Brokerage Is Bullish On This Small Cap Industrial Plastics Stock, Suggests Buy For 47% Upside

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Investment
oi-Shubham Kumar
|

Published: Wednesday, July 27, 2022, 12:38 [IST]

IDBI Capital, a leading brokerage firm in its latest report published on July 25, has given abuy call to Finolex Industries Ltd, a plastics sector small cap company for a target price of Rs 195 apiece. The brokerage sees a potential gain of around 47% in 12 months. The company’s Q1FY23 result was a mixed bag as net sales beat the estimate, while margins disappointed owing to inflationary raw material prices. Higher raw material prices dented demand economics which in turn resulted in lower agri-pipes off-take.

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Stock Outlook & Returns

The Current Market Price (CMP) of Finolex Industries Ltd on NSE is Rs 132.95 apiece. Today, the stock opened at Rs 131.60 apiece, the previous close was Rs 131.35 apiece. It recorded the 52-week low at Rs 125 apiece on recorded on 10th May 2022, and the 52-week high at Rs 244.50 apiece was recorded on 25th October 2021.

In the last 1 week has fallen 3.14% and 4.63% in the last 1 month, respectively. Over the last 1 year, it has fallen 23.98%. Over the last 3 and 5 years, its shares witnessed a share jump of 29.01% and 9.81%, respectively. In long-term investment tenure, the stock has performed good and given decent returns to shareholders.

Taking the company’s CMP and the estimated target price of Rs 195 apiece into consideration, the stocks have the potential to gain 47% over the next 12 months.

Stock Details  
CMP Rs 132.95 
Target Price Rs 195
Potential Upside 47.00%
Market Cap Rs 8,233.73 Cr
1-Year Return -23.98%
3-Years Return 29.01%
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Non-agri pipes segment boosted sales volume

Finolex Industries’ blended sales volume improved by 27% YoY to 134,706MT. Pipes volume grew by robust 28.9% YoY to 71,960 MT, while PVC volume was up by 24.9% YoY to 62,746MT. Raw material prices are on a softening trajectory, which resulted decline in NSR QoQ, while growth over YoY in PVC and pipes segment was at 0.2%/3.9% respectively. PVC/EDC delta stood at &dollar;530MT in Q1FY23 & PVC/VCM delta stood at &dollar;170MT. “We believe demand traction may improve in agri-pipes business as prices soften for end users led by lower raw material prices,” the brokerage said.

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Higher raw material prices weighed on margins

The brokerage commenting on the Q1FY23 results of the company said, “Finolex Industries’ (FIL) Q1FY23 result was a mixed bag as net sales was beat to our estimate, while margins disappointed owing to inflationary raw material prices. Higher raw material prices dented on demand economics which in turn resulted in lower agri-pipes off-take. However, on a positive note non-agri pipes demand traction was encouraging. The management guided that softening of raw material prices will ease the pricing pressure and boost demand going forward. Net sales increased by 23.2% YoY to Rs11.8bn, while EBITDA came in at Rs1.2bn, lower by 40% over Q1FY22. The company reported adjusted net profit of Rs0.9bn, down by 31.8% YoY. We have broadly kept our estimates unchanged.”

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Remains our preferred pick in pipes, BUY with a Target Price of Rs 195

On the valuation of the stock, the brokerage said , “Amongst our building material coverage stocks, we like FIL in pipes segment owing to its strong positioning in domestic agri-pipes market, backward integrated operations and healthy balance sheet. After recent fall in the stock price, the valuation looks attractive. BUY with a Target Price of Rs195.”

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About – Finolex Industries Ltd.

Finolex Industries Ltd is the largest PVC pipe manufacturer in India. The companys product range includes PVC-U Pipes & Fittings, PVC Resin, Ringfit PVC-U Pipes (for agriculture and potable water supply), Selfit PVC-U Pipes (for agriculture and potable water supply), Fabricated Fittings for Agriculture, Protector Well Casings and Screens, Moulded Fittings for Agriculture, Underground Sewerage Pipes, Selfit & Ringgfit SWR PVC Pipes, SWR Moulded Fittings, Plumbing Pipes (for domestic plumbing applications), Solvent Cemented Fittings (for domestic plumbing applications), etc. The company is also trading actively in Ethylene Di Chloride and Methanol. These products are used as solvents in Paints, fertilizers, Lamination, Pharma, Amines and various other industries in India.

Disclaimer

The stock has been picked from the brokerage report of IDBI Capitals. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

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Story first published: Wednesday, July 27, 2022, 12:38 [IST]

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