Finolex Industries Limited (FINPIPE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Finolex Industries Limited Q4 FY '20 Earnings Conference Call, hosted by Investec Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Shah from Investec Capital. Thank you, and over to you, Mr. Shah.

Thanks, Nirav. Hi, all. Thanks for joining Finolex Industries conference call. We have with us Mr. Prakash Chhabria, Executive Chairman; and Mr. Whabi, Director of Finance and CFO, to discuss FY '20 results and outlook for the company. We'll have opening remarks from management, followed by Q&A session. Over to you, sir. Thank you.

Thank you, Ritesh, and thank you, Investec. Good morning, ladies and gentlemen. I welcome all of you on behalf of Finolex Industries Limited to this investor conference call. In these difficult and unprecedented times, as the new normal evolves, I'm sure we all have and will adapt to it and work on these new hurdles and challenges. After the lockdown period, we started operations in phased manner from April end onwards. Though we lost major part of the peak season to the lockdown and its aftereffects, the demand was good as we started. In spite of logistic challenges we faced, we were able to do normal business for a couple of weeks before the onset of monsoon. The performance for Q4 FY '20, if you see, the volumes for both of these segments is down, and it's mainly because of the pandemic and the general slowdown. The margin in PVC Resin segment dropped from 14.5% to 7.3%, and the pipe segment from 7% -- sorry, the volumes were low, but the realizations were better. It went from 7.7% to 10%. The EBIT has come down from 20.1% to 11.9% due to low volume, that is about 6% in the PVC business. That is basically because of the PVC and EDC delta. And we will talk about all of this in detail in the Q&A. And let us get into the question and answers directly so that we can answer objective questions instead of going into these subjective things. I am open for questions, please.

[Operator Instructions] The first question is from the line of Jeetu Panjabi from EM Capital Advisors.

A couple of questions. One, where are you seeing -- in a post-COVID world, what's the path to normalization? What are the hinderances in that path, in the sense, are you seeing logistics issues, supply issues? Third is on the -- I'd love to hear color on both the pipes and the PVC side. And the third is, if you were to look out 6 or 9 months, what do you think will be the biggest challenges as we go through this period for you guys?

Thanks, Jeetu. Post-COVID, the only challenge I think is what we are facing even at the moment is basically getting people. And when I mean people, it does not necessarily mean people who are the engineers and all that, but basically, people who are the loaders. So whether it is unloading of the raw material or loading of the finished goods, there are days we have got trucks waiting overnight because we fall short of loaders. So for that to become normal is what -- I cannot predict when and how that will become normal because each state is doing something different. And we have a plant in Baroda, and we've got plants in Maharashtra. Within Maharashtra also, the Urse plant has got different issues of manpower, whereas Ratnagiri has different issues. So that is the only thing which is a big unknown and unforeseen. Going -- what is the good part is, like I said, the demand is good, the demand is strong, and it has now tapered off because of monsoon. But the general signs is that post monsoon also, the way I see things is the demand will be good. And when I say demand good, again, in the pipe sector. In PVC, we are consuming most of our PVC. We hardly sell anything out. So it's basically the pipe sector. And within the pipe sector, if we see, the agri pipe demand is really picking up a lot. The non-agri is there, but again, real estate, how it will grow, how will things move, we don't know yet.

And this whole China dynamic, does it have any -- either beneficial or any other negative impact, in general?

For us, really nothing because PVC resin, India is already short of PVC. So India has to import PVC. So whether it comes from a country X or Y, it doesn't matter. The pipes cannot be imported at all because it's basically [ air ]. So you can never have PVC pipe being imported into country. So that's why it really doesn't matter to us.

Okay. And one final quick question is, any thoughts on incremental CapEx? What are you thinking over there? Are you guys paused? Or are you going to...

At the moment, we have paused on the CapEx. We are only spending that is required and trying to optimize the equipment that is already there. So basically to juice out on the investments already made. And that, I think, will go on at least for the next 6 to 9 months till we see some kind of stability in knowing what's happening. And the day we want to switch on the CapEx, it's pretty easy because for us to get a new equipment is quite fast. So that's why it's not going to cause us too much of a slack or a delay because we are pausing now. But right now it is wait-and-watch.

Next question is from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is on the resumption status, especially of the agri pipes, which is about 70% of our product mix. So what are the current utilization levels or the inventory position? Or Prakash sir just mentioned that post monsoon, the demand is expected to be good. So now, what gives us the confidence that there will be pent-up demand even post monsoons?

Sorry, your question about resumption of agri pipes, what was the question exactly?

Sir, I mean, your commentary on the resumption status in terms of what are the current utilization levels of capacity. Is there any channel inventory still to be liquidated and what...

No, no, no. Right now I think everybody's inventory is over. Even the plant inventory is over. So right now what we are doing is building up inventory, keeping in mind -- see this thing which I mentioned about the agri demand going up post monsoon is because of 2, 3 things. A, post a good monsoon, and what I can see right now is a good monsoon. And when I say good monsoon, it does not mean rain over Pune or Bombay, but what we look at is the average rainfall across the country and especially average rainfall across those states where we are very strong in. So seeing all of that is -- I can make this presumption that post monsoon also, the demand will be good, A. B, what we are seeing is that during these 3 months of lockdown and what we're assuming also is that many companies did go through a cash flow issue. And those companies who did go through a cash flow issue and who are -- and who may not be able to come back on stream will definitely create a huge demand in the market. And that is where I think the stronger companies will be able to come in and grab more of the market share.

Understand. Sir, what are the current utilization levels for us in our agri pipes?

We have -- we are between 70% to 90% depending on the plant.

Understand, sir. Sir, my second question is what percentage of sales approximately for ours is rural versus urban?

Similar, 70-30. 70% agri is purely rural and the 30% urban is non-agri. It's not necessarily urban. It does go into various parts of the rural India also, but the 70% is clearly agri. So 70% is clearly rural.

Got it, sir. Sir, my third question is PVC to EDC spreads. I mean what were the levels in Q4 FY '20 and for full year FY '20? And what is the current spread that we are looking at right now versus that of last year?

