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Finolex Industries (Buy)
CMP: ₹410.55
Target: ₹480
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 is largely used in the agriculture segment.
The stock currently trades at around 13.4x FY20e EPS of ₹29.80 and 20.2x FY21e EPS of ₹19.8. Hamstringed by motley of factors including economic stress due to Covid-19 and gut-wrenching fall in crude oil prices, post tax earnings would tumble by a third this fiscal on dismal return on capital.
Yet sustainable competitive positioning such as backward integration in PVC pipes and remarkable distribution network would foster faster rebound in earnings. Further, Government of India’s forceful impetus on building water infrastructure and urban and rural housing would barely stymie demand for PVC pipes. On balance, we maintain our buy recommendation on the stock with revised target of ₹480 (previous target: ₹662) based on 24x FY21e earnings.
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