Bonanza IC Note - 30 March 22

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India Research 30 March 2022

Prince Pipes & Fittings Ltd.


Initiating Coverage Bloomberg Code: PRINCPIP.IN | Reuters Code: PRCE.NS

“Value Migration (UPVC to CPVC pipes) to drive margin


Expansion & industry Consolidation” Plastic Pipes
Prince Pipes & Fittings Ltd. (Prince) with 3 decades of experience, is amongst the largest Current Price: 623
PVC pipe manufacturer in the country, with total capacity of 292K MTPA, having 6%/10% Target Price: 862
market share in PVC (5% in FY19) and CPVC respectively, commands a strong foothold in Expected Upside (%) 38%
North/West India (east through contract manufacturing). Our focus on Prince is due to its
strong product portfolio of UPVC, CPVC, PPR, and HDPE (sold under the brand Prince Pipes
Ltd. & Trubore) having PAN India distribution network (1,500+ distributors, 7 Stock Details
manufacturing plants, 11 warehouses, 7,200 SKUs), where there is a shift from GI Pipes to Bloomberg Code PRINCPIP.IN
PVC pipes and now UPVC to CPVC (due to its flexibility and ability to withstand extreme
Reuters Code PRCE.NS
temperature [95°]). PVC pipes industry poised to see double digit growth especially, CPVC
Shares o/s (Mn) 110.6
pipes (20%+ CAGR growth) on the back of reviving real estate market and Union Budget
allocations to CAPEX (7.50 Lakh Cr. and with Grant to states effective Capex 10.86 Lakh Cr. M Cap (Rs. In Mn) 69,970
for FY23), “Jal se Nal” 60k Cr. [under 3.8 Cr. households] and “Prime Minister Aavas Yojna” 52 week H/L (Rs.) 896/400
48k Cr. Unorganised players are facing serious raw material supply crunch after initiating
ADD (anti-dumping duty) on CPVC resin/compound (Raw material which is a derivative of
Crude oil) imports from China and Korea for a period of five years (valid up to Feb 2025). Shareholding Pattern (%)
This is supporting organised players (65% of total plastic pipes market) to gain market Promoter Group 62.94
share from unorganised players. The Company’s tie up with Lubrizol (for CPVC compound) FII 4.84
is also playing as a safeguard for any supply crunch.
DII 13.75
Strong growth outlook and progressive gain in market share
Others 18.47
Prince posted strong Sales/Profit growth of 11%/24% CAGR respectively from FY16-21 due
to rising demand from comprehensive product portfolio (7,200 SKUs), spread across
plumbing, irrigation, and SWR management and focus on CPVC pipes (value added Stock Performance Chart
product). We estimate Revenue/EBITDA/PAT to grow at a whopping 11%/15%/17% CAGR 600

respectively over FY22-FY25E on back of industry consolidation and government focus on 500

smart cities & affordable housing. The current PVC Resin shortage will continue to stay, as 400

crude is hitting new highs (touched $130) due to Russia-Ukraine conflict. 300

CAPEX with strong distribution network, focus on branding & right product mix 200

Prince has utilized majority of its IPO proceeds (₹1,840 Mn) to set up 50k Tons of the 100

capacity in Telangana. By 9MFY22, it has spent ₹1,750 Mn and will close the FY22 with 0

approx. ₹2,000 Mn. Primary drivers for margin expansion would be inventory gain &
product mix improvement. The focus on brand awareness by choosing Akshay Kumar as
the brand ambassador and reducing dependence on agriculture segment (35% of revenue Prince Pipes S&P BSE Basic Material Midcap 150

in FY16 to 30% in FY21, remaining 60% is building material in FY21) is playing well for the
company. Prince has the largest distribution network of 1,500+ while, Astral (competitor)
has 850. As per the channel checks, Prince is the first choice among buyers in UPVC
compared to Astral. To leverage their distribution network, Prince has also launched range Stock Performance
of water tanks (June 2020) under the Brand “Storefit”. Return (%) 1 Month 6 Month 1 Year
Initiate Coverage with Buy Rating Absolute 0% -6.1% 58.3%
Prince has been enjoying high valuations since its IPO. We believe it is well-positioned to Relative
capture incremental market share and continues to be a strong challenger brand to sector (Basic
Material) -9% -8.4% 18.8%
leaders. The margins were a bit shy in FY22 as PVC prices declined, but it will improve
(Midcap) -3.9% -8.8% 31.3%
steadily in FY23-FY24. We initiate a Buy rating for the target price of ₹ 862 (35x PE [TTM
P/E is 27x] for FY23E EPS – 24.6).
Key Financials
Year to March 2020A 2021A 2022E 2023E FY24E
Net sales (mn) 16,426 20,891 24,307 27,460 30,206
EBITDA (mn) 2,357 3,792 3,713 4,641 5,105 Analyst
EBITDAM (%) 14% 18% 15% 17% 17%
Anant Chaudhary
PAT (mn) 1,125 2,218 2,067 2,725 2,995 anant.chaudhary@bonanzaonline.com
ROE (%) 15% 24% 19% 20% 19% Tel: 91 22 6836 3754
ROCE (%) 20% 29% 23% 26% 24%
P/E (x) 8.7x 20.7x 34x 25x 23x
P/B (x) 1.3x 4.4x 6.1x 5.1x 4.3x
Source: Company, Bonanza Research
For private circulation only. For important information about Bonanza’s rating system and other discloser refer to the end of this material.
Prince Pipes & Fittings Ltd

Content
Prince background & PVC Pipes Industry trend………………………………………………………………………….3

Migration from GI Pipes to UPVC and now move to CPVC.............................................................9

Supply Chain Disruption leads to market Consolidation...............................................................10

Strong Distribution network and focus on branding.....................................................................14

Government push towards real estate & Agri demand................................................................17

Financial Profile to Strengthen......................................................................................................19

Valuations & Recommendation.....................................................................................................20

Key Risk…………………………………………………………………………………………………………………………………….21

Financial Summary……………………………………………………………………………………………………………………22

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Prince’s Background & PVC Pipes Industry trend


 Incorporated in 1987, the company manufactures polymer pipes through UPVC
(Unplasticised Polyvinyl Chloride); CPVC (Chlorinated polyvinyl chloride); PPR
(Polypropylene Random); HDPE (High-density polyethylene); and DWC [Double Wall
Corrugated] (all sold under the brand Prince & Trubore) with PAN India distribution
network.

