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Prince Pipes & Fittings Ltd

Incorporated in 1987, Prince Pipes and Fittings Ltd (PPFL) is one of the leading polymer pipes and fittings manufacturers in India. PPFL market its products under two brand names: Prince Piping Systems; and Trubore.

Company overview:
PPFL currently manufactures polymer pipes using four different polymers: UPVC; CPVC; PPR; and HDPE, and fittings using three different polymers: UPVC; CPVC; and PPR.
PPFL has six manufacturing plants, which gives it a strong presence in North, West and South India. Plants are located at the following locations:

  1. Athal (Union Territory of Dadra and Nagar Haveli)
  2. Dadra (Union Territory of Dadra and Nagar Haveli)
  3. Haridwar (Uttarakhand)
  4. Chennai (Tamil Nadu)
  5. Kolhapur (Maharashtra)
  6. Jobner (Rajasthan)

The total installed capacity of its six existing plants is 241,211 tonnes per annum as at October 31, 2019. Company plans to expand the installed capacity at Jobner (Rajasthan) from 6,221 tonnes per annum as at October 31, 2019 to 17,021 tonnes per annum by December 31, 2019 and to 20,909 tonnes per annum by the end of Fiscal 2020. PPFL currently using five contract manufacturers, of which two are in Aurangabad (Maharashtra), one is in Guntur (Andhra Pradesh), one is in Balasore (Odisha) and one is in Hajipur (Bihar).

PPFL to set up a new manufacturing plant in Sangareddy (Telangana), with a total estimated installed capacity of 51,943 tonnes per annum. PPFL is likely to commence production at the Telangana plant in FY21.

PPFL sell Prince Piping Systems products to distributors, who then resell the products to wholesalers, retailers, and plumbers. As at October 31, 2019, PPFL sold Prince Piping Systems products to 1,151 distributors in India. PPFL sell Trubore products directly to wholesalers and retailers. As at October 31, 2019, PPFL sold Trubore products to 257 wholesalers and retailers.

Industry Overview:

 Overall sales of the plastic pipe industry at Rs 29,000-30,000 crore for Fiscal 2019
 India has very low per-capita plastic consumption of about 11 kg, compared with the global average of 30 kg

Segmentation by end-users:

Capture 1

Resin:
 Resin is the key raw material for plastic pipe
 Resin manufacturing process: EDC (Ethylene Dichloride) -ethylene, and directly from VCM (Vinyl Chloride Monomer)
 The total installed capacity of the domestic PVC industry is about 15.57 lakh tones; Reliance 625,000 MTPA; Finolex Industries 272,000 MTPA; DCW- 90,000 MTPA; DCM Shriram 70,000 MTPA
 India is the largest importer of PVC resins in the world – sourcing more than 50% of its needs from import
 As on September 2019: PVC price at $900/MT vs $973/MT; EDC price at $317/M vs $332/MT; Ethylene price at $780/MT vs $1242/MT and DCM price at $735/MT vs $733/MT

Plastic Pipe category:
 Plastic pipes are made of different types of polymers. The four key types are unplasticised polyvinyl chloride (UPVC), which represents 65% of industry demand, chlorinated polyvinyl chloride (CPVC) – 15%, HDPE –15% and polypropylene (PPR) – 4%

CPVC:
 The Indian CPVC market stood at Rs 3,000-3,500 crore
 Domestic market size for CPVC around 150,000-180,000 MT. There are four major suppliers of CPVC raw materials in India; two from Japan, one each from Europe and US. China and Korea supply around 40,000 MT
 The Govt of India has recently on August 2019- imposed antidumping duty (ADD) of 10% on CPVC resin/compound originating from China and Korea
 EBIT Margin in PVC pipe is around 8% while for CPVC it is 12%

Outlook:
 Of India’s 160 million hectare of cultivated land, a little less than 50% is irrigated
 Plastic pipes and fittings industry to post a CAGR of 12-14% to Rs 50,000-55,000 crore in Fiscal 2024

 Fittings to piping ratio for agri is around 7-7.5% while for non-agri the ratio is around 15% (in value terms)

Peer companies:
 Capacity: Supreme 418,000 MTPA; Finolex- 370,000; Astral- 221,000 MTPA; Ashirwad- 108,000

Market share:

Capture 4

Manufacturing base:

PRINCE PIPES AND FITTINGS LIMITED
Capital History:

PPFL has not diluted any equity in the last 17 years, while it bought back 30 lac shares in December 2016 at Rs 40/share.

