Finolex Industries H1 FY26 Strong liquidity with free cash (net) of ~ ₹ 2359 Cr

 Finolex Industries H1 FY26 Strong liquidity with free cash (net) of ~ ₹ 2359 Cr



Weaknesses:

  • Susceptibility to volatility in raw material prices: Being a commoditised product, the prices of PVC pipes are easily impacted by movement in the prices of PVC resins. The company’s operating performance was adversely impacted in fiscal 2023 and during the second quarter of fiscal 2025 due to significant fluctuations in PVC resin prices. Profitability remains volatile to movements in international prices of PVC and its raw materials: ethylene dichloride (EDC), ethylene and vinyl chloride monomer (VCM). Furthermore, as most of the raw material required for manufacturing PVC resin is imported, inventory risk is also high.

 

  • Exposure to intense competition in the PVC pipes industry: The pipes and fittings industry are highly competitive, especially in the commoditised products segment, which has low differentiation.

Strengths:

  • Established market position in the domestic PVC resin and pipes segments: FIL is among the top three largest players in the domestic PVC resin and PVC pipe segments. The company has the second largest capacity in the domestic PVC pipes industry (at 4.2 lakh tonne) and third largest capacity in PVC resin industry (at 2.7 lakh tonne).

 

The company is in the process of undertaking capex in the pipes segment which will increase capacity to 4.7 lakh tonne by end of fiscal 2025-26. It will further improve the market position of FIL. The capex will be covered by maintenance capex of Rs 100-150 crore and will be funded entirely through accrual.

 

  • High operating efficiency, driven by in-house PVC resin capacity and improving product portfolio: FIL is the only large vertically integrated player in the domestic market with in-house production for most of its requirements of PVC resin, the major raw material used in pipe manufacturing. External sales of PVC resins declined to 3% of revenue in fiscal 2024 from 6% in fiscal 2023 and 17% in fiscal 2022. The company plans to keep its external sales of PVC resin low and concentrate on expanding only the pipes business.

 

The company has also been improving its product profile by increasing its non-agro share in the revenue. The non-agro to agro share which used to be 30:70 in fiscal 2018 has improved to 40:60 currently. A higher share of the non-agro segment gives more stability to the margin, as prices in the non-agro sector (plumbing and construction, among others) is more stable than the agricultural sector.  

 

  • Strong financial risk profile: The financial risk profile is supported by low gearing of 0.12 time as on March 31, 2024, in the absence of long-term debt or major debt-funded capex. Debt protection metrics were strong, with interest coverage ratio of 27.6 times in the first half of fiscal 2025 and 19.06 times in fiscal 2024. Liquidity has improved, as reflected in cash and equivalent of above Rs 2,400 crore as on September 30, 2024.

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