 CPVC, PPR and HDPE products have superior margins than the UPVC products. Prince is
India’s only company to offer 3 polymer solutions for Industrial applications through
“EASYFIT” in PVC, “GREENFIT” in PPR and now “ONEFIT CPVC piping”. It offers piping
systems and fittings in the segments such as plumbing, sewage, agriculture and bore well.
It has a total capacity of 292K MTPA and their seven manufacturing plants are located at
Uttrakhand, Dadra & Nagar Haveli, Maharashtra, Chennai, Rajasthan and Telangana. The
company went public at the end of Dec’19. Promoters currently own 63% of the company.

Exhibit 1: Prince Product Portfolio

Source: Company Investor Presentation

Exhibit 2: Focus towards Building materials Exhibit 3: Pipe is the major contributor

Pipes & Fittings Breakup (FY21)


Revenue Mix application wise (FY21)

30% 30%

70% 70%

Agri (Irrigation & Borewell) Bulding material (Plumbing & Sewage) Plastic Pipes Fittings

Source: Company, Bonanza Research Source: Company, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 4: CPVC increased to 20% Exhibit 5: PAN India reach

Revenue mix - Polymer wise Region wise sales

12% 14%

37%
20%
25%

68%

24%

UPVC CPVC Other Polymers (PPR/DWC) North South West East

Source: Company, Bonanza Research Source: Company, Bonanza Research

Exhibit 6: Strong Revenue growth

Net Sales

3500
3020
3000 2745
2,430
2500
2072
2000
(In ₹ Cr)

1572 1636
1500 1246 1315
1006 957 1009
853
1000
446 519
500
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Source: Company, Bonanza Research

Exhibit 7: Improving EBITDA & EBITDA Margins

EBITDA & EBITDAM


18% 17%
600 17% 20%
18%
500 13% 16%
10%
400 11% 14% 15% 14%
12%
(In ₹ Cr)

12%
300 13% 10%
510 8%
7% 9% 464
200 8% 379 371 6%
5%
100 236 4%
165 169 191
32 25 110 88 105 2%
71
0 0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

EBITDA EBITDAM
Source: Company, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 8: Strong Return Ratios Exhibit 9: Diversified manufacturing capacities

ROE & ROCE Regional Capacity Split

35%
31% 29%
30% 27% 26%
24% 23% 23% 24% 23%
25% 20% 35%
16% 27%
20% 25% 24%
21% 20%
15% 19% 19%
10% 15% 15%
5% 10% 42%

0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
ROE ROCE West North South

Source: Company, Bonanza Research Source: Company, Bonanza Research

Fast catching up with Industry leaders

 As per the latest available data, India consumes 11 kg per capita of plastic, which is well
below the world average of 28 kg, on the other hand, USA consumes a whopping 109 kg.
The Indian plastic pipes and fittings industry is expected to reach ₹ 500-550 billion by the
year 2025 growing at a CAGR of 10% from the current levels of ₹ 290-300 billion (as of
FY20). Out of that UPVC is 200 billion, CPVC is 50 billion (growing double digit) and other
polymers are 50 billion. DWC pipes, a sub-category of HDPE pipes are gradually replacing
RCC pipes in underground drainage and other infra projects due to its longer life and low
maintenance (Prince was the early mover in DWC pipes in 2017).

 Due to their specialized nature, fittings and CPVC fetch higher margins compared to other
categories. Similarly, because of higher competition, companies earn lower margins in
agri compared to plumbing and sewerage. Manufacturing pipes is simple and not very
capital intensive, but fittings are different. Fittings require precision and significant
investment in moulds which makes it capital intensive compared to pipes (~3x of pipes).
The requirement to maintain large number of SKUs also increases the working capital in
fittings. On the other hand, pipe is a fast-moving product and have higher asset turnover
compared to fittings. However, due to its specialized nature, fittings fetch much higher
margin than pipes (~2x of pipes). So, higher share of fittings differentiates a company
from its competition as it helps them to sell more volumes of pipes.

 Industry growth was driven by rising demand from the construction and irrigation sectors.
The sub-segments propelling off take in the construction space were increasing
investments in WSS (Water supply & Sanitation) projects, substitution of metal pipes with
polymer pipes, and replacement demand. The irrigation sector is the prime user of PVC
pipes, contributing ~47% to total sales. WSS and plumbing contribute 35-40% to the total
PVC pipe market in India. Out of India’s 142 million hectares of cultivated land, only 50%
is irrigated and about 63% of the irrigated land is dependent on tube wells which in turn
are monsoon-dependant. Irrigation will rise sharply by 8-9% CAGR by FY24 compared with
9-10% CAGR over the past five years (April 1, 2014, to March 31, 2019).

