This Small Cap Stock Zoomed 256.71% In 3 Years, Brokerage Assigns "Buy" With Attractive Valuation

ICICI Securities placed a "Buy" on Prince Pipes and Fittings Limited (PRINCPIP), a small-cap company having a market capitalisation of Rs 6,582.28 crore. The brokerage has assigned a target price of Rs 691/share to the stock. With the given target price, the brokerage claims a potential upside in the share price of up to 16% from the current level.

PRINCPIP is a plastic - pipes and fittings company that offers pipes and fitting for irrigation, plumbing, and sewage disposal purposes.

PRINCPIP targets to grow pipe volume in double-digit over the medium term with sustainable margins of ~12-14%, according to the brokerage.

Stock Outlook

The stock's current market price (CMP) on NSE is Rs 595.35 per share, up 2.36% from its previous close. The stock recorded its 52-Week high on 14 January 2022 at Rs 743.80/share and the 52 week low on 10 November 2022 at Rs 510/share, respectively. 

It delivered 256.71% multibagger returns since its listing on December 30, 2019. In the last week, the stock surged 2.36%, whereas, it surged 6.94% in the last 1 month. It surged 2.97% in the last 3 months. However, the stock has fallen 14.68% in the past 1 year.

Pipe volumes to grow in double-digit in H2FY23E

PRINCPIP pipe volume is expected to witness double-digit growth in H2FY23E aided by healthy demand from plumbing segment, re-stocking from dealers as PVC prices have started to stabilise in December, 2022 along with higher demand from the price sensitive agriculture markets (post 35% FY-TD PVC resin price correction). The demand from plumbing market remains healthy while from agriculture markets (~30-35% of revenues) is likely to pick up during H1CY23 (Feb-May) which is the peak demand period. PRINCPIP's management has guided for double-digit volume CAGR over medium term. We have modelled volume CAGR of 13.7% during FY22-25E. The company will enter the bathware segment in FY24 and for the initial 18 months it will focus on outsourcing primarily. However, detail plans on this business will be finalised by the end of FY23.

Profitability to improve in H2FY23E

PRINCPIP's profitability is expected to normalise in Q4FY23E as inventory losses due to fall in PVC resin prices subside with PVC prices stabilising in Q3FY23E. Management has guided for sustainable EBITDA margin of 12- 14% over medium term. We have modelled ~12.6% operating margin for H2FY23E and ~13% for FY24/25E.

Inventory levels to normalise in H2FY23

PRINCPIP's inventory days had increased to 85 in Q4FY22 primarily due to higher inventory maintained by the company as there were raw material availability issues. The inventory days will be brought down to ~60 by the end of Q3FY23, as per the management, and maintained at this level going ahead.

Valuations and view

ICICI Securities has said. "We maintain estimates for FY23-25E and continue to like PRINCPIP for its long-term growth prospects led by its comprehensive product portfolio, focus on enhancing distribution reach and emphasis on branding. Maintain BUY with an unchanged Dec'23E target price of Rs691, set at 30x PER one-year forward."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.