FINPIPENSEQ3 FY23February 06, 2023

Finolex Industries Limited

6,773words

193turns

15analyst exchanges

4executives

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Management on call

Arun Baid

ICICI SECURITIES

Anil V Whabi

MANAGING DIRECTOR - FINOLEX INDUSTRIES LIMITED

Ajit Venkataraman

CHIEF EXECUTIVE

Niraj Kedia

CHIEF FINANCIAL OFFICER - FINOLEX INDUSTRIES LIMITED

Key numbers — 40 extracted

12%

uarter of the financial year 2023. Q3 FY2023 highlights. Total income from operations increased 12% to Rs.1,125 Crores against Rs.1,004 Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62

Rs.1,125 Crore

of the financial year 2023. Q3 FY2023 highlights. Total income from operations increased 12% to Rs.1,125 Crores against Rs.1,004 Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62% to Rs.92 Crore

Rs.1,004 Crore

23. Q3 FY2023 highlights. Total income from operations increased 12% to Rs.1,125 Crores against Rs.1,004 Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62% to Rs.92 Crores in Q3 FY2023 from Rs.242

62%

2% to Rs.1,125 Crores against Rs.1,004 Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62% to Rs.92 Crores in Q3 FY2023 from Rs.242 Crores in the previous corresponding quarter of Q3 FY2

Rs.92 Crore

1,125 Crores against Rs.1,004 Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62% to Rs.92 Crores in Q3 FY2023 from Rs.242 Crores in the previous corresponding quarter of Q3 FY2022. However, the

Rs.242 Crore

Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62% to Rs.92 Crores in Q3 FY2023 from Rs.242 Crores in the previous corresponding quarter of Q3 FY2022. However, there is a marked improvement over

Rs.142.67 Crore

orresponding quarter of Q3 FY2022. However, there is a marked improvement over the EBITDA loss of Rs.142.67 Crores incurred in Q2 FY2023. The company reported Profit after tax of Rs.72 Crores in Q3 FY2023 as com

Rs.72 Crore

e EBITDA loss of Rs.142.67 Crores incurred in Q2 FY2023. The company reported Profit after tax of Rs.72 Crores in Q3 FY2023 as compared to Rs.178 Crores in Q3 FY2022 and compared to a loss of Rs.93.92 Cror

Rs.178 Crore

d in Q2 FY2023. The company reported Profit after tax of Rs.72 Crores in Q3 FY2023 as compared to Rs.178 Crores in Q3 FY2022 and compared to a loss of Rs.93.92 Crores in the previous quarter. Getting into seg

Rs.93.92 Crore

f Rs.72 Crores in Q3 FY2023 as compared to Rs.178 Crores in Q3 FY2022 and compared to a loss of Rs.93.92 Crores in the previous quarter. Getting into segmental performance, pipes and fittings revenue increase

30%

in the previous quarter. Getting into segmental performance, pipes and fittings revenue increased 30% to Rs.1077 Crores in Q3 FY2023 from Rs.831 Crores in Q3 FY2022. Volumes in pipes and fittings seg

Rs.1077 Crore

previous quarter. Getting into segmental performance, pipes and fittings revenue increased 30% to Rs.1077 Crores in Q3 FY2023 from Rs.831 Crores in Q3 FY2022. Volumes in pipes and fittings segment reported a r

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Guidance — 20 items

Arun Baid

opening

“Whabi for his openings remarks post which the floor will be opened for Q&A.”

Niraj Kedia

“Q4 and Q1 traditionally are strong quarters when the season opens up, but we expect that we will breach the pre COVID levels by the end of this financial year.”

Akshat Mehta

“Secondly Sir my question is on the cash that you have on your balance sheet in September you had around 1300 Crores of cash on the balance sheet so again what is the plan to utilize this cash that is available with you either you put into expansion or some inorganic acquisition or you want to pay it out as dividend to share holders.”

Niraj Kedia

“So this money will be either used there and if the money generation is more then it will be returned to the share holders in one form or other.”

Akshat Mehta

“Okay and can you guide me as to how going forward you are seeing as we want to increase share of that non-agri side because there are higher margins there and we want to reduce our dependence from the agri side so what is the plan to go forward with that.”

Ajit Venkataraman

“We are going after increase in network for our non-agri business and in terms of our product range also we are expanding it and therefore all these areas put together we expect that the renewed focus of Finolex on non-agri segment will help us grow in these segment.”

Rahul Agarwal

“So in terms of you internal intention to derisk from south and west is that an intention at all going forward.”

