Finolex Industries - Rs.63.00

Finolex Industries Ltd., (FIL), a part of the Finolex group promoted by Mr. PP Chhabria, was incorporated in 1981 and is today the largest PVC & PVC pipe manufacturer in India. It makes a wide range of PVC pipes and fittings for diverse applications in agriculture, housing, telecom, industry etc. It also manufactures specialty pipes and fittings, namely SWR (Soil, Waste and Rain Water) pipes and fittings for the construction industry and ducting for the telecom industry. It has a huge distribution network and enjoys a strong brand value.

The company has advantage over its competitors since it is backward integrated with its own PVC resin plant, which contributes nearly 70 per cent of turnover. Though the price of its raw materials have risen. PVC prices too have shot up, which will enable the company is able to maintain its profit margin. Its PVC resin plant, which makes suspension grade PVC and paste grade PVC has been set up in technical collaboration with Uhde GmbH of Germany under technology licence from Hoechst AG and currently has a capacity of 1,30,000 TPA. Its Pipes Division and associated concerns consume about 45,000 TPA of PVC. Its Pipe & Fittings Division with two ultra modern plants at Pune and Ratnagiri has the capacity to manufacture 58,000 TPA of pipes. To exploit the rising demand from agriculture, irrigation and housing sector, the company is doubling the PVC resin capacity to 2,60,000 TPA and increasing the PVC pipes capacity to 80,000 TPA at an investment of Rs.500 cr., which will be funded by internal accruals of Rs.150 cr. and by Rs.350 cr. of debt. The new capacity expects to be commissioned by end 2005, which will increase its market share from 16 per cent to 30 per cent. As part of its expansion plans, the company also plans to construct a breakwater facility so that its jetty, which is utilized for importing the feedstock for manufacture of PVC as well as for importing LPG, can be used in the monsoons too.

As far as shareholding is concerned promoters stake are 19 per cent but Finolex Cables and its subsidiary hold 32.40 per cent, which comes under non-promoters. Thus indirectly, the promoters stake can be said to be above 51 per cent. Recently, the company came out with very good Q2FY05 numbers. If we see its half yearly numbers ending Sept. 2004, the company’s Net Sales has increased by 25 per cent to Rs.482 cr. and NP has more than doubled to Rs.56 cr. leading to an EPS of Rs.4.50. Historically, its second half has always been better than its first half. Considering the upturn in the petrochemical cycle, the government thrust on agriculture and irrigation projects and the boom in housing sector, the company is to clock sales of Rs.1030 cr. and NP of Rs.125 cr. Given this perspective, Finolex Industries is trading quite cheap at a PE of 6 on an estimated EPS of Rs.10. The long-term prospects are very bright and investors are advised to buy at every dip to fetch a minimum appreciation of 50 per cent in the next 12 months. Its share price can even double in 2~3 years.