Company Visit Note: Finolex Industries Ltd - ACCUMULATE - TP Rs.671 - Kotak

We recently met the management of Finolex Industries Ltd (FIL). The company is positive on PVC pipes demand in the longer run and believes that GST would be positive for the organized players in the longer run. The company is expanding its capacity every year in order to achieve double digit volume CAGR in long term.

Key Highlights

- FIL has reported strong volumes in the past 3-4 quarters post GST implementation and is positive on PVC pipes demand in the longer run. Further, its aggressive approach in terms of pushing sales also resulted in increased market share. Now, the company is focusing on improved product mix with increased share of value added products.

- We believe that, widespread rainfall expected across most of the states would be positive for rural economy and would positively impact demand of agri pipes. FIL with 70% revenue from rural segment would be a key beneficiary from the same. Its capacity addition plan of 40,000 tonne in FY19 with capex of Rs 1bn is based on its target to achieve double digit volume growth in the longer run.

- EBIT margin of PVC resin segment at over Rs 18 per kg is at highest level in the last three years. This is driven by higher than average PVC-EDC spread of USD 689 per tonne and also due to inventory gain. The current PVC EDC spread has declined slightly to USD 659 per tonne but is still at healthy level.

Outlook & Valuation

- We believe that FIL would be a major beneficiaries from government's focus on irrigation and improvement in rural consumption in long term. We maintain our estimates for FY19E and FY20E. Based on FY19E and FY20E EPS Rs 28.6 and Rs 33.6, the stock is trading at PE of 22.0x and 18.8x respectively. We maintain our Accumulate rating on the stock, with unchanged target price of Rs 671, valuing the stock at 20x on FY20E EPS of Rs 33.6.

Shares of FINOLEX INDUSTRIES LTD. was last trading in BSE at Rs.617.9 as compared to the previous close of Rs. 635.35. The total number of shares traded during the day was 7149 in over 206 trades.

The stock hit an intraday high of Rs. 638.7 and intraday low of 614. The net turnover during the day was Rs. 4486289.

Source : Equity Bulls

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