ICICI Securities has maintained a 'Buy' rating on Finolex Industries with a revised target price of Rs 190. While the company achieved strong volume growth in its pipe segment during the second quarter, fluctuating raw material costs have put pressure on profit margins, leading to a valuation adjustment.
ICICI Securities has maintained its 'Buy' rating on Finolex Industries, setting a target price of Rs 190. This adjustment from the previous target of Rs 214 reflects a change in the valuation multiple for the pipe business, which has been lowered to 13x EBITDA from 15x, accounting for increased earnings volatility.
The company’s second-quarter performance for fiscal year 2027 presents a mixed picture. Finolex Industries reported a 27.4% year-on-year revenue increase to Rs 1,094 crore, largely driven by a strong 27.7% rise in pipe sales volumes. This growth was supported by successful channel restocking efforts and an upward trend in PVC prices during the period. However, this growth in sales has not fully translated into profit growth due to margin pressure.
EBITDA for the quarter fell by 4.5% year-on-year to Rs 124 crore. Profit margins, which are a key indicator of operating efficiency, contracted to approximately 11.33% to 11.4%. The primary driver for this margin compression has been the volatility in raw material costs and the time lag involved in passing these cost increases to customers. Effectively, while the company is selling more, it is facing higher input costs that keep profitability under pressure.
Looking ahead, management remains optimistic about a recovery in the fourth quarter, primarily driven by a seasonal resurgence in agricultural demand. To manage its financial resources amid these conditions, the company has narrowed its capital spending plan for the year to Rs 150 crore. Despite the earnings volatility, the company maintains a solid balance sheet, with net free cash estimated at approximately Rs 2,584 crore to Rs 2,636 crore, which provides the business with significant financial flexibility.
Investors should keep in mind that the company operates in a sector sensitive to seasonal agricultural demand and monsoon patterns, which can cause significant fluctuations in pipe sales. Additionally, global geopolitical factors that impact crude oil and PVC resin prices remain a structural risk to raw material costs. The company has revised its EBITDA margin guidance for the full fiscal year to a range of 12.5% to 14%.
The key monitorables for shareholders in the coming quarters will be the company’s ability to manage raw material price fluctuations and the actual pace of demand recovery in the agricultural sector. Future updates on margin expansion and the execution of the narrowed capital spending plan will be important factors for the market to assess the company’s path to stable profitability.