Rahul Agarwal

“Questions are essentially would you expect a soft fourth quarter because generally you would do such volumes in 4Q and 1Q of every year and assuming 4Q demand is also solid you are using almost 80% of your pipe capacity.”

Niraj Kedia

“Our long term target in both these sub segments, I will call it agri and plumbing sanitation, should be equal contributors in terms of volumes.”

Niraj Kedia

“It will take some time but that is what we aspire for and coming to your question on raw material pricing, see, as I said last one month has been more or less stable when it comes to PVC prices; so if everything remains same and these are normal levels which were there even pre COVID so there is nothing else which changes globally, we are almost there I would say.”

Risks & concerns — 5 flagged

The industry dynamics are very volatile.

— Niraj Kedia

So that way if you look at it from an usage perspective it becomes very difficult to say whether this was agri or non agri.

— Niraj Kedia

I can understand that Q1 and Q4 for agri has higher sales but even in fittings we see lot of volatility in our sales so what is the reason for this volatile?

— Vipukumar Shah

It is only in December that prices kind of stabilized and they went up again so that number is very difficult to give.

— Niraj Kedia

And just one more clarification Sir when you mention there is a slowdown compared to Q3 are you trying to just make it a Q2 phenomenon or generally the demand is good but compared to Q3 which is abnormally high?

— Arun Baid

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Q&A — 15 exchanges

Hi Sir. Thanks for the opportunity and congratulations on great results. So just wanted to understand on the demand side for the piping segment. 3Q obviously had some good impact because of fall in PVC prices so how is the situation now and what is the kind of annual number that now you are looking at?

Niraj Kedia

Hi good morning Aman. So yes Q3 was I would say very good in terms of demand, you can see that in the results primarily because the markets opened up. We believed there was some pent up demand which was long pending due which came up so Q3 impact what we have achieved it is the highest ever Q3 numbers that we have achieved. Q4 and Q1 traditionally are strong quarters when the season opens up, but we expect that we will breach the pre COVID levels by the end of this financial year. But there is a slight sluggishness in demand as compared to Q3 what we saw. Okay you intent to say ~263,000 was th

So a couple of questions. Sir if you can provide the mix between agri and non-agri for Q3 and the CPVC volumes.

Niraj Kedia

In terms of volume, our non-agri was 27% in terms of volume and for the full year 9 months it is 30%. Okay and CPVC. So we CPVC we did roughly 4100 tonnes this quarter. Secondly Sir my question is on the cash that you have on your balance sheet in September you had around 1300 Crores of cash on the balance sheet so again what is the plan to utilize this cash that is available with you either you put into expansion or some inorganic acquisition or you want to pay it out as dividend to share holders. What is the plan of use for that cash? In the last one year I know this question has been coming

Hi good morning. Thank you for the opportunity and hope all of you are doing well. Sir three questions, firstly to take forward the earlier question on sales mix my sense is the company obviously intends to become a very balanced company in both agri and pluming. You said obviously you are expanding network and you mentioned product offering expansion. I had a related questions versus other national brands like Ashirwad or Supreme, Astral, Prince whoever, could you highlight some gaps in case there are any on the plumbing pipe and fitting pipe today what we offer and sub question to that also

Ajit Venkataraman

I do not think there is any gap in the product portfolio. We do agree that we started a little bit late in the whole process; so it is more of a catchup than anything else. In terms of strengths, we have tremendous strength in both west and south and in our non-agri portfolio,we are seeing strength coming from north as well. So we are focusing in all those areas to make sure that the growth comes in the non-agri segment in plumbing and sanitation. So in terms of you internal intention to derisk from south and west is that an intention at all going forward. No we would capitalize on our strengt

I had two questions actually. First was with regard to the sales mix. I just wanted to know in a long term kind of perspective say I am talking about like two or three years from now. Is there any particular figure which we have in mind between agri and non-agri as well plumbing and fittings - the other division and my second question was with regards to the price of the raw material and by what time can we actually come to a little bit of a sustainable margin and if there is a particular figure which is a sustainable margin for us in the long run.

Niraj Kedia

On the volume mix a couple of years ago, two to three years ago, our mix was 20:80 in that range but now it comfortably over 30-35%. Our long term target in both these sub segments, I will call it agri and plumbing sanitation, should be equal contributors in terms of volumes. It will take some time but that is what we aspire for and coming to your question on raw material pricing, see, as I said last one month has been more or less stable when it comes to PVC prices; so if everything remains same and these are normal levels which were there even pre COVID so there is nothing else which changes

Hi good morning. Just one question on PVC. Just wanted to know how is supply right now especially from imports and with China reopening and there was a recent snow storm that knocked out southern US recently could that hit supplies and could that drive prices higher in your opinion.

