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Prince Pipes (Prince) reported an in-line performance in 4QFY22. Revenue increased by 18% YoY (up 36% QoQ) to Rs9bn (in line with our estimate of Rs8.6bn), led by 8.8% YoY growth in realization at Rs199/kg, while volume grew by 8.7% YoY at 45,287MT. EBITDA declined by 4% YoY and was up 26% QoQ at Rs1.4bn (our estimate of Rs1.3bn), while EBITDA margin fell by 370bps YoY to 15.6% (our estimate of 15.3%), primarily due to the higher raw material costs (72.7% of sales, from 65.2% YoY). PAT declined by 9% YoY and was up 31% QoQ at Rs882mn (in line with our estimate of Rs858mn). Expansion of distribution network combined with new product launches have driven the market share gains during the quarter.
Prince has made a series of strategies to embark on its journey to the next level and sustain the business in the long run with a tie-up with Lubrizol and Tooling Holland. We expect Prince to expand its leadership with the manufacturing expertise, leveraged distribution and competitive agility in the pipes sector. For FY23E/FY24E, we lower our revenue estimates by 4% each factoring the lower realization and a high base.
We reduce the EBITDA margin by 120bps/30bps to factor the lower margin due to lower pricing power, which leads to a lower EBITDA estimates of 11%/6% and PAT estimates of 17%/14% for FY23/FY24. In view of the healthy performance despite challenges, cost optimization measures and series of strategies for the next level of growth, we maintain our BUY rating on the stock, with a revised Target Price of Rs780 (from Rs1,000 earlier) and a revised target P/E of 30x FY24E earnings.
Single-digit Revenue Growth Expected in FY23E
The company reported a healthy performance in the past few quarters, aided by continued market share gains from unorganized players. Prince reported a healthy growth in value-added products and plumbing segments, which is expected to continue with its growth journey, led by a strong uptick in the real estate demand in major urban centres. The company is likely to deliver a single-digit revenue growth in FY23E. With strong business fundamentals and opportunities in India, the management remains optimistic on leveraging its strengths to achieve a higher growth. The Union Budget has provided a strong impetus on capex with higher allocation for Har Ghar Nal Se Jal scheme, which provides significant opportunities in the coming years. Prince expects to witness a structural improvement in demand in the coming years, led by an expansion in the urban, semi-urban and rural areas, and is investing in trending activities.
Outlook & Valuation
The government’s thrust on Jal Jeevan Mission, enhancement of agricultural credit and increased allocation for rural infra development fund augur well for the domestic PVC pipe manufacturers. The company continued to deliver a strong performance, led by the healthy growth in agri and plumbing segments, and aided with cost optimization measures. It has made a series of strategies to embark on its journey to the next level and sustain business in the long run, with a tie-up with Lubrizol and Tooling Holland. We expect Prince to expand its leadership with the manufacturing expertise, leveraged distribution and competitive agility in the pipes sector. In view of the healthy performance despite challenges, cost optimization measures and series of strategies for the next level of growth, we maintain our BUY rating on the stock, with a revised Target Price of Rs780 (from Rs1,000 earlier) and a revised target P/E of 30x (from 33x earlier) FY24E earnings.