Financial Snapshot:


• Company has reported above industry average growth rate in last eight years
• Margin has improved which resulted into higher profit growth compared to revenue growth
• Company has maintained both and inventory and debtors very well

Dupont Analysis:

Cash-flow Analysis:

• PPFL is generating very strong cash over a period of time
• Cash conversion cycle has improved mainly due to increase in payable days (see below Ratio Analysis)

Ratio Analysis:

• Requirement of working capital gradually decreasing

Top ten Shareholders:

**(Chheda’s are promoter and promoter group)

Pre IPO placement:
In pre-IPO placement, Prince Pipes issued 5,926,820 equity shares, representing 6.18% stake for cash consideration of Rs 106.18 crore to South Asia Growth Fund LLP at Rs 178/share

IPO details:
The Rs 500 crore IPO comprises an Offer for Sale (OFS) of Rs 250 crore and fresh issue of Rs 250 crore. Company will issue fresh 1.4 crore equity share at a price band of Rs 177-178/share. Post the issue promoter group’s stake will reduce to 65.8% from 90.1%.

Requirement of funds and proposed schedule of deployment:
f6

Key Risk:
Litigation against the directors:

  1. Montana Developers Pvt Ltd (Montana) filed a criminal complaint in January 2013 before the Metropolitan Magistrate at Andheri against M/s. Aditya Developers (Aditya) and its partners, including Jayant Shamji Chheda, MD of PPFL and Heena Parag Chheda (each hold a 10%). Montana alleged misrepresentation of certain material information in JV Agreement leading to fraudulent inducement to enter into the JV Agreement and making an interest free deposit of Rs 46.25 crore to Aditya

  2. Montana filed a statement of claim dated November 30, 2013 before the appointed arbitrator; the amount claimed by Montana in this litigation is up to Rs 904.65 crore along with interest at the rate of 27% per annum to be paid by the Aditya and its partners

  3. Montana had alleged that since the promoter group had not disclosed about the litigation in its DRHP the rating agency (CARE) should withdraw the rating for the company and also the erstwhile CS & Independent Directors step down from the board.

For details about the litigation click here

Litigation

Related party Transactions:
PPFL has entered into certain related party transactions with Promoters/Promoter Group/Group Entities/Key Managerial Personnel. For Fiscals 2017, 2018 and 2019 and the three-month period ended June 30, 2019, the amount of such transactions was Rs 350.4 crore, Rs 232.67 crore, Rs 37.2 crore and Rs 21.06 crore respectively, representing 26.35%, 17.62%, 2.37% and 5.55% of Revenue from Operations, respectively.

Though the percentage of related party transaction in total revenue has come down, we have keep monitor it regularly as it was very high earlier.

Disclosure: No holdings in the stock and didn’t apply for shares in their IPO (as it is going to list in few days). This is an introduction post on the company. Financial data have been taken from Ace Equity

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just after ipo for dec 19 quarter inventory days gone up from 47 days in march 19 to 74 days in dec 19
and value wise from 201 cr to 324 crore by dec 19

Management interaction with Nirmal Bang

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The Company had done investors con-call after Q4 FY 20 and Q1 FY 21 results. Would be obliged, if someone can provide link to transcripts.
Thanks.

I am attaching some of the key takeaways from the Concall of Prince Pipes Q1 results Prince Pipes Q1 Concall Summary.pdf (121.9 KB)

Overall Sectoral information

There is good amount of consolidation and probable increase in market share for the big players

Market consolidation – there are 3 to 4 players who are having challenges interms of Working capital management and Balance sheet and servicing of loans etc. this is just the tip of the iceberg. There are lots of fragmented players as well as regional players plus no of small players who are organized are all facing challenges.

