This smallcap pipe stock is down 61% in last one year. Can Q4 spark a comeback?

However, management expects a recovery in the fourth quarter due to improved demand in the real estate sector. Will this recovery be achievable? Let’s analyze what went wrong and how the company plans to bounce back.

Prince Pipes struggles with profitability 

Prince Pipes witnessed slow revenue growth and weak profitability in the first nine months of FY25, while the third quarter witnessed significant headwinds. While revenue remained stable at ₹1,804 crore in first nine months of FY25 (9MFY25) against ₹1,829 crore in the year ago period, its profit fell 85% to ₹19 crore.

The sharp drop in profit dragged down its earnings before interest, tax, and depreciation (Ebitda) by 50% to ₹107 crore. This resulted in a sharp 50% decline in margins to 5.9%, from 11.8% in the nine months a year ago. Lower product pricing, inventory losses, and higher promotional spending dragged down margin.

Muted performance in the first half

Notably, Prince Pipes’ first six months’ performance was also not remarkable, with profit falling by 54% and Ebitda and margins falling by 25% and 26%, respectively. Subdued demand, led by weak government spending, general elections, extended monsoons, and heat waves, impacted its performance then.

Since demand was weak, inventory days increased to 88 days in the first half of FY25 from 62 days in H1FY24. It was expected that the company would make a comeback in the third quarter, but surprisingly, its performance was a miss on all parameters.

Despite turnaround hopes, Q3 performance deteriorated 

Revenue declines: Prince Pipes’ revenue declined 7% YoY to ₹578 crore in the third quarter. Revenue was impacted by a 3.3% decline in sales volume and a 3.4% decline in net sales realization compared to last year.

This time, the delay in demand and sluggish execution in the infrastructure and construction sector impacted its revenues. Its inventory days increased from 88 days to 102 days in 9MFY25 (from 75 days in 9MFY24), anticipating strong demand that did not materialize. This can be apparent from the construction sector’s slower growth of 7% in Q3FY25, down from 10% in Q3 last year, as per Q3 GDP data.

Raw material price volatility: The pipes and fittings industry, where Prince Pipes operates, is vulnerable to price volatility of key raw materials, PVC and CPVC. These materials are derived from crude oil, which makes them susceptible to global crude oil prices. Thus, any major price fluctuation has an unpredictable impact on the industry’s earnings.

Inventory losses: As a result of this volatility, PVC prices fell by 19% until October. However, it rose in November in anticipation of anti-dumping duties. But, with no anti-dumping in place, spot prices declined. With falling prices, dealers held off restocking, further affecting sales volume.

Margins under pressure: These factors led to inventory losses of about ₹30 crore ( ₹12-15 crore in Q2) in the December quarter, which reduced gross margins and profitability. Lower volumes meant fixed costs were spread over a smaller base, further squeezing Ebitda and margins. With profitability already under pressure, these factors led to a sharp earnings drop.

Profitability takes a hit: Surprisingly, while revenue saw only a slight slowdown, profits turned negative, and margins crashed. The company reported a loss of ₹20 crore compared to a profit of ₹38 crore in Q3FY24. Due to this, Ebitda and margin declined 96% to ₹3 crore and 0.5%, respectively.

Also Read: Lemon Tree Hotels stock trades at a discount, but is the juice worth the squeeze?

Can Prince Pipes bounce back?

This is not the first time such volatility has impacted the company’s performance. In FY23, it faced a similar situation when its margins fell to 9.3% from a high of 15.7% in FY22 due to reporting inventory losses, which recovered to 12% in FY24. This provides some ray of hope about recovery in FY26.

The company is targeting 12% Ebitda margins in the long term, similar to FY24. Management believes that PVC prices have bottomed, and as sentiments improve, profitability and volumes will improve from Q4FY25.

Price Pipes is banking on improving real estate demand, higher agricultural demand, and a pick-up in infrastructure construction to drive its volume growth starting this quarter.

Moreover, the government is targeting 100% access to tap water through the Jal Jeevan Mission. It has increased the budget for the mission to ₹67,000 crore by 2028, adding another growth lever.

Riding on the tailwind, it is looking to post double-digit volume growth for Q1FY26 and aims to outgrow the pipe industry by 2-3% annually—a trend it has consistently maintained.

To capitalise on the momentum, the company is expanding in fast-growing eastern India, where it is already the second-largest company. It is setting up a new 40,000 metric tonne plant (set to go live in Q1FY26) in Bihar to strengthen its presence and cater to the rising demand.

Also Read: KFin Tech stock crashes 50% but retains its premium over CAMS. What’s next?

Tapping into bathware segment 

Prince Pipes entered the bathware segment in March 2024 by acquiring Aquel Brand and assets from Klaus Waren Fixtures for ₹55 crores. Through this acquisition, it is expanding its presence to increase its contribution to the real estate sector. This could help the company diversify revenue contribution and enter high-growth areas.

Aquel (by Prince) is gaining traction with new Goa, Jaipur, and Pune showrooms. In addition, it is already present in Haryana and New Delhi. It is now present in Tier 2 and Tier 3 cities across the north, west, and south regions with more than 200 retail touch points.

It is expanding rapidly and aims to become a pan-India channel, which will increase its contribution from this segment. The contribution remains minimal at ₹9.5 crores in Q3, which has increased from ₹5 crore and ₹6 crore in Q1 and Q2, respectively. However, it remains a loss-making channel, with a loss of ₹5-6 crores in Q3.

Despite initial losses, the company is witnessing strong growth in this segment and expects it to contribute meaningfully within 1.5 years. In the long term, the margins will also be better than piping margins, which would help boost its overall margin.

Notably, the bathware industry’s market size is around ₹20,000 crores, with 65% organised and 35% unorganised. With the unorganised sector still accounting for 35% of the market, established players like Prince Pipes can capture a larger share through product differentiation.

Valuation drops from peak 

The company trades at a price-to-earnings (P/E) of 41x, a 21% premium to its five-year median P/E of 34x. The recent earnings slump has already factored in the price, as its valuation has fallen sharply from 65x in September 2023. Nonetheless, the recovery depends on execution, profit, and margin recovery.

For more such analysis, read Profit Pulse.

Note: Throughout this article, we have relied on data from www.screener.in. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. 

About the Author: Madhvendra has been a passionate follower of the equity market for over seven years and a seasoned financial content writer. He loves reading and sharing his honest opinion about publicly listed Indian companies and macroeconomics.

Disclosure: The writer does not hold the stocks discussed in this article.