protect from cyber attack

Gender & Diversity 2 High Out of total workforce of 1,784 employees, only 36 (2%) are women employees and 2 (0.1%) are employees with disability

Employee Engagement 6 Low It imparts regular safety and skill up-gradation training to both permanent and contractual employees through in-house and professional faculties

Community Relations / Service 3 HighAs against the prescribed expenditure of Rs20.89mn, the company spent ~Rs10mn on CSR activities in FY20, while Rs10.89mn remained unspent; its CSR activities include eradicating hunger, poverty and malnutrition, healthcare, water conservation, promotion of education, employment enhancing vocational skills, environment and rural development etc.


Labour Standard 6 Low The company follows a policy of not employing child labour, adolescent labour, forced labour or any form of involuntary labour, paid or unpaid in any of its offices and plants; it ensures fair, timely and transparent payment of statutory wages to all its employees without discrimination; the company has a policy for prevention of sexual harassment to provide safe working environment for the employees


62

GovernanceAudit Committee Structure 6 Low

The audit committee comprises of 4 directors out of whom 3 are independent directors (including the chairman) and 1 is executive director; the committee met 4 times in FY20, with 100% attendance of all directors except the chairman, who attended 3 meetings

Bribery & Corruption 6 Low The company has in place a policy relating to ethics, bribery and corruption

Executive Compensation 6 LowThe median percentage increase made in the salaries of employees other than managerial personnel was 13.38% in FY20 with no increase in the remuneration of managerial personnel; remuneration ratio of managing director and executive directors was as high as 64 and 50 to the median

Lobbying 6 LowThe company engages with the industry bodies/associations to influence public and regulatory policy in most responsible manner; however, the risk associated with lobbying for gaining unfair advantage is low


Whistleblower Scheme 6 Low The company has a vigil mechanism (whistleblower policy) under which the employees are free to report violation of applicable laws and regulations





63

Earnings Revision & RecommendationWe believe faster-than-expected recovery witnessed by the company in 2QFY21 and 3QFY21 and the overall economy will be sustainable and pave the way for strong operating performance in the next 2-3 years. Factoring in the long-term catalysts for growth like market consolidation, higher PVC price, steady capex plan, imminent opportunities in infra pipe segment (which are expected to pick-up by next year with the government’s strong emphasis on infrastructure in the recent budget), we increase our earnings estimate by 132%, 78% and 69% for FY21E, FY22E and FY23E. We introduce our FY24E estimates with 10% YoY revenue growth and EPS of Rs21.5. We believe the stock deserves a multiple re-rating given its strong earnings visibility, cleaner balance sheet, growth potential and focus on premiumization in the fastest growing CPVC segment in which it intends to gain market share from the leader Astral (which is trading at 85x 1-Year Fwd PE). Notably, PRINCPIP has limited trading history of 16 months. We maintain BUY on PRINCPIP with a revised 2-Year Target Price of Rs710 (from Rs230 earlier), valuing the stock at 33x (from 20x earlier) of FY24E EPS.




FY17 6.7 60.8 196 209 222 236 249

FY18 6.6 (1.9) 62.0 192 205 218 231 245

FY19 7.5 12.9 54.9 216 231 246 261 276

FY20 10.2 37.0 40.1 297 317 338 358 378

FY21E 15.0 47.0 27.3 436 466 496 526 556

FY22E 16.7 10.8 24.6 483 517 550 583 616

FY23E 19.4 16.3 21.1 562 601 640 678 717

FY24E 21.5 10.9 19.1 624 667 710 753 796


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EBITDA 1,741 2,334 2,698 2,876 3,079 3,501 65.2 31.9 29.8

EBITDA Margin (%) 11.7 13.3 13.7 15.6 14.9 15.2

Net Profit 714 1,028 1,263 1,655 1,833 2,133 131.7 78.3 68.9

EPS (Rs) 6.5 9.3 11.5 15.0 16.7 19.4 131.7 78.3 68.9


6.7 6.6 7.5 10.2

15.0 16.7

19.4 21.5

222 218 246 338

496 550

640 710

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64

3QFY21 – Result Summary f Prince reported Rs5.5bn revenue in 3QFY21 (up 39% YoY) vs. our estimate of Rs4.6bn, led by

