Finolex Industries Limited (FINPIPE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Finolex Industries Limited Q2 FY '21 Earnings Conference Call, hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ritesh Shah from Investec Capital Services. Thank you, and over to you, sir.

Thanks, Janice. Welcome all to the call. We have with us Mr. Sanjay Math, Managing Director of Finolex Industries; and Mr. Anil Whabi, Director of Finance and CFO, Finolex Industries. We will have brief remarks from the management. And post that, we'll have a question-and-answer session. Over to you, Whabi, sir, for the initial remarks. Thank you so much.

Thank you, Ritesh. I'll be taking the opening remarks. Good morning, all, ladies and gentlemen. I heartily welcome you all on behalf of Finolex Industries Limited to this investor conference call. Hope you all are safe and healthy, and we thank you for your continued interest in Finolex Industries. We are happy to talk with you on our second quarter results. Going back into the present situation, the current quarter started on the continuation of corona pandemic, as you know, from the last quarter. During this quarter, on one side, there were cases increasing; and on the other side, unlocking on the phase manner was also being implemented. The company had adopted proper COVID measures as per the government guidelines of safe distancing, using mask, sanitation, disinfection of workplaces, vehicles, common use areas and ensuring safety for all those people who are there inside the factory and other office premises. During the quarter, all our production sites were functioning fully, and there was no supply constraint anymore unlike what we saw in the first quarter. Demand side adjusted itself to the monsoon level on agri pipe sector. And on the real estate sector, we saw a major recovery over the last quarter. The current quarter is a testimony of how is our operations are resilient. I think I will give you some of the performance indicators for the quarter 2 of financial year 2021. On volume side, resin sales increased by 15% year-on-year, whereas pipes and fittings declined by 9% year-on-year. On the top line, overall revenue almost flat, 1.6% rise, not very significant, and it is at INR 585 crores. Whereas on the bottom line, we have very significant improvement. I'll give you the numbers like EBITDA rose by 76.5% to INR 145 crores from INR 82 crores. EBIT increased by more than 100%, 100.4% to INR 125 crores from INR 62 crores. Profit before tax rose by 96.9% to INR 157 crores from INR 80 crores. And profit after tax modestly because of the tax changes last year, it rose 16.6% to INR 119.72 crores from INR 102 crores. So these are the numbers. So bottom line is very significantly improved. Top line maintained. Volumes also almost maintained over the period. So I would now like to leave this floor open for questions. And we will be happy to answer your queries. I'm accompanied by my CFO, Mr. Anil Whabi, and maybe there is a team from finance along with him, who will answer you on the questions of numbers and all that. And on the business questions, I will take care of that. So over to Ritesh and the conference.

[Operator Instructions] The first question is from the line of Bhargav Buddhadev from Kotak AMC.

Yes. Can you hear me?

Yes, go ahead.

Sir, in the first quarter, we had given a guidance that the full year that we may be looking at flattish volume as compared to FY '20. So now that we are already 2 quarters past, what would be the new guidance? Are you still holding on to that guidance? Or how should we look at it?

I think because of pandemic at -- in the first quarter, as we saw that the -- there was a good demand for agricultural pipes and fittings, whereas real estate was yet to take off. So there was a drop in quarter 1. Anyway, we lost April and part of May in the last quarter. This quarter, we have got demand adjusting itself to its monsoon level. Now this year, monsoon also is very good and it is widespread all across India. So there is an expectation that the crop will be good for the kharif season. At the same time, monsoon also got a little bit delayed and the withdrawal also got delayed. So there is good moisture for the rabi crop also. So there will be an expectation that the rabi crop also will be good. So this year, agriculture will drive the economic recovery from the rural front. And that is how we see that the agri pipe sector should do better than even last year. And we hope that just after Diwali, the market should start picking up on agri piping. Whereas real estate sector, we said that if there is still a recovery bound to happen, but we saw traction last quarter also. This quarter, it was much better than last quarter, and it has picked up. So we are quite encouraged to say that there will be a good recovery on the real estate piping sector also. Overall, going ahead for the whole year, I would say, agri will definitely be more than last year and real estate maintaining, so possibly, we will bridge up the gap of what we lost in that first 2 months. And we will be flattish on the overall year-to-year volumes. This is what we expect.

