Prince Pipes margins hold firm despite weak volumes and rising plumbing mix

1QFY27 Performance: Strong Margins Offset Weak Volumes

Motilal Oswal Financial Services Limited (MOFSL) describes Prince Pipes & Fittings’ 1QFY27 as a mixed quarter. Healthy core operating margins offset weak pipe volumes, which declined 7 per cent year-on-year due to above-normal channel inventory in April and falling PVC prices. The broker notes that volume recovery was healthy in May and June.

Consolidated revenue increased 5 per cent year-on-year to Rs 6,094 million, supported by improved realisations after price increases intended to offset raw-material inflation. Reported EBITDA was Rs 772 million, 1 per cent below MOFSL’s estimate of Rs 781 million, while EBITDA margin was 12.7 per cent, up 584 basis points year-on-year and flat quarter-on-quarter.

The margin improvement reflected a better product mix, including non-agricultural products and CPVC pipes, rather than inventory gains. Management stated that there was no inventory gain during the quarter. Adjusted PAT increased approximately six times year-on-year from a low base to Rs 337 million, compared with MOFSL’s estimate of Rs 328 million.

The bathware segment generated Rs 130 million of revenue but recorded a Rs 50 million loss.

Volume Recovery and Product-Mix Strategy

Management guided for 12–15 per cent year-on-year pipe-volume growth in FY27 despite the 1QFY27 decline and a high 4QFY26 base. MOFSL considers this guidance too optimistic and assumes only 3 per cent FY27 volume growth.

Management attributed the April disruption to elevated channel inventory and declining PVC prices, while stating that growth continued after the subsequent recovery. Agricultural-pipe demand was severely affected by high and volatile PVC prices. Prince Pipes is therefore prioritising a higher plumbing-segment mix and expects project sales to account for 25 per cent of revenue over the next few years.

Balance Sheet and Working Capital

Gross debt stood at Rs 1.2 billion at the end of June, with net cash almost zero. Management expects inventory to remain within 65–75 days and debtor days to decline below 30 through more aggressive use of channel financing.

Key factors to monitor include PVC-price volatility, channel inventory, the pace of agricultural-pipe demand and the sustainability of the volume recovery.

Earnings Estimate Revisions

Following the quarter, MOFSL increased FY27E PAT by 17 per cent, primarily because margins were better than previously expected. FY27E revenue was reduced by 1 per cent to Rs 28,562 million, while EBITDA was raised by 8 per cent to Rs 3,470 million. FY27E EBITDA margin was lifted to 12.1 per cent.

For FY28E, MOFSL reduced revenue by 2 per cent to Rs 32,046 million, while raising EBITDA by 3 per cent to Rs 3,894 million. FY28E PAT was broadly unchanged at Rs 1,761 million. The broker expects approximately 10 per cent pipe-volume growth and an EBITDA margin of around 12 per cent in FY28E.

Growth and Return-Ratio Outlook

MOFSL forecasts FY26–28 compound annual growth of 6 per cent in pipe volume, 11 per cent in revenue, 30 per cent in EBITDA and 53 per cent in PAT, albeit from a low base. It estimates FY28E RoE of approximately 10 per cent and pre-tax RoCE of approximately 13 per cent.

Valuation and Recommendation

MOFSL reiterates its Buy rating and unchanged target price of Rs 318, based on 20 times FY28E earnings per share. The broker characterises approximately 17 times FY28E P/E as a reasonable valuation.

MOFSL believes that sustained recovery in volume growth and return ratios is necessary for a valuation re-rating.