Finolex Industries Limited (FINPIPE.NS) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Finolex Industries Limited Q3 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Baid from ICICI Securities. Thank you, and over to you, sir.

Thank you, Shivam. Good afternoon, ladies and gentlemen. On behalf of ICICI Securities, I welcome you all to the Q3 FY '26 post results con call of Finolex Industries. On the management side, we have Mr. Udipt Agarwal, Managing Director; and Mr. Chandan Verma, CFO. Now I hand over the call to Mr. Agarwal for his remarks, post which the floor will be opened for Q&A. Over to you Mr. Agarwal.

Thank you, Arun. Ladies and gentlemen, good afternoon. Welcome to our investors conference call for quarter 3 of FY '26 and also for the 9 months ending financial year '26 earnings release. We thank you for your continued support and interest in the Finolex Industries. We give it -- coming over to some of the numbers for the quarter. We see a little dip in our volume numbers for the quarter and also correspondingly for the 9 months ended for the current financial year, mainly on account of the monsoon season. However, our operating performance has seen a notable improvement during the same period, largely supported by softening of the raw material prices and also the operational efficiencies, which we have been pushing through the organization over the last -- for the period of time. Let me also take you through some of the performance indicators for the quarter, quarter 3 FY '26. So the numbers are like for this quarter, the volume decreased by about 14% to 73,500 metric tons against 85,767 metric tons in quarter 3 of last year. Our income from operations was at INR 898 crores for this quarter, it is a 10% decrease against INR 1,001 crores of quarter 3 FY '25. However, happy to note that EBITDA improved to INR 123 crores against EBITDA of INR 83 crores in quarter 3 of previous year. Correspondingly, PAT also has improved to INR 110 crores against PAT of INR 71 crores in quarter 3 of previous year. For the 9 months ended December '25, overall, our volume is lower by about 6% to 230,965 metric tons against 245,729 metric tons for the 9 months ending of the previous financial year, that is financial year '25. Our income from operations was at INR 2,800 crores, down about 6%, which is in line with the volume against INR 2,970 crores for the 9 months ending FY '25. EBITDA improved to INR 347 crores against -- and this is an increase of about 15% against INR 302 crores for the 9 months ending FY '25. Profit after tax also improved to INR 926 crores compared to -- I mean, from the operations I'm talking about, but all in all, profit stood at INR 326 crores compared to INR 628 crores, which included last year, exceptional gain of INR 407 crores for the 9 months ending FY '25. So operationally, we have improved significantly in our profitability. We continue to have a very strong balance sheet with a net cash surplus of around INR 2,430 crores as on 31st December '25. I think with this, we leave the floor to question and answers. And together with me is Mr. Chandan Verma, our CFO, to answer the questions.

Good afternoon, all participants. A very warm welcome from Finolex Industries.

[Operator Instructions] The first question comes from the line of Divyansh Thakur from Finterest Capital.

Sir, congratulations on a great set of numbers. So what we have been saying for the past few months have been that -- everyone is saying that PVC prices should bottom out. So can you provide us some guidance on how the market has been behaving and when is it going to stabilize?

Yes. I mean all the commodities market have been affected by what is going on with respect to the geopolitical developments. And also -- so that has an impact on -- not only on the polymer prices, but also on other commodities as well. So from that standpoint, we had our own share of volatility in the raw material prices and also on the prices of PVC. During the quarter, we saw that the price is going very, very low. I think we have never seen these kind of prices in the recent past. The PVC prices had gone down to as low as in the range of $600, depending on the region where it is coming from. However, the situation has improved a little bit. And we look into this quarter a little more positively. I hope that answers.

Yes, sir, that answers my question. Sir, can you also provide us with a visibility on what prices can we see going ahead or something like that?

Nobody knows what is going to happen, but the prices in the month of December has started improving or towards end of December. As I said, last quarter, we saw prices going as low as $650. And we saw -- we see some 8%, 9% improvement in that. So they are more like $650, $660 range currently.