Secondly, sir, given that our share of agri is very high as compared to other players, how should we look at this increase in PVC prices which has happened? Because essentially, the prices have rallied significantly and even they would be sort of expecting sort of a fall, given that there are supply side shortages, which are driving this. So is it that the farmers may sort of wait for the prices to cool off and then maybe in April, May, look at buying at much lower prices compared to what prices are. And hence, we might see a decline in the agri pipe business in the next 6 months?

I think this is too speculative to say whether the pricing elasticity will be seen for the demand on the agri pipes. Normally, it is seen that farmers are doing it as per their requirements of how they see the -- their agricultural produce and how they have the money to invest for such an infrastructure of piping. So we will not like to answer on this elasticity of demand on pipe pricing. We hope that, definitely, the demand will maintain even despite the increase in prices. And at present, it is not seen that there is really a fall in demand compared to last year, particularly for the monsoon demand. So we hope that it will continue like this. And the good crop should definitely maintain the volumes is what is our feeling.

And sir, last question from my side is, how is the closing stock inventory in terms of tonnage that we are carrying? Is it that our tonnage is a decline on a Y-o-Y basis on a closing basis?

Whabiji, you have any answer on this?

No, no, the closing inventory now -- see, initially in the quarter 1, we had reported huge inventory, but now it is at normal level. So in all the plants that we are carrying now normal inventory.

So on a Y-o-Y basis, how would it be as on September 30, how much [ annual ] basis?

Pretty close to what it was last year.

[Foreign Language]. So as a company, we are also not sort of being cautious, and we are also expecting demand momentum to continue. Otherwise, we would have been sitting on a low inventory?

No, no, no. We are not curtailing on our production because on that count. We expect normal pickup in the coming quarters.

The next question is from the line of Chirag from HDFC Mutual Fund.

Can you tell us the PVC, EDC, ethylene and VCM prices for the second quarter and the first quarter of this year, please?

Chirag, the second quarter PVC price was $920, EDC was $267, ethylene $730 and VCM $712.

And the first quarter?

First quarter PVC was $740, EDC $193, ethylene $537 and VCM $516.

And first quarter -- second quarter of the previous year?

PVC was $900, EDC $317.

$317?

Yes. And ethylene $780 and VCM $735.

And second -- first quarter of last year?

PVC $883, EDC $393, ethylene $858, and VCM $718.

And my last question, sir, was, what was the inventory gain this quarter?

See there -- because of the sharp rise in PVC prices, obviously, there was inventory gain, but it is difficult to quantify that number.

Is there a rough estimate as a ballpark, which you could suggest?

Sorry?

Just a rough estimate, sir, in terms of how much it is...

No, no, I don't have that estimate.

The next question is from the line of Ravi Mehta from Deep Financial.

Just one question on the pipe EBIT margin. So sequentially, we see realizations improved by 19% because the fitting mix was higher. So the EBIT per kg, it is trending down for the last 2 quarters, like [ incoming to INR 9.7 in Q1 and now it's like INR 9. ] So how should we look at pipe EBIT margins on an overall basis?

No, sorry, your question was not very clear.

I'm so sorry to interrupt. Sir, your audio is not very clear.

Yes, am I audible now? Sorry, am I audible now?

Yes.

Yes. My question is on pipe EBIT margins. So we saw a sequential rise in realizations, that we should benefit. And we also saw a good fitting mix in this quarter sequentially. But the pipe EBIT per kg when I see number coming off, it was lower in Q1 compared to Q4, it's lower in Q2 compared to Q1.

Yes, traditionally, if you see, Q2 is always lower because of lower volume in Q2. So you will always find Q2 being lower. But if you compare year-on-year basis, you'll see the improvement.

