PRINCEPIPENSEQ3 FY2022February 23, 2022

Prince Pipes And Fittings Limited

9,391words
141turns
12analyst exchanges
4executives
Management on call
Arun Baid
ICICI SECURITIES LIMITED
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
Key numbers — 40 extracted
12%
f the nation has been headwinds for the industry. Now coming to our performance, we witnessed a 12% volume degrowth compared to the same quarter last year. While volume degrowth is not ideal, I wou
18%
not ideal, I would like to highlight that our base of Q3 last year was robust and we delivered an 18% volume growth in that period. This means that for the December quarter Prince is
3.1%
ter Prince is one of the only leading players to have delivered a positive three-year volume CAGR 3.1%. We have demonstrated an ability to gain market share in these challenging times. The Indian econ
Rs.480 billion
3 has outlined some key initiatives to maintain and stimulate this momentum. The budget defines Rs.480 billion being allotted for housing projects under PM Housing Scheme. Furthermore, Rs.600 billion allocate
Rs.600 billion
defines Rs.480 billion being allotted for housing projects under PM Housing Scheme. Furthermore, Rs.600 billion allocated to cover 38 million households for tap water as part of Har Ghar Nal Se Jal Scheme and
38 million
tted for housing projects under PM Housing Scheme. Furthermore, Rs.600 billion allocated to cover 38 million households for tap water as part of Har Ghar Nal Se Jal Scheme and the continuation of the expans
rs,
dly, we continue to heavily invest in branding initiatives and strengthen our connect with retailers, plumbers and homeowners across the country. Lastly our efforts towards establishing a B2B vertical
30%
Coming to product mix, our plumbing portfolio driven by Prince Flowguard Plus CPVC witnessed a 30% plus volume growth in Q3. This growth is aligned with our long-term strategy of not only improvin
2.5 Crore
d an excitement in the entire channel. We have now reached a striking rate of 2.5 Crores to 3 Crores per month. We need to strive towards maintaining this strike rate in the short-term
3 Crore
t in the entire channel. We have now reached a striking rate of 2.5 Crores to 3 Crores per month. We need to strive towards maintaining this strike rate in the short-term and structur
21%
ng you through the Q3 FY2022 financials now. In this quarter, the company saw a revenue growth of 21% to Rs. 664 Crores compared to this 549 Crores in Q3 FY2021, volume has reduced by 11.6% at appr
Rs. 664 Crore
through the Q3 FY2022 financials now. In this quarter, the company saw a revenue growth of 21% to Rs. 664 Crores compared to this 549 Crores in Q3 FY2021, volume has reduced by 11.6% at approximately 32,435 me
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Guidance — 20 items
Parag Chheda
opening
“Let me start with the macro view at the industry level before giving the perspective into our Company level performance and our strategy going forward.”
Parag Chheda
opening
“This means that for the December quarter Prince is one of the only leading players to have delivered a positive three-year volume CAGR 3.1%.”
Parag Chheda
opening
“This solution is now witnessing growth across infrastructure as well as project markets.”
Parag Chheda
opening
“The base is still small and we need to target exponential growth for the next 3 to 4 years.”
Parag Chheda
opening
“This augurs well for pipe demand going forward.”
Shyam Sharda
opening
“I will be taking you through the Q3 FY2022 financials now.”
Shyam Sharda
opening
“Our endeavor going forward is to improve our collection thereby reducing our debtor days, I am very happy to share that CRISIL re-rated our long-term and short-term debt during the quarter.”
Nihar Chheda
qa
“I think CPVC prices have increased both raw material and finished good in the December quarter and going forward I do believe that there should be a further increase in CPVC prices going forward as well, so these realizations for the CPVC segment should increase from here.”
Utkarsh Nopany
qa
“Shyam Sharda:So, Telangana while majority of the capex has already been done and we would be closing at around the overall 175 Crores to 180 Crores and I think in the next couple of months the entire proceeds IPO will get used and the full amount of around 195 Crores to 196 Crores will be used for Telangana.”
