PVC price uptrend continues with another hike of Rs6/kg, or 5.4%, w.e.f. 18th Dec'20. This is the sixth hike in PVC prices in Q3FY21 (+28.5%) after an increase of Rs14.5/kg, or 18.9%, in Q2FY21. The rally, which started with sharp spurt in May'20 and Jun'20, has now extended into Q3FY21 as well. PVC prices, which are now at Rs117.3/kg, have risen 78.9% since 1st May'20. The surge has been largely led by sustained supply-side issues globally. The record high prices of PVC resin are likely to provide a major fillip to organised PVC pipe manufacturers. This is of even greater significance given that consolidation is expected to gather pace as regional and unorganised players continue to face issues w.r.t. polymer sourcing and higher working capital requirements. We prefer Astral Poly Technik (ASTRA) over Prince Pipes and Fittings (PPF) and Supreme Industries (SI).

- Global supply shortage pushes PVC prices to new highs with another hike of Rs6/kg. With uptick in trade activities across the globe and recovery in crude prices, PVC prices recovered fully in Q1FY21 itself. Thereafter, it started trending higher again with hike of Rs14.5/kg, or 18.9%, in Q2FY21. The latest hike of Rs6/kg is the sixth in Q3FY21 and results in an overall 28.5% hike in the current quarter. These price hikes are largely attributable to persistent supply-side issues globally. While pipe distributors continue to have leaner channel inventory post Covid outbreak, these sustained price hikes might tempt PVC pipe distributors to do higher channel filling to benefit from the increasing price trend.

- Consolidation in PVC pipe segment to pick pace. We believe, with tight supply and higher prices of PVC resin, the regional and unorganised players are likely to face huge sourcing and working capital challenges in the near term. This is likely to boost volume growth of top organised players in the near to medium term via strong market share gains.

- PVC pipe players can outperform CPVC pipe manufacturers in 9MFY21. We expect PVC pipe players to outperform their CPVC counterparts in 9MFY21 due to sharp spurt in PVC prices over the past seven months. The spike in PVC prices and the likely improvement in volumes since the second half of Q1FY21 would aid PVC pipe players to report much better performance in 9MFY21 than envisaged earlier.