Sample  write-ups  
 Prince Pipes and Fittings   
Vol. No. : 19    Issue No. : 9                             Wednesday, August 5, 2020

Fit for growth

Robust distribution network, pan-India manufacturing capability, presence across polymers and applications and strong brand recall in a favourable industry environment augur well for the company’s growth

Related Tables
4Prince Pipes and Fittings: Financials
4Prince Pipes and Fittings: Result


Idea Prince Pipes and Fittings
BSE Code 542907
BSE Group B
NSE Code PRINCEPIPE
ISIN Demat INE689W01016
Bloomberg PRINCPIP@IN
Reuters PRCE.NS
Par Value Rs 10
52-week High/Low Rs 197 / Rs 75
Current Price Rs 116 on BSE and Rs 117 on NSE
(as on 05August 2020)

Prince Pipes and Fittings is promoted by the Chheda family, having over three decades of experience of manufacturing polymer pipes. It is recognized as one of the leading polymer pipes and fittings manufacturers in India in terms of number of distributors. The company markets its products under two brand names: Prince Piping Systems and Trubore.

The company is positioned not just as a pipe manufacturer but also as an end-to-end piping systems supplier. The company manufactures CPVC (Chlorinated polyvinyl chloride) pipes and fittings, UPVC (Un-plasticised Polyvinyl Chloride) pipes and fittings, PPR (Polypropylene Random) pipes and fittings, High-density polyethylene (HDPE) and DWC (Double Wall Corrugated) pipes. It offers piping systems and fittings in the segments such as plumbing, sewage, agriculture and borewell.

The company has technical collaboration with a reputed international player, Wavin Overseas B.V., headquartered at Zwolle in The Netherlands, for almost the last five years, which has helped it to improve the quality of its products and manufacturing efficiency. Wavin has a direct presence in over 25 countries with some 30 manufacturing sites, and is dedicated to supplying a range of plastic pipe systems for building and infrastructure projects, and licensing of know-how and intellectual property rights.

Introduced ‘STOREFIT’ brand for storage tanks

Prince Pipes and Fittings has entered the water storage tanks business with ‘STOREFIT’ brand in Jun’20. It has launched a pilot in Gujarat and is receiving an encouraging response. The products are manufactured at the Dadra (Union Territory Dadra and Nagar Haveli ) plant using the roto moulding process and finds extensive use for installation at home, offices, factories, commercial places, hospitals, schools, camps and places that need large volumes of hygienic water storages. The company believes this is an opportune time to enter this category given common distribution set up, vast experience in the plastics industry, pan-India network of manufacturing and absence of a large pan India player. It valued the storage tanks industry at around Rs 4000 crore with a 35% share for organised players.

Pan-India player

The company has six strategically located manufacturing plants, which gives it a strong presence in north, west and south India. Its plants are located at: Athal (Union Territory of Dadra and Nagar Haveli); Dadra (Union Territory of Dadra and Nagar Haveli); Haridwar (Uttarakhand); Chennai (Tamil Nadu); Kolhapur (Maharashtra) and Jobner (Rajasthan). As of March 31, 2020, the total installed capacity of six existing plants was 255899 tonne per annum.

Further, it is also in the process of setting up a plant in Sangareddy (Telangana) having a capacity of 51,943 tonne, the total cost of which is estimated to be Rs.196.10 crore which would be majorly funded through proceeds from Initial Public Offer (IPO) done in December 2019 (at issue price of Rs 178, raising Rs 250 crore). The company expects capacity to increase to 263240 tonneby March 31, 2021.

In addition, the company also outsources some of its manufacturing from its contract manufacturers located at Aurangabad (Maharashtra) andHajipur (Bihar).

The company is constantly increasing its pan-India distributor base to ensure it is always close to its customers and ever ready to address their needs with a combined network of 1,408 distributors which includes 1,161 Prince Distributors and 267 Trubore Distributors.

Continuous focus on Brand Building

The company has continued its focus on brand building and marketing initiatives. In Nov’16, it launched loyalty programme called ‘Prince Udaan’ to connect with and reward distributors, retailers, wholesalers, and plumbers. Under this programme, dealer gets reward points on every purchase and they can then redeem those points to get a number of gifts. This programme is currently operational in Northern India (barring Madhya Pradesh), Western India, Southern India and Eastern India (only in Bihar, Jharkhand and West Bengal). The company is in the process of rolling out this plan across India. Historically, the company has undertaken several such activities for new product launches.

