Industry Plastic Products 47.53% FY16 FY17 FY18 Revenues … · 2018-08-31 · production and sale...

Date: 17th August 2018

COMPANY BACKGROUND

Finolex Industries was incorporated in the year 1981

as a manufacturer of PVC (Poly Vinyl Chloride) pipes

plant at Pune. After that the company has expanded

its facility at Ratnagiri in Maharashtra and Masar in

Gujarat. It is the only PVC pipe manufacturing

company in India which enjoys backward integration

with its own PVC resin unit. Company is a leading

manufacturer of PVC-U pipes and second largest

manufacturer of PVC resin with more than 20%

market share in organised segment. In February

2017, Finolex and Lubrizol Corporation entered into

an agreement, for the manufacture and sale of

‘Finolex FlowGuard’ Plus CPVC pipes and fittings in

India.

INVESTMENT RATIONALE:

Points of Appreciation:

GOVERNMENT INITIATIVES

Under the Prime Minister Awas Scheme it is

proposed to complete construction of 1 crore

houses by 2019 in rural areas. In urban areas 37

lakhs houses has been sanctioned for construction.

To give a fillip to affordable housing sector, the

government of India in its recently unveiled federal

budget, announced setting up a dedicated

affordable housing fund under the National Housing

Overview

CMP – 621.70

Market Cap – 7715.01 cr.

52 week high – 752.80

52 week low – 530.00

Industry – Plastic Products

Sector – Plastic Products

Share Holding Pattern

Promoters – 52.47%

Free Float – 47.53%

Summary Financials (cr.)

FY16 FY17 FY18

Revenues 2481.90 2602.42 2737.81

PAT 254.37 352.20 298.51

EPS 18.72 28.38 24.10

P/E 17.77 20.35 22.65

EV/EBITDA 10.63 12.33 15.33

D/E 0.13 0.04 0.04

ROCE 26.08 25.55 -

ROE 21.59 18.24 -


Board (NHB) – funded by priority sector leading shortfall and GOI’S authorized bonds.

Widening the reach of AMRUT, the federal budget 2019 announced that the scheme

would focus on the water supply to all the household in 500 cities.

SWACHH BHARAT MISSION ( Gramin) has benefited all. Sanitation coverage in rural

areas has increased and govt is focussed on covering a wider area.

LUBRIZOL TIE UP

Finolex tied up with the American Company Lubrizol Corporation, inventors and largest

manufacturers of CPVC compound worldwide, for supply of CPVC compound for

production and sale of Finolex FlowGuard Plus pipes and fittings in India for sale to the

building and construction industry. CPVC Pipes is largely used for hot and cool water

application in housing and industrial sector. It accounts for less than 10% of the overall

pipes and fittings market by volumes. But the demand will increase as builders have also

started using common CPVC pipes for both hot water and cold water application instead

of separate pipes. All the initiatives by the government to promote housing sector –

both rural and urban – will also lead to increase in demand. For FY18 CPVC volume sale

was 5000 MT which is 5% of the total market share of CPVC pipes. And this margin will

increase in the coming years.

Enhancing Distribution Strength And Regional Revenue

The distribution network of Finolex is very strong and the company is expanding it. From

setting up a PVC manufacturing plant in Masar, Gujarat for conquering the North Indian

market to setting up a pipes and fittings warehouse in Cuttack to expand operations in

East India and North East India to establishing warehouses in Delhi and Indore to service

North and Central India markets. Company has 500+ distributors, 1500 sub dealers and

18000 retail touch points. Company has focus on expanding revenue in the northern and

eastern regions.


CASH-N-CARRY MODEL

Company has adopted cash-n-carry business model and due to cash-n=carry model,

receivables continuously remain low. This strategy has helped the company to lower

down receivable days and cash conversion cycle.

FY13 FY14 FY15 FY16 FY17

Receivable days 6.42 5.22 5.79 3.78 3.79

Inventory Days 60.68 64.75 68.72 57.29 54.36

Payable days 31.90 25.04 25.78 33.68 34.40

Cash Conversion Cycle 35.20 44.93 48.73 27.39 23.75

Consumption of PVC

India’s per capita PVC consumption is around 2 kg, which is low compared to 11.8 kg in

the US and over 10 kg in China. Since US and China are developed countries and India is

still a developing country, there are good chances for India to rise above the current

scenario as PVC per capita consumption is much higher in the global market.