So Mr. Whabi is good at numbers. He's better than me. So I'll request him to kindly jump in.

Sonali, the spread -- PVC/EDC spread during Q4 was $574. And if you look at Q4 '19, this was $523.

Okay. And sir, FY '20?

FY '20 was $559, while FY '19 was $597.

Okay. Sir, and currently?

Currently, as we speak, it is about $640.

Okay. So that is more than what we saw at similar time last year?

Yes.

No, but you're saying currently, you should have asked him the right question. You asked him a question, he's answered also rightly. Currently, as in today in the market, does not necessarily mean that is the current inventory for Finolex. But -- because we do carry inventory and plants were shut and high inventory cost and everything. But said that the -- what you have hit the nail is that going ahead, things look to be much better. But again, I have to say it with a lot of precaution because what happened to crude in the last 6 months was unimaginable, unforeseeable, and I don't think anybody in the world could have figured that out. So even though we see crude's trending a little bit, we cannot predict exactly what will happen, but generally speaking, again, the delta is improving and that should augur well for the company.

All right, sir. Sir, my last question is, what is our pipes capacity as of March '20 and the volumes of CPVC and column pipes in FY '20, please?

Mr. Whabi, please.

Capacity continues to remain at 370,000 tonnes, which we -- it was same end of FY '19 also. And CPVC volumes for FY '20 is 9,299 tonnes. It is 6% up compared to last year.

Sir, column pipes?

Column pipe was 2,767 tonnes.

So the capacity at the moment remains the same, but if you'll see between the production and between the capacity, there is plenty of room to grow and plenty of room to juice out from the existing assets. Hence, we are going to be rather conservative and waiting and watching to see how we do our CapEx going ahead for the -- at least for the next 3 to 6 months.

Next question is from the line of Praveen Sahay from Edelweiss.

Just to -- continuation with the previous participants. Can you give the sales number for the PVC and the column pipe? Sales volume you have given.

So CPVC was INR 276 crores, and column pipe was INR 33 crores.

Okay. And also, if you can give some PVC and the EDC, what the price is for Q4.

For Q4, PVC was at -- average was $883, while in FY '19, it was $934. And EDC average was $308 as against $411 last year.

Okay. And VCM, if you have?

Yes. VCM was at $758, which last year was $742.

Okay. Sir, my questions on the performance. If I look at the PVC, not the PVC piping, there, the external sales also very -- got impacted, even though this -- the good season and all. So is that a consequence of only 15 days of lockdown or there have been some challenges prior to that as well?

As far as I know, in the month of January, February, March, PVC Pipe and PVC, both, the demand was sluggish. It wasn't like rocking. Usually, if you'll see, by end of December, maybe early January, demand picks up. And when the demand for pipe picks up, it automatically pulls the demand for PVC also. But if the pipe demand really doesn't pick up, then everything becomes sluggish, and that is what was there. But if we see now, in the few days that we have opened and struggled with all the logistics issues and everything, the warehouses have been totally cleaned out, whether it is for PVC or PVC Pipe.

So is it only to you there has been some logistical challenge during this lockdown and the post lockdown? Or is...

No, no, no. Challenge is there for everybody, but for everybody, it's a different situation. Like if you are in a red zone, and XYZ is not in a red zone, then obviously XYZ will have a slightly better chances of delivering to their dealers or starting up earlier or working more hours.

So it's more to do with geographical...

Yes. Like Pune has this curfew thing. So in the curfew thing, when your plant is running 3 shifts, it's very difficult to manage. So all those issues might not be there in a X location or a Y location. So I mean, everybody would have their own different challenges.

And in the month of June, this -- the past June, how you had seen like -- as you have mentioned that the inventory is over in the channels as well, so now with this pre monsoon and all, is the business getting impacted with that as well? Or how is the situation now?

So the monsoon period, there is always a lull in the demand, which is always there. I mean it's a known factor. It's been there for like 35 years. And what we do during that time is use that time to, a, do our maintenance; b, build up inventory of those sizes which we see which we'll be requiring, and prepare ourselves for the opening of the nonmonsoon period, which, again, is like a floating date. There is no way anybody can predict that 10th of August or 10th of September or 10th of October will be the opening date. But it's always a wait-and-watch game.

Yes, yes. I understood, sir, because why I'm asking is, this time, the monsoon is a pre as compared to last year. Some prior monsoon has also come. So is that also impacting on a Y-o-Y basis?

No, pre monsoon was okay. Actually, it was good.

[Operator Instructions] Next question is from the line of Ashish Poddar from Anand Rathi.

So sir, in Q4, we saw in the pipes, their volume declined, but realization going up. So what really does have this impact on higher realization? It was just the product mix or anything else hitting there? And also...

Purely product mix.

So can you give some sense about that, about the product mix? What was higher...

Mr. Whabi, do you have the numbers you can give -- hello, Mr. Whabi?

Yes, sir.

So just wanted to get some sense on the richer product mix which was in Q4.

No, product mix I do not have, but yes, it was because of better realization and lower costs.

So why was the cost lower? Any particular item?

Because of the climate, some costs were curbed, that's why.

Okay. Okay. And also, if I understood correctly, the PVC/EDC spread during the quarter was better on a Y-o-Y basis, but we saw good contraction in the margins. Any particular reason there?

If you see, the volumes have dropped. So it was more because of the drop in volumes.

If the volumes had been maintained, then you would have really seen a fantastic bottom line improvement in the PVC segment. That is purely a volume game. There is no other...

It's a highly operating leverage play in that...

Yes, yes, yes.

So can we make the reference that even in the current scenario, when we are saying that while the demand is improving, overall growth may not be there? So despite EDC -- the spread moving up, we may not see any meaningful margin expansion because of the lower volume.

Lower volume of PVC for this full year or you're talking for the quarter?

No, I'm talking about the current quarter and the next quarter, for the next 2 quarters.

Yes, quarter-quarter. Anyways, everything was closed again.

Two things. Quarter -- this will affect lower volume. And second, as sir mentioned earlier, since we had high-cost EDC with us, so the higher delta does not help us in this quarter.

In this quarter, yes. Yes.

Yes.

Next question is from the line of from Bhargav Buddhadev from Kotak Mutual Fund.