Yes. Sir, last year was very low. So actually, Q4, we did a very good margin of close to INR 10. And then it came off to INR 9.7 with better fitting mix and better realization that it could sustain that so...

More than the mix, it is -- the volumes that play the role of lower shipping margin in Q2.

Okay. So on an annual basis, overall, did we see the volumes picking up because of strong [ lagging ] momentum that we're seeing, what kind of an EBIT you expect the company can sustain?

You're talking about pipe segment?

Pipe segment, yes, of course.

See, we hope that a similar trend will be maintained. Because in pipes, we would not have such volatility that we have in PVC, resin segment.

Yes. So close to 10% EBIT is what you target?

In terms of percentage, it is difficult to say. But see -- if you see in past, it has been maintained at around INR 8 plus slowly improving. So that should continue.

Yes. Sir, improvement to INR 9 should -- is something that one should look at it at the number because we've been at INR 8 at some time. And since the commentary of improving pipe segment margins was visible in last few quarters, so I thought probably what could the...

Sir, so sorry to interrupt, your audio is not very audible. May I please request you to rejoin from a different number and you can come back in the question queue. The next question is from the line of Vishal Biraia from Aviva Insurance.

Sir, my question is on the competitor scenario, specifically from the smaller players and on market share. So could you, I mean, help us understand a bit more on this front?

What are you talking about? Market share?

Yes. Any -- would we have seen any market share gains in the second quarter, and this would have been led by what? And any color on the competitive scenario?

I -- we normally don't have such an elaborate data about unorganized players and organized players shifting. That whether the market shifts from unorganized to organized, that data is not very, very handy to most of the people. We can't comment on this, but definitely, there is expected that during the pandemic, many people in the smaller sector or unorganized sector do not get their operations started so well because of either on labor or on shortage of their credit facility. And that is why possibly there is a shifting that has happened. We can't quantify it's -- how much it must have happened.

Okay. And would you have seen any of the smaller players go out of business or such -- would have such soft temporarily, something of this, sir?

As I told you that such type of thing, the number of players are plenty, every 1,500. So there are 100 people come every year and 100 people go out of the business every year. Such a data is not very well compiled and not available. So possibly, this is more of a speculation that we can say.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, just a couple of questions. Could I have the CPVC revenues and volumes for the quarter?

PVC, do you have a number, Whabi, on EPVC separately?

No, no. I didn't get the question. It is about the EPVC sale, is it?

Yes. CPVC revenues and the volume, sir. You usually share it in the quarter.

No, no. You're talking of CPVC?

Yes, sir, CPVC.

Emulsion PVC, no, or CPVC?

CPVC, sir, CPVC.

No, no, your voice is not very clear. So I'm unable to make out whether...

E for England or C for...

C for Coimbatore, sir. C for Coimbatore.

Okay, CPVC. Okay.

Yes. Yes. CPVC, if we compare on Y-o-Y basis, the volume was 2,056 as compared to 2,284 tonnes last year. So there is a drop of 10%.

Okay. And sir, what is the price hikes that we have seen in October in PVC?

It is like the prices of PVC have gone up. At one point of time during the pandemic, it went down to INR 62. Now today, it is INR 95. So there is a total rise of INR 32 in PVC. During the quarter, it was somewhere around INR 24 up to September end. Now even September -- beyond September, in October itself, another INR 10 to INR 12 have gone up. Now corresponding to PVC prices, the pipes prices have also been corrected. So you can see that percentage price right now.

Yes. Sure. And sir, in your presentation, if I go back a couple of quarters back until 1Q FY '21, your retail touch points that were mentioned was about 18,000 odd. In this presentation, it's about 21,000. So have you consciously added on to retail touch points? Or is it a number which is reflecting something else?

No, it is the addition. It is the addition.

So you have added up...

Yes, we are increasing our reach to the customers through more retailers.

Okay. And this is in which -- any particular segment that we are kind of looking at?

