Strong brands in the pipes and fittings segment with over 30 years’ experience
and multiple industry awards and accolades:
Prince Pipes has a strong legacy of more than three decades in the polymer pipes
segment. The company markets its products under two brand names: Prince Piping Systems;
and Trubore (which it acquired in October 2012). It has an advantage of being one
of the leading organised players in this highly fragmented market and had a market
share of approximately 5% in FY2019. The company is amongst the top six organised
players, which collectively have a total market share of 49% in FY 2019. The fittings
segment typically earns higher margins due to the specialised nature and precision
required vis-à-vis the pipes segment. The company’s strong brands enabled
it to increase its market share in the fittings segment.
Comprehensive product portfolio across polymers serving diverse end-use applications:
The Company has a comprehensive product portfolio and is positioned not just as
a pipe manufacturer but also as an end-to-end piping systems supplier. It currently
manufactures polymer pipes using four different polymers: UPVC; CPVC; PPR; and HDPE,
and fittings using three different polymers: UPVC; CPVC; and PPR. It has different
stock keeping units for different products under each polymer type. Its products
are used for various applications in the fields of plumbing, irrigation, and SWR
(soil, waste and rain) management.
Strategically located manufacturing facilities with a core focus on quality:
The size of the pipes being large results in high transportation cost. The company
has a competitive advantage in this respect as it has established six manufacturing
facilities (located in proximity to its buyers) in: Athal and Dadra (both located
in the Union Territory of Dadra and Nagar Haveli); Haridwar (Uttarakhand); Chennai
(Tamil Nadu); Kolhapur (Maharashtra) and Jobner (Rajasthan). The company uses five
contract manufacturers to increase market penetration in North, West and South India.
For FY 2019, sales in North, South, West and East India represented 38.57%, 26.93%,
23.54% and 10.96%of revenue from operations, respectively.
Large & growing distribution network:
The Company sells its products to distributors, who then resell the products to
wholesalers, retailers, and plumbers. It sells its Trubore products directly to
wholesalers and retailers and has a pan-India network of distributors for its Prince
Piping Systems products and a network of wholesalers and retailers for its Trubore
brand products in South India.
Technical collaboration with a reputed international player:
The company has a collaboration with WavinOverseas B.V, a company headquartered
in Zwolle in The Netherlands. Wavin provides the company with technology and know-how
to improve manufacturing efficiency and quality of its products.The average number
of breakdowns per week (availability) at its Athal plant decreased from 40 for FY
2016 to 23 for the six months ended September 30, 2019 and the Athal plant’s
overall equipment efficiency increased from 86.5% for FY 2016 to 91.2% for FY 2019.
Setting up a new manufacturing plant in Telangana:
The Company plans to set up a new manufacturing plant in Sangareddy (Telangana),
with a total estimated installed capacity of 51,943 tonnes per annum. It plans to
commence production at the Telangana plant in FY 2021. Currently, the company’s
clients in South India are catered to by its plants in Athal and Haridwar. The opening
of the Telangana plant will enable it to compete in these markets more effectively.
Expand the Trubore brand to new geographies:
The Company acquired the Trubore brand in October 2012 and has evolved it into a
premium brand. Trubore brand products are currently sold in South India, primarily
in Tamil Nadu. The company plans to increase sales of its Trubore brand products
by increasing its network of wholesalers and retailers pan-India over the next three
or four years.
The plastic pipes industry in India is five decades old, with the first polyvinyl chloride (PVC) plant being established in 1961. With the introduction of various PVC products in the 1970s, PVC consumption started doubling almost every five years. Between 1985 and 1995, the Green Revolution resulted in increased usage of PVC pipes in the agriculture sector due to their superior performance. The industry has experienced a rapid 10-12% CAGR growth in the past five Fiscal years. The major reasons for growth are: increasing demand for pipes in the construction/ building industry and irrigation sector, nationwide infrastructural development, the government’s focus on urban/rural development, and the Smart City initiative. Among several variants of plastic pipes available in the market, the demand for UPVC and CPVC, in particular, has been rising owing to affordability, high quality and durability.
