After losing nearly half of its investor wealth since October 2021, it looks like there might be some recovery in Finolex Industries going ahead.
The stock has fallen as much as 48 percent from its 52-week high of ₹268, hit in October 2021 to currently trade around ₹138. In the past 1 year, it has fallen 21 percent while has shed 33 percent just in 2022 YTD.
However, going ahead, some brokerages see an upside of up to 42 percent in the stock in the next 12 months. Brokerage houses IDBI Capital, ICICI Securities and Anand Rathi have buy calls on the stock.
The pipes and fittings manufacturer reported a 30.81 percent year-on-year decline in its profits to ₹100.09 crore in the June quarter. Its Ebitda fell 39.9 percent to ₹125.91 crore in the quarter under review.
The company attributed the drop in profits to a decline in PVC prices from $16,000 in March 2022 to $1,200 levels by the end of June 2022.
Total income from operations rose 23.3 percent to Rs1,189.81 crore during the first quarter of FY23.
"Amongst our building material coverage stocks, we like FIL in the pipes segment owing to its strong positioning in the domestic agri-pipes market, backward integrated operations and healthy balance sheet. After the recent fall in the stock price, the valuation looks attractive. BUY with a Target Price of ₹195," said IDBI Capital in a recent note.
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, stated IDBI. The management guided that softening of raw material prices will ease the pricing pressure and boost demand going forward, it added.
Meanwhile, ICICI Securities and Anand Rathi have a target price of ₹173 for the stock.
"High prices at the start of the quarter led to a build-up of high-cost stocks; the fall in prices toward the quarter’s end led to unsold stocks being marked down. This cut into profits. Performance would be muted as the near-term pricing situation is challenging (likely to stabilise by end-Q2FY23). However, we derive comfort from the encouraging demand outlook (lower PVC resin prices would boost off-take). Also, an early announcement of surplus-cash deployment to reward shareholders or for inorganic opportunities could boost sentiment. Hence we maintain a Buy rating on the stock, cutting our TP to ₹173," said Anand Rathi in its results review report.
ICICI Securities also noted that the management has stated profitability of the resin segment may remain low as PVC prices continue to fall in Q2 and the company is saddled with a high-cost inventory. PVC pipe demand is expected to improve in H2FY23 post raw material price stability, it added. ICICI cut its FY23E/FY24E PAT estimates by 14 percent/5 percent factoring in the lower profitability of PVC resin/pipe segments. However, it maintained a BUY call with a revised target price of ₹173 (earlier: ₹181) due to a strong balance sheet and inexpensive valuation.
Finolex Industries Limited is a manufacturer of polyvinyl chloride (PVC) pipes and fittings, and PVC resins. The Company operates through two segments: PVC resin and PVC pipes & fittings. The Company offers its products in various categories, including agricultural pipes and fittings, plumbing and sanitation pipes and fittings, and solvent cement, primer and lubricant.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
