Prince Pipes and Fittings rating – Buy: Firm to gain from growing pipes demand

We reiterate our Buy rating on Prince Pipes and Fittings (PRINCPIP) post our interaction with mgmt and continue to believe it will be a beneficiary of growing demand for pipes, though the near-term demand environment remains tepid. Mgmt highlighted demand for plumbing pipes remains strong in the ongoing quarter (barring Covid impact in early January) but agri demand is yet to pick up. The company is hopeful of demand from agri segment (~25-30% of revenues) from 3rd week of March. Mgmt indicated near-term margins may remain subdued due to high cost of PVC inventory carried over from Q3 and only partial pass on of increased CPVC cost in the ongoing quarter (Q4FY22).

Despite near-term hiccups, PRINCPIP management expects to grow volumes at 10-15% over medium term. Also, with product mix moving towards plumbing pipes, which have a superior margin profile, mgmt indicated structurally operating margins are on an upward trajectory over the medium term and believes 13-15% margins are sustainable.

We tweak estimates for FY22-FY24e by 3-4% factoring in lower margins, but continue to like PRINCPIP for its long-term growth prospects due to comprehensive product portfolio, focus on enhancing distribution reach and emphasis on branding. Maintain Buy with revised Mar’23e target price of Rs 804 (earlier: Rs 833).