Initital Coverage: PRINCE PIPES AND FITTINGS LIMITED

Summary

Incorporated in 1987, Prince Pipes and Fittings Limited (PPFL) is one of India’s leading polymer pipes and fitting manufacturers. It manufactures different types of polymer pipes such as Chlorinated Polyvinyl Chloride (CPVC), Unplasticized Polyvinyl Chloride (UPVC), High-density Polyethylene (HDPE) & Polypropylene Random (PPR) and fittings for CPVC, PPR, and UPVC pipes.

PIPE INDUSTRY:

According to projections, the pipes sector will expand at a CAGR of 11%–12% between FY21 and FY25 and is anticipated to reach $55,000–$60,000 cr by FY25, driven by the government's continued emphasis on raising farmer income through better irrigation infrastructure and facilities, the development and improvement of WSS infra, and the implementation of Housing For All schemes.

In FY21, the proportion of organized players in the pipe sector increased to 67%. The top five players' combined position in FY21 is 37%. For plumbing applications, organized players have evolved into one-stop solution suppliers. The demand for UPVC and CPVC pipes has been steadily increasing among the many types due to their affordability, superior quality, durability, and novel uses. In the years FY20–24, the plumbing and agricultural segments are predicted to drive the growth of the UPVC pipes segment, which accounts for 64%–65% of industry demand.

• CPVC pipes (constituting 15%-16% of industry demand) a thermoplastic product produced by chlorination of polyvinyl chloride (PVC) resin. In FY21, the segment's market size was ₹6,500 cr. CPVC pipes find extensive use in plumbing applications, as well as hot and cold, potable water distribution systems.

• HDPE pipes (constituting 15% of industry demand) are popularly used and recommended by consultants and field engineers due to their high flow efficiency, strength, longevity, low cost of operation and maintenance, etc. They find applications in irrigation, sewerage & drainage, city gas distribution, and chemical & processing industries.

PRINCE PIPES AND FITTINGS LIMITED

• Incorporated in 1987, Prince Pipes and Fittings Limited (PPFL) is one of India’s leading polymer pipes and fitting manufacturers. It manufactures different types of polymer pipes such as Chlorinated Polyvinyl Chloride (CPVC), Unplasticized Polyvinyl Chloride (UPVC), High-density Polyethylene (HDPE) & Polypropylene Random (PPR), and fittings for CPVC, PPR, and UPVC pipes. The products cater to extensive industry applications in plumbing, sewage, irrigation, industrial and underground drainage. It has a product basket comprising 7,200+ stock-keeping units (SKUs).
• The company has an extensive pan-India distribution network of over 1,500 channel partners spread across both rural and urban markets. As on 31st Mar 2022, it had 7 manufacturing plants with a production capacity of 2,34,289 tonnes per annum (TPA) and 11 warehouses on lease across India which are located near raw material sources, ports, and principal markets. It has five contract-manufacturing units located at Hajipur (Bihar), two in Aurangabad (Maharashtra), Hajipur Vaishali District (Bihar), and Balasore (Orissa). Its products are marketed under the brand name Prince Piping Systems and Trubore.
• It has technical collaboration with Tooling Holland, which is a global leader in plastic mold manufacturing, and product collaboration with Lubrizol, which is the world’s largest manufacturer and inventor of CPVC compounds. The company has recently launched PE-FIT Aqua HDPE Piping Systems results in much lower installation and whole-life costs when compared with traditional piping materials; along with CORFIT Manhole Chambers used in commercial & municipal sewerage/drainage networks.

BUSINESS MODEL

They operate in a competitive industry across India. To thrive in this environment, they operate an integrated business model that is focused on creating value at every point and for every stakeholder. Their business model is based on the following key pillars that enable them to leverage their strengths to always build value:

1. Growth led by end-to-end/extensive product portfolio with applications in plumbing, irrigation, storage, and sewerage segments

• A growing product portfolio of over 7,200 SKUs, which is amongst the largest in the industry
• Application-led innovation and new product launches
• Rapidly growing business associates, distributors, and channel partners to expand pan India network founded on long-term relationships
• Strong and expanding brand presence across India

2. Financial strength / Profitability

• Focus on value-accretive products & sharp marketing strategies leading to value growth
• Various efficient cost control measures during the COVID the period translated into strong performance
• Overall organizational progress and good growth momentum reflected in positive ratings from CRISIL
• Robust internal controls in place with stringent reviews

3. Growing brand presence

• Strong focus on brand visibility through holistic, integrated marketing strategy
• Akshay Kumar as brand ambassador lends strong brand recall and carves a distinct position aligned to trust and high quality
• Aggressive integrated communications through ATL, BTL, social media campaigns, tier 3/2 cities focused events – aimed at building brand awareness and demand pull

4. Manufacturing Excellence

• 7 state-of-art manufacturing facilities across India
• Five contract-manufacturing units are located at Hajipur (Bihar), 2 in Aurangabad (Maharashtra), Hajipur Vaishali District (Bihar), and Balasore (Orissa)
• Jaipur manufacturing facility was recently awarded the GOLD medal in the 8th edition of the National Awards for Manufacturing Competitiveness (NAMC) 2021

5. Capability development

• New products launched PE-FIT Aqua -HDPE Piping Systems and CORFIT Manhole Chambers developed drawing upon deep understanding of market needs and application areas
• Skill up-gradation and safety training are imparted to all concerned employees/ workers, irrespective of their gender, or type of employment
• Considerable thought given to ensuring environment preservation and successful implementation of several novel initiatives leading to conservation of company’s resources and contribution to social welfare
• Leveraging technology judiciously aimed at creating greater value for organization 