18% YoY volume growth to 36,711MT. Realization also improved by 18% YoY to Rs150/kg.

f EBITDA increased by 93% YoY to Rs1.03bn, while EBITDA margin expanded by 530bps YoY to 18.8% led by inventory gains and improved operating efficiency. Advertisement and Promotion (A&P) expenses increased to Rs190mn in 3QFY21 from Rs100mn in 3QFY20.

f PAT increased by 175% YoY to Rs668mn aided by higher other income and lower interest cost.

f Net cash on the books stood at Rs370mn in 3QFY21 (excluding IPO proceeds). The working capital days reduced to 28 in 9MFY21 from 51 in 9MFY20.



Revenue 5,490 3,959 38.7 13,102 12,049 8.7

Raw Material 3,564 2,670 33.5 8,828 8,270 6.7

% of Sales 64.9 67.4 67.4 68.6

Employee Cost 275 223 23.3 722 631 14.5

% of Sales 5.0 5.6 5.5 5.2

Other Exp 622 533 16.8 1,404 1,437 (2.3)

% of Sales 11.3 13.5 10.7 11.9

Total Exp 4,461 3,426 30.2 10,953 10,337 6.0

EBITDA 1,029 534 93.0 2,148 1,712 25.5

EBITDA Margin (%) 18.8 13.5 16.4 14.2

Other Income 46 8 500.6 131 18 632.3

Interest 35 89 (60.4) 157 250 (37.1)

Depreciation 151 133 13.2 443 376 17.9


PBT 890 319 178.9 1,679 1,104 52.1

Tax 222 76 191.1 433 262 65.6

Tax rate (%) 24.9 23.9 25.8 23.7

Adjusted Net Profit 668 243 175.1 1,246 842 47.9

Net Margin (%) 12.2 6.1 9.5 7.0


65

Management Conference Call – Key TakeawaysA. Demand Outlook:

• While demand was driven by rural and semi-urban markets in 1QFY21 and 2QFY21, urban markets boosted the demand further in 3QFY21.

• Plumbing and SWR segments were the key growth drivers during the quarter with the strong up-tick in real estate demand in major urban centres.

• The management expects the demand from plumbing and SWR segments to sustain, going forward. It is confident of clocking decent growth in 4QFY21E as well, although agri pipe demand has been impacted due to all-time high PVC prices.

• The recent government thrust on urban and rural water supply in the union budget through Jal Jeevan Mission and infrastructure growth is a big positive for pipe industry, particularly for the organised players. As per the management, out of Rs1trillion set aside for infra, pipe segment’s pie is seen at ~Rs80bn. In bear case scenario also, in case only 25% on ground execution is assumed, the market size would increase by Rs20bn (up 7-8% from the current level of Rs300bn) in addition to growth from other areas.

• The management believes this will push the company’s B2B business in next 1-2 years, whose contribution to top-line is negligible (10%) at present. The company has already started getting work from a few developers, which is a positive development.

B. Margin: High EBITDA margin of 18.8% was due to inventory gains of Rs200-250mn, which after adjustment of this inventory gains would have been 14%. The company utilized a part of the inventory gains for additional A&P expenses, which stood at Rs190mn in 3QFY21 vs. Rs100mn in 3QFY20. Even after adjusting the additional A&P expenses, net EBITDA margin stood at 16%. In addition to inventory gains, expansion in margin is attributable to superior pricing power, better product-mix with larger share of plumbing and SWR products and improved operating leverage. The management is confident of further margin growth, going forward particularly after the tie-up with Lubrizol for CPVC and focus on product premiumization.