Impact of GST

GST implementation will help to improve the competitive positioning of the organised

sector and hasten the shift from unorganised to organised sector in the PVC pipes

industry. GST will wipe out tax evasion and hence it will be beneficial for Finolex

industries in long run.


BACKWARD INTEGRATION

One of the major advantage of Finolex Industries is it has its own PVC Resin plant set up

in Ratnagiri for regular supply of PVC Resin for PVC pipes and fittings. It helps in cost

optimization. Finolex captive power plant at Ratnagiri ensures regular supply of power

to the plant.

Expansion Of Capacity

The PVC Resin capacity has not increased since FY13. In FY13 it increased by 12000 MT

making the PVC Resin capacity 272000 MT p.a. The reason for not expanding the PVC

Resin capacity further is high capital cost and shortage of raw materials. The Company is

regularly expanding its PVC pipes capacity to meet the growing demand of PVC pipes.

FIL’S PVC pipe capacity is 3,30,000 MT p.a for FY18 which will increase to 3,70,000 MT

p.a by the end of the year.

RISKS:

Foreign Exchange Risk –

Although Finolex is greatly exposed to fluctuations in exchange rates – not least due to

its very large import bill, its revenues (arising from PVC resin) are linked to import parity

pricing of PVC Resin, acting as a natural hedge.

Monsoon and Slowdown in Agriculture Sector –

Out of the total sales, approximately 70% was in the Agriculture sector and 30% was in

the Non-Agriculture Sector. So that the monsoon and slowdown in agriculture sector has

an adverse impact on future growth of the company.


Volatility in PVC/EDC spread –

Any volatility in PVC/EDC spread is a key monitor for the company, and could potentially

affect profitability. Company largely import Ethylene, EDC, VCM for manufacturing of

the PVC Resin so that currency exchange rate fluctuation also risk to company.

.

Source: Company presentation

Commodity Price Fluctuations –

For PVC Resin manufacturing, Finolex imports key petrochemical products namely, Vinyl

Chloride Monomer (VCM), ethylene and ethylene dichloride (EDC) from international

markets. Though its PVC prices are regularly adjusted for import parity price of PVC in

international market, little scope exists for evading adverse impact of short term

fluctuations in key raw material prices. Crude oil prices continue to exert great impact

on prices of its finished goods: VCM, EDC and ethylene together constituted nearly 60%

of total raw material cost.


PAST PERFORMANCE OF FINOLEX


PRESENCE OF FINOLEX

Headquartered in Pune, Maharashtra

Three manufacturing plants at: -

o Ratnagiri (Maharashtra) for the manufacture of PVC resin and PVC pipes

including a captive power plant

o Urse (Pune, Maharashtra) for the manufacture of PVC pipes

o Masar (Gujarat) for the manufacture of PVC pipes

Four distribution warehouses: Chinchwad (Maharashtra), Cuttack (Odisha), Delhi, and

Indore (Madhya Pradesh)

10 branch offices across India viz., Ahmedabad, Bengaluru, Chennai, Kochi, Coimbatore,

Delhi, Hyderabad, Indore, Kolkata and Mumbai

Jetty in Ratnagiri for the import of raw materials

800 dealers and 18000 retail houses


BUSINESS STRATEGY

Expanding Footprint- The Company has more than 800 dealers and 18,000 retail outlets

and is planning to expand its distribution network in all geographies

Capacity Expansion – The company is adding capacity for pipes and fittings every year

and has reached 3,30,000 MT as of FY18 and is planning to increase it to 3,70,000 MT by

the end of the year.

Cash-n-carry – The Company because of its strong distribution network follows the

model of cash-n-carry which helps to keep the balance sheet tight.

Branding – Finolex brand is well recognized and appreciated in the market. The

company spends a lot of money on advertisement, sales and promotion mainly in rural

areas.