Sir, is it sort of possible to highlight in terms of sales run rate in May and June so far, is it fair to say we would have clocked about 70%, 75% of sales happened in May-June of last year?

For the number of days we were working, definitely yes. Not -- for the number of days we were working, [ not even ] 70%, 75%. For the days we were working, more than 95%, 110% of last year.

Sir, daily sales run rate is almost same or possibly higher as compared...

Can you say it again?

Sir, daily sales run rate is higher as compared to last year?

Yes, yes. For the days, again, I'm saying that we were working. So we cannot say for the full 90 days of the first quarter because that didn't happen. But whatever days we were working, it was definitely more than 95%.

Sir, secondly, I mean, you mentioned about high-cost inventory. So given that we are running at good sales run rate, can we assume that this entire high-cost inventory would be sort of fully sold out in the first quarter or you don't think so that can happen?

Some of the raw material will remain in the PVC plant as the PVC raw material, that is EDC and ethylene. So the effect of that will linger into the second quarter also.

So possibly -- your benefit of spread will possibly come fully from the third quarter onwards?

Fully, yes, but partially in the second also.

Okay. Okay. And in terms of -- I mean assuming that volume growth in PVC in 1Q may be slightly better as compared to fourth quarter, you might see some recovery in terms of margins also in PVC in 1Q versus 4Q? Can we sort of assume that or no as of now?

No, volumes will be affected in Q1 also.

Sorry, sir?

Volumes will be lower in Q1 also in PVC.

To the extent we've seen even in the fourth quarter, so the trajectory is very similar as compared to the first quarter.

It will be more than Q4.

Much more because Q1, we hardly shut down for a few days. But in -- sorry, Q4, we hardly shut down for a few days. But in Q1, there were a lot of days we were shut.

[Operator Instructions] Next question is from the line of Maulik Patel from Equirus.

Sir, few questions. One on the pipe margin. In this quarter despite a lower volume, the margin has gone up. And in one of the earlier, you said that it's about product mix. Has there any turnover discount which you generally make on the provision on a quarterly basis been reversed in this quarter?

Reversing?

The turnover discount, which you generally provide on a quarterly basis, and as the -- because of the lockdown, the distributors have not been able to achieve the turnover. So those discounts which you have provided in the earlier quarter has been reversed or...

I don't think we do these kind of things. This is Finolex, boss. Mr. Whabi, please correct me...

No, sir, partially, he's right because the targets were not achieved, so discounts given were lower. But when most of them did not, we did give additional discounts to the dealers who were not even eligible.

I was going to say that. I was going to say that what we did as Finolex for our dealers is not reversed, but instead even those dealers who were not even close to achieving their targets were given a small amount by way of not a credit note, but by way of an RTGS directly into their accounts so as to help them during these times. So please understand, whether it is a small guy, medium guy or large guy, everybody has got cash flow issues. So what we did is we went and reached out to each and every of our dealers. And people who did good, people who have done good, because across the country, there were people who did very good, some people did good. There's a whole spread. So people who did very good and good, they got it better. And people, unfortunately, because of whatever situations in different areas during the year had issues and especially which got emphasized in March and then April-May, we gave them a better deal.

Okay. Got it. Sir, second question is that when this lockdown happened and the price of the PVC has corrected from INR 74 to INR 61, and now it's back to around INR 74. So how we have placed in this particular entire down? And has this particular period seen a significant margin expansion for the pipe segment?

Expansion, no, why? There have been days where there has been -- where it has contracted.

Okay. So my question is like more -- let me refine it. Has the price increase been more than the price decrease which you have taken during this down phase?

I think that recovery has happened. Mr. Whabi, how much is left? I think all of it has happened.

No, sir. Out of 13.5, 11 has been recovered.

Of 13.5, 11 is recovered. Most of it is recovered.

Yes.

Okay. And sir, this margin which you have achieved good, is it a new trend that we will have higher margin because of the change in mix or we will again go back to the level of whatever 8.5% of EBITDA margin in the pipe segment?

No, no, no, higher, higher. Why are you saying all these things? Always higher. We come out to seem to be slow in the margins and everything, but please understand our size and our customer base and the loyalty that we have got, we cannot take knee-jerk reactions just to make a jump in the bottom line. We have got a lot of emotional issues, a lot of non-number issues, which we have to look after across the country. Because you see, there are dealers who have been with us for years together. There are customers who have been with us for years together. There are farmers who wait on the line, saying, till the Finolex factory starts, we will not buy. So we have to look at everything on the whole instead of just saying that we are out to make money and we only want to make money. I mean everybody wants to make money, everybody loves money, no doubt about that. But because of our profile, because of our customer base, we have to be quite careful in what we do.

Got it. Sir, the last question is on the -- what you mentioned about that some of the players might be struggling and industry has a lot of unorganized players. And even the players...

I'm assuming that. I'm assuming that because, you see, everybody goes through cash flow problems. People focus on profits. We focus on cash flow. My aim always has been cash flow. I always say cash is king, debt-free, cash is king. And I've always been saying that when the cycle goes down and if you're sitting on a highly leveraged position, that is the day you will be in such a bad position, you'll never know how you're going to come out. So like -- people like us, who have always remained light and are light, we went through the storm of 60 days, 90 days, but I think, touch wood, we have come out pretty well. So there have been instances that have come across to my mind who -- people have told me that this is what has happened in the market. So I'm saying, possible that it can happen. I mean I don't have anybody's numbers or anything because they are not listed companies. So what we hear from the market is what we can assume based on it.

Next question is from the line of Ritesh Shah from Investec Capital.

Sir, my first question is, are there any cost savings that we have planned over FY '21, say, something like advertisement or promotion? We have a significant miscellaneous expense as well. So are there any cost cuts or cost savings that one should expect into first half of FY '21, if not for full year?

We are doing a lot of cost savings across various sectors, across the company, across the plants, across departments, and Mr. Math, our Managing Director, is focused on it, and he has his bimonthly calls and all that. So it is -- the effect of that is not necessarily going to come out in a month, but it will definitely come out over this financial year. And the advantage of that will be that, that kind of cost saving will be helpful year-on-year also.