Post covid the consolidation is going to accelerate and many small players are going to be very weak and almost out of business. This bodes well for the big 3-4 players

There is going to be vacuum in the market and we will fill the gap with sufficient capacity we have

Real estate has been tepid for the last 4 years but big industry has been posting decent results and so these players will keep gaining market share

3 Likes

Hi @bajji_s

I think you missed mentioning that the above summary is related to their recent foray into overhead water tanks. Overhead water tanks is a 5000cr market according to them.

hi thanks for pointing out, yes missed out mentioning as overhead tank, since it was way past midnight attention was slightly missing :grinning:

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A comparison between Prince Pipes and Astral( piping division) on certain parameters shows that Prince Pipes is fast catching up with Astral Piping Division. In Q1 FY 21 Concall Management of Prince Pipes was confident about future growth , while that of Astral was looking ambivalent. Astral also have some problems in stabilising it’s Adhesive business. Considering the PE of both and Prince Pipes looks in a better position.

As mar 20 Astral Piping Prince
Capacity 238730 MT 255899MT
Prdn 135640 MT NA
Sales FY 20 132000Mt 132816MT
Rev FY 20 2042.8 Cr 1636 Cr
EPS Q1 FY 21 1.1 1.02
EPSQ4FY20 2.61 2.96
FY 20 EPS 13.33 11.77
FY19 EPS 9.4 9.26
Shares 11 Cr 15.1 Cr
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It is justified from PE point of view that prince pipes is present at attractive valuations. The only drawback I see with prince pipes is operating margin which is at 14% where as in the case of astral pipes it is at 18%. Does management discussed anything about increasing opm in the coming days? Can anyone also shed some light into the quality of the pipes that are produced by both the companies. Does the company plan to use any technology in its supply chain?

Haven’t tracked this company much but can anyone provide any inputs as to why the operating cash flow is negative for Mar 2020 on screener and moneycontrol ? Is the data correct ?
Also has there been any change in the contribution share of revenues from 2019 data: UPVC, CPVC, PPR and HDPE contributing 71%, 20% 6% and 3% to the topline, respectively

The company got listed in FY20 and there is sudden surge of cash balance, which is counted in working capital(WC) by definition. Hence the cashflows show negative impact of cash on WC and positive impact in Equity Issuance. As you can see below

However operationally WC hasn’t changed


Source: GIA Stocks

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Excellent results posted by Prince Pipes.
Few notes from concall
a. As they were getting raw material from Lubrizol locally they were better placed in terms of production due to supply chain issues compared to other players
b. Management is hungry for growth which is a good sign and they have highlighted this in earlier calls as well. Also, they are appointing Distributors who are hungry for growth.
d. They have reduced their debt substantially and plan is to go Debt free
e. The brand awareness campaign will remain in focus
f. Telangana plant is live now but ramp up in production will gradually happen during Covid times
g. Telangana plant will help in expansion in South market where they are weak right now
h. Tailwinds are across Piping industry and all Organized players are seizing market share from unorganized players
i. Share of agriculture segment is declining as there is degrowth in the sector
j. They will explore on opening a new factory in East region when the volumes reach certain level
k. East region is expanding and it is showing fastest growth for all players

Q4FY21 Conference Call-

Disc: Invested recently

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maybe you are looking at the absolute WC number but there is definitely a change operationally.The graphic you shared clearly shows WC intensity has come down from 22% of sales to 16-17%.For FY21 this has further reduced to 36 days.Company is now net cash even excluding IPO proceeds.Also,let’s not forget that Prince Pipes did a 3-4% volume growth for the full year when even players like Supreme have de-grown volumes a bit.So it’s not just blind volume growth,it is growth alongwith cash flows which is what the markets have consistently rewarded since last 2-3 quarters.