The next question comes from the line of Utkarsh Nopany from Anand Rathi.

My first question is again on the PVC resin side. So just wanted to know like given large PVC resin surplus capacity is there in China. So do you see any possibility of the resin prices going back to the historical range of around $850 to $900 per tonne over the next, say, 12- to 18-month period, sir?

Yes, there is -- not only in China, but globally, there is a capacity quotient. And we also see in the recent past capacity adjustments, some of the Western companies announcing shutdowns of their plants. We see this kind of a trend in China also. But I think China also, there are 2 different technologies which operate, okay, and not everywhere, everything could be used. We also heard the news that there is going to be a different tax structure or the incentive for exports in China. So that is also going to have an impact of -- impact on the PVC resin prices from exports -- for exports from China, okay? So we will see how does it play out, but outlook is that probably PVC has bottomed out.

Okay. And sir, yesterday, in the budget, when we looked at the document, we saw that the government has reduced the import duty from 10% to 7.5% for Chapter #3904 and the PVC resin falls under Chapter #3904. So just wanted to confirm whether the import duty on PVC resin has gone down from 10% to 7.5%?

Utkarsh, we have also seen this announcement, but we are waiting for the fine print to come out. We still see that as regulatory stage. Let the fine print come out, then we'll have to be able to conclude whether actually we are getting impacted by the reduction in the PVC prices or not. We are waiting for the further in this regard.

[indiscernible] see, the PVC resin prices on a Y-o-Y basis in rupee terms, it has corrected by double-digit rate. But our pipe realization has improved quite a lot on a Y-o-Y basis for the past 2 consecutive quarters, which is not the [indiscernible] year. So [indiscernible] only because of the change in the product mix? Or is it because of some other factor?

I think it is a combination of different factors. One thing is that during this quarter, we had a higher share of non-agri segment, okay? So that also helped us to keep the prices a little bit on the higher side. So realization is also better. Second thing is we have been also careful on our pricing side. And I think, as you know, that we have always been saying that we are looking at also profitable growth, and this is what is the impact what we see.

Okay. And sir, on the margin side, like the margin for the PVC resin producer or the plastic pipe company has been coming under pressure. But for us, it has actually improved over the past possible [indiscernible] possible reason for that, sir, in a falling resin price environment?

So Utkarsh, if you know that we are a company which is having advantage of backward integrated plant for the PVC resin. Now of a total consumption of, say, 100 in a year, in a given period of time, roughly we get a share of 65% to 70% from the in-house manufacturing of the resin. Now if the in-house manufacturing resin, we have a cost advantages in comparison to the other producers who are purchasing the PVC price directly from the market. So this -- having a backward integrated plant and in-house manufacturing of resin, we are having a certain cost advantages, that is getting reflected in our margin.

No, sir. What I was -- what I meant to say is that as per your presentation only, if we see the PVC/EDC delta or the PVC/VCM delta has gone down sharply in this December quarter on both Q-on-Q and Y-o-Y basis, okay? So how come our margin has improved, sir? That's my question, sir.

Yes. So see, if you see the PVC/EDC Delta that is also more or less an indicative number, which gives a direction in which the market moves on, number one. Number two, if you see the margin, as Mr. Udipt just explained, the margin consists of 2 parts. One is the improvement in the realization; second, in the cost efficiency. So if you add both together, both has added in a favorable direction for us. That has resulted in the overall increase in the margin, EBITDA performance. So there is a 2-way benefit. One is the improved in the net realization that we are having. Number two, though there is a decline in the EDC -- PVC/EDC Delta, but that's actually not got converted while we actually negotiated in the market, that advantage we're also having. So in a way, both the way we're having the advantage from the sales realization side as well and as well as cost side both. This, too, has resulted in the overall improvement in the EBITDA for the quarter and YTD as well.

