However, management expects a recovery in the fourth quarter as demand in the real estate sector increases. Can this recovery be achieved? Let’s analyze what went wrong and how the company plans to rebound.
Prince’s Management Fighting with Profitability
Prince Pipes witnessed slow revenue growth and weak profitability in the first nine months of fiscal 25, while suffering a huge headwind in the third quarter. Although the income remains stable ₹In the first nine months of fiscal year 25 (9MFY25), 18.04 million were found ₹18.29 million a year ago, its profit fell by 85% ₹190 million.
Profits fell sharply before interest, taxes and depreciation (EBITDA) dragged its revenue by 50% ₹107 million. This caused profit margins to plummet to 5.9%, from 11.8% in nine months a year ago. Lower product pricing, inventory losses and higher promotional expenses delay margin.
The performance of silent in the first half
It is worth noting that Prince Pipeline’s performance in the first six months was also not significant, with profits falling by 54%, and EBITDA and profit margins falling by 25% and 26%, respectively. Under weak government spending, general elections, monsoons and heat waves, soft demand has affected its performance.
Due to weak demand, the inventory days increased from 62 days in FY24 to 62 days in 24 days. The company is expected to make a comeback in the third quarter, but surprisingly, its performance is a missed out on all parameters.
Despite hope for a turnaround, performance in the third quarter is deteriorating
Revenue decline: Prince’s revenue fell 7% ₹5.78 million in the third quarter. Compared to last year, sales volume fell 3.3%, net sales fell 3.4%, and revenue was affected by 3.3%.
This time, delays in demand and slow execution in the infrastructure and construction sectors have affected their revenues. Its inventory days increased from 88 days at 9MFY25 to 102 days (from 75 days at 9MFY24), with unrealized strong demand expected. According to Q3FY25’s construction sector, this is evident from the third quarter of last year, based on the third quarter GDP data.
Raw material price fluctuations: The pipeline and accessories industry operated by Prince Pipes is susceptible to price fluctuations in key raw materials, PVC and CPVC. These materials come from crude oil, which makes them vulnerable to global crude oil prices. Therefore, any major price fluctuations will have an unpredictable impact on the industry’s revenue.
Inventory Loss: Due to this volatility, PVC prices fell 19% until October. However, it rose in November due to anti-dumping duties. However, spot prices fell due to the absence of anti-dumping. As prices fell, dealers blocked restocking, further affecting sales.
On the edge of pressure: These factors lead to inventory loss ₹3 million ( ₹The December quarter was 120-150 million in the second quarter, which reduced gross profit margin and profitability. Lower volume means that the fixed cost is distributed on a smaller basis, further extruding the EBITDA and edges. These factors have caused a sharp decline in revenue as profitability is already under pressure.
Profitability is hit: Surprisingly, despite only a slight slowdown in revenue, profits turned negative and profit margins collapsed. The company reports losses ₹Compared with profit, 200 million ₹380 million in Q3FY24. As a result, EBITDA and margin fell by 96% ₹30 million and 0.5%, respectively.
Please read also: Lemon Tree Hotel shares traded at a discounted price, but is the juice worth the squeeze?
Can the Prince Pipeline rebound?
This is not the first time such volatility has affected the company’s performance. In FY23, it faced a similar situation when its profit margin fell from 15.7% to 9.3% in FY222 due to reported inventory losses, which recovered to 12% in FY24. This provides some hope for a recovery in FY26.
In the long run, the company has an EBITDA margin of 12%, similar to FY24. Management believes that as emotions increase, PVC prices have bottomed out, and profitability and quantity will increase from FY25 in the fourth quarter.
Price Pipes is driving its batch growth starting this quarter by reliing on improving real estate demand, higher agricultural demand and the collection of infrastructure.
Additionally, the government will target 100% of tap water through the Jal Jeevan mission. It increases the budget for the mission ₹By 2028, an increase of 670 million was added, adding another growth leverage.
Riding on the tailwind, it hopes to release double-digit batch growth to Q1FY26 and aims to surpass the pipeline industry by 2-3% each year, a trend that has remained the same.
To capitalize on this momentum, the company is growing rapidly in eastern India, which is already the second largest company. It is building a new 40,000-ton factory in Bihar (scheduled to live in Q1FY26) to enhance its presence and meet rising demand.
Please read also: KFIN Tech stock crashed 50%, but retained a premium over CAM. What’s next?
Take advantage of the bathing device segment
Prince Pipeline enters the Bathware segment in March 2024 by acquiring Aquel Brand and assets from Klaus Waren fixtures ₹550 million. With this acquisition, it is expanding its presence to increase its contribution to the real estate sector. This can help companies diversify their revenue contribution and enter high growth areas.
Aquel (Prince) is attracting the showrooms of New Goa, Jaipur and Pune. Furthermore, it already exists in Haryana and New Delhi. It now exists in the 2nd and 3rd floor cities in the north, west and south, with over 200 retail contact points.
It is rapidly expanding to become a pan-Indian channel that will increase its contribution from this segment. Contribute in ₹There were 950 million in Q3 ₹50 million ₹There are 60 million in Q1 and Q2 respectively. However, it is still a channel of loss, loss ₹50 million to 60 million in the third quarter.
Despite the initial losses, the company still sees strong growth in the field and expects it to contribute meaningfully within 1.5 years. In the long run, profit margins will also be better than pipeline margins, which will help improve its overall profit margins.
It is worth noting that the market size of the bathing device industry is nearby ₹200 million, 65% of them are organized and 35% of them are unorganized. Since unorganized industries are still accounting for 35% of the market, mature players such as Prince Pipes can capture a larger share through product differences.
Valuation dropped from peak
The company traded at a price-to-earnings ratio (P/E) of 41 times, with its five-year median of 34 times at 21%. Recent low earnings have taken into account prices as its valuation has dropped sharply from 65 times in September 2023. Nevertheless, recycling depends on the recovery rate of execution, profit and profit margin.
For more analysis of this type, read Profit pulse.
Note: In this article, we rely on www.screener.in data. Only if no data is available, do we use alternatives, but have been widely used and accepted sources of information.
The purpose of this article is to share interesting charts, data points and thought-provoking opinions. This is not a suggestion. If you want to consider investing, it is highly recommended that you consult your advisor. This article is strictly for educational purposes only.
About the Author: Madhvendra has been a passionate follower of the stock market and an experienced financial content writer in the stock market. He loves to read and share honest opinions about publicly listed Indian companies and macroeconomics.
Disclosure: The author does not hold the stocks discussed in this article.
