Finolex Industries: Drop in profits a temporary blip

MUMBAI: The shares of leading plastic pipe maker Finolex Industries dropped over 8% to Rs 212 after it posted a 29% drop in net profit for the Jan – March ’14 quarter. However, this was due to temporary problems faced by the company and its future continues to remain bright.

The company’s PVC segment suffered the biggest erosion in margins during the quarter, as the PBIT margins dropped to 9.2% from 13.3% in the year ago period. “Temporary spike in EDC prices during the quarter resulted in margin erosion, as the PVC prices couldn’t be raised immediately,” said Saurabh Dhanorkar, managing director of the company. EDC or ethylene di-chloride is a key input to make PVC. EDC’s prices have dropped to normal levels in May.

Expiry of anti-dumping duty on PVC in January ’14 also added to the company’s woes. “Recommendation to continue with the anti-dumping duties is pending at the ministry level and should be introduced once new government is formed,” informed Dhanorkar.

The company’s pipes division too suffered volume stagnation in the Jan – Mar ’14 quarter due to vagaries of weather. “Hailstorms and other sudden changes in weather pattern during the quarter impact demand for pipes in the quarter, which is actually our peak demand quarter,” said Mr Dhanorkar. Nevertheless, the margins improved to 8.3% compared to 7.6% in the year ago period.

The company’s performance is already back to normal in terms of margins on PVC and volumes in pipes. This will reflect in the company’s Apr – Jun ’14 quarter results. The company has also raised its dividend payout to Rs 7 per share from Rs 5.5 of last year. This translates in a dividend yield of 3.3%. Both these factors are expected to support the share price going ahead.