As we said last year also that we are looking at non-agri aggressively. There is -- so one sector we are looking at is the non-agri sector or the real estate sector. So there, we are adding some more. And in general, East and North India, we are still not the strong players. So we are also looking at those areas and geographies. So one is the sector and vertical, other one is the geography.

So this 3,000 kind of a retail touch points is something that you've added in the first half. Is that a fair assumption to make?

Yes, within the last 6 months, you can say.

Okay. And where can we look at this number, say, 1 year down the lane? I'm saying what can be -- can it be like 24,000, 25,000, is that the road map?

I think we are not specific on how much we should be. We are more specific on where and to what extent we can penetrate a market and where we are lacking on the market. So number is not that specific.

Okay. Great. And sir, just a couple of things. In terms of the CPVC and the overall Lubrizol and other things, is there a change in strategy in terms of the credit period that you're offering to the channel and other things? Is there a change there to be more aggressive? If you can just share your thought process there?

I think we discontinued our relationship with Lubrizol from 1st of September. And we have introduced our own Finolex branded products since then. We have consciously maintained our price line. We believe that our brand is equally good, and we will be able to maintain the volumes, or maybe over a period of time, we will also increase our volumes as the market grows. So there is a clear understanding that we believe in our brand, and we believe in our quality equally well. So we are placing ourselves in that strategy.

Sure. Sir, just 1 last question. Are we also looking at the opportunity of water tank?

Water tank, at present, we have looked at, but not necessarily. We are looking at water tank as an addition to this.

The next question is from the line of Maulik Patel from Equirus Securities.

Sir, one question I have. Can you give some outlook on the international PVC price and the way it has gone up? Do you expect some kind of a pullback in that sharp increase, which is again more driven by the supply disruption?

I think it's a little wider question why PVC prices have gone up. It is, again, market forces, supply and demand. But presently, it is not the demand that is limiting in India, it is the supply side. Imports have not been maintaining as per the demand. And normal imports, if you take that the PVC demand is something like 3 million to 3.5 million tonnes, anywhere between that, because of COVID, it could be about 3 million tonnes. And domestic production being only 1.4 million, 1.5 million tonnes, so the imports are supposed to be around 1.6 million tonnes. Now imports are not coming to that level. So the imports are about 50,000 to 60,000 tonnes instead of about 1.3 lakh, 1.5 lakh tonnes. So that [Technical Difficulty] has happened and then the demand is being high, the prices have gone up. Now there are also a lot of people in the international players, particularly in North America, in Westlake or Formosa or even Braskem and some of the players in the east also have also taken shutdown. So Formosa have closed down 2 plants. Westlake has also closed about 1 or 2 plants. Braskem has also closed down. Europe is intra-region trade. So there is nothing that is moving out of there. Northeast Asia, again, is recovering faster. So there is an intra-region trade, nothing more to come here in that sense. And that is where the shortages are seen. And that is why the prices are harder. Whether this will remain in the future for long, it's depend upon how the pandemic unfolds and how the inter-region trade and global trade is restored back.

But sir, for the pipe business, such kind of volatility does impact the volume, right? Such a high price increase will impact volume?

Can't say that at present. This question is how the plastic processors take up that the resin prices have gone up. So how pipes and even other segments of PVC, how they react to this. Presently, it doesn't seem to be that they have reacted very sharply, even though there is a price rise quite significant. But look at the price rise also. Let us not talk about price rise coming from $620. The normal pricing of PVC is about $900 to $950, okay? This is sometimes 10% higher and 10% lower. So it fluctuates between $850 to, say, $1,000. This is where the normal PVC prices are fluctuating. And if you take long-term average, this is where it will be. Now pandemic created the loss of trade, and that is why the prices fell down to $620. Let us not talk about $620 as a price because there was no trade at all. So this was a fictitious price. And then it recovered back to its normal level of $900, same. Now today, what we talk about rise in prices is from $900 to about $1,100. This is where that's there. So it is something like 20% rise that we can see. But 20% rise is not very significant that one should really be thinking that whether demand will contract because of increase in prices. This will definitely correct somewhere or the other as the supply improves. And possibly, it will, again, maintain its long-term average, somewhere around $950 to $1,000. This is what is expected maybe by quarter 3 end or maybe by January, February, that quarter 4.