 Swachh Bharat Mission: Swachh Bharat Mission and National Mission for Clean Ganga
(NMCG), Atal Mission for Rejuvenation & Urban Transformation (AMRUT) are likely to
boost investments in WSS. On the other hand, initiatives such as Pradhan Mantri Krishi
Sinchayee Yojana (PMKSY) will also off take the irrigation sector.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 10: Various Polymers Market size in India (in ₹ Billion) (FY20)

50 UPVC

CPVC
50

Other
200 polymers

Source: Company, Bonanza Research

Exhibit 11: Applications for various Pipes

Types of Pipes Applications


UPVC Irrigation
Cold water plumbing
Drainage
CPVC Hot (95°) and Cold water system
Industrial applications
HDPE Underground drainage structured wall
WSS Solid wall
PPR Hot and Cold water system
Industrial applications
Composite pipes Hot and Cold water system
Gas Pipeline
Industrial Application
Source: Company, Bonanza Research

Exhibit: 12 Fittings generates superior margins followed by CPVC and PVC

EBITDAM of various polymer pipes & Fittings


25%

20%
20%
17%

15%
12%
10%
10%
7%

5%

0%
Fittings CPVC (Plumbing) PVC (Plumbing) SWR/DWC (infra) PVC (Agri)

Source: Industry, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 13: Plastic Pipes & Fittings Industry growth Exhibit 14: CPVC likely to clock highest growth rate (FY14-25E)

Plastic Pipes & Fittings Industry Growth Product wise growth rate
20% 18%
600 18%
514
500 445 16%
391 14%
400 344 11% 11%
In ₹ Billion

12%
280 300 302 10%
300 250 10%
180 205 224
200 165 8%
6%
100 4%
0 2%
0%
UPVC CPVC HDPE PPR

Source: Astral AR FY21, Bonanza Research Source: Astral AR FY21, Bonanza Research

Exhibit 15: Prince has also shown healthy growth in last 5 years

Revenue/Operating/PAT CAGR growth from FY16-FY21

30%
24% 25% 24%
25%
21%
20% 18%
16% 16%
15% 13% 12% 13%
11% 11% 11%
10% 7%
6%
5%

0%
Prince Pipes Astral Pipes Finolex Industries Ashirvad Pipes Supreme Industries
Revenue CAGR Operating Profit CAGR PAT CAGR

Source: Company, Bonanza Research

Exhibit 16: Focus on branding Exhibit 17: Prince is little behind in Revenue/distributor

Avg. Ad spend % of sales from (FY16-21) Revenue/ Distributor in FY21


4.0% 6.00
3.5%
3.5% 5.07
5.00
3.0%
2.9%

2.5% 4.00
(Cr.)

2.1%
2.85 3.00
2.0% 3.00 2.64
1.6%
1.5% 1.2%
2.00
1.0%
1.38

0.5% 1.00

0.0% 0.00
Prince Pipes Astral Pipes Finolex Ashirvad Supreme Prince Pipes Astral Pipes Finolex Ashirvad Supreme
Industries Pipes* Industries Industries Pipes* Industries
Source: Company, Bonanza Research Source: Company, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 18: Decent Cash Conversion Cycle

5 years Avg. Cash Coversion Cycle (FY16-FY21)

80
70 60
60 53 49
43 31
50
(In Days)

40
30
20
10
55 48 54 41 54 35 8 75 39 34 62 47 23 51 43
0
Prince Pipes Astral Pipes Finolex Industries Ashirvad Pipes* Supreme Industries

5yr Average Receivable days 5yr Average Inventory days 5yr Average Days Payable CCC

Source: Company, Bonanza Research

Exhibit 19: Competitor Analysis

Prince Pipes Astral Pipes Finolex Industries Ashirvad Pipes Supreme Industries
Pipes Capacity in (MT) 2,90,000 2,63,342 3,70,000 2,00,000 2,50,000
Sales Volume in FY21 1,38,289 1,36,590 2,12,060 1,49,532 2,94,357
(MT)
Utilization (%) 50% 55% 58% N/A 58%
No. of Manufacturing 7 7 3 2 8
Facilities
Maharashtra, Tamil Gujarat, Tamil Maharashtra and Karnataka and Maharashtra, Telangana,
Manufacturing Location
Nadu, Uttarakhand, Nadu, Gujarat Rajasthan Uttar Pradesh, Madhya
Dadra & Nagar Rajasthan, Pradesh and West Bengal
Haveli, Rajasthan Maharashtra &
and Telangana Uttarakhand

Product Portfolio UPVC, CPVC, HDPE, UPVC, CPVC, UPVC, CPVC pipes and UPVC, SWR, CPVC UPVC, CPVC, HDPE, PPR
PPR pipes and HDPE pipes and fittings, Water Tanks pipes and fittings pipes and fittings, Water
fittings, Water fittings, Water Tanks
Tanks Tanks
TTM total revenue (₹Mn) 25170 40,800 43,030 35,032* 73000
FY16-21 Revenue CAGR 11% 11% 6% 12% 7%
FY16-21 Operating profit 18% 21% 13% 13% 11%
CAGR
FY16-21 PAT CAGR 24% 25% 16% 24% 16%
% of revenues from 100% 76% 80% 100% 63%
Plastic pipes & fittings in
FY21
5 YR Avg. EBITDAM 13.0 16.2 19.8 18.9 16.1
(FY16-21) [%]
5 yr Avg. NPM (FY16-21) 6.0 8.2 12.2 10.4 8.6
[%]
5 YR Avg. CCC (FY16-21) 53 60 38 49 34
[Days]
5 yr Avg. ROE (FY16-21) 24 22 18 31 25
[%]
5 YR Avg. ROCE (FY16-21) 22 29 24 35 33
[%]

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Other product segment None Adhesive PVC Resin None Packaging/Industrial


products/Consumer
durable
Mkt. share in overall 6% in pipes & 10% in Pipes & 11% in Pipes & Fittings 12% 15%
industry Fittings. 10% in 30% in CPVC
CPVC
No. of Distributors 1,500 850 1,000 1,100 1,368
Dealers 46,171 33,000 21,000 N/A 36,000
5 Yr Avg. Ad spending (% 2% 3% 2% 3% 1%
of sales) [FY16-21]
Brand Ambassador Akshay Kumar Pipes: Ranveer Virendra Sehwag None None
Singh
Adhesives:
Varun Dhawan

Source: Company, Bonanza Research

Migration from GI Pipes to UPVC and further shift to CPVC


 Since the early 1900’s, the piping inside buildings was dominated mostly by metal pipes
(copper pipes for high-end residences & hotels, & Galvanized Iron [GI] Pipes for the
masses). The growing success of PVC in water schemes was seen as an opportunity. The
rising price of metals in 2005 – 2010 further aided in growth of Plastic adoption and usage
in the Construction space. As homes started using the UPVC threaded piping systems to
a greater extent, the limitations of the systems became visible.

