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Finolex Industries (Buy)
CMP: ₹545.95
Target: ₹662
Headquartered in Pune, Finolex Industries is one of India's leading manufacturers of PVC-U pipes and fittings and PVC resin. Its pipes and fittings largely find use in the agriculture segment followed by construction and industrial segments. Its plants are located in Maharashtra and Gujarat.
The stock trades at 19x FY20e EPS of ₹28.59 and 16.4x FY21e EPS of ₹33.08. Recently announced massive tax cut immensely helped prevent a sharp decline in post tax earnings — profit before tax estimated to decline 22 per cent this fiscal. A large part of earning stress in first half has emerged from suppression in margins, particularly in PVC segment, prompting post tax earning cut of 14.1 per cent. Yet no smallish opportunity emerging in Indian water and housing infrastructure has the potential to reset growth trends of PVC industry — some 15 per cent estimated over the next few years as against 9 per cent in the past.
On balance, we retain our buy recommendation on the stock with revised target of ₹662 (previous target ₹599) based on 20x FY21 estimated earnings.
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