Okay. Okay. Sir, I just want 1 more thing. Sir -- Whabi, sir, can you give the CPVC revenue number? You have given the volume number for this quarter?

CPC -- CPVC revenue was INR 64 crores during the quarter.

Yes. And sir, in this quarter, the overall pipe volume declined by 9%, but where the fitting volume had a single-digit growth, right?

Yes.

So does that mean the agri proportion was lower and the volume -- the non-agri proportion was higher?

Yes, you're right.

Sir, what could be that number, if you try to quantify that numbers in terms of...

See, overall drop was 9%. So agri was a little more than 9%. In non-agri, there was no shortfall. In fact, there was marginal growth.

Okay. Okay. And sir, last 2 quarters -- if I see last 3 quarters, our pipe margins are consistently increasing higher despite -- even if you look at in the first half, the pipe volume is down by 31% or so, the margins are trending higher. What -- I think there could be a combination of factor in cost-cutting or the better pricing or the mix is changing more favor of this one. And historically, you have talked about that margin we want to see higher from that, whatever, 8.5% kind of EBIT margin to 10% or 11%. Are we putting in sustainable more efforts to increase this number? And how?

If you see numbers for past few quarters, obviously, this is evident. So that is what we are trying.

But sir, I think, is this sustainable? Because, see, even in these couple of quarters, you see that agri volume was significantly lower, which is again a low-margin business, you were up and down on the advertisement and this other like incentive or the dealers incentives and all has not been there. So probably will this reverse back to the normal? Sir, my idea is that...

No, no. See, if we talk -- you know that agri is almost 70%. So obviously, the better realization has played a role in agri also. So that is why overall, there is some improvement. So it has happened in all ranges of pipes.

The next question is from the line of Sonali Salgaonkar from Jefferies.

Congratulations on a great set of numbers. Sir, my first question is, again, an extension of the earlier question that PVC resin volumes have grown very well, while the volumes of pipes have degrown. So any particular dynamics which is playing out in both of these segments, which is divergent?

Actually, see, the pipe volumes we know in quarter 2, they do decline. Year-on-year, we see a drop because the demand was not so good. But in case of PVC resin because of supply concerns, the demand was very good. So there was a demand pull. That is the only reason.

I understand, sir.

And one more thing I will tell, last year, the monsoon was delayed. So the first month of the quarter 2, July, I think there was a good pipe sales up to 15th of July. And this year, monsoon started in June itself. And that is why this quarter, you will see that the demand of agri pipe has gone down. But that is the demand normally in the monsoon season. So that comparison because of monsoon is a little bit shadowing that last year we had a better volume.

Understand. Sir, my second question is on a broader vision of the company. So last quarter, we had mentioned that we are aiming to improve the non-agri mix or the plumbing mix by 40% -- to 40% over the next 3 years. Sir, any particular steps we are taking in that direction? Or what is our vision in terms of what we would like to change to achieve this 40%...

Madam, last time itself, we told what we are doing, particularly, we are focusing on agri segment verticals, in individual verticals of SWR and indoor piping and outdoor piping, and also looking at exclusive distribution channel for some of the city areas. Giving the numbers now, in quarter 1, we had non-agri to agri ratio on the volume side was 15% to 85%. Whereas in the quarter 2, we had 38% to 62%. So in the quarter 2, definitely, the agri pipes are less but at the same time, we have maintained non-agri. So there is a growth that we can see in non-agri sector. And in the volume-wise, we are 38% of non-agri in quarter 2. Whereas in the value-wise, we are 46% of -- on agri. So there is some kind of a change that we see between the composition of our piping segments.