 After usage, the pipes showed failure when used in hot water. In North India where the
summers are extremely hot, pipes failed due to this limitation, including water heater
lines, where the failures were very frequent.

Exhibit 20: UPVC has the major share in PVC pipes market, while CPVC is gaining market aggressively

Industry wise Polymer breakup (FY14) Industry wise Polymer breakup (FY20)
4% 1%
6%
13% 15%

10%
16%
64%
71%

UPVC CPVC HDPE PPR UPVC CPVC HDPE PPR Composite pipes

Source: Company, Bonanza Research Source: Company, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 21: CPVC is more of an organised play

Product wise market type

20%
35%
45%
Unorganised
Organised
80%
65%
55%

Total Plastic pipes PVC/UPVC CPVC


Source: Company, Bonanza Research

 The early 2000 saw the entry of many alternative materials in India: CPVC was developed
by Lubrizol in the 1960 and is used extensively all over the world. Pipes have to be
concealed during the time of construction and any leakage or joint loosening requires
masonry work which damages the paint, tiles and overall look of the house. With
increased awareness about durability of plastic pipes and BIS standards, residential
consumers (UPCV, CPVC) and farmers (UPVC) are opting for better quality pipes to
minimize these problems.

Supply Chain Disruption & Quality controls lead to market


Consolidation
 Primary raw materials consumed by the company are CPVC, UPVC, PPR, and HDPE resins,
which are derivatives of crude oil. Hence, prices of plastic pipes are correlated to crude
oil prices. Even natural gas and coal have an influence on the price of PVC resin. In India
PVC resin is imported from several countries, due to COVID many overseas industries
went down with insufficient containers for importing. This affected the pipe industry
significantly. Imports were also cut off, leading to a severe shortage of PVC resin. There
were some local industries who were supplying the powder across the country.

 However, exports started to become more popular for the local suppliers as prices rose
in international markets. As a result, the price of PVC pipes increased dramatically. The
PVC prices have increased twofold and continue to grow northward. Additionally, in
Feb’20, Government of India imposed an ADD (Anti-dumping duty) on imports of CPVC,
originating in or exported from China and Korea, for a period of 5 years. Over the years,
many PVC plants have had to shut down or shift from mercury-based catalyst processes
to mercury-free processes owing to strict environmental regulations in China. Around 18
mt capacity in China is still dependent on mercury-based catalyst processes. This led to a
shutdown of 4.5 mtpa of PVC capacities in China over 2015-19.

 As per DGTR findings, imports from these two countries were ~32% of India’s overall CPVC
resin/compound imports. The government’s mandatory BIS (Bureau of Indian Standard)
quality norms have further aggravated the economic stability of small and medium
enterprises (SMEs) and have led the organized players to gain market share.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 22: Pipes & Fittings is the major consumer of PVC Exhibit 23: Unorganised players couldn’t compete with big players

PVC Consumption in India Shift of PVC Pipes from Unorganised to Organised

120%
5%
9% 100%

5% 80% 35%
40%
3% 50%
5% 60%

40%
73% 60% 65%
50%
20%

0%
FY10 FY15 FY21
Pipes & Fittings Films & Sheets Profiles
Wires & Cables Calendring sheets Others Organised Unorganised

Source: Company, Bonanza Research Source: Company, Bonanza Research

Raw materials for PVC resin

 PVC resin is the main RM for manufacturing of PVC pipes, while Ethylene dichloride (EDC,
which is produced from ethylene and chlorine by direct chlorination,) is RM for PVC resin.
Ethylene capacity in India stood at 7.05 million metric tons (Mt) in FY20. Reliance
Industries Limited (“RIL”) backward integrated as it produces ethylene, chlorine, EDC and
VCM (Vinlyl Chloride Monomer) at its Gujarat petrochemical plant. It is the largest
manufacturer of ethylene in India with a capacity of 3.8 Mt. PVC industry is the single
largest consumer of chlorine globally.

PVC Production capacity in India

 Domestic PVC resin capacity is pegged at approx. 1.5 mtpa (million tons per annum) while
demand stood at 4.12 MTPA in FY21 and is forecast to reach 7.03 Million Tonnes by
FY2030, growing at a healthy CAGR of 6.11% until FY30. Reliance Industries, CCVL
(Chemplast Cuddalore Vinyls), Finolex Industries, DCW and DCM Sriram being the Key
producers. However, the scenario is expected to change now as India has announced the
second-highest capacity addition of PVC at 1.7 MTPA by 2025 after China.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

 India meets 50%/90%+ of PVC and CPVC requirement via imports. Imports have been
largely sourced from Japan, Taiwan, South Korea, and China historically.

Exhibit 24: India is expected to lead the PVC capacity addition after China

Exhibit 25: PVC Production Capacities in India

Company Capacity (KTPA) Plant Location Region


Reliance Industries 770 Hazira and Dahej, Gujarat West
CCVL (Chemplast 300 Cuddalore Plant, Tamil Nadu South
Cuddalore Vinyls
Limited)
Finolex Industries 272 Ratnagiri Plant, Maharashtra West
DCW Ltd. 90 Sahupuram Plant, Tuticorin South
DCM Shriram 82 Kota Plant, Rajasthan North
Total 1514
Source: Industry, Chemplast Sanmar DRHP, Bonanza Research

Exhibit 26: Strong Correlation between PVC Resin and Crude Oil prices

PVC Resin & Crude oil prices


200
180
160
140
120
100
80
60
40
20
0

Delhi pvc resin price per KG Crude Oil in $


Source: Bloomberg, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

BIS license implementation to benefit organised players


 The government, in an official gazette issued in March-21, mandated all pipe
manufacturers to get a BIS (Bureau of Indian Standard) licence by 30 September 2021.
Further, the government has also laid down rules for phased abatement of the use of lead
stabilizers in polyvinyl chloride (PVC) pipe manufacturing. Unorganized companies will
have to incur significant CAPEX to meet the guidelines, resulting in erosion of price
differential.

