Prince Pipes and Fittings (PPF) has delivered an impressive beat on all counts - a) 2.7% YoY volume growth (I-Sec: 10%+ YoY decline); b) 17.5% EBITDA margin (I-Sec: 13.9%) driven by cost optimisation, superior product mix and inventory gains; and c) impressive cashflow management driven by strict working capital discipline. Post sharp recovery in Q2FY21 volumes, we expect the company to sustain its growth momentum led by i) its likely seamless entry into projects segment and ii) cross selling/bundling opportunity along with its PVC pipe segment offerings (post its recent sourcing tie-up with Lubrizol). Despite the likely near-term margin pressure in CPVC pipes segment, we expect PPF's overall EBITDA margins to remain firm in 14-15% range driven by operating leverage, cost control measures, product mix improvement and sustained brand monetisation in PVC pipes segment. Maintain BUY. - Valuation and outlook: Factoring in impressive Q2FY21 outperformance, we increase our revenue and PAT estimates by 10.2% / 6.8% and 20.5% / 8.9% for FY21E / FY22E, respectively. We now expect the company to report revenue and PAT CAGRs of 8.8% and 14.3%, respectively, over FY20-FY22E. We maintain BUY on the stock with a revised target price of Rs334 (earlier: Rs295), valuing PPF at 25x FY22E earnings (24x earlier). - Market share gains drive positive volume growth in Q2: PPF has posted an impressive Q2FY21 volume growth of 2.7% (vs Supreme Industries: -1.8% YoY; Finolex Industries: -9.2% YoY) led by market share gains. It reported 6.9% YoY growth in revenue to Rs4.6bn driven by 4% YoY increase in realisation. With the company expected to witness impressive growth traction in its CPVC pipe segment (post the Lubrizol sourcing tie-up) coupled with its cross-selling opportunities and the recent product launches, we expect the company to report 6.8%/8.8% volume/revenue CAGR over FY20-22E. - EBIDTA margin surprises positively at 17.5% (I-Sec: 13.9%): SIL reported a sharp beat in EBITDA margin at 17.5% (I-Sec: 13.9%), up 230bps YoY. The beat was mainly driven by inventory gains in plastic piping segment in particular, sustained brand monetisation in PVC pipes segment, operating leverage and cost control initiatives undertaken post Covid-19 outbreak. Going forward, we expect PPF's EBITDA margin to improve structurally over the next 2-3 years driven by superior product mix, likely price hikes in CPVC pipes segment over the next few quarters and manufacturing footprint expansion. - Net cash generation trebles to Rs1.8bn: Sharp curtailment in receivables and inventories in H1FY21 has led to significant improvement in cash conversion cycle for PPF. Going forward, despite large Telangana capex (likely to commission by Q2FY22E), we expect PPF to be a net cash company by end-FY22. Consequently, we expect its RoCEs to improve to 17.8% by FY22E.

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