26 FEBRUARY 2016
SECTOR: PLASTIC PRODUCTS
Finolex Industries Ltd.
BSE SENSEX
22993
S&P CNX
6974
(INR CRORES)
CMP: INR306 TP: INR400 (+31%)
Buy
Y/E MARCH
Net sales
EBITDA
RPAT
BV/Share (Rs.)
Adj. EPS (Rs.)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
ROE (%)
RoCE (%)
FY15A
2,476
199
48
63.4
2.6
(77)
118.2
4.8
22.3
2.6
4
9
FY16E
2,687
406
216
70.6
15.2
484
20.2
4.3
10.5
2.8
23
23
FY17E
2,866
421
237
78.3
19.1
26
16.1
3.9
9.7
3.1
26
25
We recommend to BUY Finolex Industries for a TP of INR400
(21xFY17E EPS) - a 31% upside.
Government irrigation focus to boost PVC pipe demand:
More
than 50% of India's 157.35 mn hectare agricultural land is un-irrigated
and depends upon rainfall. Government's focus on raising productivity
and reducing dependenc e on rainfall through the INR50000cr PMKSY
scheme will boost demand for PVC pipes from agriculture. Finolex
Industries derives nearly 70% of its pipes business from agriculture.
Pipes to grow at double digits:
PVC in the form of CPVC is replacing
galvanised steel pipes in housing and borewell applications. This coupled
with the demand from agriculture are expected to drive demand for
PVC pipes in double digits. Pipes and fitting demand for 9mFY16 has
grown at ~10% and we are likely to end FY16 with a 12% growth,
with a 15% growth likely for the next two years atl east.
Fitting & CPVC to add to margins:
Fittings stood at INR170cr for
9mFY16 - 10% of overall revenues and 14% of pipes revenues vs 6-
7% in FY13 and 20-25% for competitors. This product is growing at
25% and there is scope to grow at this rate for the next few years
atleast. CPVC is currently less than 1% of revenues and we see scope
for this product to grow at 25%+ atleast. As contribution from these
value-added products rise, we expect margins to improve further.
Internal consumption of PVC to reduce volatility in earnings:
The PVC resin segment has significant volatility in margins (-23% to
+42% range for the last 6 years). This was a backward integration
initiative to be self sufficient in raw material requirement for the pipes
business. Pipes is expected to take up ~70-75% of the PVC production
by FY18 and this will reduce volatility in overall earnings.
Debt free by FY19:
Finolex plans to repay INR150-200cr of debt in
FY16 out of INR621cr at FY15 end. Given Operating Cash Flows of
INR650cr+ over FY17-FY18E and less than INR100cr of capex over
FY16-FY18E, we see scope for a debt free status by FY19E.
Valuations & View:
We expect revenue to grow at 7% CAGR on
subdued commodity prices and higher internal usage of PVC. Earnings
should see a sharp jump in FY16 (300%+) followed by lower double
digit growth in FY16 and FY17E. Reduced volatility in earnings and
improvement in ROE to 27% in FY18 from 5-year average of 14%
leaves scope for rerating. We value Finolex Industries at current TTM
valuation of 21x and recommend to BUY for a TP of INR400.
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
12.4
3795
553
6%
-14%
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders (as of Dec 2016)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
334/246
52.5
11.6
35.9
43448
1.86
9/12/6
15/28/27
Maximum Buy Price :INR310
Ravi Shenoy
(ravi.shenoy@MotilalOswal.com); Tel: +91 22 30896865
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Finolex Industries Ltd.
CONCERNS
High sensitivity to currency movement:
Finolex Industries imports majority of its raw materials, which
exposes it to INR movement. Significant depreciation of INR against USD will impact its financials materially.
Poor Monsoons:
PVC pipes demand in India is driven by the agricultural sector, which in turn depends on
the monsoon rains. The shortage of rainfall may result in fall in demand for PVC pipes. However, going
forward, as demand from housing increases, the dependency of PVC pipes sales on agriculture sector will
decrease.
BACKGROUND
Finolex Industries (Finolex) is an integrated PVC pipes manufacturing company with manufacturing facilities
at Ratnagiri (PVC Resins, an input to manufacture PVC pipes), PVC Pipes (Pune, Ratnagiri and Masar,
Gujarat). Its PVC Resin capacity is 270kta and its PVC Pipes capacity is 250kta. In addition to meeting
captive demand for PVC pipes, Finolex also sells PVC Resins externally.
Quarterly Performance
Higher internal consumption of PVC is visible in revenue degrowth of 15%. Volumes in the pipes segment
were higher by 9%, but internal consumption of PVC rose to 50% vs 24% last year.
EBITDA margins have seen a 1870bps improvement on a INR90cr swing in PVC profits as the PVC-
EDC margins have expanded sharply.
The boost in EBITDA coupled with a 72% drop in interest cost has seen reported profits see a INR87cr
swing to INR 43 cr.
QE Dec-14
638
665
QE Sep-15
462
415
47
43
16
13
62
20
42
10.2
32.2
QE Dec-15
541
463
78
10
8
13
67
24
43
14.4
35.7
% y/y
-15%
-30%
L2P
47%
-72%
-13%
L2P
-219%
L2P
% q/q
17%
12%
64%
-77%
-51%
1%
8%
20%
3%
INRCr
Revenue
Expenditure
EBITDA (excl. Other inc.)-27
Other Income
Interest
Depreciation
Profit before tax
Tax
RPAT
EBIDTA (%)
Tax rate (%)
7
29
15
-64
-20
-44
-4.3
31.4
Finolex Ind (LHS)
Rel to Sensex (RHS)
330
320
310
300
290
280
270
260
250
140
130
120
110
100
90
26 February 2016
2

Finolex Industries Ltd.