Correct. But sir, something like advertisement and sales promotion, which was like nearly INR 66 crores in FY '19, this one single head is something which is material. So would we like to quantify anything on the cost saving side for, say, full year basis or first half basis?

No, quantify at the moment, no, because this will be unfair on me in doing what he's focusing on. Because he's been spending a lot of time with his team on different, different areas where they're doing it. But there will be a saving. And like this thing, you're talking about the low-hanging fruits like marketing and all that, which, obviously, yes, also. That is also a part of the cost saving.

Okay. Okay. Sir, my second question is, in the initial remarks, you did indicate the key challenge has been labor. Sir, how is it overall for the industry as well? And if you could [ go over ] our logistics policy, so what I understand is for one of our larger peers, the distributors have to arrange for trucks themselves, whereas for another peer, it is the company who themselves arrange for the trucks and the thing actually gets loaded at the distributor's godown. Sir, so how does it work for Finolex? Is it like we take care of distribution? Or is it the distributors need to arrange for logistics?

We follow a single philosophy for all our dealers. We have got [ x-works ] basis, and we sell on advance. So it is across for everybody. So there is no favoritism or anything. It's all across -- everybody is the same. And this has been going on for years now.

Correct. Correct. So a dealer has to arrange for the truck to procure his material from the factory, right?

Yes.

Okay. Sir, last question, any update on Finolex Industries and Finolex Cables? Any positives over here that we can look for over, say, next 3 months, 6 months?

These courts have been closed for so long. Again, every time the date of opening comes, they again say it's been extended by another 15, 20 days. Because most of these courts are Delhi and Bombay. So Bombay again being a red spot, hotspot, and Delhi, I don't know, it also keeps doing that. So whenever that opens up -- and what I'm guessing is, there will be some queue or there will be a lot of backlogs over there. So how they are going to do all of that, I don't know. But I'm just hoping it gets moving. That's all.

Right. Sir, to our understanding, we had a favorable verdict from Bombay High Court as well. So is it something that we are nearing a resolution over here? Is it something -- I understand we can't say -- give a time line over here. But sir, how should one read this? Basically, this is -- if it gets there, it's one big positive for the company and group.

I know. I know. It is clear -- clarity and transparency is what I believe in, definitely, but sometimes certain things which are not in my hands, I'm not able to clarify. That is the problem. That is the issue. Because all these things are matters in court, then they are sub judice and then courts are closed. So it's going on. At the moment, it goes on.

Okay. Okay. And sir, last question, any new product launches? I understand it's a difficult industry time right now from a macro perspective. But any new product launches that we are looking at during the year or any new [indiscernible] that you would want to...

New product launches we are doing, but basically within our range, that is, in PVC fittings, new fittings are being launched. That's what we are doing, but no different products as such, no, nothing. ,

Next question is from the line of Achal Lohade from JM Financial.

My first question was, was there any inventory loss in the fourth quarter? Would you be able to quantify?

Sorry, was there any?

Inventory loss in the pipe business, sir?

Yes, definitely, there should be.

Would you be able to quantify, sir?

Like I said, Mr. Whabi is good with numbers better than me. So...

No, this volatility of prices does cause gain or loss, but it is difficult to quantify it.

Okay. Okay.

But definitely, there was. I mean there is no 2 ways about it.

And it would be there in the first quarter as well? I'm asking for the pipes segment, sir.

Yes, yes, yes. It has to be there also for the pipe segment. Because March 31 when we closed, nothing has changed on 30th of April. If -- hardly -- there might have been some movement, but not that -- the movement was not that big impactful. So therefore, the inventory loss carry position would generally continue from March 31 to April 30, except for a little changes.

Correct. Okay. Okay. Secondly, would you be able to help us understand in terms of the CPVC raw material costing, has there been any increase in the cost in the fourth quarter or in the first quarter?

No, the costs have moved only because of rupee-dollar parity.

Okay. The dollar price remains similar.

Yes.

And on a Y-o-Y basis, how much would that increase? Because I remember it was increased in the fourth quarter CY '19.

Yes.

So on a Y-o-Y basis, would you be able to give some color? Would it be 7%, 8%...

Because of, again, rupee-dollar. Any movement is because of rupee-dollar. Otherwise, we have a contract price.

And that gets revised once in a year, twice a year or something?

Yes.

Okay. Another clarification I just wanted, sir, with respect to credit to our dealers -- distributors. Is it same for plumbing as well as agri or agri is still cash-and-carry and plumbing is...

Agri is cash-and-carry. And non-agri, there is a small amount of credit.

Understood. Understood. And just last question. You've got maybe confused with your turnover discount clarification. Is it that fourth quarter we had some reversal, but on the other hand, we also gave additional cash incentives to the distributors? Is that understanding right?

See, provisions are made every quarter. Last quarter, because many of them did not achieve targets, so provisions would have been lower, but some provision again was made, and as sir explained, discounts were paid to the dealers even though they had not achieved their targets.

What is -- no, no, so what he's saying is correct. He's saying, yes, there were provisions and, yes, we did give cash back to them.

Yes.

Got it. Got it. And just to understand myself clearly, for the agri business, you indicated that the momentum had been pretty good prior to the monsoon. And it's -- Y-o-Y, there is an increase or it's still 20%, 30% lower?

No, what I said -- for agri, what I said is for the number of days that we were working, those days we were -- compared to last year -- I think that was the question, compared to last year, on certain days, we were hitting 95% to 110% of last year. But because you say Y-o-Y and quarter-quarter, that means you're talking about 90 days. Now, obviously, we were not working for 90 days. We were shut for most of the days. But whatever number of days that we were working, that is when this happened.

Next question is from the line of Ankur Sharma from HDFC.

Sir, my first question was on the piping business. So when I look at the first quarter, so typically, Q1 is almost 40% of annual sales for us in terms of volumes. And given the lockdown this year, clearly, as you just mentioned, you may -- you would have lost out on some of the volumes in April and May given the situation.

Definitely. Definitely.

Right. And then going in now, we're starting up with the monsoons. So my question really was that, would you believe -- are these sales lost? Or do you believe that going into Q3 and Q4, you could see a much bigger bump-up as this sale comes back? That's my question, sir.

