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Edelweiss Broking
Finolex Industries (Buy)
Target: ₹258
CMP: ₹224.65
Finolex Industries Ltd (FIL) is the market leader in India’s agriculture pipes segment (nearly 63 per cent of total PVC pipes volume) and is known for its strong brand, product quality and aggressive pricing compared to competitors. The company is the only backward integrated player in the PVC piping business (it manufactures resin for its PVC pipe production), and thus, is a major beneficiary of higher PVC resin prices.
Over FY21-23, we expect FIL’s RoCE (excluding cash and investment) and earnings to improve due to higher margins and volume growth. Also, the company has a healthy dividend pay-out ratio, which should improve further owing to the expected special dividend on account of the Pune land deal.
We expect healthy volume growth in FIL’s pipes and fittings business on back of agricultural demand despite higher prices as demand deferment is not possible in consecutive seasons with good monsoons and higher rural per capital income.
The stock is available at low valuations of 17x 1-year forward P/E despite expansion in its returns profile and profitability margins. FIL is currently trading at 16.9x/16.9x FY22/FY23 earnings. We believe the company is trading at an attractive valuation along with strong fundamentals.
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