PRODUCT PROFILE

PVC Resin Division-

Finolex resin manufacturing plant set up in Ratnagiri import key raw materials like

Ethylene, EDC and VCM from international markets for producing PVC resin of both

suspension and emulsion types. It uses its own jetty in Ratnagiri to import these raw

materials. It has an installed capacity of 2,72,000 MT p.a.

PVC-U Pipes Division-

Pipes of various sizes, pressure classes and diameters are being rolled out from its plants

at Ratnagiri, Urse and Masar for catering to both agricultural and non-agricultural

sectors including housing, industrial and construction. To meet the rising demand

Finolex is continuously increasing its pipes capacity.


Company Details-

Segment wise Performance

SALES PROFIT

42%

55%

3%

2017-18

PVC Resin PVC Pipes Power

43%

54%

3%

2016-17


70%

28%

2%

2017-18


63%

31%

6%

2016-17



PRODUCTS

AGRICULTURE PIPES

Agriculture Pipes and Fittings –

PVC-U Selfit Agriculture Pipes –

They have one end self – socketed and the

other end plain, which fits snugly without the use of

copiers. The strong solvent cement joint is permanent and

trouble-free.

PVC-U Ringfit Agriculture Pipes –

They have been specially designed for higher

diameter requirements and eliminate the need for solvent

cement. The sealing ring ensures leak-free joints and easy

installation.

Various types of moulded and fabricated fittings

Column Pipes

PVC-U Column Pipes –

They are manufactured using highly advanced

CNC machines. Having the proprietary of lead free compound it

offers excellent hassle free performance

Casing Pipes –

It is specifically designed and manufactured for tube well

system and helps extracting clean and clear water from the bore-

wells. They are made using the quality UPVC material.

CS Casing Pipes

CM Casing Pipes

Screen Pipes with ribs

SDR series casing pipes


Solvent Cement –

PVC-U Solvent Cement for agriculture applications

PVC-U Solvent Cement for higher diameter agriculture

applications

Rubber lubricant

Primer

NON-AGRICULTURE PIPES

Finolex Flowguard Plus CPVC Pipes and Fittings –

It is specially designed for hot water lines purpose.

It has low thermal conductivity and is fire resistant. It is corrosion and

rust free and is highly suitable for hot temperatures

Finolex Flowguard Plus CPVC Pipes

Various Types of Finolex Flowguard Fittings

Plumbing Pipes and Fittings –

Heavy pressure Plumbing Pipes –

These pipes are plain at both the ends and are joined using

solvent cement in which mating and fusion between the pipe &

fitting takes place creating a homogenous point

ASTM PVC-U Pipes –

These pipes are manufactured as per ASTM D 1785 and are

available in Sch. 40 and 80 pressure classes.

Various types of fittings


Sewerage Pipes –

Underground Sewerage Pipes –

These pipes are specially designed for underground non-

pressure applications like gravity drainage & sewer flow for

transportation of soil & waste discharge of domestic origin,

surface water and industrial effluent.

SWR pipes and Fittings

SWR Selfit Pipes

SWR pipes with integrated rings

SWR selfit moulded fittings

SWR fittings with integrated rings

Solvent Cement

Medium Duty PVC-U solvent cement for plumbing applications

Heavy Duty PVC-U solvent Cement for plumbing applications

PVC-U solvent cement for SWR applications

CPVC solvent cement for hot and cold water plumbing applications

Rubber lubricant

Primer


BUSINESS PROCESS

FIL have integrated production plants that enable them to ensure a steady supply of raw

material to control the quality of their pipes and fittings. The process starts with importing the

raw material – Ethylene dichloride (EDC), Ethylene, Vinyl Chloride Monomer (VCM) and Coal

from international markets through their own jetty. They are stored in bulk at their plant in

Ratnagiri and used for manufacturing PVC Resin. The advantage of a captive power plant is

that it ensures a steady power supply and reduces the manufacturing costs. The majority of

the PVC Resin manufactured is transported to their PVC pipes and fittings manufacturing

plants. The rest is sold in the open market. At the PVC pipes and fittings plants, numerous

products are manufactured which are transported to the dealers and various warehouses

around the country.