See, that bump-up possibility is there twofold, a, because I see a good average rainfall; and b, and like I mentioned earlier, what we get to know from the market, again, this is verbal, you have to say there are no papers, there are no balance sheets, there's nothing else, these companies are not listed, that the companies who are having issues with cash flows, cash flows as in people are not able to pay salaries to people, whereas Finolex, as a policy, has paid salaries full. There was not 1% cutback, and there was not 1% delay. So we have paid salaries full. So that is the difference in a healthy cash flow versus cash flow issues. So my mind says that if companies have got cash flow issues, whoever those companies are, they go through this first quarter of cash flow issues, they go through the first quarter of demand, supply, pricing, inventory, same issues. Their recoveries, will it be as fast, as quick, as much similar to that of a company, which has got better cash flows or not? Simple mathematic shows to me that there might be issues. They will have issues. So based on that, I'm saying that the vacuum in the market that they will cause will be an opportunity for their companies.

Understood. Okay. So it's a mix of both good monsoon, [indiscernible] and, of course, market share. Those I understand. All right. Sir, my second question was on your debt, which seems to have gone up to about INR 280-odd crores in Q4, what does this relate to? And where do you see this number going into the next couple of quarters?

That debt what we have in our books is basically suppliers save and buy at credit. That depends on the raw material which came in, whether that came in before March 31 or after March 31 because our jetty closes in May. It's all because of that. It is not long-term debt at all. Still -- we still call ourselves debt-free. And as of current position, let's talk about today, the money in hand versus the debt is still plus. Today also, even if you look at short term, we are still debt-free because March 31 is a picture you take on that particular day, that's all.

Right, right. Okay, okay, okay. And lastly, sir, if you could just help us with your distribution touch points? How have they moved over the last couple of years? And then what's your target in terms of how much you want to increase it by, say, over the next year or 2?

We keep increasing, but we also keep pruning because there are certain pockets, certain people not performing or whatever. And we are not that gung-ho that we have to go from 10 to 20 to 30 to 50 because that is not necessarily going to mean increase in sales or anything. So we would rather keep what we have got, maintain them, make them stronger and make them more stronger. Because finally, if your -- everybody is doing retail. It's basically retail sales. If each retailer becomes stronger and stronger, he is going to be doing more and more for you rather than you keeping on adding more and more retailers, and they keep bringing small, small drops for you. There are certain pockets -- yes, we do again -- eat back what I just said, and we will have more retailers. But again, different pockets, there's a different philosophy. There is not one way of looking at the country. Our country is huge. States are different. Languages are different. The buying pattern of our customers are different. So I prefer that. I prefer chopping up into states and seeing the states, seeing the cities, seeing the towns, seeing the product, whether it's agri, non-agri, and then taking decisions instead of taking a blanket position that I want to jump from this to this.

Right. But sir, just to put a number to it because I remember it was about 1,800-odd...

No, no, 18,000.

Yes, 18,000 touch points and 1,800 distributors, right?

No, no, no, 800 -- 850 dealers and 18,000 touch points.

Next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

Sir, firstly, just in terms of recovery, you said that agri demand, obviously, will continue post monsoon as well. How would it be on the CPVC side in terms of CPVC [indiscernible] side? How is recovery panning out over there?

The demand up till now was, I'm guessing, a, yes, because of real demand, actual demand, but also because the pipeline had been emptied, so the pipeline got full, remember? But what we see of real estate, if you pick up any newspaper, if you look at any channels or if you see what -- talk to people, they -- everybody is talking about real estate being slow and that's what I can see. So I'm guessing it's going to be slow, but what actually happens, I can't say. But my gut feeling of trying to read into the real estate market because I'm not a real estate investor. I don't buy anything. I don't have flats across anywhere. I've only one house which also my father gave me. So I'm the wrongest guy to tell you about real estate. But what I can see and what has happened to people, what has happened to companies, what has happened to software companies or manufacturing companies and how they will recover, how they'll come back, we are seeing people getting salary cuts, we are seeing people not getting any salaries. So how will that pan out for real estate? Because when do you buy a new flat or when do you buy a new house is when you have got sufficient revenue stream. And you go with that revenue stream to a bank, and you say that I want to buy this house or an apartment or whatever. And this is how I'm going to pay you the EMIs over months or years or whatever, whatever, whatever. So what has happened in the last 60, 90 days and seeing -- not knowing actually when this will become normal and everything, it is difficult to see that people will really flock into the real estate market and bring up that demand so fast. It will happen. It is going to happen definitely, but I don't know how fast.

My reference point was because if you look at pre-COVID, demand on the CPVC side was reasonably good. I mean it's not bad. And obviously, real estate has anyways been bad. But now obviously, have you seen replacement demand? Because there are 2, 3 elements, which are probably -- working in our favor. One is your -- one is, there would be pent-up demand. Second, there would be -- the smaller players would be struggling. So that is good for larger players.

But that is across for everything.

Because this is happening as -- thus CPVC demand also is expected to probably pick up faster than expected. That's [ part of my ] understanding.

Yes, yes. But see, the application of a agri pipe in the farmland and that demand versus a pipe in the application for non-agri is too different because of the demand pull, correct? Now agri sector, regardless of things going good, bad, COVID, no COVID, as long as there are people who need food, you need to grow farmland, India, huge agri base. So that will go on going. In non-agri, what happens is because the demand is purely for new, it is hardly for replacing. So unless there is some clarity or some picture on how the real estate industry is going to come out of this and how they are going to start selling more or moving more, unless that really doesn't pick up or doesn't happen, I don't see whether -- what kind of pipe it is, how it will move.

Okay. Okay. Got it. Sir, second question is, you spoke about cost savings as well. I just want to ask when typically demand kind of gets back to normalcy, whenever it does, would we be able to retain those cost savings as well?

No, no, that's why I was not giving a number, but like I said, what Mr. Math is doing in the cost saving is not just temporary for FY '21, but some of those cost savings will be for long-term benefit to the company also. So some of the cost saving will be short term, some of the cost savings will be for continuous saving for the company.