Lubrizol deal and synergy with Ultratech to boost volume and margins

 Post ADD imposition on PVC resin, in the late Aug’20, Prince tied up with US-based
Lubrizol – the world’s largest manufacturer of CPVC compound (Berkshire Hathaway
Company Founded in 1928) – for a period of 3 years and currently sells under the brand
“FlowGuard Plus”.

 This tie-up will further support in improving the company’s market share. Sourcing of
quality resins is a strong entry barrier in CPVC pipes vis-à-vis other plastic pipes segments,
as there are very few quality RM global suppliers. Most top Indian plastic manufacturers
have tied up/source from either Lubrizol, Sekisui, Kaneka Corporation or Kem for one for
their CPVC resin needs.

Source: Company website

 The company has also entered into a 3 year technical collaboration with Tooling Holland
BV, 40+ years of experience in mould making, a global leader in the international plastic
injection moulding industry based in The Netherlands. The company specializes in
manufacture and exports of moulds for fittings (16-1000mm), crate and container
moulds, thin wall packaging moulds and PET perform moulds. The goal of this technical
partnership is to achieve optimal product design and mould layout, which will also help
optimise production costs while delivering superior product. During Dec’14-Dec’19,
Prince benefitted from a similar technical collaboration with “Wavin”. This collaboration
assisted the company in manufacturing and quality enhancement of plastic pipes, plant’s
productivity improvement, and sales. Prince and Ultratech Building Solution (UBS) have
also joined hands to create an additional revenue channel and opportunity to market
Prince’s product basket. Prince will distribute their products on UBS platform which has
a vast dealer (retail touch points) network of 2,000+.
Institutional Research 30 March 2022
Prince Pipes & Fittings Ltd

Exhibit 27: Tie up of Indian brands with International players for CPVC Resin

Indian Companies Raw material Supplier


Astral Sekisui
Prince Pipes Lubrizol
Finolex Multiple Sources
Ashirvad Lubrizol
Supreme Kaneka Corporation
Apollo Kem one
Source: Industry, Bonanza Research

Strong Distribution network and focus on Branding


 Prince has largest distribution network in the industry (1,500+ distributors, 11
warehouses, 7200 SKUs). North and West are strong zones for the company and after
Telangana plant, it will improve its roots in the South region as well. In Q3FY22 itself,
Prince has added 50 new distributors which are spread across India covering tier 2/3 semi
urban regions and rural markets. Over the past five years, it has almost doubled its
channel partner count to >1,500. In the eastern states of Bihar and Odisha, it is largely
catering through outsourced plants. The company is also aspiring to gain more traction in
the non-trade (B2B) segment, which has a huge growth opportunity.

Exhibit 28: PAN India distribution network Exhibit 29: Akshay Kumar as Brand Ambassador

Regional Splilt

14%

31%

18%

37%

North South West East

Source: Company, Bonanza Research Source: Company website

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 30: Rising number of distributors Exhibit 31: Increasing brand awareness

No. of Distributors Ad spend % of sales


3.5% 3.2%
1600 1500
1430
1400 3.0% 2.8%
1250
1200 2.5%
970 2.0%
1000 2.0%
770 1.5%
800 650 1.4%
1.5% 1.2%
600
1.0%
400
200 0.5%
0 0.0%
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company, Bonanza Research Source: Company, Bonanza Research

 Launch of Loyalty Programme - Prince has been the first one in the industry to launch
“Udaan” - a loyalty programme for retailers and plumbers. This programme aims to
strengthen connect with its channel partners and plumbers, and to motivate them by
giving reward points on every purchase, which can be redeemed later in exchange for
gifts. This loyalty programme is currently operational in North India (except Madhya
Pradesh), West India, South India and East India (only Bihar, Jharkhand and West Bengal).
Prince also conducts Parivaar and Mitra Meets (include dealer/plumber meets).

Exhibit 32: Programmes to connect with dealers & Plumbers

 Channel Financing - Prince uses channel financing to optimise WC requirements and


improve collections/debtor days. Channel partners or key distributors get an access to
WC financing at better rate, helping them take up large projects. The facility is provided
by banks to the channel partners based on the strength of their business relationship with
the company.
Source: Company Investor Presentation

Telangana plant will reduce logistics cost and spread brand awareness in south region
 Even without having an integrated plant in South, Prince is among the top 3 choice of
consumers (as per our channel check). They are now coming up with an integrated CPVC
plant in Telangana for CPVC pipes and fittings and other polymers (partially operational),
which has a total cost of ₹195 Cr. for 50,000 Tons of capacity. It is to be commissioned in
two phases; phase 1 has been completed in February 2021 and phase 2 is expected to be
completed by end of FY22. As of 9MFY22, ₹175-180 Cr. has already been spent, and the
entire amount will be utilized in the next couple of months. In pipes, transportation costs
play a critical role due to bulkiness of the product. This will further reduce logistics cost
and improve margins going forward.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 33: Plastic pipes and their Characteristics