PVC VALUE CHAIN

PVC is a synthetic resin made from the polymerization of Vinyl Chloride. PVC is a product which

is derived at the end of the value chain that begins with the industrial grade salt (NaCl). Caustic

and chlorine are produced from the salt. Chlorine and Ethylene gives EDC, which is used to

produce VCM. PVC is derived from VCM.


DIFFERENCE BETWEEN PVC AND CPVC

PARAMETERS PVC CPCV

Full Form Poly Vinyl Chloride Chlorinated Poly Vinyl Chloride

Define PVC is a thermoplastic polymer that is moulded into different shapes to create pipes, fittings, valves and other liquid handling supplies

CPVC is a thermoplastic produced by the chlorination of PVC

Composition Chlorine/Ethylene/Colour Pigments/Additives

Chlorine/Ethylene/Colour Pigments/Additives

Hot Water Lines Only for Cold Water Supply Both Hot & Cold Water Supply

Uses Used for Water Supply and Drain Pipes

Used for Water Supply/ Hot Water Supply Pipes

Fire Resistance No Yes/ Chlorination process makes the CPVC pipes Fire Retardant up to 220 Degrees Fahrenheit

Chlorine Resistance Reactive to Chlorine Unaffected by Chlorine

Pipe Length (metres) 15/ 20/ 25/ 32/ 40/ 50

20/25/32/40/50

Temperature Max temp 140° F Max temp 200° F


PEER COMPARISION

Finolex Astral Poly Supreme Industries Prince Ashirvad

Products UPVC,CPVC

PIPES AND

FITTINGS

UPVC,

CPVC PIPES

AND

FITTINGS

UPVC,CPVC,HDPE,PPR

pipes and fittings

UPVC,CPVC,PPR

pipes and fittings

UPVC,

CPVC

PIPES AND

FITTINGS

Distributors 800 750 916 766 1110

Touch

Points

18000 25000 25000 - 36000

Plants Maharashtra,

Pune and

Gujarat

Gandhinagar

and

Ahmedabad

(Gujarat) and

Tamil Nadu

Maharashtra, Uttar

Pradesh, Madhya

Pradesh, Rajasthan, West

Bengal, Gujarat, Assam,

Tamil Nadu,

Maharashtra,

TamilNadu,

Uttarakhand,

Dadra and Nagar

Haveli

Karnataka

Capacity PVC pipes –

3,30,000 MT

PVC Resin –

2,72,000 MT

1,37,708 MT - 2,10,646 MT 1,08,000 MT

Market

Share

9% 6% 11% 5% 7%

Promoter

Holding

52.47% 58.49% 49.70% - -

Revenue

(Rs.Cr.)

2017

2602.42 1476.69 4462.26 1262.58 2029

Market Cap 7715 13529 15135 - -

PAT (Rs.

Cr.) 2017

352.18 106.62 376.67 74.36 217

PATM(%)

2017

11.78 7.18 8.44 5.88 10.7%

CFO (Rs.

Cr.) 2017

234.15 86.91 464.98 93.91 -

FCF (Rs.

Cr.) 2017

159.70 -29.63 194.46 - -

Debt/Equity

(x) 2017

0.04 0.2 0.16 - -

ROCE (%)

2017

25.54 18.18 33.29 22.46 23.06

ROE (%)

2017

18.24 13.61 25.02 30.53 23.67

EPS (Rs.)

2017

28.37 8.90 29.85 15.74 -

Price/BV (x)

2017

3.12 7.85 8.9 - -

P/E (X) 22.65 71.64 33.22 - -


INDUSTRY

The market of PVC is expected to witness a double digit growth rate in the coming years. Some

of the major drivers contributing the overall market growth of Polyvinyl Chloride (PVC) market

include high growth in the building and construction sector, high growth in the automobile

industry and growing medical devices. Some of the major restraints for PVC market include

increasing competition from steel and concrete pipes and prohibited use of PVC in the

construction of green building.

