Target: ₹224
CMP: ₹165.50
We remain positive on Finolex Industires’ volume growth and healthy margin with PVC-EDC spread for near term, post our recent management meeting. Finolex Industires will continue to focus on maintaining its leadership position in agri. pipe market and Q4/Q1 being seasonally strong quarters for agri-pipe volumes will benefit the company, in our view.
Fluctuation in PVC resin prices impacted volume growth for Finolex in FY23. PVC resin prices were stable post severe correction in Nov-2022 to ₹66/kg, which drove volume growth at 92 per cent y-o-y in Q3-FY23.
However, PVC resin prices again slowly moved upward to ₹91/kg by Feb-2023. Further, slow opening of China market post Chinese new year, impacted PVC resin prices (latest post ₹3/kg correction in PVC resin prices on March 15, stable at ₹81/Kg).
We observed strong traction in agri-pipe volume at the start of Q4FY23, which eventually moderated in March with raw material volatility. However, domestic major PVC resin supplier (Reliance Ind) initiated price protection in PVC resin from March 17 to April 1, which we believe would help agri-pipe volume growth in its seasonal strong quarter
Also, higher PVC-EDC spread (in range of $600-650/MT) will help in maintaining EBITDA margin between 16-17 per cent.
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