One of the most important changes in the pipes industry was the large-scale shift from metal-based pipes to polymer-based pipes in most applications. This was especially true in case of plumbing and piping applications in the construction industry. This evolution has allowed for greater research and development in specialised products by organised players for specific applications with the development of polymers such as CPVC for hot and cold water plumbing, fire fighting and transportation of industrial fluids. The CPVC segment, which poses technological entry barriers, has also given branded players an opportunity to increase their market share. Until then, UPVC dominated the plastic pipes industry with several unorganised players posing stiff competition to branded players
Reduction in activity in the agriculture segment:
Demand for products relating to irrigation is affected by the level of growth in
the agriculture segment in India. The level of growth in the agriculture segment
is, to a major extent, impacted by the monsoon each year. A good monsoon season
typically bodes well for farmers’ incomes and the agriculture segment, and
in turn, for the company’s business. Any reduction in the activity in the
agriculture segment could have a material adverse effect on its business, results
of operations and financial condition.
Highly competitive markets:
The markets in which it sells its products are highly competitive and the company
faces significant competition from organized and unorganized pipe manufacturers.
The success of players in the industry depends on: (a) a pan-India presence; (b)
size of distribution network; (c) product portfolio; (d) the end-use sectors it
caters to; and (e) presence in pipes as well as fittings segment. Furthermore, its
competitors’ actions, including expanding manufacturing capacity or the entry
of new competitors into one or more of its markets could result in the company lowering
the prices of its products in an effort to maintain sales volume. If it fails to
compete effectively, it would have a material adverse effect on its business, financial
condition and results of operations.
Increase in the cost of raw materials:
The Company’s primary raw materials comprise UPVC, CPVC, PPR and HDPE resins,
which are derived from crude oil by-products. Crude oil prices are volatile and
any increases in the price of crude oil would lead to increases in the prices of
the raw materials required to manufacture its products. The company has not entered
into any long-term supply contracts for such raw materials and, therefore, it is
subject to the risk of increases in the costs of UPVC, CPVC, PPR and HDPE resins
and the depreciation of the Rupee against the U.S. dollar.
Promoters Pledge:
The Promoter Group entities, Express Infra Projects LLP, have issued bonds aggregating
up to Rs 200 crores, of which Rs 191.5 crores was outstanding as at October 31,
2019. For securing these bonds, the Promoters have pledged35% of the Equity Share
capital of the company (in their capacity as first holders or second holders of
such Equity Shares) on a fully diluted basis, with IDBI Trusteeship Services Limited,
acting as a trustee on behalf of the bondholders.
Prince Pipes is recognized as one of the leading polymer pipes and fittings manufacturers in India in terms of number of distributors. It markets its products under two brand names: Prince Piping Systems; and Trubore. Due to its comprehensive product range, it is positioned as an end-to-end polymer piping systems solution provider. It has more than 30 years’ experience in the polymer pipes segment. It currently manufactures polymer pipes using four different polymers: UPVC; CPVC; PPR; and HDPE, and fittings using three different polymers: UPVC; CPVC; and PPR. As at October 31, 2019, it had a product range of 7,167 SKUs. Its products are used for various applications in plumbing, irrigation, and soil, waste and rain water (“SWR”) management. Its product range meets the requirements of both the rural and urban markets.
The company distributes its products from its six plants and 11 warehouses. The company’s warehouses are managed by clearing and forwarding agents. It sells its Prince Piping Systems products to distributors, who then resell the products to wholesalers, retailers, and plumbers. As at October 31, 2019, the company sold Prince Piping Systems products to 1,151 distributors in India. It sells its Trubore products directly to wholesalers and retailers. As at October 31, 2019, the company sold Trubore products to 257 wholesalers and retailers.