Okay, okay, okay. And sir, last bit is on the external PVC sales that we do, which is there. So sir, you also spoke about the smaller players will be under pressure. So does that impact our external sales in any way? Because if you're talking about the smaller players whom we supply to...

In PVC, we hardly sell, I said. I said we hardly sell any PVC. Smaller players which I meant were pipe players.

Yes. True. I'm just talking about them only. So probably the ones which you sell outside...

But I hardly have any customers.

Next question is from the line of [ Hiral Shah ] from PhillipCapital.

Sir, my question is regarding the fitting business. So what was the fitting revenue for the quarter and for the full year? And what was the volume also?

Mr. Whabi?

Yes, sir. Total volume for the quarter was 5,104 tonnes, while for the entire year FY '20 was 20,666 tonnes.

Okay. And the revenue, sir?

INR 102 crores.

INR 102 crores. Okay. And sir, what I have seen that your associate company has done well. So what has led to this good growth in that company?

Which company you're saying?

Associate company, sir, Finolex Plasson.

Plasson.

Finolex Plasson. I think, basically, good demand from the rural market.

Okay. So do you feel this kind of proper run rate, which we have delivered in FY '20 versus FY '19, we can see that in the next 2 to 3 years? Or we can see that run rate going ahead?

This year is -- because of the first quarter, there is going to be an impact. But seeing what is happening to the delta, which is opening up between PVC/EDC, going ahead in the coming years, I think our run rate is going to go back to higher numbers. If you see, our run rate on profit 2 years ago, 3 years ago was better. That was all because of the PVC/EDC delta. It's narrowed down in the last 1 or 2 years. But again, going ahead, it seems to be getting better.

Okay. So you feel the PVC Resin will again help us to improve our margins, overall margins?

I feel, yes, definitely. But again, it is just a feeling. What finally happens in the market, we'll have to see.

And sir, what is driving this solid agriculture demand growth? Is it any state...

There are 2 reasons: a, the government has been coming out with different schemes per budget. Now there are delays in implementing. So when that money does go to the farmer and [indiscernible] that helps the farmer to buy more. So that is there. The government is doing things which are helping the farmland. Secondly, if you'll see, there have been times where we have faced a lot of natural calamities. So certain pockets will go down because of heavy monsoon or flooding or something like that. There are other pockets which open up. The neighboring areas open up because of the underground water getting charged up. So there's a balance in nature. We try to figure it out ourselves what is happening. But by the time we come to know also, it is like a year later. See, it is not like a light switch. Nature is not like a light switch that you go and switch the light on, it comes on, switch it off, it goes off. What happens today, the effect of that, if you keep observing, takes at least a year to figure out. So that demand -- going to your question of demand for agri pipes, what I feel in our country, especially, is going to continue. It is going to grow. And the vacuum, which I've been talking about, that vacuum is going to, again, help those companies who are stronger.

So which states are driving this demand, sir?

Maharashtra, Karnataka, Tamil Nadu, Andhra, Gujarat.

Okay. And sir, are we seeing any Namami Gange demand coming out of that?

No, no, not yet.

Okay. And sir, lastly, what was the overall Finolex Plasson revenue for the full year and the profit growth -- profit for the full year?

Mr. Whabi, please?

Yes. Overall, revenue was INR 439 crores, and PAT was INR 39 crores.

So in that, our 46% share was INR 25 crore, right?

Yes.

Next question is from the line of Utkarsh Nopany from Haitong Research.

Sir, my first question is on farm income. So like are you seeing any structural changes in the government policy action or measures on the ground, which can help farm income level to improve significantly from the current level on a sustainable basis in the future despite continued weak crop prices in the international market?

I think the government is doing, but you see what happens is when you say farm, farm income and government, the country geographically is huge, a; b, each area has carved out a niche for what it does. So for example, there are pockets which does wheat, there are pockets which does rice, some pockets will do sugarcane. So farm income, when we say, is a very big broad word. But what happens is -- so certain pockets, certain states will take action today, and the effect of that you will see perhaps in 3 months, perhaps you'll see after a year, 1.5 years also. Because, again, it is not even anything close to a light switch that you put it on, it goes on. Whatever happens today in a farmland, whether it is the effect of a government sponsorship or it is because of the -- what the farmer has sown or is it because of good monsoon or bad monsoon, whatever is there, the effect of that is seen later on. So if we are seeing effects of a good demand today, it is not necessary only because of what was done yesterday.

But sir, like are you seeing any structural changes in the government measures or policies? And if yes, if you can highlight upon which were the key measures the government has taken which can assist farmer income in the future?

Government is taking various actions in bringing the farm produce to the shelf quicker and faster so that the cash flow of the farmer increases, so that the profitability of the farmer also increases. But again, all said there, if you look at sugarcane, sugarcane is going to go to the sugar mill. It is not going to come to your shelf any way faster. So hence, I'm saying, I mean, it's a very big subject. And again, if you have to look at it state-wise, then within the state, you have to see how is the state carved out. Is it dependent on product A or product B or product C. Generally, if you see overall, the government is doing a fantastic job. They are pushing the farmers. They're pushing the farmland, pricing, distribution, logistics, all those things. The talk they had about the warehousing, all of that helps a lot because if you have got proper warehousing, proper infrastructure, today, if -- when we opened the newspapers, the past newspapers, let's say, you read about people throwing away onions on the road, but if you had good warehousing, good infrastructure, one would not have to do that, one would just bring it to the warehouse and keep it over there and sell it at a later date. So those things are happening. And then when you create the infrastructure, you are encouraging me as a farmer to get into proper farming to produce more, and that way I forget my bad experience of the past years.

Okay. Sir, my second question is on CapEx side. Like what we are seeing is that all the major national plastic pipe companies are planning to spread out their manufacturing base in Eastern India. And since we are having such a strong balance sheet and healthy cash flow, are we also planning to move in that direction, say, over the next 2 to 3 years to make a better footprint?

Maybe 2 to 3 years, but at the moment, no. At the moment, I am quite conservative. I do not -- I cannot read what is going to happen in the next 3 months, 6 months, 9 months, overall, generally. So hence, I would like to preserve my cash and hold on tight.

