For 4QFY2008, Finolex Industries (Finolex) posted a y-o-y topline growth of 63.4% to Rs501 crore (Rs307cr). Revenue increased on account of the hike in the finished product prices and higher volumes of PVC resin sold. Revenues were higher by over 60% y-o-y for the third consecutive quarter.
However, OPM for 4QFY2008 contracted to 5.6% (11.3%) primarily due to the increase in raw material costs. The international prices of its primary raw materials surged 30-35% during 4QFY2008.
The decline in OPM was however, to a large extent, restricted owing to the hike in the finished product prices. However, the decline in OPM resulted in 4QFY2008 Operating Profit dipping to Rs28.2 crore (Rs34.6cr).
Going forward, we assume average crude oil prices to remain flat in the range of $120 per barrel in FY2009E and drop to $110 per barrel in FY2010E. Also, benefits of CPP would start accruing from FY2010E.
We are downgrading our FY2010E EV/EBITDA multiple for the stock form 6x to 5x owing to the volatility in the prices of petroleum-based products and reduce our EBITDA estimates from Rs266 crore to Rs213 crore.
We continue to include the value of the 14.5% stake held by the company in Finolex Cables at 25% discount to the current market value of that stock. We have downgraded our estimated value of the Pune land that the company plans to sell from Rs500 crore to Rs400 crore. We maintain a BUY on the stock, with a SOTP target price of Rs90.