C. CPVC: PRINCPIP beat the industry growth in both B2C and B2B categories in 3QFY21. Tie-up with Lubrizol and focus on product premiumization provide great opportunities. The company has started working with few developers and sees good opportunities for B2B business in the next 1-2 years.

D. Water Tank Biz: Sales from water tank business is negligible now. The company plans to use a combination of in-house and outsourcing for the tank business. The management will be better able to guide about segmental target by end of the fiscal.

E. Telangana Plant: Seventh manufacturing facility was inaugurated in Sangareddy (Telangana) and commenced commercial production ahead of schedule. The plant is expected to have total installed capacity of ~50,000TPA, which will be ramped up in a phased manner over the next 2-3 years. The unit will serve the Southern markets and play an integral role especially when the industry is witnessing consolidation.

I. Continued Market Share Gain in PVC & CPVC SegmentsPRINCPIP enjoys ~8% and 5% market share in CPVC pipe and overall PVC pipe segment, which is expected to rise further. It has gained market share during 9MFY21 led by healthy performance across segments with market consolidation. Strong monsoon and increased farmer income have boosted the demand for agri pipes, while the performance of non-agri pipes was led by healthy demand in SWR and plumbing segment. Demand was driven by rural and semi-urban markets in 1QFY21 and 2QFY21. In 3QFY21, urban markets boosted the demand further along with these markets. Plumbing and SWR segments were the key growth drivers during 3QFY21 led by the strong up-tick in real estate demand in major urban centres. CPVC is considered as a premium product (compared to PVC) and is typically priced at a 20-25% premium to normal PVC pipes, with higher segmental EBIT margin in the excess of 10%. CPVC pipe contributes 20% of PRINCPIP’s total revenue, which we expect to grow further. CPVC pipes segment, which has clocked 20% CAGR contributing 15% to total demand in past few years, is likely to witness 18% CAGR over the next five years and account for 21% of total demand, going forward led by longevity, corrosion free, fire resistant and the ability to withstand high temperatures.

II. Brand Building, Ongoing Capex & New Products to Drive GrowthAfter lower branding activities in 1HFY21, the company increased its branding spend in 3QFY21 to Rs190mn (from Rs100mn during 3QFY20) and plans to continue it further for another 4-5 quarters. Branding spend, which stood at 1.5% of sales in 2QFY21, is estimated to be ~2-3% of sales, going forward which is likely to drive growth. Higher branding spend will particularly be done for its CPVC flowguard pipes, where the company intends to become a premium player. The company plans to incur capex of ~Rs1.2bn in FY21. Majority of which is already incurred with the successful completion and commencement of commercial production at Sangareddy (Telangana) plant, ahead of schedule. This new plant, which started operations with an initial capacity of 4,000TPA, is expected to have total installed capacity of ~50,000TPA. The company is expanding its footprint in water tank segment. It has identified several key markets for its launch over next 12-18 months and is looking at both in-house manufacturing and outsourcing. The business would utilize the existing distribution network. As segmental market size is ~Rs50bn with 70% share of the unorganized players, it provides a good opportunity for the organized players including PRINCPIP.

III. Partnership with Lubrizol to Create New OpportunitiesThough tie-up with Lubrizol for CPVC is a 3-year deal initially, PRINCPIP sees a long-term association with it. The deal makes PRINCPIP Lubrizol’s 2nd licensee in India. PRINCPIP will benefit from Lubrizol’s decades of understanding the global plumbing market and its expertise in CPVC manufacturing. Association with Lubrizol will significantly expand PRINCPIP’s capabilities and strengthen its presence in the marketplace. PRINCPIP’s robust distribution network along with Lubrizol’s brand equity is set to create a strong and sustainable partnership in the piping industry. The partnership will help in providing best-in-class CPVC ecosystem to sell premium products.