Galvanised Iron (GI) UPVC CPVC HDPE PPR


Life (Years) 10 to 15 20 to 25 30 to 35 50 50
Max operating temperature N/A 60 to 70 90 to 100 60 to 80 90 to 100
(°)
Cost 20-30% costlier than most Cheaper than Cheaper than Cheaper than GI, Cheaper than
plastic pipe varieties GI GI, costlier than costlier than GI, costlier
UPVC UPVC than UPVC
Corrosion High corrosion due to No effect Has Excellent Good chemical
rusting from prolonged due to anticorrosive anticorrosion resistance and
exposure to water/moisture chemical properties and chemical corrosion
resistance resistance resistance
Installation Laborious, prone to issues in Done Cold welding. Hot welding. Hot fusion
cases of poor workmanship through cold Needs solvent Known for more welding –
welding cement for tolerance to requires
installation poor installation specialised
training and
equipment
Source: Industry, Vectus Industries, Bonanza Research

Leveraging distribution network by launching new products

 Prince has Launched various new products like Double wall corrugated pipes (these will
replace traditional RCC pipes in underground piping), low noise drainage system and
water tank with the name of “Storefit”

 Moving on to the water tank industry, which is highly fragmented, the market size we
estimate is about 4,000 Cr. and the organized to the unorganized split is 30:70.

Exhibit 34: Major Water tank market is still unorganised Exhibit 35: B2C is the bigger trend as of now

Water tank market in India Water tank industry market share

20%
30%

70%
80%

Unorganised Organised B2C B2B


Source: Astral AR FY21, Bonanza Research Source: Astral AR FY21, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Government push towards Real Estate & Agri. demand


 There are multiple demand drivers such as irrigation, real estate, plumbing and WSS,
urban/semi-urban sewerage infra and industrial uses. The irrigation sector is the prime
user of PVC pipes, contributing ~47% to total sales. Agri sector, where 58% of the Indian
population is dependent, is expected to grow in the coming years driven by increased
Government investments in agricultural facilities such as irrigation systems, warehousing,
and cold storage. Growth in the agriculture sector would further propel the Indian PVC
pipes market. Irrigation will rise sharply by 8-9% CAGR by FY24 compared with 9-10%
CAGR over the past five years (April 1, 2014, to March 31, 2019). In semi urban and rural
areas, the affordable housing programme has taken place aggressively.

 Government push towards WSS - WSS and plumbing are the second largest segments for
plastic pipes, accounting for 35-40% share of the plastic pipes market. In the past five
Fiscal years (i.e., from April 1, 2014, to March 31, 2019), government expenditure on the
sector rose at 22% CAGR to about ₹624 billion in Fiscal 2019.

Exhibit 36: Growth in Irrigation (in ₹ Bn) Exhibit 37: Rising Water supply & sanitation (WSS) (in ₹ Bn)

Source: Company, Bonanza Research Source: Company, Bonanza Research

 Budget 2022 (Focus on Real Estate market) - The budget defines ₹ 480 billion being
allotted for housing projects under PM Housing Scheme. Furthermore, ₹ 600 billion
allocated to cover 38 million households for tap water as part of “Har Ghar Nal Se Jal”
Scheme and the continuation of the expansion of National Highways all of which augurs
well for the pipes and the fitting industry.

The Cabinet decided that the flagship rural scheme, “Pradhan Mantri Awas Yojana Gramin”
will be provided ₹ 2.17 Lakh crore in addition to central and state funding to achieve its
target of building ₹ 2.95 crore houses. NITI Aayog expects that the Indian real estate sector
will reach a market size of $1 trillion by 2030 and will account for 13% of India’s GDP by
2025. Already being the third-largest sector to bring about economic growth, the real estate
industry is expected to continue its upward trajectory in 2022.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 38: Real estate on a growth trajectory on the back of affordable housing/ Lower interest rates and WFH trend

Demand for Commercial spaces in top 8 cities (Million Sq. ft.) PE/VC Investment in Indian Real estate ($ Billion)

45 8
40 7
35
6
30
5
25
4
20 39.3 6.7
3 6.6
15 33.2 33
28 28 29
10 2
3.3
5 1
0 0
2015 2016 2017 2018 2019 2020 2019 2020 2021 (till Sept)

Source: IBEF, Bonanza Research Source: IBEF, Bonanza Research

City wise Commercial space Demand (Million sq. ft.) 2020


14

12

10

6 12.3

4
5.9 6
2 3.7 4.6 4.5
0.9 1.4
0
Pune NCR Mumbai Kolkata Hyderabad Chennai Bengaluru Ahmedabad
Source: IBEF, Bonanza Research

 Atmanirbhar Bharat will drive growth further going forward -The Aatmanirbhar Bharat
campaign was strengthened by RBI’s announcement of loan moratoriums. Stamp duty
cuts and reduction in loan rates continues to aid real estate developers during these
volatile times. The implementation of Real Estate Regulatory Authority (RERA) has helped
boost investments in real estate, enhancing transparency.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Financial Profile to Strengthen


 Prince posted a 11%/24% revenue/profit CAGR respectively from FY16-21, despite
pandemic-induced lockdowns hurting the industry from past one year. The average
utilization for the company is about 50-55% which is at par to industry average (max 60-
65% utilization). With gradual commercialization of the Telangana plant in FY22 and FY23,
along with increased capacity utilization at other plants, we expect the company to
continue growing its Volume/Revenue/EBITDA/PAT at a healthy 10%/11%/15%/17%
CAGR respectively over FY22-FY25E.