So whenever we are going to start the CapEx, so are we going to do the brownfield CapEx or we are looking also to enter into newer geography?

I would prefer always first to be brownfield. Newer geography can happen anytime. But brownfield -- see, my philosophy is always strengthen what you have got. So whether it is my 18,000 touch point or my 850 dealers, I want to keep strengthening them more and more and more and more instead of spreading myself thin and saying I'm going to do this. Finally, at the end of the day, PVC has to go from A to B. Raw material has to go from A to B. What I'm going to do over there is basically only compounding and exclusion. So what is the value addition? If you were an engineering company or something like that, then it's a different thing. But here, it is just conversion. We are converters. So whether it really makes sense in doing that or strengthening your same location is debatable, arguable, again, but my philosophy has been, to maximize my assets, it is always brownfield.

Okay. And sir, my last question is that, if you can just give me a data point, the sales volume change for agri and non-agri pipe in March quarter and for FY '20 as well. And how many pipes and fittings SKUs we were having as of March end and as of current?

That Mr. Whabi can, please, oblige.

SKUs -- total number of SKUs is about 2,000 now. And other question I missed because we were disconnected and now connected again.

Sir, the other question was sales volume change for agri and non-agri pipe in March quarter and for FY '20.

For FY '20, see, the total volume is down by 3%. So in agri, it is down by 6%; and in non-agri, it is up by 9.35%.

Okay. And what would be the data for March quarter?

March quarter, we were minus in agri by about 25% and in non-agri by about 11%.

Is that all the questions, so we can...

Sir, we have one more question. Next question is from the line of [ Arpit Sehgal ] from Reliance Securities.

Sir, basically, my question is on debt part. So basically, if you look at, the debt has increased almost 3x to INR 280 crores FY '20, although you mentioned that it's a loan payable in 1 year. So can we expect, again, the debt level to get normalized in FY '21?

Yes. Like I already clarified, we are already plus in the current -- even -- I mean, as of right now.

Okay. Okay, Fine, sir. And sir, second question is, PVC pipe margin is at peak of 10% despite lower volumes. So can we expect the margin to increase in H2 FY '21, sir?

Definitely, that is the aim. Like I mentioned, that is the aim. We want to improve on that, and we will work on that.

Okay. And sir, can you guide anything for the next 3 years, FY '21, FY '22? You expect the demand to rise in H1 -- H2 FY '21. And how much that would be? Or if you can say, let's say, how much revenue downfall you expect in FY '21?

'21 means you're talking about the current year?

Yes, yes.

No, current year is going to be impacted. It has to be definitely impacted. 2 months, 3 months are gone. So I mean it's just pure mathematics. There's nothing -- there is no way out of it. I mean the company does not have any kind of magic wand to bring that back up. What we are happy about and what we are proud about is our cash flow. Cash flow is going to help the company, strong company survive. And that is what we have been saying and that is what is happening. And survival by keeping everybody happy, survival by giving dividend, survival by paying salaries and survival by keeping the dealer network happy. Three important things, all taken care of. All the boxes are tick-marked.

Next question is from the line of Ankit Gor from Systematix.

I just want to understand this Plasson, the dealer network is similar to what network we have at Finolex Industries? Or...

No, no, not necessarily. There might be some common, some not common.

Okay. So we have seen green shoots in Plasson because of agri demand picking up. Is it mainly because of one of our competitors in drip irrigation is kind of having a liquidity issue?

Possible. Yes, that's possible. Possible.

That could have been possible, sir, in our Finolex Industries as well, right, sir?

Yes, yes, possible. That's -- I also have been saying the same thing that people -- companies, which have got strong cash flows, will survive and people who don't will cause a vacuum. And that vacuum, which is there, is going to be available for companies who are around to take care of.

In that case, sir, why it was not that possible in our Finolex-based business, PVC pipe? Because in Q4 itself, if you talk about...

That is because of the general season, general demand, that is not because of one company. The Plasson -- Finolex Plasson is basically projects. Projects is a different thing compared to PVC pipe business.

Next question is from the line of Nikhil Upadhyay from Securities Investment Management.

Sir, my question is on the CPVC part of the business. All last 3, 4 years, we scaled up pretty well. But now as you are also mentioning that the demand itself is -- could be strained and all, so do you think there is some change in strategy? Or what steps would you be looking at in order to grow this business over the next 3, 4 years? Or how does our focus change here?

It is being looked at by the team. They are trying to see what is the best option for the company going forward. Because what has happened in the past has happened. Now we are talking about something called post-COVID something, which was unimaginable. So the whole team is looking at different products, different verticals to see what we should do in each vertical therein to have a better future. Certain things they might be able to change which can give an effect immediately, certain things which can give change over the medium and long term. So they are working on it. And hopefully, something should come out soon.

Okay. So would it mean that at least for next 1, 2 years, it would be more of a consolidation phase in that part of the business? Because agri is growing pretty well, but there, one, the external market is also weak, and we are a challenger rather than a strong brand, unlike in agri, where we are a strong brand. So would it be a more period of consolidation in CPVC before we get our things -- strategy right in the post COVID...

We look at non-agri as a whole vertical. It's not just one thing out of it. So the whole non-agri will be looked at to see how best to adapt to the changing situation.

Okay. And lastly, sir, you mentioned that many of the weaker players with the cash flow issues and all are facing issues with payments to the salaries and the dealers. But do you think that this can sustain over the next -- my point is that do you think that these -- some of these companies could die forever, which means there is a permanent shift or -- of market share towards us? Or...

That is a very aggressive way of looking at things. But if you'll see over a period of time, unfortunately, the weaker companies have to stop functioning because of one thing or the other, and all of that arises basically out of cash flow. If there is a mismatch in the cash flow, it is going to halt your engine. And once your engine halts, to restart it is quite an uphill task. Now again, I'm not saying whether you're small, medium or large, I'm just saying basically if your cash flow stops, the wheel stops, then regardless of your size, for you to start up is a huge effort, and there will be challenges for those kind of people.

