Pipe stocks in focus as sky-high PVC prices correct
Premium- With the latest price fall, PVC pipe players may face volume squeeze in the next couple of months as traders might expect a material price decline going forward, ICICI Securities said
Prices of polyvinyl chloride (PVC), a key input for manufacturing pipes, which had hit record high on global supply constraints, have started to correct. Channel checks by ICICI Securities Ltd shows that PVC prices have declined by a further ₹5 per kilogram to ₹130 per kilogram with effect from 1 June.
This is the second decline in the last 15 days.
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"With the latest price fall, we expect PVC pipe players to face volume squeeze in the next couple of months as traders might expect a material price decline going forward," ICICI Securities Ltd said in a report on 1 June.
In May, PVC prices surged to an all-time high of ₹139 per kilogram. Shares of key listed pipe making companies scaled to their respective new 52-week high in May. Elevated cost of production meant lesser competition from smaller manufacturers.
Also, with rising input cost, expectations are that the final product prices will also rise eventually, leading to inventory gains. The reverse happens when raw material prices start to fall, impacting stocking decision of dealers.
Analysts at ICICI further added that CPVC pipe prices on the other hand are likely to surge in the foreseeable future. "We thus prefer Astral over Prince Pipes and Fittings and Supreme Industries," said the domestic brokerage house.
Meanwhile, there is another development which bodes well for listed pipe stocks. Recently, the central government has released ₹6,000 crore to 15 states for implementation of the Jal Jeevan Mission in FY22 which focuses on providing tap water connections in rural areas. It should be noted that this is the first tranche of the four to be released this financial year.
Analysts say, this is likely to further boost consolidation in the sector and drive market share gains for listed companies from smaller and regional firms in the unorganised sector.
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