IVRCL: Financials and Valuation
Finolex Industries Ltd. Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
(INRCR)
FY15 FY16E FY17E FY18E
RATIOS
Y/E MARCH
FY14
FY15
FY16E FY17E FY18E
Net sales
Growth
Other Income
Total Income
Staff Costs
Raw material cost
Other Expenses
Total Expenditure
EBITDA
% of net Sales
2453
14
44
2497
72
1652
402
2126
371
15
2476 2687 2866 3054
1
9
7
7
20
50
20
20
2496 2737 2886 3074
74
1810
413
2297
199
8
59
60
81
33
48
-72
2
79
85
1838 1942
414 437
2331 2465
406
15
49
49
308
92
216
352
8
421
15
50
33
339
102
237
10
8
94
2061
463
2618
456
15
51
16
389
117
273
15
9
(INRCR)
Adjusted EPS (INR)
Growth (%)
Cash EPS
Book Value
DPS
Payout (Incl. Div. Tax)
11.5
-24
16.5
63.6
7.0
71
2.6
-77
7.3
63.4
8.0
360
15.2
484
19.1
70.6
8.5
66
19.1
26
23.1
78.3
9.5
58
22.0
15
26.1
88.3
10.0
53
Depreciation/Amortization 62
Finance Charges
66
PBT
242
- TAX
72
PAT
170
growth (%)
25
PAT MARGIN
BALANCE SHEET
Y/E MARCH
FY14
P/E
Cash P/E
Price/Book Value
EV/EBITDA
EV/Sales
Div. Yld
26.7
18.6
4.8
12.2
1.8
2.3
118.2
41.9
4.8
22.3
1.8
2.6
20.2
16.1
4.3
10.5
1.6
2.8
16.1
13.3
3.9
9.7
1.4
3.1
14.0
11.8
3.5
8.5
1.3
3.3
RoE
RoCE
Debt/Equity (x)
CASH FLOW
18.9
18.8
0.90
4.1
8.9
0.81
22.6
23.5
0.53
25.7
25.0
0.30
26.4
27.9
0.08
7
(INRCR)
FY14
FY15 FY16E FY17E FY18E
FY15
FY16E FY17E FY18E
Y/E MARCH
Equity Share Capital
Reserves
Shareholders' Funds
Debt
Net deferred tax
Other LT Liabilities
SOURCES OF FUNDS
124
666
790
124
663
787
124
752
876
124 124
848 972
972 1096
713
637
106
111
9
9
1618 1544
462 287
87
152 198 251
9
9
9
1500 1467 1443
849 829 808
10
10
10
145 125 125
776 812 836
589 613 628
53
56
60
12
21
25
123 123 123
339 369 394
437 444 441
59
59
59
1500 1467 1443
PBT before EO items
Add : Depreciation
Interest
(Inc)/Dec in WC
Others
CF from Operations
(Inc)/Dec in Fixed assets
Others
CF from Investing act.
Inc/(Dec) in debt
Dividend paid
Less: Interest paid
Others
CF from Financing act.
Inc/(Dec) in cash
Add: Beginning balance
Closing Balance
242
62
66
-59
-66
245
-67
9
110
-121
-79
-67
0
-344
12
9
21
81
59
60
42
-27
214
-31
5
22
308
49
49
-16
-72
318
-30
0
5
339
50
33
-10
-79
332
-30
0
-10
389
51
16
1
-89
368
-30
0
-30
Net Block
905
868
Capital WIP
32
10
Investments
221
180
Current Assets
725
743
Inventories
506
559
Sundry Debtors
41
49
Cash and Bank Balances
21
12
Loans and Advances
157
123
Current Liabilities & Provi. 318
315
Net Current Assets
407
428
Other LT Assets
52
59
APPLICATION OF FUNDS 16181544
-92 -175 -175 -200
-98
-99 -105 -118
-58
-49
-33
-16
0
0
0
0
-245 -323 -313 -334
-9
21
12
-1
12
12
9
12
21
4
21
25
26 February 2016
3

Disclaimer: This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies)
and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected
recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report
is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person
in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs
of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular
circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go
down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not
guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have
investment banking and other business relationships with a some companies covered by our Research Department. Our research professionals may provide input
into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment
banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing
this material may educate investors on investments in such business . The research professionals responsible for the preparation of this document may interact
with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research professionals
are paid on twin parameters of performance & profitability of MOSt.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or
derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer,
director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or
written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading
and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you
should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies),
their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or
derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may
have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no
bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the
views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed
to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamental analysis. In addition MOST has different
business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles,
investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information
specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt
or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from
all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein
is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt's
interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and
interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or
developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under
no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so.
MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent
error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind,
regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-
infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial
advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.
Most and it's associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant
banking or brokerage services, may have received any compensation for products or services other than investment banking or merchant banking or brokerage
services from the subject company in the past 12 months.
Most and it's associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the
date of publication of the research in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement
in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Motilal Oswal Securities Limited is under the process of seeking registration under SEBI (Research Analyst) Regulations, 2014.
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s)
in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
1.Analyst ownership of the stocks mentioned above
2.Served as an officer, director or employee
Finolex Industries Ltd.
No
No
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or
licensing requirements within such jurisdictions.
Motilal Oswal Securities Ltd
Motilal Oswal Tower, Level 6, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: (91-22) 30894200 Fax: (91-22) 22885038. E-mail: info@motilaloswal.com