Kotak Securities

Finolex Industries (Add)

CMP: ₹497.55

Target: ₹536

Finolex Industries (FIL) reported a weak Q4-FY20 result, led by a decline in volume and lower margin in PVC resin business, however margin in the PVC pipes business was better than our estimates.

As per management, the PVC pipes’ demand is good on agri side and has not tapered off even during the monsoon season. The company expects good demand to continue post monsoon as well. The management has indicated that the channel inventory is fully exhausted and it is now building up new inventory. They said the company has operated at the rate of 95-110 per cent over the last year in terms of the number of days operated post reopening, however this may not be able to compensate for volume lost during the lockdown.

We believe that FIL would be a major beneficiary from government’s focus on irrigation, providing piped water to all by 2024 and improvement in rural consumption in the long term. We believe that the demand for the PVC pipes from rural segment is expected to remain strong in the coming quarters based on strong agri season, higher reservoir levels, normal monsoon forecast for the current year and increased farm income supported by various government schemes for boosting rural economy.