PRINCEPIPENSEQ1 FY2023August 18, 2022

Prince Pipes And Fittings Limited

9,130words

114turns

10analyst exchanges

5executives

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Management on call

Parag Chheda

JOINT MANAGING DIRECTOR, PRINCE PIPES AND FITTINGS LIMITED

Shyam Sharda

CHIEF FINANCIAL OFFICER, PRINCE PIPES AND FITTINGS LIMITED

Anand Gupta

DEPUTY CHIEF FINANCIAL OFFICER, PRINCE PIPES AND FITTINGS LIMITED

Nihar Chheda

VICE PRESIDENT (STRATEGY), PRINCE PIPES AND FITTINGS LIMITED

Vineet Shankar

JM FINANCIAL INSTITUTIONAL SECURITIES LIMITED

Key numbers — 40 extracted

69%

xpand our volumes and increase our market share. During the quarter, our volume and value grew by 69% and 83% respectively, led by outperformance in the building materials segment of our portfolio. H

83%

r volumes and increase our market share. During the quarter, our volume and value grew by 69% and 83% respectively, led by outperformance in the building materials segment of our portfolio. However,

Rs.15,000 crore

lifestyle trends. As per market estimates, the overall market size of Bathware segment is about Rs.15,000 crores which organized market in the range of about 65% and balance 35% being the unorganized market. W

65%

t size of Bathware segment is about Rs.15,000 crores which organized market in the range of about 65% and balance 35% being the unorganized market. We are in the process of developing this vertical a

35%

re segment is about Rs.15,000 crores which organized market in the range of about 65% and balance 35% being the unorganized market. We are in the process of developing this vertical and I have hire

rs,

growing our B2B segment. Even though we have begun to work with reputed institutions and builders, there is a great scope on growing this business segment. We will continue to put adequate thrust t

Rs. 604 crore

u through Q1 FY2023 financials now. In this quarter, the Company saw a revenue growth of 83% at Rs. 604 crores compared to Rs.331 crores in Q1 FY2022, volume grew by a robust 69% at approximately 31,250 metr

Rs.331 crore

cials now. In this quarter, the Company saw a revenue growth of 83% at Rs. 604 crores compared to Rs.331 crores in Q1 FY2022, volume grew by a robust 69% at approximately 31,250 metric tonnes. Coming to our

Rs.44 crore

rew by a robust 69% at approximately 31,250 metric tonnes. Coming to our EBITDA, which stood at Rs.44 crores for Q1 compared to Rs. 41 crores in Q1 FY2022 indicating a growth of 6%. EBITDA margin stood at

Rs. 41 crore

mately 31,250 metric tonnes. Coming to our EBITDA, which stood at Rs.44 crores for Q1 compared to Rs. 41 crores in Q1 FY2022 indicating a growth of 6%. EBITDA margin stood at 7.3% for this quarter. Profit a

which stood at Rs.44 crores for Q1 compared to Rs. 41 crores in Q1 FY2022 indicating a growth of 6%. EBITDA margin stood at 7.3% for this quarter. Profit after tax stood at Rs. 16 crores compared t

7.3%

s for Q1 compared to Rs. 41 crores in Q1 FY2022 indicating a growth of 6%. EBITDA margin stood at 7.3% for this quarter. Profit after tax stood at Rs. 16 crores compared to Rs.18 crores in the corresp

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Guidance — 20 items

Parag Chheda

opening

“Let me start by giving you a macro view of the industry and then diving into the Company level performance and the strategy going forward.”

Parag Chheda

opening

“At these levels of PVC, we expect robust demand to be driven across segments of Plumbing, SWR as well as Agri.”

Shyam Sharda

opening

“I will be taking you through Q1 FY2023 financials now.”

Shyam Sharda

opening

“Our endeavor going forward to further improve our collection, thereby reducing our debtors days.”

Nihar Chheda

“So, the realization impact of the fall in the raw material prices will be seen in the September quarter and I would also in fact like to highlight that the margin pressure will continue in the September quarter and then from the December quarter the margins will begin to normalize.”