Got it, sir. Sir, my last question is on the sustainability of the margins. We understand that PVC, EDC spread is key monitorable. But from the current trend that you mentioned that even during October, we are continuing to see INR 10 to INR 12 per kg increase in the domestic PVC prices. Do you foresee this kind of resin margins to sustain at the peak levels for the next few quarters, at least?

I think this is difficult to say. As I told you that there is presently a supply constraint on PVC resin, so the prices have hardened. As the supply improves, possibly these margins will not remain. The long-term averages of EDC to PVC delta about $550 to $600. And this will definitely will be maintained. So at times, the supply/demand positions definitely play a role, and it goes to $500, but it can go to even $650 to $700. Presently, it is high, but it will finally reach to a long-term average, $550 to $600.

One more thing, Sonali. As we mentioned, we have to look at the other side also the EDC prices also because of supply constraints have hardened from about $300, they have crossed $430. And EDC is difficult to come by in the next few months because chlor-alkali industry is also not producing caustic soda because of poor market conditions.

The next question is from the line of Kashyap Pujara from Axis Capital.

And congrats for a decent set of numbers, Whabiji and Sanjay bhai. I had 2 questions. First is regarding this PVC pricing that you mentioned. That it has normalized to long-term averages and currently it's $1,100. Can you just clarify, China has a lot of capacities which are idle in PVC, which are mainly made through the limestone route versus the world, which is kind of using the ethylene route. And typically, if I remember right, they get kind of viable once pricing moves above $1,100. So are we seeing any supplies coming in from China at this point in time? What is the kind of status on some of those stranded PVC plants in China commencing operations?

I think as we discussed last time also that petroethylene versus the carbide route. And carbide route is not environmentally friendly, and China has stopped that, particularly over the last 2 to 3 years. And that is how there is a short supply coming from carbide route. They have still not started that route in an aggressive manner. And they are also depending on more on the ethylene route. And that is why, as you were thinking that definitely carbide route can replace the shortfall on the ethylene side -- ethylene route, which is not happening yet.

Sir, which means that prices still have upward momentum as long as the force majeure shutdowns continue?

That is 1 part. But secondly, as Mr. Whabi has also said that people are looking -- there is different dynamics apart from that. One is the caustic chlorine industry, where caustic is very, very soft today, and there is no demand because of aluminum...

Because of aluminum, no one is kind of spending on aluminum at this point in time.

Yes. So caustic is running at $250. To make EDC, you require chlorine and ethylene. And then if you have to have chlorine, you have to make caustic, and there is no demand for caustic. Nobody wants to store caustic like that. So that is how chlorine -- caustic chlorine industry is running at lower operating rates. And that is why EDC is short. And EDC is short, and then people are having the raw materials for VCM and PVC. That is one sector. Secondly, ethylene is also remaining soft because there is a glut in the market for polyethylenes. And most of the crackers are configured for polyethylenes from -- based on ethylene rather than on EDC chlorine basis, okay? So once EE is softer, there is no incentive for people to have higher operating rates on ethylene also. And that is why people are taking shutdown. They prefer to take shutdown, let the pandemic be over and then let polyethylene prices recover, and then they start cracking more aggressively. And that is why you will see Formosa, Westlake or even in Europe and Braskem and other people, they're going for a shutdown on -- long-term shutdown, maybe 2 months shutdown, which is not a normal maintenance shutdown, it is more like a business shutdown. And that is why you will find both raw materials for EDC, particularly chlorine as well as the ethylene which are not very lucrative. And EDC becoming short, there is always shortfall on PVC. I think this is correcting itself. The shutdowns will be over by November end or mid of November. And we will see some more action coming on PVC side.

Sure. That's helpful. Finally, on the question regarding CPVC, while the -- we've not renewed the arrangement with Lubrizol, it's made a lot of sense because we are selling on our brand. But have you kind of maintained the pricing in the market for a CPVC product? Or have you kind of reduced the prices after the Lubrizol tie up has been ended?

I think Whabiji, we answered this question, right?