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Thank you. A bit of more comprehensive notes:

Key Takeaways

  1. While industry degrew by 15% in FY21, prince had 4% volume growth.
    In b/w lines:
    Prince is consistently gaining market share for 7-8 quarters. Only 5% market share currently. Industry is fragmented. Larger players have distribution and logistics cost advantages. Can invest in brand building (Prince did ~4.5% of sales in branding in Q4 due to 1 off inventory gains, generally does 2.5-3%). Over long term, prince can compound topline faster than Industry growth of 12-14%.
  2. Three drivers of high Ebitda margins in Q4: inventory gains, product mix change, superior pricing power. Long term guidance of 14% margins.
    In b/w lines: CPVC pipes were 20% of topline before lubrizol tie-up. Astral has much higher (30% market share to prince’s 10% of cpvc). Future drivers of margin expansion: CPVC pipes (Flowguard) share going up; building materials segment (69% of topline in fy21 vs 66% in fy20) growing faster than agri segment; company introducing new high gross margin products in current FY.
  3. Company seeks to be the preferred brand among brands for distributors.
    In b/w lines: very interesting learning on behavioural aspects of companies. Princepipes says they need to behave as a market leader in order to be acknowledged as one. They were the first to pass cpvc price hikes in Q4 and others followed suit. This helps build street cred with distributors. Have been aggressive in passing in price increase in last 7-8 quarters.
  4. Company has installed capacity of ~2,59,000 T and did sales of ~1,38,000 T in FY21. capacity utilisation of 53%. Capex happening in Telangana to increase installed capacity by 50,000 T (20%). Why?
    In b/w lines: the installed capacity is different from what can practically be achieved in production. This is because installed is calculated by assuming highest diameter pipes are constructed 24x365. Practically a small diameter pipe would end up getting constructed. Production capacity is 70% of installed. So actual capacity utilisation is 76%. Now the capex makes sense. Telangana capex will ramp up to “100%” in 2 years. Capex will help co penetrate south market better.

Detailed Notes

  1. Want to Sharpen the organisational identity of the prince (internally & externally). Will make Sustainability a strength of the organisation.
  2. We want to win throughout India through distribution network expansion. 7-8 quarters of volume growth is due to focus on distribution network expansion. Lubrizol tie-up enabling us to engage with a lot of top quality distributors.
  3. New initiative Udaan: loyalty program for retailers and plumbers: Secondary retail network. Strong connection with them. Ramping up tech investments in Udaan. Increase accuracy of plumber level data and allow us to go to a data driven pull system of sales rather than a push system of sales.
  4. B2B business is a key focus. We are just a baby here. Building the right team. Long gestation period.
  5. Wide and comprehensive range of products. Committed to add more products. Evaluating newer applications which are lucrative at Gross margin level.
  6. Have made Market share gains. Long way to go. Want to acquire more market share. Consistent focus has to be on winning in the marketplace.
  7. Inventory gains: 50-60cr in H2.
  8. In FY20, building materials (plumbing) +SWR were 66% of topline. In FY21 it is 69%. Rest is agri.
  9. Focus is on Building materials. But volume growth also comes from Agri even though it is not that lucrative at Gross margin level. Would grow faster in Building materials.
  10. Lockdown caused tepidness. Compared to last year’s same period, Plants are still functioning in the lockdown. No inventory pileup.
  11. Profitability per kg has improved markedly even adjusted for inventory gains. (Rs 12/kg in FY20).
  12. For FY21: 3 drivers of margin expansion: inventory gains, product mix change, superior pricing power: past 8 Q we have been aggressive in passing on price power. Strengthens the brand. We need to behave as a market leader. Prince was 1st to pass on the prince in CPVC and everyone followed. These aggressive calls are contagious. Such actions help us become a preferred brand among brands. Major investments in branding. And Tech.
  13. Alway conservative in margin guidance: Guidance of 13-14% margins. Have enough drivers for outperformance and margin expansion. Bullish on lubrizol tie-up. Now with CPVC coming into the play, distributors get to cross-sell. Flowguard should mean stronger growth prospects. CPVC was 18-20% of topline before the lubrizol tie-up. But lubrizol tie-up enables us to scale it up further.
  14. The Market is seeing consolidation. The Telangana plant couldn’t have come at a better time. Increases installed capacity by 20%. There will be a ramp up of capacity over the next 2 Q. Over the next 2 years it’ll be taken up to 50KT of installed capacity. It will also provide some freight costs benefit but we are not that strong in South India. Plant will also allow us to increase our south India market penetration. North and west are markets where we are strong.
  15. CPVC price trends are similar to PVC since the largest component is PVC.
  16. Over FY21 there has been tremendous disruption of the supply chain in general in the piping industry. We have a local: Lubrisol has the compounding unit at the edge. So we have consistency in supply security.
  17. We have done well in agri in March Q. Industry PVC volume level degrowth in FY21 is 15%. More decline in Agri. We have done 4% volume growth.
  18. We are under-penetrated in the CPVC marketplace. We would have <10% market share compared to other players who would have 25-35% market share in CPVC.
  19. DWC has done well. High double digit volume growth. There is demand from private projects, strategic investments.
  20. Brand expense includes ATL and BTL. 4.5% of net sales we have reinvested in brand in Q4. Generally it is 2.5-3%.
  21. Will develop niche products. Studying what developed economies are doing. Once every 2 years or so.
  22. Price wise we are at par with industry leaders.
  23. 40-50 days is the sustainable level for WC days.
  24. EBITDA/kg is at 35 rupees.
  25. Capex 174cr in Fy21. 40-45cr maintenance. Have already spent 94cr on Telangana plant. 90cr more to be spent over the next FY. Will set up a new plant based on intern milestones. Whether it would be in the central or eastern region we will decide later. Won’t wait for full ramp up of telangana plant for setting up new plant.
  26. There are no moats in this business. No barriers to entry in this business. We are investing strongly in a professional team. It all depends on execution.
  27. Unorganised sector and even some of the smaller organized players are facing tough times. High double digit degrowth for these players is possible.
  28. There is a difference between the rack capacity and the effective production capacity. Which is only 70-75% of the installed capacity. Even on production capacity we can only go up to 80-85%. Throughput capacity is calculated assuming highest size of product is running 24*365 whereas the running size might be a smaller diameter of size so throughput will automatically reduce. Hence the gap in installed and production capacity.
  29. Over the long term our goal would be to maintain the current ROCE of 28%