Okay. Sir, lastly, sir, what would be our sales volume guidance for the current March quarter? And what would be the EBITDA margin guidance over the medium-term period, sir, for us? That would be my last question.

You know historically, the quarter 4 has been the quarter where the demand picks up. And this is true not only for us, but also for the industry. So we hope that the trend also continues this year, and we see a better volume number in quarter 4.

And any growth we are looking at any range?

As compared to the previous year for the full year, we will see more of a flattish to slight increase in the volume for the full year. This is what our expectation is. We'll see how the demand picks up and how the market behaves in the next 2 months.

So what would be the EBITDA margin guidance on a sustainable basis for us?

We would like to continue the same margin. Let's see how things get unfold over the period of time. We would like to maintain our margin level. .

The next question comes from the line of Shravan Shah from Dolat Capital. .

Sir, I have a couple of questions. Before that, just a couple of data points to get it right. So agri, non-agri share, CPVC share and fitting share for third quarter?

So agri, non-agri, currently, we are at the 62-38 during current quarter.

60, 6-0?.

62%, 6-2 versus 38%. CPVC share is 8% in terms of volume. Fitting share, 12% in terms of volume.

Okay. Got it. And PVC/VCM spread for third quarter? .

PVC/VCM is paid for the third quarter, an average, $156.

$156?

$156, yes.

Okay. $156. Got it. So now, sir, coming to the main questions. So sir, as you just now said that we are looking at a margin -- flattish to marginal growth for fourth quarter. That means in the last year, Q4 FY '25, we did close to INR 102,000 plus kind of a volume. So if we want to have even flattish also, we need a 39% kind of a Q-o-Q growth, which is a significant kind of INR 30,000 extra that we need to sell in the fourth quarter. So in the January, did we have seen that kind of a growth? Just trying to understand.

Shravan, good to meet you all virtually. I would like to say I would not -- we would refrain from making any forward-looking statements here, but there is a good traction in the market as far as January is concerned.

So does that mean good traction that -- not the number, but was that a growth on Y-o-Y basis for us in January?

So Shravan, just we are about to wrap up the number, but things are looking positive in January month as well. So let us wrap up -- let us -- allow us to wrap up our number, then we'll be able to comment on that because January has just closed listed only. So we are about to look at the number. But yes, overall, on a directional basis, as our MD has just communicated, we are looking somewhere around flattish to slightest growth in the -- on a year on -- on a full year basis.

Got it. So then from FY '27 onwards, broadly, if you can help us how one can look at the industry level growth? And for us, how can we expect kind of a 5%, 7% kind of a growth? Or are we looking at kind of 8%, 10% kind of a growth from FY '27 onwards?

Shravan, we are just kicking -- starting our budget planning for the next year. But overall, if we look at the industry and how the markets are behaving, I think having anything growth, which is double digit, I don't know if that would be something which I can comment on at this moment.

But is it fair to say can we see a 5%, at least plus kind of a growth for us and for industry? That's the broader thought process?

I think our endeavor would be that we keep our market share.

Okay. And sir, just on the margin front. So last quarter also and this quarter, so if you can help us in terms of accounting entry, particularly, this change in inventory, particularly. So last quarter, it was INR 172 crores and this time, INR 168 crores. And that's why there is a significant improvement in the margin is there. So try to understand me, so whatever the closing higher inventory, which was there in the Q2, similar was there in this quarter. And let's say, if this gets sold in the fourth quarter, so then can -- one can expect kind of 8%, 9% kind of a margin?

So if you see, Shravan, quarter 3, we have ended with an EBITDA margin of roughly around 14%, right? So now -- on a yearly basis, 12%. So as we have just -- I have replied to a previous question, we would like to maintain our 12% EBITDA, 12% around in that trajectory, our full year EBITDA margin as well. So this is number one.

But sir, still not able to understand, how come we have the similar kind of a higher closing inventory at the end of second quarter and the similar number, INR 170-odd crores in the third quarter itself. So because that's the one which is actually have a significant delta on the margin. So...