Yes. We have maintained the prices. We have not reduced the prices after we introduced our own brand in the market.

Sure. And so the next and final question is that how much margin expansion can we look forward to? Because today, you are buying a higher cost volume and now you might be buying a resin and doing your own compounding. So, A, you're buying it cheaper; second, you're adding 1 leg here. So definitely, there should be margin expansion. So can you just say in percentage -- in number of basis points, if you don't want to give absolute...

No, there is definitely an improvement. But since the volume is so small, it doesn't affect significantly the total margins.

The next question is from the line of Sneha Talreja from Edelweiss.

Congratulations for very good set of numbers. My question -- most of the questions are answered. Just 1 question regarding CPVC, which you've already answered, but just an extension to it is, sir, there was in anticipation in the market that you would be taking a price drop after Lubrizol deal. Since you have not done that, what is the feedback that you're receiving? And do you plan to do this now after maybe looking at the response? Or what's the aim in that case that you will be looking at the volume growth?

See right now, there is volume, there is pickup, so we do not intend to act presently. But in the future, if we do feel we may correct the prices to an extent. So that will be a business decision. But strategically, there's no reason that prices need to be corrected.

Right. Why I'm asking this is because I just wanted to correlate this with your vision of growing in terms of non-agri pipes. And with this Lubrizol deal coming off and now your focus increasing furthermore with the distribution expansion, I just wanted to know what is it that you're looking at with respect to only CPVC, let's say, in terms of volume growth?

We still look forward to the volume growth. We have a capacity of about 20,000 tonnes, and we presently are doing about 10,000 tonnes a year. So we definitely want to grow in that segment. And we'll ensure that in coming years, the volumes do grow.

Sure, sir. That was helpful, sir. And sir, can I actually get revenues for last year same quarter. You said INR 64 crores for this year, what was last year's...

INR 68 crores.

INR 68 crores?

Yes.

And sir, last year, volumes, you said, was 2,084?

Last year, volume was 2,284.

The next question is from the line of Chirag from HDFC Mutual Fund.

Sir, a quick question on the other income, which is higher this quarter year-on-year. So if you could just help us understand why that was?

This is actually a couple of reasons: one is, of course, with our surplus -- cash surplus, there's earning for that; then apart from that, we did earn a little higher dividend from Finolex Cables; and third was there was a foreign exchange gain during the quarter, which sits in this other income.

And how much was that?

Foreign exchange gain was about INR 7 crores.

And in the previous year, what could be the comparable number?

Previous year, there was no gain. In fact, there was some loss, which was reported as costs.

The next question is from the line of [ Vipul Shah from Sumangal Investment. ]

Congratulations for a good set of numbers. My question is regarding this scrapping of Lubrizol deal. So can you comment further, why we decided to terminate that relationship? And what gives us confidence that our products will be well received in the market?

I think it was a business decision more than of any relationship. We have excellent relationship with Lubrizol even now. The business decision was that we can improve margins because of the raw materials. If we use our own compounding, we will be saving some cost there. And that is how we saw that our branded products are equally accepted. And with a lower cost of production, we will have improved margins. This was the major decision.

And sir, I just wanted to check, you said volume-wise, non-agri was 38%, and value-wise, it was 46% in this quarter. So have I heard you correct? Or there is some...

Yes, I think you are right.

All in the Q2s -- Q2, normally, the volume of agri is much smaller. So it is always so.

Okay. All Q2 agri is less, right?

Yes.

The next question is from the line of Ritesh Shah from Investec Capital.

So my first question is on the presentation, we do make a mention of cost-saving measures. Can you highlight what these are? And what part of this is sustainable going forward?

Ritesh, your voice is not clear. But as I understand, see, we told last time also, the cost reduction is on account of reduction in some discretionary costs. So obviously, because of those conditions we decided to curtail some costs, and that is what is being seen in the numbers.

Sir, is it possible to quantify how much was that?