Nihar Chheda

“We do believe that PVC prices are now close to bottom and August and September should more or less be stable which bodes well for the business going forward in terms of an affordable PVC price regime, should drive a better demand going forward across segments.”

Dhaval Shah

“So, now, what sort of drop in realizations should we expect?”

Nihar Chheda

“So, it will be lower than Rs.193 per kg if you are asking for a broad direction, it will be significantly lower than the quarter one realization because like I said a large drop has happened in July quarter.”

Nihar Chheda

“But it will be to answer your question broad direction will be lower than Q1”

Nihar Chheda

“Yes, so in the September quarter, the EBITDA will be under pressure because of the inventory losses extending into July month.”

Risks & concerns — 11 flagged

As Agri demand continued to be weak, while the demand for Plumbing and SWR was resilient.

— Parag Chheda

Given the volatile raw material supply situation, we had higher inventory levels, which are being rationalized and we will return to normal levels by Q2, with constant emphasis our craters has improved to 38 days and our debtors to 48 days.

— Shyam Sharda

So, when do we start seeing the impact of this in the numbers?

— Dhaval Shah

So, the realization impact of the fall in the raw material prices will be seen in the September quarter and I would also in fact like to highlight that the margin pressure will continue in the September quarter and then from the December quarter the margins will begin to normalize.

— Nihar Chheda

Yes, so in the September quarter, the EBITDA will be under pressure because of the inventory losses extending into July month.

— Nihar Chheda

So, that would not be a fair comparison either because of the impact of COVID, etc.

— Nihar Chheda

One is the per kg drop, which has been sharp in July, as we pointed out, which will ensure that September quarter margins are under pressure.

— Nihar Chheda

As you know, I believe that Agri contributes around 35% of the volume and as you also said that I Agri is the weak.

— Praveen Sahay

Your numbers makes a weak in terms of sequential.

— Praveen Sahay

I believe that volume 35% contribution is from Agri and as you said that agri for the sector is weak and the Plumbing sector and the other component has been strong for the sector.

— Praveen Sahay

— Rahul Agarwal

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Q&A — 10 exchanges

Okay, just one question given the PVC prices are falling, the realization per kilo seems to be broadly stable. So, when do we start seeing the impact of this in the numbers?

Nihar Chheda

Thank you Dhaval. So, the realization impact of the fall in the raw material prices will be seen in the September quarter and I would also in fact like to highlight that the margin pressure will continue in the September quarter and then from the December quarter the margins will begin to normalize. This is because if you see the trend of the PVC prices, the largest drop has actually been in the month of July. So, July has been the worst month of the financial year. We do believe that PVC prices are now close to bottom and August and September should more or less be stable which bodes well for

Hi, Nihar, if you can quantify the inventory losses in the quarter.

Nihar Chheda

Yes. Sujit inventory loss would be in the range of Rs.30 to 35 crores for the quarter. Okay, and industry volume degrowth QoQ. So, we said that we could have gained market share, in your opinion, what would be the volume degrowth that would have happened QoQ? I think Sujit. Thank you for that question. I think it is important to highlight that in our industry, volume growth cannot be seen on a QoQ basis, because quarter four is always going to be very heavy and quarter one is usually light for us, especially since we are not very heavy on the agriculture segment, it is better to see volume gro

Hi, everyone, thanks for the opportunity. Just want to understand as you said that, margins will normalize from quarter third onwards. What are the kinds of margins that we look from quarter third onwards and for Q2 are we expecting similar inventory losses to continue and will there be falling inventory losses given that year inventory levels have come down or is it that the prices have fallen more? Just wanted to get some sense on margins here.