f Continued Market Share Gain in PVC & and CPVC Segments

f Brand Building, Ongoing Capex & New Products to Drive Growth

f Partnership with Lubrizol to Create New Opportunities

67

Outlook & Valuation

PRINCPIP continued to deliver strong performance led by healthy growth in agri and plumbing segments, improved operating efficiency and cost optimization measures. It has made a series of strategies to embark on its journey to the next level and sustain the business in the long run with tie-up with Lubrizol and Tooling Holland. We expect PRINCPIP to expand its leadership with manufacturing expertise, leverage distribution and competitive agility in pipe sector. We expect revenue, EBITDA and PAT to clock 14%, 14% and 20% CAGR, respectively over FY20-24E. Factoring in the long-term catalysts for growth like market consolidation, higher PVC price, steady capex plan, imminent opportunities in infra pipe segment (which are expected to pick-up by next year with the government’s strong emphasis on infrastructure in the recent budget), we increase our earnings estimate by 132%, 78% and 69% for FY21E, FY22E and FY23E. We introduce our estimates for FY24E with 10% revenue growth driven by higher volume. Considering improved earnings visibility and healthy return ratios, we value PRINCPIP at higher end of PE and assign 33x P/E (from 20x earlier). We believe the stock deserves a multiple re-rating given its strong earnings visibility, cleaner balance sheet, growth potential and focus on premiumization in the fastest growing CPVC segment. Notably, PRINCPIP has limited trading history of 16 months. We maintain BUY on PRINCPIP with a revised 2-Year Target Price of Rs710 (from Rs230 earlier), valuing the stock at 33x (from 20x earlier) of FY24E EPS.

Key Risks

f Demand slowdown and higher raw material prices

f Failure of CPVC business to achieve desired market share gains post tie-up with Lubrizol

68









9,57

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90 13,3

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52

20,6

63

23,0

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Net Revenues Growth (RHS)

817 978

1,626 1,633 1,841

2,288

2,876 3,079

3,501 3,826

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EBITDA EBITDA margin (RHS)

178 366

959 952 1,113

1,506

2,224 2,444

2,844

3,155

(100)

(50)

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100

150

200

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PBT Growth (RHS)

157 293

742 728 821

1,125

1,655 1,833

2,133

2,366

(50)

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100

150

200

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(Rs

mn)

Profit After Tax Growth (RHS)

2,996 2,754

2,945 3,221

2,675 2,623

1,864 1,635

1,438 1,267

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23.0 20.6

13.4

16.8 15.9 15.9 15.2

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(%)