Nihar Chheda
qa
“Now only incremental capex will be required of maybe 10 Crores to 15 Crores to scale it up fully.”
Risks & concerns — 4 flagged
Prince Pipes remains active, agile and growth hungry to ramp up activities, expand network and strengthen market penetration while being cautious about inventories and supply chain movements.
— Parag Chheda
I think Q3 anyway is a weak agri quarter.
— Nihar Chheda
One last question, given the macro opportunities in the environment and given the size of opportunity given your own preparedness and the competitive landscape if you were to make an educated conjecture about what do you think will be the range of the growth in volume of your business over the 5 year journey difficult, but wanted to reiterate your assessment and whether profits would grow at a similar pace to volume or higher or lower?
— Bharat Shah
I think there has been a challenge in the volume growth at an industrial level, which I think is visible that is the kind of performance that we have been seeing from the players.
— Nihar Chheda
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Q&A — 12 exchanges
Q
Thank you for the opportunity and congratulations on good set of numbers in such volatile environment. Sir, my first question was in inventory, do we have any inventory gain during the quarter?
Nihar Chheda
Thank you, Chirag. There was a slight inventory gain around 7 Crores to 10 Crores in this quarter that we have seen, ideally it would have been a higher inventory gain because of our high inventory levels, but because of the softening of the PVC in mid quarter, we have seen a lower inventory gain compared to the same quarter last year. Right, and is it fair to assume that now PVC prices go down by 5% to 7% from here, we might feel some inventory loss, I understand it could be a one-time phenomena, but will we see that? Yes, I think if there would be a significant PVC drop from here on, there w
Q
Thank you for taking my question and congratulations for a good set of numbers. My first question is, which you had mentioned that the plumbing CPVC grew around 30% volume? What I am asking is as you had mentioned that the plumbing CPVC volume grew around 30%, so what is the contribution of CPVC FlowGuard right now?
Nihar Chheda
Praveen, the CPVC volume growth for us has been more than 30% in the December quarter and as you are aware as an industry norm and company policy we do not give segmental breakup, but in terms of segment wise growth in CPVC we have obtained 30% plus volume. Also can you give some highlights on the realization of the CPVC, is that also bottomed out or it is an improvement we are still seeing also? I think CPVC prices have increased both raw material and finished good in the December quarter and going forward I do believe that there should be a further increase in CPVC prices going forward as we
Q
Good morning, Sir. I have few questions to ask, first is can you please provide me the status of Telangana plant, how much capex we have spent on it till date and how much more we need to spend to take the Telangana capacity to 50,000 tonnes? Shyam Sharda:So, Telangana while majority of the capex has already been done and we would be closing at around the overall 175 Crores to 180 Crores and I think in the next couple of months the entire proceeds IPO will get used and the full amount of around 195 Crores to 196 Crores will be used for Telangana.
Utkarsh Nopany
Sir, we have spent 175 Crores to 180 Crores on Telangana till date is it correct and we need to spend total 195 Crores to 196 Crores to take it up to 50000 tonnes, am I understanding correctly? Yes, so majority of the capex has been done. Now only incremental capex will be required of maybe 10 Crores to 15 Crores to scale it up fully. Sir, what is the capex guidance for FY2022 and FY2023? I think by the end of the next quarter we would have a sharper view on what the overall capex will be depending on how the demand supply situation plays out, as of now it would be a regular sort of maintenanc
Q
Good morning and thank you for the opportunity. Congratulations for the great performance in this environment. My first question is in CPVC, in terms of the supply chain can you talk a little bit how is the industry scenario and what kind of cost inflation at the industry level what you are seeing for the CPVC specifically?
