Finolex Industries: Recommendation Review

When do you sell a stock? One, when you are sitting on some neat profits and two, when your premise of investing in a particular stock loses relevance. Finolex passes both these tests. We had recommended this stock in DSIJ Volume 27 Issue No. 18 (dated August 26, 2012), when it was trading at Rs 58.50. Our recommendation was based on the fact that brent crude prices were softening, which was likely to help improve the company’s margins. Also, the demand for PVC pipes from micro irrigation projects was expected to be higher following a weaker monsoon.

The scrip has done well since we recommended it and has helped create wealth for those who went by our advice. It is currently trading at around Rs 84, which translates into a neat profit of 42 per cent from the recommended price. This takes care of the first premise that we talked about.

Here is something more to substantiate the second. The financial performance of the company has been good. For 9MFY13, its total income from operations increased by 12 per cent to Rs 1515 crore, but the company faced some strong headwinds on the profitability front. Its net profit declined by 16 per cent to Rs 57 crore on a YoY basis during the same period. Further, crude prices have started moving up once again, with brent crude currently trading at around USD 119 per barrel. This may impact the company’s performance going ahead.

Hence, we recommend that you book profits in this counter as it is currently giving a good return on investments.