To leverage on brand building, the company has signed Actor Akshay Kumar as brand ambassador and plans to spend major chunk of advertising budget on TV commercials, outdoor advertisement on trains, buses, autos, and magazines.

Low per-capita consumption of plastic augers well for higher demand of polymers

India has very low per-capita plastic consumption of about 11 kg, compared with the global average of 30 kg. Traditional materials dominate the application areas of plastic. However, over the past three to four Fiscal years, low crude oil prices and superior properties of plastic have increased the usage of plastic in India. Hence, it is expected that per-capita consumption to inch up towards the global average. Over the next five Fiscal years (i.e., from April 1, 2019, to March 31, 2024), Industry expects demand for polymers to grow at a healthy 7-9% CAGR.

Higher substitution and replacement demand of Plastic Pipes

Plastic pipes have several advantages over metal pipes. For instance, the raw materials used in manufacturing plastic pipes are derivatives of crude oil. Hence, prices of plastic pipes are correlated to crude oil prices. The recent fall in crude oil prices has comparatively lowered raw material prices, and, thus, plastic-pipe prices during the period. Superior properties and low prices have accelerated the substitution of metal pipes by plastic pipes. The increase in the availability of raw materials (PVC, PE and PPR), following the commissioning of new petrochemical facilities in India will further support the plastic-pipes industry. Another factor driving long-term demand is the replacement of older pipes with plastic pipes. Within the plastic pipes industry, Industry expects demand to be driven by increasing application of HDPE and CPVC pipes.

Higher investment in irrigation and WSS projects to propel demand of plastic pipes

Plastic pipes are primarily used in irrigation and WSS (Water Supply and Sanitation) projects. The major demand sources are public-sector projects undertaken by the central, state and municipal-level bodies. Key growth drivers are increased spending by state governments and municipal corporations to improve accessibility of water for an ever-increasing population and heightened thrust, in the form of several central government-led schemes, to augment irrigation, urban infrastructure and real estate. Examples include PMKSY (Pradhan Mantri Krishi Sinchayee Yojana) in Irrigation and WSS schemes such as Jawaharlal, Nehru National Urban Renewal Mission (JNNURM), AMRUT, Swachh Bharat Mission, Smart Cities Mission.

In Fiscal 2016, the central government converged irrigation schemes under the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) to expand the area under cultivation by 2.85 million hectares in Fiscal 2017 and by 8 million hectares by 2020, outlining a spending target of ? 500 billion until 2020. The key schemes converged are Accelerated Irrigation Benefits Programme (AIBP), Integrated Watershed Management Programme, On Farm Water Management, and Per Drop More Crop.

WSS and plumbing are the second largest end-user segment for plastic pipes, accounting for 35-40% share of the plastic pipes market. It is expected that overall WSS investments to be Rs 2,924 billion over the next five years, i.e., from April 1, 2019, to March 31, 2024, compared to Rs 1,753 billion over the past five Fiscal years i.e., from April 1, 2014, to March 31, 2019. This will also be driven by the recently proposed "Nal se Jal" scheme, a component of the Jal Jivan Mission, which promises to provide piped drinking water to every household in the country by 2024

The company to gain market share in a growing market

Due to the above explained growth drivers, India’s plastic pipe industry is expected to grow at a CAGR of 12-14% between FY19 to FY24, compared to CAGR of 10-12% over FY14 to FY19. On account of introduction of GST and increasing formalization of economy, unorganized sector is likely to increasingly lose market share to organized players, Even within organized players, few players with strong brand, pan-India manufacturing and distribution network, full product range, and strong balance sheet are likely to gain market share as few of the large old players are facing various constraints and are not able to cater to their markets.

Strong demand foragripipessupportQ1FY2020

Agri-pipes segment, which constitutes 30% of the company’s revenue mix, has seen robust demand since re-opening of the lockdown. Non-agri pipes segment, which has the lion’s share in its revenue mix, has seen a gradual recovery since the re-opening due to pent-up demand and low channel inventory.

Despite the lockdown, the company was able to mitigate the COVID impact better than it anticipated. April 2020 being a wash out across all industries, led to a89% fall in sales. May’20 saw a healthy traction, and it recovered more than 80% of sales from the previous year May’19 sales. Despite the headwinds of the pandemic, June’20 saw a full recovery over the previous year, as it saw an encouraging 12% growth over June’19. June’20 saw recovery not just in agri segment but also in plumbing and SWR segments.