Exhibit 39: Slight dip in Volume in FY22 (in KT) Exhibit 40: Healthy Margins

Volume & Realization EBITDA & PAT Margins


220 190 190
185 20% 18% 17% 17%
123 14% 15%
170 122 150
15% 12%
10% 10%
120
10%
70 145 159 5% 11%
129 133 138 131 9%
5% 7%
20
0%
2019A 2020A 2021A 2022E 2023E 2024E 2019A 2020A 2021A 2022E 2023E 2024E
-30
Volume in KT Realization/KG EBITDA Margin PAT Margin

Source: Company, Bonanza Research Source: Company, Bonanza Research

Exhibit 41: Strong Sales growth and improving cash conversion cycle

Net Sales
3500 3131
3000 2796
2,431
2500 2072
2000 1572 1636
(In Cr)

1500 1246 1315


1006 957 1009
853
1000 519
446
500
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Cash Conversion Cycle


80
70 62 64
46
60 39
39
50
(Days)

40
30
20
10 55 38 41 41 57 59 8 50 67 46 58 64 45 48 47
0
2017 2018 2019 2020 2021

Receivable days Inventory days Payable days CCC


Source: Company, Bonanza Research

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

 EBITDA Margins shot up from 12% in FY19 to 18% in FY21 on inventory gains related to
uptrend in PVC prices and hence improved the operating efficiencies/cost cutting. Though
the trend of margin improvement related to inventory gain has reversed in FY22 due to
sharp correction in PVC resin prices (inventory loss). But due to Russia - Ukraine conflict,
we are seeing another uptrend from March 2022 onwards (Jan and Feb 2022 saw a
reduction in prices.) and it will further pickup inventory gain in FY23 along with operating
efficiencies, product mix improvements which will help the company posting a 15-17%
EBITDAM in next couple of years.

 The company has repaid all its long term borrowing, reducing the overall borrowing from
₹264 Cr. in FY20 to ₹161 Cr. by H1FY22.

Exhibit 42: Sharp Reduction in Borrowings

Debt to Equity
2
1.55
1.5 1.33
1.15

1
0.63

0.5 0.29
0.08
0
2016 2017 2018 2019 2020 2021

Source: Company, Bonanza Research

Valuations & Recommendation


Initiate with Buy

 The Indian piping industry has seen significant unorganised to organised shift in the last
couple of years due to rising awareness of use of quality pipes, this has been further aided
by the pandemic-induced supply chain disruptions leading to raw material sourcing
challenges for unorganized/regional players. Higher crude prices, due to Russia-Ukraine
conflict clearly shows that higher PVC resin prices are here to stay for a while.

 The company has been focussing on improving its product mix, investing in branding,
higher utilization levels and enhancing its distribution reach. Telangana plant will further
strengthen Prince’s brand in the Southern region and reduce logistics cost as well.

 EBITDA and PAT will be flattish in FY22 as volume growth will be offset by PVC price
softening but as utilization levels pick up, operating leverage will drive EBITDA gains. We
expect Volume/Revenue/EBITDA/PAT to grow at a healthy 10%/11%/15%/17% CAGR
respectively over FY22-FY25E.

 Going ahead, we anticipate the market share pendulum to shift decisively in favour of
large organized players given the worsening financial position of small fragmented
players. We initiate a Buy rating for the target price of ₹862 (35x PE, which is average P/E
multiple of the industry, for FY23 EPS of 24.6).

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 43: Peer Valuations

Peer Industry Competitors Market related (TTM) Valuation (TTM)


(Amount in Cr.)
CMP* Market Cap EV EV/EBITDA P/E P/S P/B
Prince Pipes & Fittings 623 6,997 7,019 16x 27x 2.7x 6.2x
Astral Limited 2,006 40,465 40,036 49x 78x 10x 19x
Finolex Industries 149 9,663 9,093 7x 11x 2.2x 3x
Supreme Industries 1,991 25,360 25,020 16x 23x 3.5x 7.5x
Apollo Pipes 479 1,927 1,906 20x 38x 2.7x 5.1x
Average 22x 35.2x 4.2x 8x

Source: Company, Bonanza Research


*Note- Figures as of 29th March

Exhibit 44: Valuation Snapshot

Valuation TP
Target P/E multiple (x) 35
FY23 Forward EPS (₹) 24.6
Target price per share (Rs) 862
No. of shares (Mn) 110.6
Target Mkt. cap (Rs MN) 95779

Key Risk
 Volatility in Raw material price - Prince Operations by change in raw material price (PVC
Resin, a derivative of Crude oil), as they import half of its requirement. High volatility in
Crude will lead to unsustainable margins.

 The operation of the company continues to remain moderately Working Capital intensive.

 Slowdown in Agriculture sector (30% of the revenue) and lower government spending on
infrastructure will hurt the growth prospects of the industry.

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Exhibit 45: Financial Statement

INCOME STATEMENT Cashflow statement


Fiscal year 2022E 2023E 2024E 2025E
Fiscal year 2019A 2020A 2021A 2022E 2023E 2024E 2025E
(€ mm except per share)
in (Million except per share)
Net income 2,067 2,725 2,995 3,298
Revenue from operations 15,719 16,357 20,715 24,307 27,460 30,206 33,226
Depreciation and amortization 780 828 923 1027
Other income 71 69 176 0 0 0 0
Operating profit before working capital change: 2,847 3,553 3,918 4,325
Net revenue 15,790 16,426 20,891 24,307 27,460 30,206 33,226
Working Capital
Cost of goods sold -11,274 -11,264 -13,789 -17266 -18593 -20452 -22497
Accounts receivable -8 -459 -303 -705
Employee benefits expense -817 -902 -997 -1095 -1392 -1532 -1685
Inventory -3,079 2,192 -1,236 -815
Other expenses -1,788 -1,903 -2,313 -2,233 -2,833 -3,116 -3,428
Accounts payable 571 152 405 334
EBITDA 1,912 2,357 3,792 3,713 4,641 5,105 5,616
Other current asset 0 0 0 0
Depreciation and amortization expenses -436 -520 -594 -780 -828 -923 -1027
other current liabilities 0 0 0 0
EBIT 1,476 1,837 3,198 2,933 3,813 4,182 4,588 Cash generated from operating activities 330 5,437 2,785 3,139
Finance costs -363 -332 -207 -149 -149 -149 -149 Capital expenditure: -2000 -800 -1000 -1200
EBT 1,113 1,506 2,991 2,785 3,665 4,034 4,440 Cash flow from Investing activities -2,000 -800 -1,000 -1,200
TAX EXPENSE -292 -381 -773 -718 -939 -1039 -1142 Equity issue/paid 0 0 0 0
Net profit 821 1,125 2,218 2,067 2,725 2,995 3,298 Term Debt issued /(paid) 0 0 0 0
OCI -1 -7 3.12 0 0 0 0 Dividends paid -403 -367 -494 -494
Cash genrated from Financing activities -403 -367 -494 -494
Total Coprehensive income for the year 820 1,119 2,221 2,067 2,725 2,995 3,298
EPS 9.1 10.2 20.2 18.7 24.6 27.1 29.8 Net cash flow -2,073 4,270 1,291 1,445
Cash at the beginning of the period 2,299 227 4,496 5,787
Cash at the end of the period 227 4,496 5,787 7,232

