Initiating Coverage: Prince Pipes & Fittings Ltd.
24-04-2023

About the Company:

Prince Pipes and Fittings Limited (PRINCEPIPE) is an integrated piping solution & multi polymer manufacturer. It was established in 1987 and initially manufactured PVC products. It is currently engaged in the manufacturing of polymer piping solutions in four types of polymers CPVC, UPVC, HDPE, PPR.

In Dec 2019, the co. raised 500 Cr via IPO comprising 50% as OFS of 250 Cr by existing shareholders and 50% Fresh Issue of 14.04 million equity shares at an offer price of 178 per share. PRINCEPIPE is a pure pipe industry play, as it has 100% of its revenue linked to the pipe industry. Prince has a distribution model and doesn’t sell retail directly. It has ~6% market share in Pipes & Fitting market.

Industry Overview:

The plastic pipes industry in India comprises of four main segments: UPVC (Unplasticized Polyvinyl Chloride) pipes, CPVC (Chlorinated polyvinyl chloride) pipes, HDPE (High Density Polyethylene) pipes, and PPR (Polypropylene Random) pipes.

UPVC pipes account for the largest share of the industry demand at 64-65% and are expected to grow at a CAGR of 10-11% over FY20-24, driven mainly by agriculture and plumbing segments.

CPVC pipes account for 15-16% of the industry demand and have been the fastest-growing segment in the last decade with a CAGR of 15-17% expected over the next 3-4 years. They are expensive than UPVC with better quality & durability. The more resistant properties of CPVC make it useful for commercial and industrial applications.

HDPE pipes account for 15% of industry demand and are popularly used in irrigation, sewerage & drainage, city gas distribution, and chemical & processing industries, with a projected CAGR of 10-11%.

PPR pipes account for 4-5% of industry demand and are considered the best carrier of potable water due to their low thermal conductivity, long service life, efficient inner surface, and chemical & mechanical endurance. The PPR segment is expected to grow at a CAGR of 6-7% over FY20-24.

Branded players have a strong foothold in the CPVC segment, whereas unorganized industry players have an active presence in the UPVC segment with almost 50% of the industry retailing unbranded products.

As per multiple estimates, the industry is scheduled to grow by 11-12% CAGR over FY21-FY25E and is expected to reach ~Rs 600bn by FY25E led by the Government’s continued focus on increasing farmer income via better irrigation facilities and infrastructure, creation and improvement of Water supply system infra and implementation of ‘Housing For All’ schemes. Secondly there is a continuous expansion of newer applications for CPVC and HDPE pipes and increasing acceptance of UPVC pipes into other applications.

Plastic Pipe Industry (Rs. Bn)

(Source: Equirus Securities)

Business Performance:

PRINCEPIPE has achieved strong revenue growth, with a 35% volume growth in Q3 FY23 and revenue of Rs. 706 Crores. The company has launched new products, including modern plumbing products and surface drainage products, which have seen good acceptance. The company aims to outpace industry growth by 2-4% through network expansion, entry into projects vertical, and new product range. The sales are broadly divided into 2/3 building material, 1/3 Agri, and 2-3% infrastructure, with growth seen across all segments. PRINCEPIPE hasmaintained fiscal prudence, remains long-term debt-free, and has no capex plans currently, with a focus on maintenance and debottlenecking. The company aims to improve receivables and achieve a long-term sustainable EBITDA margin of 12-14% with healthy volume growth.