Multi Baggers

Finolex Industries

Finolex Industries Limited (FIL) is the largest manufacturer of PVC Pipes and Fittings in India. The Pipes division of FIL is the first Indian pipe manufacturer to be awarded IS/ISO 9001:2000 Certification. It offers a wide range of PVC Pipes and Fittings from 20mm to 400mm diameter for diverse applications in agriculture, housing, telecom and many more.

FIL is also the only PVC Pipes manufacturer to have its own PVC Resin Plant, located at Ratnagiri-Maharashtra, with a capacity of 2, 60,000 TPA. The company is in the process of increasing this capacity further, in the current financial year.

FIL has a nation wide distribution network with more than 15,000 dealers and retailers spread across the country.

FIL has posted a very good set of results for the first quarter ended 30th June 2009. Net sales was down 15% at Rs 359.50 crore. 63% of its earnings comes from PVC and the rest from PVC fittings and pipes. The sales were down on account of the various discounts it had to give off to ward off competition. But volumes were higher and so were price realisations.

The company managed to bring down its operating costs drastically. From a 91% of the sales in Q1FY09, it was at just 73% of the net sales of Q1FY10. And this led to an overall surge in profits. EBIDTA was up 40% at Rs 107.57 crore. Net profit surged by a whopping four times from Rs 11.74 crore to Rs 47.86 crore.

The profit margins have been extremely healthy. OPM was up from 9.7% to 28.09% and NPM was up from a meager 2.42% to 13.31%.

The company has achieved a strong profitability for the quarter on the back of sharply gulf between raw material prices and the selling prices. With the reduction in international petrochemical prices, in line with the reduction in crude oil prices, the selling price of PVC Resin as well as PVC Pipes have come down in comparison with the prices prevalent in the corresponding quarter of previous year.

The company has already initiated measures to increase the PVC Pipes capacity from 97,200 MT p.a. to 140,000 MT p.a. The additional capacity is expected to be operational by the end of the current financial year.

Promoters have a 52.12% stake in the company and 2.81% stake in held by the financial institutions.

The demand for PVC in India is huge, much more than the supply. The company has a huge presence in agriculture and housing. As realty will pick up, so will the demand for the company’s pipes. Obviously, the company anticipates a huge perk up in demand which is why it is also increasing its capacity.

In the Budget, the increased allocation for irrigation and farmer oriented policies is expected to benefit the company immensely.

The company is expected to end FY10 with an EPS of around Rs 15 and today it is quoted at Rs 50, giving a PE of just around 3. At the current price, the stock is a great value buy, actually a bargain, given the long term prospects of the stock.

Disclaimer: The writer may be deemed to be concerned or interested in the recommendation as he and his clients are invested in this scrip.