The shares of Prince Pipes and Fittings Ltd have generated a multibagger return this year, with the stock increasing over 120 percent year-to-date (YTD) in 2021. As a result, Geojit, a domestic brokerage and research company, anticipates the stock to continue to rise over the next 12 months. Even the shares of Prince Pipes and Fittings Ltd have delivered the shareholders a maximum return of 359.51% during the last 5 years. The company's market capitalization is Rs.7,706, and its shares are trading around their 52-week lows of Rs.273. With a 5.5 percent market share, Prince Pipes & Fittings Ltd (PPFL) is one of India's largest plastic pipe producers. The brokerage has set a target price of Rs. 855 for the stock and expects the stock to hit the target price in 12 months from its previous closing price of Rs. 700 as of 28-12-21, resulting in a surge of 22%. The stock is currently trading at a market price of Rs. 695.85 per share on the NSE.
The brokerage’s take on Prince Pipes and Fittings Ltd (PPFL)
Geojit Financial Services Ltd has said in its research report that the "Indian Pipes and Fittings industry grew by a healthy 11% CAGR over FY14-20, rapid urbanisation has led to growth in plumbing & SWR, Agri is driven by lower irrigation coverage & robust monsoon. Further aided by increased awareness, adoption and substitution of metal pipes by plastic pipes due to their lower price, higher longevity, relative resistance to leakage, and easy installation added to robust growth. Further, government initiatives aimed at providing basic civic amenities like water supply and sewerage are adding impetus to the growth."
According to the brokerage "PPFL profitability grew by 50% CAGR over FY16-21 led by superior revenue growth and robust operating performance. EBITDA grew by 29% CAGR, while EBITDA margin expanded by 760bps to 17.5%. We believe that this superior performance was driven by significant improvement in sales mix towards plumbing & SWR as well improving contribution from fittings business. PPFL has a well-diversified portfolio that caters to extensive industry applications in plumbing, sewerage, irrigation, industrial and underground drainage. With providing more value-added in products, the company has entered into technical tie-ups with Lubrizol, a leader in CPVC compounds."
The brokerage has claimed that "The organised players are gradually gaining market share given their superior product portfolio, increasing retail footprint and focus on brand visibility. Further, post-GST implementation unorganised players have lost pricing advantage while disruptions due to pandemic as well higher raw material cost led to deterioration in working capital of these players. Given this scenario, organised players like PPFL will benefit."
According to the brokerage "In the last few years, PPPL has emerged as a strong player among the industry leaders led by superior revenue growth. It has a strong manufacturing base, diversified product portfolio and robust distribution network. Tie-ups with Lubrizol, the inventors of CPVC for FlowGuard and Corzan brands would enable volume growth in the plumbing/industrial category along with improvement in the overall value mix. Further, management is upping spending on brand building with avg. 2.6% of net sales (last 3 years) while ad spending was ~3% for FY21. The industry average valuation is 40x while PPFL is trading at 1Yr Fwd P/E of 28x, which seems to be a significant discount to its peers."
Buy Prince Pipes and Fittings Ltd (PPFL) Says Geojit
The brokerage has claimed that "PPFL was trading at P/E multiple of 10x post listing, but due to some corporate governance concerns arising out of real estate dues of promoters, valuation took a beating and was trading in the range of 3x to 5x versus the industry average of 30x, which was unwarranted. This was despite strong earnings growth momentum of 50% CAGR led by margin expansion over FY16-21. However, on a positive note PPFL valuation saw significant re-rating from 5x to 26x in the last 1 year, on account of continued superior earnings performance, steady improvement in corporate governance standards and expectation of consolidation of industry-leading to market share gain. Currently, PPFL is trading at 1 year forward P/E of 27, which is 5% & 55% discount to Supreme Industries & Astral, while it is trading at 33% premium to Finolex Industries."
Geojit has also claimed that "Revival in construction & economic activities, consolidation in industry and potential of rapid market share gains by large players like PPFL, we expect PPFL's valuation discount with market leaders to narrow down further. We expect earnings to grow at 18% CAGR over FY21-24E. Given a strong earnings profile, we value the stock at a P/E multiple of 26x on FY24E and we initiate a BUY rating on the stock with a target price of Rs.855."
The stock has been picked from the brokerage report of Geojit Financial Services Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.