Captain Pipes Declares Q3 Results: Gets Buy Call From Asit C. Mehta

A small-cap company in the plastic products industry is Captain Pipes. One of the top 10 producers and exporters of CPVC plumbing pipes and fittings, uPVC column pipes, and uPVC plumbing pipes and fittings is Captain Pipes Ltd. Products offered by the company include CPVC Column Pipes | Borewell Pipes; CPVC Pressure Pipes; CPVC Pressure Fittings; CPVC / PVC / CPVC Solvent Cement; CPVC Plumbing Pipes; CPVC Plumbing Fittings; SWR Pipes; SWR Fittings; uPVC Casing Pipes; Garden Pipes; Suction Pipes; HDPE Pipes; and so on.

The company has declared financial results for the quarter ended 31st December 2023. From Rs. 224.55 lakhs in 9MFY23 to Rs. 562.11 lakhs in 9MFY24, the company's EBITDA climbed by 150%. The EBITDA margins also showed a significant rise of 653 basis points, rising from 3.49% in 9MFY23 to 10.02% in 9MFY24. Because of the impact of lower PVC resin prices on total realisations, the revenue from operations fell 12.8% from Rs. 6427.73 Lakhs in 9MFY23 to Rs. 5608.64 Lakhs in 9MFY24. Furthermore, from Rs. 84.98 lakhs in 9MFY23 to Rs. 307.70 lakhs in 9MFY24, Profit After Tax (PAT) climbed by 262%.

The company also completed the acquisition of 38054 square meters of industrial land close to Ahmedabad during the quarter. The purchased site would be utilised to establish a greenfield PVC pipe and fitting manufacturing plant.
Post the financial results of Captain Pipes, Asit C. Mehta Financial Services Ltd said, "We initiate coverage on Captain Pipes Ltd (538817) with a 'BUY' rating and a target price of Rs 25 representing an upside of 22% from the current market price.

We believe the company is strategically positioned to capitalize on significant opportunities within the plastic pipes sector. Planned capacity expansion, coupled with a shift in the revenue mix, is projected to propel EBITDA margins to the range of 11%-12% in the next 2 years. Notably, the company has consistently reported robust revenue and EBITDA over the past five quarters. With raw material prices stabilizing and an expanding distribution network, the company's performance is expected to further improve, leading to enhanced Free Cash Flow (FCF)."

"Captain Pipes Ltd is trading at 44.3x/24.8x FY25E/FY26E earnings. Despite being a smaller player in the industry, we see potential for the stock to be re-rated due to planned expansion and a change in revenue mix. Our recommendation is to BUY with a target price of Rs. 25, suggesting a 22% upside from the current levels over the next year," said the brokerage.

The firm aims to pursue a 50:50 balanced product mix for both divisions in order to further solidify its plumbing solutions segment in the future. It is projected that this tactical approach will increase EBITDA margins from the current 10.0% in Q3FY24 to 11%-12% over the course of the following two years. The firm is currently in the process of setting up a new production facility in Ahmedabad in order to take advantage of the upward trend in demand within the industry. This site for development exceeds the size of the current facility in Rajkot by more than six times, with the acquisition of six contiguous industrial plots totalling 38,054 square meters.