On Monday, Goldman Sachs revised its stance on Prince Pipes & Fittings (PRINCPIP:IN), downgrading the stock from Buy to Neutral and significantly reducing the price target to INR480.00 from INR705.00. The adjustment follows a notable decline in the company's share price and earnings per share (EPS) estimates for the fiscal years 2025 and 2026.
The initial recommendation for Prince Pipes was based on several key factors, including its strong links to the real estate sector and a partnership with Lubrizol, which was expected to enhance the mix of higher-margin CPVC products. Additionally, the company was anticipated to recover from previous disruptions and was trading at a considerable discount compared to industry leaders Astral (JO:ARLJ) and Supreme.
Despite these expectations, Prince Pipes struggled to maintain profitability as it pursued volume growth. Its year-over-year volume growth was reported at 16%, 14%, and 4% for the quarters spanning the fourth quarter of FY24 to the second quarter of FY25. This growth, however, came at a cost to the company's margins, which were recorded at 8.5% for the first half of FY25, a drop from 12% for FY24.
The downgrade reflects the need for a reassessment of the company's margin outlook. While Prince Pipes is still seen as a potential beneficiary of increased demand from the real estate sector, its slower progress in premiumization and ongoing investments in capacity expansion and new business ventures like faucets have prompted Goldman Sachs to temper its expectations for the company's financial performance.
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