Prince Pipes and Fittingsnet sales fell 20% to Rs 302.48 crore for quarter ended June’20 compared to corresponding previous year period.The sale value fall is much lower than 27% fall in sales volume. Operating margins of the company fell340 bps to 10.5% leading a 40% fallin operating profit to Rs 31.62 crore.Fall in margin is largely due to operating deleverage and fall in PVC prices leading to inventory losses. Other income stood at Rs 5.2 crore compared to Rs 43 lakh in Q1FY20 due to IPO funds lying unused. Interest cost was down 9% to Rs 6.81 crore. Depreciation rose 19% to Rs 14.01 crore. PBT fell 53% to Rs 15.99 crore. Tax expense was down 35% to Rs 4.74 crore. Net profit fell 58% to Rs 11.25 crore.

For year ended Mar’20, net sales rose 4% to Rs 1635.66 crore compared to corresponding previous year period. Operating margins of the company rose 220 bps to 14% leading a 23% increase in operating profit to Rs 228.78 crore. Other income fell3% to Rs 6.94 crore. Interest cost was down 9% to Rs 33.17 crore. Depreciation rose 15% to Rs 51.98 crore. PBT as a result rose 35% to Rs 150.57 crore. Tax expense was up 35% to Rs 38.07 crore. Net profit rose 35% to Rs 112.51 crore.

Valuation

In FY 2021 we expect the company to register sales and net profit of Rs 1658.85 crore and Rs 105.09 crore respectively. The sales and net profit are expected to increase to Rs 1924.26 crore and Rs 132.26 crore in FY2022. EPS works out to Rs 12 for FY2022. The scrip trades around Rs 116. P/E on FY 2022 projected EPS works out to 9.7 times.

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Prince Pipes and Fittings: Financials
 
  1603 (12) 1703 (12) 1803 (12) 1903 (12) 2003(12) 2103(12P) 2203(12P)
Sales 1007.37 1246.50 1315.04 1571.87 1635.66 1658.85 1924.26
OPM (%) 9.9 13.0 12.4 11.8 14.0 12.9 13.5
OP 99.62 162.63 163.34 185.91 228.78 214.72 259.78
Other inc. 0.56 2.48 6.03 7.13 6.94 15.20 16.42
PBIDT 100.18 165.11 169.36 193.03 235.72 229.93 276.20
Interest 33.50 36.37 36.11 36.40 33.17 28.63 30.06
PBDT 66.68 128.74 133.26 156.63 202.55 201.30 246.14
Dep. 29.68 32.83 38.09 45.16 51.98 60.19 67.41
PBT 37.00 95.91 95.17 111.47 150.57 141.11 178.72
Total Tax 7.46 21.73 22.40 28.12 38.07 36.02 46.47
PAT 29.53 74.18 72.77 83.35 112.51 105.09 132.26
EPS (Rs) * 2.7 6.7 6.6 7.6 10.2 9.6 12.0
*On equity of Rs 110 crore: Face value of Rs 10 each
EO: Extraordinary items
EPS excludes EO and relevant tax
(P): Projections
Figures in crore,
Source Capitaline Database

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Prince Pipes and Fittings: Result
 
  2006 (03) 1906 (03) Var % 2003 (12) 1903 (12) Var. (%)
Sales 302.48 379.77 -20 1635.66 1571.87 4
OPM (%) 10.5 13.9   14.0 11.8  
OP 31.62 52.71 -40 228.78 185.91 23
Other inc. 5.20 0.43 999 6.94 7.13 -3
PBIDT 36.82 53.14 -31 235.72 193.03 22
Interest 6.81 7.51 -9 33.17 36.40 -9
PBDT 30.01 45.63 -34 202.55 156.63 29
Dep. 14.01 11.82 19 51.98 45.16 15
PBT before EO 15.99 33.81 -53 150.57 111.47 35
EO 0.00 0.00 0 0.00 0.00 0
PBT after EO 15.99 33.81 -53 150.57 111.47 35
Total Tax 4.74 7.27 -35 38.07 28.12 35
PAT 11.25 26.54 -58 112.51 83.35 35
EPS (Rs) * # #   10.2 7.6  
*Annualised on current equity of Rs 110.026 crore: Face value of Rs 10 each
EO: Extraordinary items
EPS excludes EO and relevant tax
Figures in crore,
Source Capitaline Database

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