Nihar Chheda

Yes, so I will take the second question first. So, like I said, July has been the month of the sharpest decrease in terms of rupees per tonne. So, the sharpest fall will be seen in the July month. Having said that we are working on a lower inventory than we did in quarter one. So, I think margins should be in a similar range in the September quarter and to answer your first question is in December quarter our margins will begin to recover and normalize, which will be in the range of 13 to 15% as per our long-term guidance. Understood and do we expect demand, how you think demand trend, if I am

Hi Nihar. Sir, my first question is on the PVC drops are we doing any benefit on the PVC drop or the prices will be fully passed on to the consumer.

Nihar Chheda

Thank you Shrenik. Shrenik in this industry we usually pass on any increase or decrease to the channel with immediate effect. So, when the prices were increasing, we would pass it on with full effect and, in maybe one- or two-weeks’ time. So, we cannot be unfair when there is a decrease of similar business practice has to be followed in an upward and a downward trend. Sure, and also sir our volume growth is around minus 2% on three-year CAGR basis, which is similar to the industry leaders in industry. But I would assume on percentage basis, our performance should be better going forward becaus

Hi sir, my question pertains first on the numbers. Could you give some guidance for FY23? What sort of volume numbers we are looking at?

Nihar Chheda

Yes, thank you Rajesh. I think in terms of volume, I think the second half of the year will be better in terms of operating performance, not only in terms of volumes, but in terms of earnings as well. We will recover from the second half of the year. The first half of the year has been impacted by the sharp decrease and like I said earlier, that not only impacts the margin performance, but it also impacts volumes because of the uncertainty and the negative sentiment in the channel there is a phenomenon of destocking that is especially happening in the first four months of the financial year. I

Good afternoon, sir and thank you for the opportunity. Sir like, we have been seeing that the PVC prices have been falling down, but if you compare sequentially, the cost of raw materials consumed, it is up if you compare it sequentially and so what explains that have you been taking more price cuts in the drop in PVC prices or is it because of the volume mix or something?

Nihar Chheda

So, the prices have come off as a result of the raw material prices, it is a pass-through industry, the increase or decrease in raw material is passed on to the channel in terms of an increase or decrease in the finished good pricing. That is what has impacted the performance. Product mix in line to our regular products. Okay sir and sir like, our CPVC products, they are higher margin products for you like, is my understanding, correct? Correct. Okay, so like, since PVC prices have been falling down, do we see the demand shifting to PVC more and hence, I am having an impact on your margins goi

Yes, thank you for taking the question. Majority have been answered. I just wanted to check you mentioned that after July there has been some steadiness in demand. So, could you please explain it what was the dealer inventory for the past quarter and what it is now and are we seeing any improvement there?

Nihar Chheda

So, the recovery I am seeing is in terms of PVC prices have stabilized in August and we are close to bottom because of the sharp decrease in July and as a result of this stabilization in PVC prices, we believe that demand in August and September should hold steady because this kind of a decrease we have, like I said earlier we have seen maybe, once every decade or once every two or three decades, this sort of a sharp fall. So, I do believe that demand will stabilize in August to September and then start recovering from the December quarter. Okay sir, thank you.

Thanks for the opportunity. Yes, my first question is on the Agri side. You said Agri as a percentage of total volume is 35% for. It is on the volume side and not on the sale side.

Nihar Chheda

On the sales side is around 30%. Okay on the sale side is 30% and volume is 35% I mean, this is just I mean. A rough ballpark. I mean a benchmark for what it has been like over the past one or two years. And second is CPVC prices if I remember correctly, last or last one full year highlighted CPVC prices were at Rs. 200 per kg what will be the current price scenario for CPVC? It will be in a similar range. Got it and last on the Bathware segment, just want to understand what kind of channels we are going to use, because for sanitary ware and faucet ware, the channels are slightly different as

Hi, good afternoon. Just two questions both on the industry and partly they have got answered. So, pardon me for reputation, but firstly on Bathware, Nihar obviously, it is a known fact that large national brands are very bullish on the segment. Asian Paints is talking last thing as per recently entered. Kajaria has been trying to grow it 4-5 years now. COVID obviously had some kind of tailwinds for home improvement, and hence, maybe the demand was pretty high for faucet or sanitaryware. Now, from your perspective, your internal research and study just wanted to understand any structural chang

