Here's why Nuvama remains upbeat on Prince Pipes; Check target price here

Nuvama on Prince Pipes: Analysts at domestic brokerage Nuvama Institutional Equities (Nuvama) have reaffirmed their 'Buy' rating on Prince Pipes, maintaining a target price of Rs 830 based on 33 times FY26E earnings per share (EPS). Analysts attributed this outlook to India's burgeoning real estate sector recovery and robust infrastructure developments, which are driving demand for plastic pipe manufacturers like Prince Pipes.

According to Nuvama's recent note, channel checks indicated sustained strong demand in both infrastructure projects and plumbing sectors. 

Analysts highlighted Prince Pipes as a leading player in India's fast-growing plastic pipes industry, which has seen a compound annual growth rate (CAGR) of 12-14 per cent. They commend the company's strategic advantages such as a comprehensive product range, a strong presence across agricultural, infrastructure, and plumbing segments, and a robust pan-India brand and distribution network.

 

Over the period from FY18 to FY23, Prince Pipes has achieved impressive revenue, earnings before interest, taxes, depreciation and amortisation (Ebitda), and profit after tax (PAT) CAGRs of 27 per cent, 15 per cent, and 19 per cent, respectively, underscoring its strong performance compared to industry peers.

That apart, the management of Prince Pipes anticipates achieving a 15 per cent volume growth in FY25, supported by favourable market conditions. They also expect margins to range between 12 per cent to 14 per cent, with potential for upside if PVC prices continue to rise, facilitating re-stocking and inventory gains.

Furthermore, Prince Pipes is actively working to streamline its financial operations. It aims to reduce receivables from the mid-80s to 65-70 days in the near term, and further down to approximately 60 days by H1/Q3FY25.

Therefore, Prince Pipes, analysts believe, is well-placed to outpace industry riding capacity and geographical expansion. 

Here are the key factors for this outlook:

Strong demand

The pipes sector is experiencing robust demand from real estate, agriculture, and infrastructure segments. Prince Pipes, analysts noted, aims to enhance its market share through strategic pricing and improved supply chain efficiencies post-ERP implementation. 

This realignment, Nuvama analysts believe, is expected to drive strong double-digit volume growth starting Q1FY25.

PVC price dynamics and margins

The increase in PVC prices, influenced by container shortages, logistical challenges, and anticipated anti-dumping duties, analysts said, have bolstered margins. Channel stocking and inventory gains further support profitability.

Expansion initiatives

Prince Pipes is expanding its footprint beyond traditional strongholds in North and West India with recent capacity expansions in Jaipur, Telangana, and Bihar. De-bottlenecking efforts across various locations are set to fuel future growth, Nuvama added.

Working capital management

Despite a 40-day increase in net working capital (NWC) in FY24, primarily due to higher receivables, the company aims to reduce NWC to 65-70 days in the near term and around 60 days by H1/Q3FY25, enhancing liquidity and operational efficiency.

Bathware division

The company expects to achieve break even in its bathware division within the next four to five quarters, analysts at Nuvama highlighted. With the launch of the Aquel brand in North and West India and plans for pan-India expansion by H1FY25, Prince Pipes aims to strengthen its market position.

Project segment
 

Approximately 25 per cent of Prince's total sales are attributed to projects involving PVC, CPVC, and DWC pipes. Continued focus on expanding project presence in cities like Ahmedabad, Pune, and Hyderabad is aimed at leveraging scale for operational efficiencies.

Analysts, however, cautioned that sustained slowdowns in residential and non-residential construction, along with agricultural sector downturns, pose risks. Additionally, volatility in raw material prices remains a potential threat to profitability.