Sorry, Shravan, you have to keep in mind though number more or less looks in terms of parity from our previous quarter. However, in terms of volume, it is because price is always changing. So if you compare the inventory changes, which is getting reflected in our quarterly results, in terms of volume, this is not always in parity. So though coincidentally, numbers are looking quite similar in terms of the previous quarter. But actually, if it is at a quantitative basis, the numbers are not similar. So Q2 always remain where we keep the higher inventory and Q3 is where, where the inventory starts getting liquidated. So that's how the industry works.

But that doesn't get reflected in the number. So correct me if I'm wrong, a simple basic math, I'm not able to understand. This minus INR 168 crores, how this number comes, if we have the INR 160 crores, does that mean that the closing inventory as on December is higher by INR 168 crores versus Q2, and that's why it is resulting or something I'm missing?

Yes, yes. So it's basically a difference between the opening stock at the beginning of the quarter and the closing stock at the end of the quarter. So that is what this number gets reflected and in the inventory accounting standard requirement. .

No. So then the question arises is similar, then why the closing inventory of 2Q did not got sold in the third quarter? And why we kept the -- again, the similar kind of inventory?

Shravan, it's not like that. Q2 inventory because we have -- every company has a continuous production process. So inventory gets liquidated over the period of time. Then again, inventory gets built up. And there are a lot of factors that we keep in play like what is the raw material availability, what kind of future forecast we are having, what kind of inventory level we will have to maintain. So there are multiple factors which keep playing around when do we see a particular inventory number at a particular point in time. So you're saying that inventory has been remain whatever it remain in the Q2 end, it continued at the Q2 end, that is not exactly a correct statement because whatever inventory was there in the Q3, Q2 end that gets liquidated. And again, there is a buildup of inventory because of the production that has been taken place during the quarter.

Okay. And lastly, sir, what we heard, just to -- correct me if I'm wrong, that from the 1st January till now, what we have seen is there is a INR 7 hike in the PVC prices. So first, if it is yes or no? And then if have we also seen the similar kind of pass on to the consumer levels?

Yes, you are right. We have seen a price increase in the PVC prices there in India. And you know [indiscernible] is primarily a pass-through business. So quite a bit of it is past .

So at the channel level, have we started seeing a significant improvement at the inventory level, so which was kind of below average. So have the channel has kind of seen a normal level of inventory? Or still it is below the normal?

I think channel has started building up the inventory slowly, slowly in the month of January after the prices have started increasing because sentiment has changed, right? But I don't think so it is at a level where it should be. There is still room for improvement. .

Okay. Okay. I have more questions, I will come up in queue.

[Operator Instructions] The next question comes from the line of Vipulkumar Shah from Sumangal Investments. .

Congratulations for a very good set of numbers. So my question is regarding the cash balance. So we have very modest CapEx every year, and we are building cash. So we are neither taking any big CapEx nor we are sharing it with shareholders through dividend or buyback or any other route. So what we are going to do with this cash?

So Vipul, as you are saying, yes, we have been seeing there is a quarter of increase in the cash balances over the year. So last year, I think we have -- for the financial year '25-'26, roughly around INR 100 crores to INR 150 crores was the CapEx plan for the current year, '25-'26, basically. So that is all the CapEx spending already on. And if you can recall, last year, we have declared a dividend of INR 3.6 per share. So that amount still will -- that was a huge dividend that we had declared last year. We are waiting for the current year's number, then we'll have to take a call on that, number one. Even saying that, yes, there will be still a sufficient balance of cash will remain. So this discussion is around. We are yet to conclude upon what to do with this cash over the period in time. So once something will be further out, then we'll be able to conclude upon.

And a company of our size in this, I mean, we always keep looking at opportunities for the CapEx, and there are different discussions which happen at the Board level. And so we all are working under the direction of Board. And as soon as we have some more decisions around it, happy to communicate.