MANAGEMENT

The management team of the company is led by its Chairman and Managing Director (MD), Mr. Jayant Shamji Chheda, along with Mr. Parag Chheda, who is the Joint MD. One of the key pillars of the management’s strategies has been driving organic growth through market proximity and pan-India network expansion. Its focus on operational excellence has helped it to achieve higher competitive advantages, optimize production processes and gain greater cost efficiencies. It believes that it is poised to capture near-term growth on the back of new capacity additions at the Jaipur & Telangana facilities and wide expansion of the distribution network across the country. The management would be exploring expansion opportunities across its piping systems in the times ahead & diversify into complementary verticals.

SHAREHOLDING PATTERN

The Promoters’ stake remained constant at 62.94% in Q1 FY23 as compared to previous two quarters. FII stake decreased from 4.15% in Q1 FY23 to 3.98% in Q2 FY23. DII stake increased from 14.51% in Q1 FY23 to 14.58% in Q2 FY23.

RISK

• Presence in a highly competitive industry, moderate capacity utilization and susceptibility to volatility in raw material prices: The pipes and fittings industry is highly competitive, especially in the commoditized products segment, which has low differentiation, thus resulting in the brand facing competition from both organized and un-organized segments. PPFL is also susceptible to volatility in the prices of key raw material, PVC, which is a crude oil derivative and hence affected by change in crude oil prices, and foreign exchange rates, albeit partly offset by its ability to pass on price fluctuations to the consumers. Company had registered margins in the range of ~12-17% in the past five fiscal through fiscal 2022. Margins are expected to decline in FY2023 on account of continuous decline in PVC prices. However, higher demand is expected on account of lower prices over medium term as seen from growth in volume sales.
• Moderate working capital requirements: Company has moderately intensive working capital operations, with Gross current asset (GCA) days in the range of 120-175 days over last five fiscals ended 2022. GCA days were 167 days as on 31st March 2022, driven by debtors and inventory of 60 days and 101 days, respectively. Company has moderate inventory holding as it is dealing in multiple SKUs and hence has to maintain raw material and finished goods inventory for the same.

FINANCIALS & VALUATION

• In FY22, the revenue increased by 28. 3% YoY to ₹2,657 cr, on the back of improved realization across its products. Sales volume increased by 0. 5% YoY and stood at 1,39,034 MT in FY22 v/s 1,38,289 MT in FY21. Expansion of the distribution network combined with new product launches has driven market share gains amidst a challenging business environment. In Q1 FY23, the net sales were ₹604 cr and de-grew by 33% QoQ. The sales volume declined by 31% QoQ and stood at 31,250 MT during the quarter. The softening in PVC prices led to channel destocking amongst dealers which led to a decline in volume. Towards overall sales, plumbing & SWR segment contribute ~60% -65%, agriculture ~30% -35%, and ~2%-3% is from infrastructure (underground drainage pipes).
• In FY22, EBITDA stood at ₹416 cr and saw a growth of 14.9% YoY. UPVC, CPVC, HDPE, and PPR resins are the key raw materials used in the production of pipes. Its prices depend on crude oil prices. The the company continued to see volatility in the prices of its PVC & CPVC. In Q1 FY23, the EBITDA was ₹44 cr and declined by 69% QoQ. It had an inventory loss of ₹30-₹35 cr in Q1 FY23, led by a constant fall in raw material prices. The company was impacted to a greater extent as it was carrying higher inventories from Q4 FY22. EBITDA margin stood at 15.6% in FY22. Volatility in raw material prices continued throughout Q4 FY22. While PVC (polyvinyl chloride) prices softened in January & February, upward momentum was seen during March 2022, which led to uncertainty across the channels. However, for future, the company remains optimistic of growth on the back of significant demand traction from the real estate sector. In Q1 FY23, the EBITDA margin was 7.3% a fall of 833 bps on a QoQ basis, on the back of inventory losses and rise in cost of materials consumed.
• In FY22, PAT stood at ₹249 cr and grew by 12.4% YoY on account of a rise in operating profit. In FY22, the PAT margin was 9.4%. The decline was on account of fall in EBITDA margin.
• In FY22, cash outflow from operations was ₹20 cr. Major adjustments included depreciation & amortization expenses at ₹70 cr and interest expenses at ₹12 cr. The working capital adjustments were pertaining to: increase in inventories by ₹392 cr
  and trade receivables by ₹109 cr. Further, there was a decrease in other financial/nonfinancial assets by ₹76 cr and an increase in trade & other payables by ₹72 cr. Cash inflow from investing activities was ₹20 cr. The major adjustments included: a decrease in fixed deposits by ₹195 cr, a net purchase of property, plant & equipment of ~₹169 cr, and a net purchase of current investment of ~₹10 cr. Cash inflow from financing activities was ₹22 cr. There was proceeds/repayment of borrowings (net) at ₹65 cr and payment towards dividend at ₹39 cr.

VALUATION:

PPFL is currently trading at a TTM PE of 24.81x whereas the industry TTM PE is 22.55x. The company’s focus would be driving volume growth via distribution expansion and new product launches. Total dividend paid during FY22 was ₹4/share and the
dividend payout ratio stood at 15.5%. 

SOURCE:

COMPANY WEBSITE

STOCX