Nihar Chheda
Thank you, Achal. Yes, I think there has been tremendous challenge or a choas as far as CPVC supply security is concerned at an industrial level and CPVC was anyway a very organized industry controlled by the top 4 processors controlling around maybe more than 75% market share and because of these kind of challenges this is only going to further consolidate at the top and become more of big boys game and in fact I would say there has been challenges of supply security for some of the organized players as well which has been one of the factor for that kind of growth that we have been able to de
Q
If you look at the overall industry macros they appear to be now kind of very favorable, long-term thrust of the government on various projects, revival in the real estate and strengthening of the character of that industry and many incipient signs that capex cycle in all probability in offing and probably the baton would be taken over by private sector mode now than the burden that government is being sharing so far, so given all of that, if we moved away from shorter term issues of quarters here and there if we have to draw a picture of next 5 years, what do you think the industry would look
Nihar Chheda
Thank you Bharat Bhai. I think that is an interesting question, so I think you are right, a quarter here and there is part of the business cycle and it is at an industrial level, but if I have to give our long-term view of what industry outlook would be, I think there are a couple of things that I would like to talk about, one is that definitely there has been a major government thrust on providing piped water access to rural households across the country so that is definitely going to be a game changer for this industry, it has been a volume driver in the past and I think that focus continues
Q
Thanks for the opportunity. You mentioned that inventory is largely, I just wanted to ask if the current PVC prices stabilize here would we see an inventory loss in the coming quarters, which is Q4?
Nihar Chheda
I think it is definitely a function of what the PVC prices will look like in February and March, I think as we speak if the price has stabilized where we are there could be just a maybe a minor inventory loss; however, I do believe that in February and March, there will be a firming up and tightening up of PVC prices which would help us even out and I think the focus has to be on overall delivering on the volumes improving the product mix, which will help drive the gross margin and then the operating margin. My second question is related to the Jal Jeevan Mission in the last quarter you mentio
Q
Sir, I have few questions, first on the channel inventory generally what is the average every channel inventory volumes as percentage of annual volumes?
Nihar Chheda
Let me answer your question in terms of usually dealers keep around roughly it would depend on market to market and distributor to distributor, but they usually keep around 30 days of inventory. 30 days of the volumes in inventory. Second, when you said your CPVC volume because of PVC sales were hit more the CPVC volume registered and at the same time CPVC registered 30% volume growth year-on-year, how would that scenario be on a sequential basis of the growth profile between both the PVC and CPVC? I m sorry, what do you mean? On a quarter-on-quarter basis, how did the CPVC volume change? CPVC
Q
Just wanted to check on two things, one is the industrial related do we have information on what kind of demand is coming up from OEMs that is real estate project side and what kind of demand is coming from the home improvement side that is equipment in terms of non- agri pipes?
Nihar Chheda
What you must realize is that a lot of new real estate demand is there is an overlap between the retail and the project segment because the project segment deals only with the high rise building, any new real estate demand if it is the individual home or just a G plus, three G plus, four G plus, five sort of building in the tier 2, tier 3 segment that still accounted for as the retail sale because it happens through the retail channel, project business is only when our channel partners directly sell to a big builder or a big contractor. Whatever the contribution has been I think it has been a
Q
Thanks for the opportunity. Just a couple of things in terms of the distributor or the channel at the agri level, has the distributor started to stock up or are they still waiting for the season to pick up and then they will see, this is particular to the agri pipe itself have you started seeing distributors stocking up and they are still waiting for the demand to kind of pick up and PVC prices to normalize?
Nihar Chheda
PVC prices have bottomed out in my view and I think traditionally from February month we do see the picking up of agri demand so I think the next few weeks will be key and will be a litmus test on how this agri season will pan out and the sentiments overall have been improving and I think in the next few weeks will be crucial. The other thing in terms of capacity the 290 includes 25 KTs on Telangana you are adding another 50 KT in Telangana right, is that the way to understand it, so it will be 340 with that? No, it will 25 plus 25, so additional 25 KTs. So you will move to something like 310
Q
Thank you for taking my question. Sir, you have mentioned in your opening remarks and presentation that we are gaining market share and also, we are focusing on adding the dealer distribution so can you quantify what was the addition over there on both fronts?
