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PVC Pipes - Results Preview - Strong quarter on the Cards - Reliance Securities

Posted On: 2021-10-10 16:19:07 (Time Zone: IST)

The demand for PVC pipes was healthy despite the higher prices during 2QFY22, after a lockdown seen in Apr'21 and May'21. The PVC pipes industry witnessed a higher realization supported by supply side shortage along with a continued increase in PVC prices. Pipes companies are likely to report strong numbers in 2QFY22 led by robust demand from both construction and agri segments. PVC resins prices have seen a sharp bounce-back in 2QFY22, with an average price of ~Rs130/kg, from ~Rs115/kg levels in 1QFY22. PVC pipes manufacturers also took a price hike of ~Rs10-12/kg during 2QFY22.

Majority of players reported strong 50-60% YoY growth in Jul'21 driven by higher realisation. Industrial, drainage and plumbing are expected to witness decent growth led by various schemes announced by the GoI. The demand for agri pipes remained decent in 2QFY22 despite all-time high PVC prices. The demand for non-agri pipes remained intact in 2QFY22 led by the GoI's push for infrastructure spending along with strong revival of real estate sector. Western and southern regions continued to witness their strong demand for PVC pipes followed by northern region. With several small unorganized players, eastern region continues to remain underpenetrated. PVC pipes industry is also seeing market consolidation with smaller unorganized players facing supply side constraints due to the pandemic.

We expect the companies under our PVC pipes coverage universe to report 34% YoY, 39% YoY and 42% YoY growth in revenue, EBITDA and PAT respectively in 2QFY22E. EBITDA margin is expected to decline by 80bps YoY to 19.5%.

Our View: We expect a strong recovery in demand for PVC pipes despite the higher prices. After a muted 1QFY22, due to the second wave lockdowns in few states in Apr'21 and May'21, demand is back on track during 2QFY22. We expect demand to pick up in the next few quarters and follow a similar trajectory as seen in the last year, provided there is no economic disruption caused by a likely third wave. PVC prices rose by ~15% during 2QFY22 and are still very high compared to the historic average, resulting in continued high realizations. A further correction in prices is expected to be gradual over a longer period of time, whereby realizations and margins will be lower in FY22 compared to the peak seen in 2HFY21. Rising market share from the unorganised players, market consolidation, higher PVC prices and a healthy capex augur well for the PVC pipes companies under our coverage universe.

Our Top Picks: Finolex Industries and Supreme Industries

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