The Indian plastic pipe market is forecast to grow at a CAGR of 10.4 % till 2021. The major

growth drivers for this market are the growth of government infrastructural spending,

increasing residential and commercial construction, industrial production, irrigation sector,

and replacement of aging pipelines. Agriculture sector is expected to remain major contributor

in the growth of plastic pipe market in India.

Plastic products in water management are being used as compared to various alternate

competitive materials like metal, cement, due to light and weight durability, rust free,

smoother surface.

Infrastructural spending – buttressed by electricity and power projects and higher investments

in railways, road projects, airports and docks and water and sewage projects – would enhance

global PVC demand.


OPPORTUNITIES

Total allocation for rural, agriculture sector is Rs. 14.34 lakh crore. Scope of Long Term

Irrigation Fund to be expanded to cover specified command area development projects.

Under the Pradhan Mantri Krishi Sinchai Yojana, 48 AIBP priority projects of Rs 15000 crore to

be completed by December 2019 and utilisation of irrigation potential of 15 lakh hectares a

project of Rs 2300 crores to be undertaken.

Under the Prime Minister Awas Scheme it is proposed to complete construction of one crore

houses by 2019 in the rural areas. In urban areas 37 lakh houses has been sanctioned for

construction.

The Indian pipes business has been growing rapidly in the past decade, largely due to

increasing demand for pipes in the irrigation sector and construction industry. Among the

several varieties of pipes available in the market, the demand for plastic pipes such as PVC,

CPVC in particular, is on a rise largely due to

• Gaining popularity of plastic pipes over traditional/ galvanised iron (GI) pipes

• Huge replacement demand

• Flexibility in terms of transportation, less corrosive and long lasting life (25 years v/s 8-10

years of GI pipes)

• Easy installation and competitive price in nature (20-25% cheaper over GI pipes)


APPLICATION BREAK-UP OF PVC-INDIA APPLICATION BREAK-UP OF PVC-GLOBAL

In India, approximately 73% of the PVC is consumed by the Pipes & Fittings industries with the

other sectors comprising only 27%. Globally, Pipes & Fittings account for only 43% of the PVC

consumption, showing that PVC applications in India other than Pipes & Fittings are still in the

early stages and are primed for growth. This, along with the relatively low per capita PVC

consumption in India, shows that future prospects for the Indian PVC processing industry are

bright. Although, CPVC pipes and fittings contributed just ~10% to the overall production

capacity in FY15, it is the fastest growing segment of the PVC pipes and fittings industry in

India.