This standard answer is given in every call, sir. Anyway, so what is the current Delta -- PVC/EDC Delta as on today? .

As on today, it's INR 465 crores. .

INR 465 crores?

Yes. .

I'm sure, you said your CPVC volume was 12% of the overall volume, right? .

Volume, 8% .

8% CPVC?

Yes.

The next question comes from the line of Shravan Shah from Dolat Capital.

Sir, this -- what last time we said that we are looking at -- so currently, 520,000 capacity, we are looking at 50,000, 80,000 kind of addition. So can -- is it fair to say that in -- by FY '27, we will be able to add this 20,000 to 80,000 kind of capacity? And if yes, how much CapEx that we need to do?

Shravan, for us, the capacity addition is a continuous process. And as you know that we recently -- in the last 1 year, we have increased our capacity and the discussions are on to increase the capacity further to support the growth, right? So this is an ongoing exercise. But typically, we end up doing a CapEx of between INR 100 crores to INR 200 crores year-on-year basis. So we'll continue to see that kind of a direction.

Okay. So roughly, one can say similar kind of 50,000 to maybe 70,000 kind of a yearly basis, one can look at if we find the demand is growing. But there also, we are not kind of confidently saying that we can see a double-digit kind of a growth. So that's what I'm trying to -- wondering how one can look at.

Yes, so you build capacities also with a little outlook of the demand, not only for over a period of -- short period, but also maybe over a horizon of 2 to 3 years because capacities also do not come up immediately. They also take their own time in coming up. So you always have excess capacity than what you can sell. And it is a continuous process. You keep evaluating, keep evaluating year-on-year.

Yes, got it. And given, let's say, if there is a INR 7 price hike in PVC and let's assume that it remains constant until the March 31, though it is -- we will be passing on to the customers. But given if we have the similar volume, but if we are selling at let's say previously INR 100, now at INR 107, so is it fair to assume that we will be having some operating leverage and then our margin should be better, but at the same time, we are seeing our margin for fourth quarter, we are looking at 12%. So yes, if you can clarify .

Yes. So as the prices -- so long as the PVC prices will show the upward trend, there will be definitely an advantage in terms of our operating margin, not only for us, but for the industry as well across the industry. But if you will see the stress in the PVC prices, then the things will again go in a different direction. So more the PVC price level is stable, the more the efficiency will look -- will be appearing in the numbers.

Okay. And before this -- the China, whatever the extra tax they are putting up for the export, particularly to, let's say, India, but this is applicable from, I think, from the 1st April onwards. So is there a possibility that before that, there will be some dumping will be happening and that may lead to some rollback in the prices? Is that also a fair probability?

I think that is one of the reasons that we see a price increase here in India with the lead time taken into consideration that expectation is that the prices would be sustaining here on.

Okay. Okay. So prices will sustain. So there will be a less probability that there will be a dumping from China before 1st April. And so it should not be impacting the prices. So more or less, the prices from here on should stay stable, if not increase further?

Yes. But I would like to always have a caveat here that -- we do not know what would be the reaction or how the producers in that country would look at their book account and the underutilization of their capacities. So I cannot say it with 100% certainty, but trend looks like that way.

Okay. Okay. Got it. And for us, the CPVC, the 8% share, so there also, we have continuously seen the double-digit growth?

Yes. Because CPVC, we are getting a good appreciation in volume, so that is going in a higher rate .

Okay. Okay. Okay. Got it. And then broadly, what -- our long-term target, 50-50 agri, non-agri, so how do we -- so that long term -- so structurally, let's say, by FY '27 on an average basis, if one has to see, can we see 3%, 3%, 4%, 4% kind of improvement there? Or how one can look at?