Balance Sheet Ratio Analysis


Fiscal year 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2019A 2020A 2021A 2022E 2023E 2024E 2025E
ASSETS Liquidity Ratios
Non – current assets Current Ratio 1.09 1.72 1.89 1.88 2.26 2.56 2.88
Fixed Asset (Gross block) 4,642 6,329 6,946 8,946 9,746 10,746 11,946 Quick Ratio 0.58 1.35 1.21 1.27 1.58 1.88 2.13
Less: Accumulated Depreciation -1,047 -1,520 -1,997 -2,777 -3,605 -4,528 -5,555
Net Block 3,595 4,809 4,949 6,169 6,141 6,218 6,390
Capital work-in-progress 615 75 765 765 765 765 765
Efficiency Ratio
Right of use Asset 0 46.45 30.53 31 31 31 31
ROE 27% 15% 24% 19% 20% 19% 18%
Goodwill 3 3 3 3 3 3 3
ROCE 27% 20% 29% 23% 26% 24% 23%
Other intangible assets 36 27 48 48 48 48 48
Investment 8 6 15 15 15 15 15 EPS 9.1 10.2 20.2 18.7 24.6 27.1 29.8
Loan 74 103 83 83 83 83 83
Other financial asset 87 87 53 53 53 53 53 Growth Ratio
Other non – current assets 582 497 258 258 258 258 258 Volume growth N/A 3% 4% -5% 10% 10% 10%
Total non – current assets 5,000 5,655 6,204 7,424 7,396 7,473 7,645 Net sales growth N/A 4% 27% 16% 13% 10% 10%
Current assets EBITDA growth N/A 23% 61% -2% 25% 10% 10%
Inventories 2,011 3,445 2,273 5,352 3,161 4,396 5,212 EBIT growth N/A 24% 74% -8% 30% 10% 10%
Financial assets PAT growth N/A 37% 97% -7% 32% 10% 10%
(ii) Trade receivables 2,504 1,797 3,534 3,542 4,001 4,304 5,009
(iii) Cash and cash equivalents 223 2,570 2,299 227 4,496 5,787 7,232 Valuation Ratios
(iv) Other current financial assets 4 85 73 73 73 73 73 EV/EBITDA N/A 4.7x 11.7x 19 x 14 x 13 x 11 x
Current tax asset 2 0 0 0 0 0 0
P/ E ratio N/A 8.7x 20.7x 34 x 25 x 23 x 21 x
Other current assets 596 550 1,678 1,678 1,678 1,678 1,678
P/B Ratio N/A 1.3x 4.4x 6x 5x 4x 4x
Total current assets 5,339 8,447 9,857 10,871 13,409 16,239 19,204
P/S Ratio N/A 0.6x 2.2x 3x 3x 2x 2x
Total assets 10,339 14,102 16,061 18,295 20,805 23,712 26,849

EQUITY AND LIABILITIES Margins


Equity EBITDA Margin 12% 14% 18% 15% 17% 17% 17%
Equity share capital 900 1100 1100 1,100 1,100 1,100 1,100 EBIT Margin 9% 11% 15% 12% 14% 14% 14%
Other equity 3089 7277 9335 10,998 13,356 15,857 18,661 EBT Margin 7% 9% 14% 11% 13% 13% 13%
Total equity 3,989 8,377 10,435 12,098 14,457 16,958 19,762 PAT Margin 5% 7% 11% 9% 10% 10% 10%
Liabilities
Non – current liabilities
(i) Borrowings 1,058 395 0 0 0 0 0
Lease liability 0 28 13 13 13 13 13
(ii) Other financial liabilities 160 146 146 146 146 146 146
Provisions 78 113 117 117 117 117 117
Deferred tax liabilities 149 133 133 133 133 133 133
Total non- current liabilities 1,445 815 408 408 408 408 408
Current liabilities
Financial liabilities
(i) Borrowings 1,457 2,038 852 852 852 852 852
(ii) Trade payables 2,152 1,808 2,491 3,062 3,213 3,619 3,953
(iii) Others financial liabilities 1,115 890 1,296 1,296 1,296 1,296 1,296
Provisions 16 21 17 17 17 17 17
Current tax liabilities 0 51 199 199 199 199 199
Other Liabilities 165 103 363 363 363 363 363
Total current liabilities 4,904 4,911 5,218 5,788 5,940 6,345 6,679
Total liabilities 6,350 5,725 5,626 6,197 6,348 6,754 7,088
Total equity and liabilities 10,339 14,102 16,061 18,295 20,805 23,712 26,849

Institutional Research 30 March 2022


Prince Pipes & Fittings Ltd

Disclosure:
Bonanza Portfolio Ltd here by declares that views expressed in this report accurately reflect view point with subject to companies/securities.
Bonanza Portfolio Ltd is responsible for the preparation of this research report and has taken reasonable care to achieve and maintain
independence and objectivity in making any recommendations. Bonanza Portfolio Ltd or its associates or Analyst or his relatives may or may
not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of
this research report. Bonanza Portfolio Ltd operates under the regulation of SEBI Regn No. INH100001666

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Institutional Research 30 March 2022

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