Disc: Studying, have a small tracking position

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@saninv Could you answer this . Also it would be very helpful in regards to 249cr of “Other WC items” .

can someone please peer camparision between prince pipes and apollo pipes, thanks in advance.

Q1FY22 CONCALL KEY HIGHLIGHTS

  • On volume de-growth- High channel Inventory,Muted Agri demand. However,June was better than May and july was much better than June. Returning to strong growth trajectory
  • New product- Prince Pipes Launches Prince OneFit Industrial CPVC pipes. Will replace MS pipes in Industrial usage.Indian Industrial Piping Market Size is approx 16000 cr. which is dominated by conventional MS pipes whiles globally CPVC pipes dominate.Its underpenetrated and has low competitive intensity.Has relatively high barriers to entry due to high gestation period for acceptance and techno commercial expertise.It may not be significant part of topline but will have very good gross margins.
  • Aligned with Ultratech Business Solutions - association at initial stages - to further entrench the Prince brand within Real estate and construction segments.Ultratech has a network of 2000 dealers that Prince can leverage
  • Approx Revenue Mix: 65% from Building materials, 30% from Agri, 5% from Infra. (PVC: 65-70% CPVC: 18-20%)
  • Even larger players have trouble getting PVC & CPVC but Prince has supply security .
  • PVC prices have started going up again so there wont be inventory losses in next quarter.
  • Price Discount to Astral reducing

Outlook: Expect Market share gains to continue. Will outpace industry growth by 2-4%. Demand from Real Estate remains buoyant. Agri Demand to come back in November.Optimistic on Strong growth in CPVC. Will continue to work on improving Margins.

My take- As usual management seemed more focused on talking about the business rather than satisfying myopic analysts need for concrete numbers and next years guidance.Strong demand along with market consolidation will help incumbents post strong growth for the next 3-4 years atleast. Prince’s CPVC segment is still just a baby.Plenty of time before this story gets old but one needs to think about what happens when industry growth slows down. Will the Industry leader which has a cost advantage cut prices to maintain growth momentum.? Will Prince have strengthened its position by then to discourage such actions? How fast will the rich valuations contract? These are things to consider but for now the party continues in full swing :slightly_smiling_face:

Disc: Invested

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For those who think this is a commodity business -

https://www.valuequest.in/deep-dive-series-plastic-pipes/

1 Like