But do you see that there could be influx of newer players? Because on the unorganized, if you look at like below INR 200 crores kind of companies, there are many companies which keep -- in the segment, so the unfragmented segment below INR 200 crores, there are multiple companies. So that influx will keep coming and keep going out...

Whether the influx will be as it has been, my personal thinking is doubtful. Only reason because for people to bring in capital, borrow money, set up a new plant in this industry, which has already got so many players, I think, is doubtful.

Next question is from the line of [ Sainath Jain ] from JM Financial.

Just a bookkeeping question. Sir, our unallocable capital employed has dropped from INR 800 crores to INR 200 crores in this quarter sequentially. So any specific reason for that?

Sorry, can you repeat that question, please?

Sir, our unallocable capital employed has dropped sequentially from INR 790 crores to INR 203 crores.

Yes. Basically, this is because of valuation of Finolex Cables holding that we have. So if you see, that has dropped. So it is because of that, this unallocable capital also has dropped. That drop is almost INR 600 crores.

Next question is from the line of Abhilasha D from Dalal & Broacha.

Sir, I just have one question. This -- we are witnessing -- you said that we are at 95% to 110% of the last year's level. So I just wanted to know that is it an industry-wide scenario? Or we as Finolex have gained market share because there would be a few players who are not able to supply. Is this a scenario?

Madam, that -- I can't say of other people's companies because I can only focus on my company. So I'm saying for the number of days which I was there working, my plants have done that. But for others, I really can't say. But to partly answer your question, I can say that, yes, like I said, certain players whose plants are in locations where there was no red zone, they might have started early. They might be working more hours. They have more flexibility, more transport available, more logistics, more manpower available. And then there are certain companies and certain plants, which are in hotspots, where you cannot enter, where the raw material cannot go in, where the finished goods can't come out. And hence, they would be in more difficulty. And they would have caused vacuum. So demand and supply, obviously, it must have happened. Possible, madam. Possible.

Okay. And my second question is because construction demand is weaker and agri demand is there, are we -- means, agri demand is good comparatively in the construction sector. So are we seeing increased competition from predominantly construction player and their focus shifting towards agri? Or...

No, not really. Not yet -- not really.

Next question is from the line of [ Dhruv Agarwal ] from Bharti Axa Life Insurance.

Sir, my question is that when you say that the total installed capacity for PVC pipes is 272,000 tonnes per annum, so does that include the CPVC and the column pipes and fittings as well?

Everything, everything, everything.

Okay. So if you can tell me what would be the CPVC capacity as of now.

What would be the...

CPVC pipes installed capacity.

Mr. Whabi, 15,000, I would guess or something.

The CPVC -- for CPVC pipes, we had set up a capacity of 20,000 tonnes. Capacity is fungible.

Okay. Okay. And what would be that for the column pipes and the fittings pipes?

For column pipes, it is almost 8,000 tonnes that we had set up.

8,000 tonnes per annum. And fittings come under PVC pipes? Or is that a different capacity that you have for the fittings business?

No, no, fittings business, total capacity that we're using is almost 30,000 tonnes. As I said, last year's supply was 20,000 tonnes.

Okay. Okay. Right. And I'll just confirm the numbers. CPVC for FY '20 was 9,299 metric tons, column pipes was 2,767 tonnes and fittings was 20,666 tonnes, right?

Yes.

Okay. Okay. But sir, I just calculated that for CPVC, your realization per tonne comes to around INR 298,000 per tonne. So why is it this high for FY '20?

Sorry.

So you said INR 276 crores of revenue and 9,299 metric tons of sales for FY '20, correct?

Yes.

So the realization per tonne comes to around INR 300,000. So is it that high? Or what are the normalized levels?

So this is the normalized level.

Normalized level, CPVC -- that is a normalized level.

No. So -- because what I've heard is that CPVC per tonne realization comes to around INR 250,000, and here you are reporting -- you have had like INR 300,000 -- a number around INR 300,000. So that is why I was just asking for this.

No, no, this is -- what you've divided per -- the number of rupees per tonne is correct.

Okay. That is correct. And sir, this realization part tonne, how much is it for the PVC agri pipes which we sell?

Sorry?

For the PVC agri pipes which we sell, how much is the realization per tonne on a normalized level?

See, if you see our total pipe fitting sale, so normally, it is -- varies between INR 85 to INR 100 per kg.

INR 85 to INR 100 per kg. Okay.

Yes.

Next question is from the line of Ravi Mehta from Deep Financial.

Most of the questions are answered. Just one thing, on the non-agri side, if you can share any split between urban and nonurban areas.

If you can, sorry, share the?

The split of non-agri pipes business into urban areas and nonurban. So I believe a lot of non-agri would be selling in the rural areas where we can see a good demand uptick.

Yes, but I don't know whether we have it readily available to give you an exact split between...

No, any ballpark...

Urban, I think 70-30 or 60-40. 60-40, I would say. 70-30, 60-40, something like that, urban and nonurban.

Okay. Within the non-agri. Yes.

Within the non-agri, yes. You asked about -- this is the non-agri. Yes.

Yes, yes, yes. So 60% would be coming from rural or urban?

No, no, no, urban, urban.

Okay. Sure. And sir, jetty closes in May -- in mid-May. So we already tied up the inventories, the raw material inventories, is it?

Yes, yes.

Okay. So the debt -- the working capital debt is pertaining to these inventories that we were buying or it was finished goods which we were unable to sell in the...

It will be mainly for raw material.

Next question is from the line of Devansh Nigotia from Securities Investment Management.

Sir, my question was relating to Plasson. I mean we are almost with a 10% sales growth happening year-on-year. The PAT has almost doubled. So if you can just highlight where is the profitability coming from? I mean is it from some cost-cutting measures? Or it's...

Plasson, I would not have much insight in that.

As there are no further questions, I will now hand the conference over to Mr. Ritesh Shah for closing comments.

Great. Thank you, everybody. Ritesh, thank you very much.

Yes. Thank you, sir, for the conference call and for your time. Thank you so much.

Thank you, everybody. Thank you.

Thank you.

Thank you very much. On behalf of Investec Capital, that will conclude this conference. Thank you for joining us. You may now disconnect your lines. Thank you.