Nihar Chheda
In the December quarter there has been around 50 new distributor that we have added, I think the focus that we have always maintained as a company is not on the number of channel partners, but on the quality of the channel partners that we are able to gain in the right markets where we have traditionally been weak, new channel partners will always add to the sales rather than just substitute the sale by adding channel partners in stronger market and we are always looking for channel partners who are financially healthy and growth hungry so the number of channel partners is not as important as
Q
Good morning and congrats to the Prince team for a relatively better quarter, slightly longer question this entire raw material in volatility is being impacted the sector and it is all due to demand supply mismatches or perennial shortage of production of resins so the question is on solution to this now the lay of the land today like any expected changes would you expect across PVC and CPVC supplies domestically now we have heard some new capacities coming up by Birlas, Reliance, Chemplast, Meghmani, they are doing something or the other, but if could share your insights and some intel on thi
Nihar Chheda
This is with respect to PVC? Yes, both PVC and CPVC either way? So, PVC traditionally there has always been announcements to improve domestic capacity, but we have not seen anything really be executed on ground and until there is some sort of official announcement with a clear timeline mapped it is hard to really take a view on that and I do believe that demand is increasing and I do not think supply is increasing at the same pace that the demand is improving, which makes me believe that PVC has seen a structural change in the pricing per tonne and I believe it would be only range bound from h
Q
I would like to thank the management of Prince Pipes and Fittings for giving us a chance to host this call. Any closing comments you want to give, the management?
Nihar Chheda
Thank you to all the participants and thank you, Arun for attending the call.
Speaking time
Nihar Chheda
54
Moderator
14
Utkarsh Nopany
8
Rajesh Ravi
8
Rishabh Bothra
8
Achal
7
Abhishek Ghosh
7
Praveen Sahay
6
Chirag Lodaya
5
Bharat Shah
5
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Opening remarks
Arun Baid
Thanks, Suzanne. Good morning, friends. I welcome you all on behalf of ICICI Securities to the post results conference call of Prince Pipes and Fittings. We have from the management side today, Mr. Parag Chheda, Joint Managing Director, Mr. Shyam Sharda, CFO, Mr. Anand Gupta, Deputy CFO and Mr Nihar Chheda, AVP Strategy. Now, I hand over the floor to Mr. Parag Chheda for his opening remarks post which we can have the Q&A. Over to you, Mr. Parag Chheda
Parag Chheda
Thank you, Arun. Dear participants sorry for the delay due to the technical glitch. We can now get started. Good morning everyone and thank you for joining us for our Q3 FY2022 earnings call. I hope you and everyone around you are safe and healthy. The presentation and the press release have been issued to the exchanges and uploaded on the company's website. I hope everyone had an opportunity to go through the same. It gives me immense pleasure that Prince Pipes is now officially a Fortune India 500 company. I would like to thank our employees, customer chain, and investors for their continuous efforts and support throughout our growth journey. In the past quarter, we have also had a CRISIL upgrade, which has re-rated our long-term rating to A+ and our short-term rating to A1+. This rating upgrade highlights our healthy operating performances over the past quarters as well as our fundamentally strong balance sheet. Let me start with the macro view at the industry level before giving th
Shyam Sharda
Thank you, Paragbhai and good morning, friends. I will be taking you through the Q3 FY2022 financials now. In this quarter, the company saw a revenue growth of 21% to Rs. 664 Crores compared to this 549 Crores in Q3 FY2021, volume has reduced by 11.6% at approximately 32,435 metric tonnes. Coming to our EBITDA, which was at Rs. 111 Crores in Q3 FY2022 compared to Rs. 103 Crores in Q3 FY2021 indicating a growth of 8%. EBITDA margin was at 16.7% in Q3 FY2022. Advertisement and published spent has decreased by 14% over the previous year quarter and was at Rs. 16.2 Crores. Further our finance cost has reduced by 3% due to improvement in the cost of short-term borrowings. Profit after tax stood at Rs. 67 Crores compared to Rs. 66.8 Crores translating to a growth of approximately 1%. On the working capital front given the current raw material supply shortage, we have taken a conscious decision to have higher inventory level, which will intent to rationalize over the next few months as the si
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