Finolex Industries: Piping fixture

PVC water and CPVC pipes maker, Finolex Industries share price eased more than 1% to trade at Rs 549 after the company informed about one of its product lines getting affected by the non-availability of raw material.

Due to Force Majeure declared by our major VCM (vinyl chloride monomer) supplier during March 2020, the operations with respect to its VCM to PVC (polyvinyl chloride) route will be affected for 30 to 35 days, Finolex informed stock exchanges.

It add that, this would result into a shortage of PVC production of approximately 15,000 MT. However, its EDC (Ethylene Dichloride) to PVC route production will not be affected. The making and supplies of PVC pipes and fittings will not get affected.

Finolex revenue mix is slightly tilted in favour of PVC (58%) and PVC Pipes & Fittings (42%). The company’s fiscal third quarter to December 2019, was below analyst expectation. While it registered a 7.6% on-year fall in consolidated revenue stood at Rs 699.4 crore as against Rs 756.61 crore in the corresponding quarter last year, profit after tax came in at Rs 98.53 crore as against Rs 79.77 crore, an increase of 23.5%.

The decline in revenue was led by the extended monsoon season with cyclones after which, it impacted the volumes in both the segments.
PVC Resin volume registered on year decline of 11.5% to 59,154 MT while Pipes & Fitting’s volume registered a fall of 10.8% to 52,815 MT. In spite of lower volumes, the operating margins are good on account of better realisations and higher PVC EDC Delta.

EBITDA for the quarter fell by 0.4% on year Rs 138.43 crore, as against Rs 138.94 crore in the corresponding quarter last year, with a corresponding margin expansion of 143 bps. EBITDA margin for the quarter stood at 19.8%.

Looking at the operational performance on a segmental basis, PVC Resin EBIT margin stood at 20.1% vs 16.7% in Q3FY19 and EBIT margin of PVC Pipes & Fittings stood at 7.9% vs 7.4% of Q3FY19.

Finolex is likely to be a major beneficiary from the government’s focus on irrigation, providing piped water to all by 2024 and improvement in rural consumption in the long term. This should help the company to report strong performance in the near future.

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