Prince Pipes stock gains over 7% as Nuvama reiterates ‘buy’ call, says company positioned for strong growth

Shares of Prince Pipes and Fittings soared 7.5 percent in intra-day deals after brokerage house Nuvama reiterated its ‘buy’ call on the stock with a target price of ₹830, implying an upside of almost 24 percent.

The positive outlook is driven by India's recovering real estate sector and robust infrastructure developments, which are boosting demand for plastic pipes. Nuvama's recent note highlights that channel checks indicate continued strong demand in both the infrastructure projects and plumbing sectors. Strong demand, PVS price margins, expansion initiatives, and a strong project segment are some key positives for the firm, noted Nuvama.

The stock rose as much as 7.5 percent to its day's high of ₹721. It is now just 7 percent away from its 52-week high of ₹775.75, hit on January 5, 2024. Meanwhile, it has surged around 43 percent from its 52-week low of ₹505.15, hit on April 15, 2024.

Prince Pipe shares have gained just a little over 4 percent in the last 1 month and lost around 3 percent in 2024 YTD. It jumped almost 16 percent in June so far after a 4.5 percent fall in May. Prior to that, the scrip advanced over 16 percent in April but was in the red in the first 3 months of the current calendar year. It lost 4.2 percent in March, 19.3 percent in February and 4.3 percent in January 2024.

Industry Position and Growth

Prince Pipes stands out in India's rapidly expanding plastic pipes industry, which has seen a compound annual growth rate (CAGR) of 12-14 percent. Nuvama highlights the company’s comprehensive product range, strong presence across agricultural, infrastructure, and plumbing segments, and a robust pan-India brand and distribution network as key strategic advantages.

Over the period from FY18 to FY23, Prince Pipes has achieved impressive revenue, earnings before interest, taxes, depreciation and amortization (EBITDA), and profit after tax (PAT) CAGRs of 27 percent, 15 percent, and 19 percent, respectively, underscoring its strong performance compared to industry peers. The management anticipates a 15 percent volume growth in FY25, supported by favorable market conditions. They also expect margins to range between 12 percent and 14 percent, with potential upside if PVC prices continue to rise, facilitating re-stocking and inventory gains.

Therefore, Prince Pipes is well-placed to outpace industry riding capacity and geographical expansion, believes the brokerage.

Strategic Initiatives and Expansion

Nuvama noted that the pipes sector is experiencing robust demand from real estate, agriculture, and infrastructure segments. Prince Pipes aims to enhance its market share through strategic pricing and improved supply chain efficiencies post ERP implementation. This realignment is expected to drive strong double-digit volume growth starting Q1FY25.

The increase in PVC prices, influenced by container shortages, logistical challenges, and anticipated anti-dumping duties, has bolstered margins. Channel stocking and inventory gains further support profitability. Prince Pipes is also expanding its footprint beyond its 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.

Future Prospects

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

Approximately 25 percent of Prince's total sales are attributed to projects involving PVC, CPVC, and DWC pipes. The company is focusing on expanding its project presence in cities like Ahmedabad, Pune, and Hyderabad to leverage scale for operational efficiencies.

Potential Risks

Despite the positive outlook, analysts caution that sustained slowdowns in residential and non-residential construction, along with downturns in the agricultural sector, pose risks to Prince Pipes' growth. Additionally, volatility in raw material prices remains a potential threat to profitability.

In summary, Nuvama's analysis underscores Prince Pipes' strategic positioning and growth prospects in India's burgeoning plastic pipes industry. The company's focus on expanding its market share, improving supply chain efficiencies, and leveraging technology to drive volume growth positions it well for future success. However, potential market and sector-specific risks must be monitored closely to ensure sustained performance.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.