Shravan, though our overall ambition is also to increase our non-agri sales because there are a lot of variety factors that keeps into play. While though there is a great emphasis going on from our side to push our non-agri sales. So things will come unfold over the period of time, but still difficult to comment what is the time horizon when we'll be able to get. But yes, our emphasis is already on to improve our share for the non-agri side.

Got it. And then broadly, for third quarter, the CPVC prices more or less has remained stable or still there was also some decline in the CPVC prices?

CPVC prices also go in tandem with the PVC prices, though there is no exactly in the same tandem, but yes, it's in sync with the prices of the PVC prices.

The next question comes from the line of Sonali from Jefferies.

Sorry, but I have to ask this question on margins yet again. So if I look at our gross margin from Q2 FY '25 to Q1 FY '26, we were somewhere always at about -- so our raw material cost to sales for somewhere between 65% to 70%. Suddenly, over Q2 and Q3 FY '26, it has dropped to 57%. So now if I look at the last 2 quarters, the volume growth has not been as great, and the PVC prices are also weakening also suggesting that the realizations are getting lower. So could you help us reconcile what exactly are we doing right? Or what has changed in the past 2 quarters, that our gross margin has suddenly improved by about 700 to 800 bps year-on-year. .

Okay. Sonali. So if you see consider our structural business, roughly our 75% of total consumed raw material cost comes from the in-house and 25% comes from the outside procured. When I'm saying 75% on an average comes out from the in-house procurement, it consists of prices of imported raw material, which is though move in line with the PVC prices, but there is no absolutely -- spread always remains the same. So if the PVC prices, I'm giving one example, it goes by the 10 basis point, goes down by the 10 basis points, it is not always necessary that prices of EDC or ethylene will also go in the same period in the same number. So it always keeps a lag sometimes and sometimes it remains. Like if I see a decline in the PVC prices of 10%, we have seen the decline in the EDC prices by INR 8 -- 8% -- basis points. So in a way, so our raw material prices, if so long as it is not getting affected the way the PVC price is getting affected, we are finding a cost advantage, number one. Number two, though there is a declining in the overall PVC prices, we have improved our realization in terms of our structuring of prices in the market. That also gives us increase our realization. So on an absolute basis, you can see from the outside world, yes, price of the PVC is declining from the [indiscernible] realization, but we have improved our -- restructured our sales price on a net realization basis, that has given us a price advantage as well in the market. So these 2 factors both added in our favor, which is resulting in the better gross margin.

Sir, if I may just extend this question. We do understand that PVC and EDC are not exactly correlated to each other as both are global commodities. But would you agree that whatever the delta is, is captured in that one ratio of PVC to EDC spread. If I look even at that ratio, that ratio has come down from $500 per MT in Q3 last year to $449, which reflects the movement of both PVC and EDC. So I'm just still trying to understand that if your realizations are lower, if your volume growth is not as great, plus we did add this new employee cost as per the new labor code, it's certainly a great surprise that the gross margins and the EBITDA margins are growing so well year-on-year. So just wanted to reconcile these bits.

Just to add Sonali, the employee benefit cost is not forming part of the gross margin. It is forming part of the EBITDA, not the gross margin. .

Yes, I was meaning the EBITDA only. But my main question is regarding the 840 bps jump in the gross margin. .

Yes. So gross margin, as I just wanted to reiterate, the prices that you see in the PVC/EDC delta, that is more or less indicative. But when we go actually commercial negotiation the prices, the prices will definitely -- there are a lot of factors, the quantity volume discount, the landed price headwinds and rupee dollar as well. So all these factors considering our landed cost of PVC -- sorry, EDC has seen a significant decline from last year's Q3 versus Q2, Q3 of the current year. That has resulted in the cost saving to us.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Thank you, and over to you, sir. .

Thank you, everybody, for participating in the call and asking the well researched and deeper level questions. Hope to meet you next time in the conference call. . Thank you. Have a good evening. .

Thank you all participating from the Finolex side, and thank you very much for showing your continuous support for the Finolex. Thank you so much. .

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.