FINANCIALS

PROFIT & LOSS STATEMENT

FY16 FY17 FY18

Income from operations 2481.90 2602.42 2737.81

Growth (%) 0.23% 4.85% 5.20%

Total Expenses 2077.50 2039.41 2253.90

Operating Profit 404.40 563.01 483.90

Operating Profit Margin 16.29% 21.63% 17.67%

Other Income 64.12 24.30 25.40

Other income as % of sales 2.58% 0.93% 0.93%

Depreciation 50.57 55.00 60.64

Interest 44.71 15.31 9.85

Profit Before Tax (PBT) 373.24 517.00 438.81

PBT Margin 15.04% 19.87% 16.03%

Tax 118.87 164.80 140.30

Net Profit 254.37 352.20 298.51

Net Profit Margin 10.25% 13.53% 10.90%

EPS 18.72 28.38 24.10

SEGMENT RESULTS

FY17 FY18 %change

Segment Revenue

PVC 1756.67 1778.38 1.24%

PVC Pipes & Fittings 2216.87 2328.84 5.05%

Power 144.88 142.31 -1.77%

Total 4118.42 4249.53 3.18%

Less: Inter-segment revenue 1130.78 1418.12 25.41%

Income from operations 2987.64 2831.41 -5.23%

Segment EBIT

PVC 354.68 338.84 -4.47%

PVC Pipes & Fittings 177.41 133.93 -24.51%

Power 32.90 7.89 -76.02%

Total 564.99 480.66 -14.93%

Interest (15.38) (9.82) -36.15%

Unallocable exp.(net of income) (32.64) (32.02) -1.90%

PBT 516.97 438.82 -15.12%


RATIO ANALYSIS

Performance Ratios 2013 2014 2015 2016 2017

RoA % 6.67 8.64 2.52 12.09 13.29%

RoE % 19.68 22.52 6.06 21.59 18.24

RoCE % 14.80 20.12 10.33 26.08 25.55

Efficiency Ratios 2013 2014 2015 2016 2017

Receivable Days 6.42 5.22 5.79 3.78 3.79

Inventory Days 60.68 64.75 68.72 57.29 54.36

Payable Days 31.90 25.04 25.78 33.68 34.40

Cash Conversion Cycle 35.2 44.93 48.73 27.39 23.75

Financial Stability Ratios 2013 2014 2015 2016 2017

Total debt/equity (x) 1.16 0.90 0.81 0.13 0.04

Current Ratio (x) 0.89 1.02 1.04 1.31 1.70

Interest Ratio (x) 4.70 4.64 2.15 9.35 34.69

Cash Flow Ratios 2013 2014 2015 2016 2017

Cash flow per Share 22.11 19.78 17.10 45.85 18.87

Price to Cash flow 4.35 9.67 16.59 7.95 30.60

Free Cash flow per share 5.43 5.12 10.02 38.11 12.87

Price to Free cash flow 17.70 37.37 28.30 9.56 44.87

Sales to Cash flow 7.82 9.99 11.67 5.00 12.76

Valuation Ratios 2013 2014 2015 2016 2017

EPS (x) 10.97 13.71 3.85 20.50 28.38

P/E (x) 8.77 13.95 73.67 17.77 20.35

P/BV (x) 1.66 3.00 4.47 2.88 3.13

EV/EBITDA (x) 5.16 6.96 17.92 10.63 12.33

Du-Pont ratios 2013 2014 2015 2016 2017

RoE (%) 19.68 22.52 6.06 21.59 18.24

PATM (%) 8.87 9.86 3.26 13.13 17.30

Sales/Total Assets (x) 244.21 271.39 286.31 335.68 350.80

Assets to Equity (x) 128.18 89.86 86.26 37.82 21.62


CASH FLOW

FY15 FY16 FY17

Cash Flow from Operating Activity 212.20 569.00 234.15

Cash Flow from Investing Activity 22.14 -77.23 47.91

Cash Flow from Financing Activity -242.96 -493.66 -276.13

Net Cash Flow -8.62 -1.89 5.93

BALANCE SHEET

METRIC/FIGURES (cr) 2016 2017 2018

CASH & CASH EQUIVALENTS 10.41 5.51 6.82

DEBTORS 17.63 52.49 43.14

INVENTORY 447.22 557.40 611.55

LOANS & ADVANCES 0.23 0.22 0.26

INVESTMENTS 817.21 1259.52 1584.31

FIXED ASSETS 846.98 851.66 881.68

OTHER ASSETS 208.98 269.9 378.28

TOTAL ASSETS 2348.66 2996.70 3506.04

SHARE CAPITAL 124.10 124.10 124.10

TOTAL RESERVE 1445.75 2190.70 2671.03

TOTAL NETWORTH 1569.85 2314.80 2795.13

CURRENT LIABILITIES & PROVISION 586.84 459.45 491.07

DEBT 0.39 0.35 0.32

OTHER LIABILITIES 191.58 222.10 219.52

TOTAL LIABILITIES 2348.66 2996.70 3506.04


QUARTERLY HIGHLIGHTS

Particulars Q1FY19 Q1FY18 %ch Income from operations* 827.81 730.70 13.29%

EBIDTA 193.90 130.60 48.47%

EBITDA margin (%) 23.42% 17.87%

Depreciation 16.20 14.50

EBIT 177.70 116.10 53.06%

EBIT % 21.47% 15.89%

Other income 13.70 3.80

Finance Cost 5.20 3.00

PBT before Exceptional items

186.20 117.01 59.14%

PBT % 22.49% 16.01%

Exceptional items* 27.90 0

PBT after exceptional items 158.30 117.01 35.30%

Tax 55.00 37.20

PAT 103.30 79.80 29.45%

PAT% 12.48% 10.92%

* excluding duties and taxes

* Derivative claim disclosed as contingent liability as at 31st March 2018 is settled and the

expenditure thereon is shown as exceptional item. There are no more claims or liabilities on

account of derivatives.