Nihar Chheda

Yes, thank you for that question. I think for us what was important is we have been the only pure play Pipe and Fitting manufacturer in the industry. So, any diversification that we did has happened after a lot of brainstorming with the team within the family, a lot of evaluation research homework, a lot of study has gone into this, because this may be our first real diversification, I do not consider the Tanks business to be a real diversification. So, a lot of study has gone into it, I think what was very important for us is, one being able to leverage the brand and the distribution network

So, Nihar one question on pipes, overall, obviously there is bullishness around volumes to pick up purely because the PVC price is now reasonable enough for the decisions have been pretty volatile from the income customer perspective. Farmers have been pretty hazy in terms of investing into the fields last year, obviously COVID hit. Do you think a scenario wherein we are talking about volume recovery? Based on your past experience, 30 to 40 years, Prince has been around? Would you see that the volume can actually surprise? You know, we know that 10 to 15% is a good range to work with but 20% p

Nihar Chheda

Yes. So, firstly, this kind of a volatility you are right does not happen every two to three years. It happens once in 10 years. So, it is very important that it does not faze us and then one has to remain patient and then believe in the market. So, that is point number one. Point number two is, in terms of volumes, see this price regime? Say I personally do not see prices going back to pre-COVID levels of that Rs. 70-75 per kg on a sustainable level. I think this current price regimen, given the global trade flows today is very-very conducive to grow and high double digit volume growth going

Speaking time

Nihar Chheda

Moderator

Sujit Jain

Akhil Parekh

Dhaval Shah

Rajesh Kumar Ravi

Nikhil Agarwal

Rahul Agarwal

Sneha Talreja

Shrenik Bachhawat

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Opening remarks

Vineet Shankar

Good morning, everyone. We welcome you all to the conference call with management of Prince Pipes and Fittings Limited to discuss the financial performance of Q1 FY23 and Business Outlook. From the management, we have Mr. Parag Chheda – Joint Managing Director, Mr. Shyam Sharda – CFO, Mr. Anand Gupta – Deputy CFO and Mr. Nihar Chheda – Vice President Strategy. Now, I hand over the floor to Mr. Chheda for his initial remarks after which we will move on to the Q&A session. Over to you sir.

Parag Chheda

Good morning. Thank you all for joining us on our quarter one FY23 Earnings Call. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I trust all of you have had the opportunity to go through the same. Let me start by giving you a macro view of the industry and then diving into the Company level performance and the strategy going forward. Q1 of FY23 has been a challenging quarter for the industry. As Agri demand continued to be weak, while the demand for Plumbing and SWR was resilient. In addition, the persistent softening in PVC prices resulted in a muted sentiment across the value chain, causing destocking amongst our channel partners. Despite the challenges, we continue to aggressively expand our volumes and increase our market share. During the quarter, our volume and value grew by 69% and 83% respectively, led by outperformance in the building materials segment of our portfolio. However, as you are aware, the quarter witnesse

Shyam Sharda

Thank you, Parag Bhai and good morning, friends. I will be taking you through Q1 FY2023 financials now. In this quarter, the Company saw a revenue growth of 83% at Rs. 604 crores compared to Rs.331 crores in Q1 FY2022, volume grew by a robust 69% at approximately 31,250 metric tonnes. Coming to our EBITDA, which stood at Rs.44 crores for Q1 compared to Rs. 41 crores in Q1 FY2022 indicating a growth of 6%. EBITDA margin stood at 7.3% for this quarter. Profit after tax stood at Rs. 16 crores compared to Rs.18 crores in the corresponding quarter. On the working capital days have increased to 88 days from 68 days in March 2022 but our inventory days has improved to 78 days from 85 days at the end of March 2022. Given the volatile raw material supply situation, we had higher inventory levels, which are being rationalized and we will return to normal levels by Q2, with constant emphasis our craters has improved to 38 days and our debtors to 48 days. Our endeavor going forward to further impr

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