Business Segments
UPVC pipes: These pipes find application in agriculture and plumbing for
portable water supply and sewerage. Continuous replacement of galvanised iron pipes
with these pipes has supported healthy demand growth in the past. Features such
as affordability and longer life compared with metal pipes have aided this segment.
CPVC pipes: These pipes are primarily used in plumbing applications, as well as hot and cold, potable water distribution systems. Demand growth for this segment over the past five Fiscal years (i.e., April 1, 2014, to March 31, 2019) has been the highest among pipes, as CPVC pipes in India are still at a nascent stage and have huge potential due to factors such as longevity, corrosion free, fire resistant, being lead-free, and the ability to withstand high temperatures.
HDPE pipes: These pipes are used in the irrigation sector, sewerage and drainage, city-gas distribution and in chemical and processing industries. HDPE pipes account for ~15% share in the total plastic pipes industry. These pipes have been gaining prominence over traditional metal and cement pipes, due to durability, low maintenance and longevity versus metal pipes.
PPR pipes: These pipes account for a mere 5% of the total plastic pipes demand. These pipes, which are used for various industrial purposes, are relatively costly compared with other plastic pipes, which restricts their usage.
Income Statement | Mar-17 | Mar-18 | Mar-19 |
---|---|---|---|
Revenue from operations | 1330.00 | 1320.50 | 1571.80 |
Growth% | -0.71% | 19.03% | |
Cost of material consumed | 836.40 | 893.80 | 1072.80 |
Manufacturing expenses | 107.50 | 46.10 | 34.00 |
Changes in inventory | -54.90 | -18.50 | 20.40 |
Employee Benefit Expenses | 60.90 | 72.50 | 78.30 |
Other Expenses | 217.50 | 163.40 | 180.50 |
Total Expenses | 1167.40 | 1157.30 | 1386.00 |
EBITDA | 162.60 | 163.20 | 185.80 |
EBITDA margin(%) | 12.23% | 12.36% | 11.82% |
Depreciation | 32.80 | 38.00 | 45.10 |
EBIT | 129.80 | 125.20 | 140.70 |
Other income | 2.40 | 6.00 | 7.10 |
Interest cost | 36.30 | 36.10 | 36.40 |
Profit before tax | 95.90 | 95.10 | 111.40 |
Provision for tax | 21.70 | 22.40 | 28.10 |
Profit after tax | 74.20 | 72.70 | 83.30 |
PAT margin(%) | 5.58% | 5.51% | 5.30% |
EPS | 7.85 | 8.08 | 9.26 |
We have a positive outlook for the company based on parameters such as healthy earnings profile, strong distribution network, and robust return ratios. The issue is priced at 19.6 X PE and 3.4x Price to book as compared with its listed peers Finolex Industries which is trading at P/E of 19.7X and 1.8x price to book. Hence, considering its docile debt position and increased competitiveness of the market it operates into, We recommend ‘Subscribe’ to this issue for listing gains.
Use of Proceeds:
The objects for which the company intends to utilise the Net Proceeds and the proceeds
from the Pre-IPO Placement, are as follows:
Book running lead managers:
JM financial & Edelweiss
Management:
Jayant Shamji Chheda, aged 73 years, is the Chairman and Managing Director of Prince
Pipes. He has been associated with the company since incorporation as a Director.
He was awarded the ‘Lifetime Achievement Award’ at the Vinyl India Conference, 2014.
Parag Jayant Chheda, aged 48 years, is Executive Director. He has been associated
with the company since April 27, 1996 as a Director. He holds an associate degree
in business administration from Oakland Community College. He has over 21 years
of experience in the piping industry. He was awarded the ‘Inspiring Business Leader
Award’ at the Economic Times Summit, 2016 for the ‘Business and Industry’ sector.
Vipul Jayant Chheda, aged 44 years, is Executive Director. He has been associated
with the company since March 11, 1997 as a Director. Rajesh R. Pai, aged 48 years,
is Non-executive Director. He was appointed to the Board on November 26, 2019.