VALUATION

Scenario 1 assumption:

As per Q3FY18 concall, management mentioned about achieving a target of USD $1 billion (Rs.

6870 cr.) by 2020. So to be little on the conservative side, the target is assumed to be achieved

by 2021 in the base case scenario.

Scenario 1 Part-1 is based on 5yrs and 3yrs average PATM% and Scenario 1 Part-2 is based on

5yrs and 3yrs average PBIDTM%.

Scenario 1 (Base Case Scenario) Part-1

FY21

5 yrs. avg. PATM (%) 3 yrs. avg. PATM (%) Sales 6870 6870

PATM (%) 7.33% 9.62% PAT 504 661

P/E 22.79 22.79 MCap(cr.) 11476 15062

No. of shares 12.410 12.410 Price 925 1214

Scenario 1 Part-2 FY21

5 yrs. avg. PBIDTM (%) 3 yrs. avg. PBIDTM (%) Sales 6870 6870 PBIDTM (%) 14.57% 16.29%

PBIDT 1001 1119 EV/EBITDA (x) 13.89 13.89

EV (cr.) 13903 15545 Mcap (cr.) 13826 15467

No. of shares 12410 12410 Price 1114 1246


Scenario 2 assumption:

In the worst case scenario the target of USD $1billion is assumed to be achieved by 75% by

2021.

Scenario 2 Part-2 FY21 5 yrs. avg. PBIDTM (%) 3 yrs. avg. PBIDTM (%)

Sales 5153 5153 PBIDTM (%) 14.57% 16.29%

PBIDT 751 839 EV/EBITDA (x) 13.89 13.89

EV (cr.) 10427 11658 Mcap (cr.) 10350 11581


Scenario 2(Worst Case Scenario) Part-1

FY21

5 yrs. avg. PATM (%) 3 yrs. avg. PATM (%) Sales 5153 5153

PATM(%) 7.33% 9.62% PAT 378 496

P/E 22.79 22.79 MCap(cr.) 8607 11296



Conclusion

Government focus on building rural water and sanitation infrastructure and ‘smart cities’ will

definately increase the PVC demand. Government housing scheme for both rural and urban

areas – Prime Minister Awas Scheme proposes to complete 10m rural houses by 2019,

construction of 3.7m houses in urban areas have already been sanctioned.

FIL’S tie up with American Company Lubrizol Corporation to provide CPVC compound for

manufacturing of CPVC Pipes and fittings will strengthen the Company’s track record of

providing superior products for the domestic market. For FY18 CPVC volume sale was 5000

MT which is 5% of the total market share of CPVC pipes. And this margin will increase in the

coming years.

FIL is expanding its distribution network by increasing number of retail touch points and

dealers. The Company is also doing capacity expansion which will help them to meet the

growing demand. FIL’S PVC pipe capacity is 3,30,000 MT p.a for FY18 which will increase to

3,70,000 MT p.a by the end of the year.

Company is benefited with backward integration of PVC Resin plant for regular supply of PVC

Resin for PVC pipes which help in cost optimisation. Yet the volatility in the prices of crude

based raw materials like EDC, VCM and Ethylene have oftentimes affected the benefits of

backward integration.

The demand of PVC pipes is also affected by unseasonal monsoon which has a direct effect

on company’s revenues and profit margin.

Finolex has a great scope in future because of its quality products and wide distribution

network. It also has a brand name which will help the company to capture the market.


DISCLAIMER

I am not a SEBI registered Research Analyst. No recommendations are given for the company

discussed in the report. Any valuation discussed in the report is solely for informational

reasons and not to be taken as an investment recommendation. I do not hold any shares of the

company, neither am I beneficiary to any shares of the company.

Authored by: Radhika Modi

Head of Research: Tejas Jariwala

SOURCES

Annual Report

Investor Presentation

Conference Call

BSE website

Web based Software – Ace Analyser

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