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CD Equisearch
Finolex Ind (Reduce)
Target: ₹180
CMP: ₹208.95
Headquartered in Pune, Finolex Industries is a leading manufacturer of PVC-U pipes & fittings and PVC resin.
Record PVC/EDC delta at $790/ton (Vs $654/ton in Q2-FY21 Vs $830/ton in Q1) last quarter explains the momentous rise in PVC resin EBIT to ₹230.59 crore compared to just ₹99.10 crore in the same quarter a year ago, as external sales of resin rose by an astonishing 41.6 per cent to 13,684 tonnes.
With spreads at record highs, PVC resin spreads would take some time to stutter to its historical level of some $450/tonne.
The stock currently trades at 15.1x FY23e EPS of ₹13.86. Post tax earnings are estimated to flat line next fiscal for PVC/EDC delta is estimated to fall for Q2’s $790 / ton as PVC resin prices soften and earnings of PVC pipes & fittings modestly rise.
Though increasing mix of non-agri business would support margins, its sway on overall earnings will hardly be discernible. Wherefore, return on equity would plunge to some 20 per cent next fiscal from the record 30.6 per cent in FY21.
Balancing odds, assign ‘Reduce’ rating on the stock with revised target of ₹180 (previous target: ₹104) based on 13x FY23 earnings over a period of 6-9 months.
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