RoE RoCE

Story in Charts

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69


Net Sales 15,719 16,357 18,452 20,663 23,031 25,337

Growth (%) 19.0 4.1 12.8 12.0 11.5 10.0



Employee costs 817 872 1,043 1,136 1,267 1,394

Others 1,788 1,932 2,013 2,190 2,372 2,584

EBITDA 1,841 2,288 2,876 3,079 3,501 3,826

Growth (%) 12.7 24.3 25.7 7.1 13.7 9.3

EBITDA Margin (%) 11.7 14.0 15.6 14.9 15.2 15.1

Depreciation 436 520 594 667 761 852

EBIT 1,405 1,768 2,282 2,412 2,740 2,974

Growth (%) 12.2 25.8 29.0 5.7 13.6 8.5

EBIT Margin (%) 8.9 10.8 12.4 11.7 11.9 11.7

Interest 363 332 243 164 129 114

Other Income 71 70 185 196 233 295

PBT 1,113 1,506 2,224 2,444 2,844 3,155

Growth (%) 17.0 35.3 47.7 9.9 16.3 10.9

Tax 292 381 569 611 711 789

Tax rate (%) 26.2 25.3 25.6 25.0 25.0 25.0

Net profit 821 1,125 1,655 1,833 2,133 2,366

Growth (%) 12.9 37.0 47.0 10.8 16.3 10.9

Net Margin (%) 5.2 6.9 9.0 8.9 9.3 9.3


Key Financials

70


Share capital 900 1,100 1,100 1,100 1,100 1,100

Reserves 3,089 7,277 8,766 10,415 12,335 14,464

Net worth 3,989 8,377 9,866 11,516 13,435 15,565

Non-current borrowing 1,218 569 427 341 273 218

Other non-current liabilities 78 113 68 41 24 15


Gross block 6,418 8,190 8,927 10,266 11,703 13,108


Net block 3,634 4,886 5,029 5,700 6,377 6,929

CWIP 615 75 68 61 55 49

Goodwill - - - - - -

Other non-current assets 751 694 735 779 826 876

Current assets 5,339 8,447 9,196 10,265 11,666 13,421

Inventories 2,011 3,445 3,033 3,397 3,786 4,165

Debtors 2,504 1,797 2,275 2,831 3,155 3,471

Cash 223 2,570 2,978 3,019 3,589 4,536

Other current assets 602 635 910 1,019 1,136 1,249

Current Borrowings 1,457 2,054 1,438 1,294 1,165 1,048


Provisions 16 21 51 57 63 69

Net current assets 435 3,537 4,675 5,518 6,652 8,138

Net Deferred Tax (149) (133) (146) (161) (177) (195)

Total Assets 5,285 9,058 10,360 11,898 13,733 15,798

71



PBT 1,113 1,506 2,224 2,444 2,844 3,155

Add: Depreciation 436 520 594 667 761 852

Add: Interest 329 285 243 164 129 114

Less: taxes paid (305) (372) (569) (611) (711) (789)

Add: others 137 2,735 543 87 83 75

Less: working capital changes 611 (3,651) (730) (803) (564) (540)




Net Capital expenditure (1,051) (1,106) (730) (1,332) (1,431) (1,399)

Change in investments - (1) - - - -

Total investing cash flow (1,051) (1,107) (730) (1,332) (1,431) (1,399)


Share issuances - 3,394 - - - -

Change in borrowings (689) (388) (758) (229) (198) (171)

Dividend - (110) (165) (183) (213) (237)


Total financing cash flow (1,049) 2,566 (1,167) (576) (540) (522)

Net change in cash 221 2,481 408 41 570 947

Opening cash & CE 2 89 2,570 2,978 3,019 3,589

Closing cash & CE 223 2,570 2,978 3,019 3,589 4,536

72


Valuation Ratio (x)

P/E 65.4 47.7 32.5 29.3 25.2 22.7

P/CEPS 42.7 32.6 23.9 21.5 18.6 16.7

P/BV 13.5 6.4 5.4 4.7 4.0 3.4

EV/Sales 3.4 3.1 2.7 2.4 2.2 1.9

EV/EBITDA 29.3 22.3 17.5 16.3 14.2 12.7

Per Share Data (Rs)

EPS 7.5 10.2 15.0 16.7 19.4 21.5

Cash EPS 11.4 15.0 20.4 22.7 26.3 29.2

DPS - 1.0 1.5 1.7 1.9 2.2

Book Value 36.3 76.1 89.7 104.7 122.1 141.5

Returns (%)

RoCE 26.6 19.5 22.0 20.3 20.0 18.8

RoE 20.6 13.4 16.8 15.9 15.9 15.2

EV 53,717 50,778 50,186 50,016 49,331 48,280

Dividend - 110 165 183 213 237

Free Cash 1,270 (83) 1,575 617 1,110 1,468


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RSL, its Associates, the research analysts or their relatives holds ownership of 1% or more, in respect of the said issuer company(ies).?: No

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Important These disclaimers, risks and other disclosures must be read in conjunction with the information / opinions / views of which they form part of.

RSL CIN: U65990MH2005PLC154052. SEBI registration no. (Stock Broker: INZ000172433, Depository Participants: CDSL IN-DP-257-2016 IN-DP-NSDL-363-2013, Research Analyst: INH000002384); AMFI ARN No.29889.

Change in Ratings

f We have shifted to BUY & SELL ratings only and no longer continue with HOLD rating.

f We have also shifted to 2-year Target Price from 1-year Target Price earlier.



Institutional Equity Research Sector Update PVC Pipes

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Transcript of Institutional Equity Research Sector Update PVC Pipes