**[investwise]** Finolex Industries-Primed For A Re-Rating [1 Attachment]

 

[Attachment(s) from Maverick included below]

Finolex Industries-Multi-Bagger BSE 500940; CMP Rs 78   (Finolex Ind gets single digit PEs while similar manufacturers like Sintex and Astral Poly get twice the PEs. This under-valuation cannot sustain for long. Finolex Ind is ready for a re-rating)   There has been a significant increase in the disposable income of the Rural population, driven by the various government schemes. An improvement in the cash position has allowed the rural population to reinvest in their farm land and to build concrete houses, which are the two top priorities in Rural India. The impact of NREGA has been that middle class living in rural and sub-urban India has created additional demand for PVC pipes-which grew 30 per cent in FY10, and this momentum is likely to continue.   Finolex Industries is the largest integrated PVC pipe manufacturer in the country with a capacity of 140,000 MT which is expected to increase by another 50,000 MT in FY11.   Finolex Ind offers a wide range of PVC pipes and fittings for diverse applications in agriculture, housing, telecom industry. It also manufactures speciality pipes and fittings for the construction industry. Currently, 75 per cent of sales are made to the Irrigation sector.   Finolex has aggressive plans to capture incremental market share in Northern India, where the demand for PVC pipes is growing at a high pace mainly driven by the construction, with demand forecast to grow by 35 to 40 per per annum over the next 5 years.   Besides growth in sales volume growth, Finolex Industries will be saving massively on input cost, where captive power will help reduce power cost from 10 per cent of Sales in FY09 to 4 per cent in FY11. This will be the biggest contributor to margin improvement in FY11.   Finolex Industries is also present in the drip irrigation business through it's joint venture-which is growing at an exponential pace. During FY10, this JV grew revenues by 67 per cent yoy and returned EBITDA margins of 30 per cent. Value unlocking through a listing of this entity over the next 3 years is a distinct possibility.   Most importantly, Finolex has shifted one of it's production facilities to Ratnagiri. The said facility was located on a piece of land admeasuring 78 acres and situated in Pune. There are plans to sell this land and close-out corporate debt. The land sale should bring in Rs 410 crore or roughly Rs 33 per share. Adjusted for this land sale, the Finolex Industry stock is available for a mere Rs 50 per share.   The management is confident of clocking a net CAGR earnings of 22 per cent for the period FY10-FY12, primarily driven by higher volume growth in the pipes business coupled with robust margins backed by huge power cost savings.   At the current price, Finolex is quoting at 5 and 4 times EV/EBITDA for FY11-FY12. The stock also offers a near 4 per cent Dividend yield. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.           --- On Fri, 6/25/10, Dharmesh Shah <dmesh_shah@hotmail.com> wrote: From: Dharmesh Shah <dmesh_shah@hotmail.com> Subject: Hi ! From Dharmesh To: "Rajiv Handa" <rajivhanda@yahoo.com> Date: Friday, June 25, 2010, 5:27 PM Dear Sir How are you ? reading your article regularly . Was trying to call you but it seems your numbers are changed , would appreciate if you can forward me your current contact detail. Thanks Dharmesh Shah Chin music and high voltage T20 action on MSN Sports Sign up now.

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Finolex-FY10.pdf

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