Niraj Kedia

When it comes to PVC for consumption, we make our own PVC, so we do not generally import PVC.But on the overall industry demand side, we do not hear of any shortages anywhere. There was this condition some months ago but we do not hear from our purchase team or anywhere else that there is any supply constraint from anywhere. PVC is available freely. Is PVC from China also coming in at regular pace. It might have come off in recent times but is it still coming in or is that completed. After their new year closure in fact China market has picked up so demand is better there now. So what is expec

Hi Sir. Thanks for the opportunity. In terms of profit from associates has seen a major jump. Any sense on that.

Niraj Kedia

That is a small operation that they do. I mean the demand was good on that side as well. So that is how. Again this is also largely agri that business caters to largely agri demand. I mean in our case also agri demand was pretty high and similarly with irrigation business there was a large pent up demand which came up contributing to their profitability. Okay thanks. Sir the other question is since you have already done largely closer to your peak capacity, the other way to look at it is the 90,000 tonnes per quarter given the overall fittings capacity and overall PVC pipe capacity. In a quart

Thank you for the opportunity, Sir so just two questions from my end? Sir what is the fittings revenue for Q3 FY2023 Sir?

Niraj Kedia

So fittings revenue was Rs.200 Crores. Sir what will be our capex plan for the next two to three years Sir? Any plans to increase capacity through any Brownfield or open up any new plant in North or East? So there are various discussions which keep happening on the drawing board. On the pipe side there is nothing concrete as of now. We keep on adding capacity wherever required on a model basis be it upgradation of extruders or something. On fitting side we keep on adding moulds and some machines. That will continue but as of now if your question is specifically to know if there any plan finali

Good morning and thank you lot for the opportunity and congrats for a good set of numbers. My first question is on the implementation of DMS so we believe that the dealers have now placed orders through DMS but how about distributors or dealers further tracing giving business to retailers? What has been our progress on that front and are we able to see that all schemes are being passed on to retailers?

Niraj Kedia

Good morning Bhargav, so dealers are completely on our CRM as we call it; so I think it has been almost a year now. No more orders on e-mails or excels; so they are fully using our CRM. On the secondary side that is what your question was on the retailers; so that has commenced; so there are pockets where this has already started and gradually it is moving to all dealers. So by when do we expect that to fully get completed the secondary side? In three to six months. Okay understood. Secondly in terms of number of SKUs, it is possible to quantify how much we have in total? Roughly 2200. Great.

Sir couple of questions. Sir first I missed on the volume metric terms? Can you help with what was the agri and the non agri pipe for Q2 FY2023 and Q3 FY2023 please?

Niraj Kedia

So agri pipe and fittings was roughly 66,000 tonnes and non agri was roughly 24,000 tonnes. So this was for Q3 or Q2? Q3. And the same number for Q2 please? 37,000 and 22,000. Sir my question is if we look at the realization on a per tonne basis for pipes and fittings versus resins, it has actually moved up very sharply so if you look at last year those numbers were at around 1.28 to 1.22x? This year the same numbers are at 1.52 to 1.53x? I am looking at realization per tonne of pipes and fittings versus PVC realization. So there is something right which we are doing either on the product mix

Sir can you give the value wise figure for agri and non agri separately? I think you have given volume wise is 30% for nine months but value wise of course it should be much more?

Niraj Kedia

Generally we do not give this value split. I will tell you just when while we say this agri and non agri also, we need to understand in cognizant of the fact that in lot of markets especially North and West, the agri pipes are used for non agri applications. So that way if you look at it from an usage perspective it becomes very difficult to say whether this was agri or non agri. So while we give that the volume and all it is not right to look at them purely from an agri and non agri perspective because there is flux in that - between agri and non agri also; so generally we do not give this nu

Thank you for the followup. Actually the question was on the pricing? If you could help me PVC, EDC, VCM pricing for Q3, Y-o-Y and the current price please thank you?

