Stock To Buy: This Small Cap Plastic Products Stock Get Buy Call For 53% Potential Upside

Stock Outlook

The current market price of Prince Pipes & Fittings Ltd. stock is Rs 48.95. Currently, the stock is trading Rs 49.95 above the 52-week low and Rs 298.75 below the 52-week high, respectively.

The stocks hit the 52-week low at Rs 549.30 apiece on June 20, 2022, and the 52 week high at Rs 897 apiece on November 9, 2021. The ROE of the stock is 19.71%.

Returns On Investment

In the past 1 week, the stocks gave a negative return of 0.43%. Over the past 1 and 3 months, the stock gave a negative return of 1.15% and 8.08%, respectively. In terms of returns, the stocks of the company didn't perform well in the past 1 year. The stocks gave a negative return of 7.41%.

 

Strong comeback expected in H2FY23

The company witnessed heavy inventory losses of Rs 30-35 Cr in Q1 due to a sharp fall in PVC prices. The management expects inventory losses in Q2FY23 too, which will impact realization and keep margins under pressure.

Market sentiments should improve and good volume growth is expected from H2FY23 on the back of channel restocking and stable PVC prices. Inventory levels are also expected to normalise from Q2FY23E onward.

Entry into Bathware & Sanitaryware segment

Prince has announced its entry into the Faucetware & Sanitaryware segments (15,000 Cr market size which is 65% organised) and is planning to launch these products from Q4FY23E. Initially, it is planning to operate on an outsourcing-based model for the next 12 to 18 months.

Q1FY23 Performance

Prince has shown a weak performance, where Volume/Revenue/EBITDA/PAT grew by 70%/82%/7%/-11% YoY (on a low base) while -31%/-33%/-69%/-82% QoQ respectively.

Medium-term outlook remains strong despite feeble profitability due to inventory loss

Prince reported fragile volumes and margins, while the EBITDA and PAT margins saw a sharp decline (410 bps/530 bps and 510 bps/730 bps YoY/QoQ respectively) in Q1FY23 due to inventory loss of 30-35 Cr as the PVC prices fell by 55% QoQ to ₹ 14/kg along with dealer destocking. The management expects that the PVC prices are at near to bottomed out and the demand should start to recover from Q3FY23E. We continue to like Prince on the back of its large product portfolio (launched new products PE-FIT Aqua - HDPE Piping Systems and Corfit Manhole Chambers in May), PAN India distribution, entry into Bathware and Sanitaryware segment (production to start from Q4FY23E) and focus on B2C. Guidance of 13-15% EBITDA Margins in the medium term remains intact.

Buy for a target price of Rs 910

The impact of this sudden fall in PVC prices is expected to shrink the margins in Q2 as well, which will then gradually improve from H2FY23E. "We maintain BUY on the stock for the target price of Rs 910/share (35x PE which is the industry average) on FY24E EPS of ₹ 26 with a potential upside of 52%," the brokerage said.

About - Prince Pipes & Fittings Ltd.

Prince Pipes and Fittings Limited is one of India's largest PVC pipe manufacturers & multi polymer processors. Incorporated in 1987, and a highly regarded PVC pipes brand, winning the Brand of the Year - Pipes Award at INEX Realty+ Awards 2021. Prince Pipes specialises in manufacturing world-class plumbing, sewerage & drainage piping systems for both residential and commercial applications and CPVC piping systems or industrial pipes that find applications in industrial and infrastructure projects. As a leading UPVC pipe manufacturer, and makers of PVC pipes and CPVC pipes in India, Prince Pipes also serves the agriculture sector through products in borewell and agriculture piping categories. The company also has global collaboration with Lubrizol, [headquartered in the US] - the world's largest manufacturers and inventors of CPVC compounds, that gives the company a sharp competitive edge amongst pipes companies in India.