Prince Pipes & Fittings, India's largest integrated piping solutions provider and multi-polymer manufacturer, has the potential to reach a high of ₹842 apiece from its current market price of ₹595, an upside of close to 41.50 percent, according to domestic brokerage house IDBI Capital.
The stock, which debuted on the exchanges in December 2019 at ₹166.6 apiece against an issue price of ₹178, has increased gradually to produce a 234.26 percent return to date.
IDBI Capital is bullish on the stock despite the gains given its attractive valuation and multiple growth levers.
The company is engaged in the manufacturing of polymer piping solutions in five types of polymers. Over time, it has emerged as one of the fastest-growing companies in the Indian pipes and fittings industry. The company is marketing its products under two renowned brands, namely, Prince Piping Systems and Trubore Piping Systems.
The brokerage believes that the company is in a sweet spot to benefit from industry consolidation and a healthy demand environment and is poised to outperform the industry leaders on growth parameters.
The brokerage stated that it is bullish on the company among the organised players, owing to its legacy of over three decades in the business, comprehensive product portfolio across four key polymers, strategically located manufacturing plants, extensive distribution reach, and consistent efforts on creating strong brand equity.
It boasts of having compressive over 7,200+ SKUs and an extensive distribution reach of over 1,500+ channel partners. Prince Pipes is focused on creating a strong brand recall through aggressive marketing and advertising exercise, said the brokerage.
According to brokerage calculations, Prince pipes rank second with a healthy CAGR of 16 percent over FY17-22, trailing only the Astral with an 18 percent CAGR.
Given the strong demand dynamics and the company’s efforts on capacity addition, new product launches, and increasing distribution reach, these will keep the growth momentum intact in the future.
Despite being the late entrant into a big league category, the company managed to garner a 6 percent market share in the pipe industry. “With the required things in place for sustainable net sales growth, we believe the company is poised to further strengthen its market share in times to come," says IDBI Capital.
“We expect net sales to grow at a CAGR of 7.4% over FY22–25E, supported by higher sales volume as well as better realisations (aided by an improved product mix). EBITDA and PAT are expected to grow at a combined CAGR of 3.5% and 2.2% over the same time period.”
However, the brokerage outlined some key downside risks, including a slowdown in the economy that would weigh on real estate, infrastructure, and agriculture spending, in turn resulting in degrowth in the domestic pipe industry.
Raw material prices (PVC resin) are very volatile in nature and do have an impact on the gross margin of the company. Also, a sharp increase in raw material prices may dampen demand, particularly in price-sensitive segments like agriculture, it added.
Further, it says, "Increased competition from organised and unorganised players may cause lower pricing power/higher discounting and hence suppress margins."
Meanwhile, the company recently on August 09, 2022, announced its foray into the bathwater segment with plans to launch faucets and sanitaryware products. The company is targeting to introduce products in a phase-wise manner across India from March 23 onward.
9 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.