Niraj Kedia

So for Q3 PVC was $840, EDC was $270 and VCM was $650. So the PVC and EDC delta was $570 and PVC and VCM delta was $189. And the Y-o-Y number in the current mix please? So you mean Q3 FY2022. Yes? PVC was $1753, EDC was $959, and VCM was $1403. The PVC and EDC delta was $795 and the PVC and VCM delta was $350. That is average for Q3 FY2022. Got it and you said currently PVC and EDC delta is $665 and what would be PVC and VCM? $190. Which is similar to last quarter? Yes. Okay and Sir the one question was on the land update? Obviously we do not think more transactions happened but should we see

Thank you for the opportunity. Sir if you leave aside these inventory fluctuations in both the divisions what could be the margins for this quarter?

Niraj Kedia

That is difficult to quantify. Like so we will be still getting? I will tell you why I am saying this. Prices after September, in October and November prices kept going down. In fact by November they had gone on further by Rs.11.5. It is only in December that prices kind of stabilized and they went up again so that number is very difficult to give. Right and Sir one clarity which I wanted to have? Sir we keep mentioning about Rs.8 to Rs.10 margins for the plastic pipe division so that is assuming of 50% and 50% mix on the agri and non agri? No with that the margin should improve. Right okay. T

Thank you for taking my question. Sir my first question is related to the capacity side? By the end of this financial year what would be our capacity on the PVC pipes?

Niraj Kedia

370,000 tonnes. Okay there could be some debottlenecking next year or it is not required? As of now it is not required. We have substantial headroom. Okay and my second question is related to your earlier comment on the sluggishness on demand so is that visible on the agri and non agri or it is overall? Overall. Okay fine. Thank you.

I am sorry just last thing? One question on the lay of the land in PVC right now? I am talking about pipes and fittings largely? Obviously PVC pricing stabilizing means that smaller regional players become competitive and they want to increase their own business? Across your markets South, West and North these are three large markets where you work a lot of new plants have come up for peers, national brands as well as you must be seeing some regional players trying to come back and increase business any thoughts on how is the market behaving in terms of supply side from a PVC pipe and fitting

Ajit Venkataraman

We have done an analysis of our network and also the ideal location of plants and we are not seeing ourselves at a great disadvantage because of concentration of manufacturing locations in the rest of the country and this is something which we are constantly evaluating and at an appropriate time when the volumes reach a critical mass in any of the locations then we will consider it. In terms of the competition any comments Sir how are you looking at competition right now? Competition has always been there so there are huge number of regional players and new players have been coming in the mark

Sir just one thing when we look at our EBIT numbers for resin business in this quarter, it is obviously low so we would have an inventory loss there? Is that a right way to look at it?

Niraj Kedia

Yes that is right. That is what I said Arun in the month of October and November also prices kept on going down; so there was inventory provisioning in October and November as well. Okay but as things stand today we will go back to normalization of profit in Q4 from this segment because PVC pipe was normal? It should. Now most of all that old high price inventory has been consumed; so in our view large part of the pain is behind us. We will see how market is behaving in the coming months. And just one more clarification Sir when you mention there is a slowdown compared to Q3 are you trying to

Speaking time

Niraj Kedia

Rahul Agarwal

Anil Whabi

Moderator

Ritesh Shah

Abhishek Gosh

Vipukumar Shah

Arun Baid

Akshat Mehta

Aman Agarwal

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Opening remarks

Arun Baid

Good morning ladies and gentlemen. On behalf of ICICI Securities I welcome you all to the Q3 FY2023 post result con call for Finolex Industries. From the management side we have Mr. Anil Whabi, Managing Director, Mr. Ajit Venkataraman CEO and Mr. Niraj Kedia, CFO. Now I hand over the call of Mr. Whabi for his openings remarks post which the floor will be opened for Q&A. Over to you Mr. Whabi!

Anil Whabi

Thank you Arun. Good morning ladies and gentlemen. Welcome to the investor conference call Q3 FY2023 earnings release. We thank you all for your continued interest in Finolex Industries Limited. After the adverse impact on Q2 FY2023 due to fall in prices of PVC, this quarter company reported a substantial improvement in performance on account of robust growth in sales volume for both PVC resin and Pipes & Fittings segment and stabilization of PVC prices. Earnings performance improved on the back of stability in raw material prices. Let me give you some of the performance indicators for the third quarter of the financial year 2023. Q3 FY2023 highlights. Total income from operations increased 12% to Rs.1,125 Crores against Rs.1,004 Crores in Q3 FY2022. The EBITDA on a Y-o-Y basis decreased 62% to Rs.92 Crores in Q3 FY2023 from Rs.242 Crores in the previous corresponding quarter of Q3 FY2022. However, there is a marked improvement over the EBITDA loss of Rs.142.67 Crores incurred in Q2 FY

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