Finolex Industries Ltd. share price target

CPI: Food inflation; still overpowering. FPI Debt Flows: A likely surge in FPI Flow (Debt). ABB: Margins swell; outlook strong. TVSL: Cruising on the right track; maintain BUY. FNXP: Broadly in-line Q4FY24; positive outlook. SYRMA: Strong topline, but margins remain subpar

360ONE: Steady quarter; raise to BUY post correction. IIB: Stable performance. POLYCAB: Fair quarter but I-T search clouds multiples. FNXP: Weak quarter on slow recovery in agri pipe demand

Finolex Industries (FNXP) has reported a tepid Q2FY24 pipe volume growth of 6.2% YoY (-31.7% QoQ, 4-year CAGR of 7.0%) on a low base due to lukewarm demand from agriculture segment (60% volume mix in Q2). Consolidated EBIDTA margin contracted 127bps QoQ to 11.7% (vs EBITDA loss of ~INR 1.4bn YoY) due to lower profitability in pipes segment (EBIT/kg down 21.7% QoQ to INR 10.7).

In Q1FY24, Finolex Industries (FNXP) reported pipe volume growth of 28.1% YoY (+13.2% QoQ, flat 4-year CAGR) on a low base, driven by an uptick in agri sector (70% vol mix) and sustained demand from plumbing segment. Consolidated EBIDTA margin contracted 612bps QoQ to 12.9% (+235bps YoY on low base) primarily due to a steep decline in the profitability of PVC resin segment (EBIT/kg down 96.6% QoQ due to contraction in PVC-EDC/VCM spreads).

In Q4FY23, Finolex Industries (FNXP) reported pipe volume growth of 3.6% YoY (-9.9% QoQ, flat 4-year CAGR), driven by uptick in agri and plumbing demand, as PVC resin prices stabilised (close to their 10-year average). Consolidated EBIDTA margin expanded by 10.9ppt QoQ to 19.1% (+246bps YoY) driven by profitability improvement in both PVC pipes and resin segments.

We recently interacted with the management of Finolex Industries (Finolex) and following are the key takeaways: 1) Demand from agriculture pipes is yet to pick-up in Q4FY23 post strong demand seen in Dec’22 (partly due to dealer restocking as PVC prices started to increase post a sharp decline). It is hopeful of better demand scenario in March as the busy season for agriculture has started (Feb-May) and PVC prices remain attractive post the steep correction of ~34% YTD.

Finolex Industries (FNXP) reported a better than expected growth of 92.4% YoY (4-year CAGR of 11.2%) in pipe volumes on a low base. The segmental outperformance was driven largely by the agri segment as well as dealer restocking as PVC resin prices stabilised.