No, no, there are a number of items, so there is reduction in traveling costs. There is reduction in communication costs. There is reduction in marketing and marcom costs. And obviously, there is some reduction on account of lower volume in PVC pipe segment also. See, PVC pipe segment, the production volume was lower, so to that extent, the costs are also lower.

Okay. Sir, secondly, you did indicate about CPVC, we are maintaining the pricing, but would it be possible for you to quantify how much is the differential on CPVC pricing versus PS before and after...

No, no. So see, we are in the market, so prices always remain close to each other. We can't have a large differential with the market.

Right. Sir, what I'm coming from is, given other costs would have come off, we always have an option to reduce and lower our prices up to actually chase larger volumes in the marketplace. I think that was a broad expectation of the state given Finolex is a very strong brand. So is it that way, one should look at it? Or are we choosing...

Ritesh, that's what I mentioned earlier. This will be a business decision. We would keep on looking at volumes that we achieved and the possibility of gaining higher volumes. So we may take, but right now, we are maintaining the price.

Okay. Fair enough. And sir, last question, CapEx plan for the full year. Any changes to that?

No, no, no. See, we said we had earlier budgeted about INR 100 crores. But then as the year progressed, we tried to defer some of the decisions. So CapEx will not be large.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, just continuing on that question of CapEx, we almost have a surplus in excess of INR 400 crores as we speak. And also, there's a fair amount of cash generation that you're doing. So the whole addition of retail touch points into north and east, which Mr. Sanjay spoke about, will that also be, at some point in time, be looked at with capacity addition, how should one look at it?

See, obviously, as we exhaust our capacities here in the existing plants, we will have to look at some capacity additions in the future.

Yes. But there is -- is there a time line to that, I'm saying, in about 24 months, 36 months, is there a thought process there?

Yes. There is a thought process. So obviously, in 24 to 36 months, we will have to add capacity.

Okay. Okay. And sir, in terms of -- if you can just help us understand how is Plasson doing for us?

Plasson, if you see, it's roughly about INR 400 crores turnover company. So continues to do in the same -- on the same line. So there's nothing -- no major change.

Okay. And what about margins and other things? Because a couple of players have vacated the market. So any improvement in margins or anything over there?

Slight improvement, but nothing significant.

Okay. Okay. And sir, just 1 last thing. If you can also help us understand that how have CPVC pricing overall, not because the Lubrizol, but at the marketplace the way PVC prices have moved up, how has been the movement in CPVC pricing?

See, normally both on input and finished good side, the CPVC prices do not move as much as the UPVC prices. Mainly -- since for CPVC resin sourcing, there are annual contracts where the dollar prices are fixed. The CPVC prices for finished goods only change because of rupee-dollar movement, if there is significant. Otherwise, relatively, their prices are stable.

Okay. Okay. So you've not seen much of an increase in the CPVC prices is what...

In fact, during this period, there has been no increase.

The next question is from the line of Akshay Satija from Alpha Invesco.

Sir, my understanding was that we have a CPVC capacity of 20,000, column pipes capacity of 8,000 and fittings capacity of 30,000 and the rest is agri. Is that understanding right?

No, no, no. See, all the capacities in the pipe plants are generally fungible. For CPVC, only the screw and barrel needs to be changed. And on that capacity, the other pipes also can be produced.

Okay. Okay. So could you give us some sense in terms of what's the -- so are you saying that agri and non-agri can be manufactured in the same plant and there's no such segment capacity in it.

Yes.

Okay. Okay. Got it. Got it. Sir, my next question was related to the fitting versus pipe margins. Could you help us -- or the difference between realizations and margins, not exact numbers, but just in terms of percentage what's the difference?

See, overall margins, if you see, that we get 8% to 9%. Now agri pipes -- in agri, the fittings volumes are much lower. And margin in fittings is better than the pipes, and non-agri pipes also have a better margin. So while 70% of the business that we do would have a margin of a little lower than 8%, while non-agri would have a little higher. And within non-agri also, CPVC has much higher margin compared to other pipes.

Okay. What would be the fitting margins, if you can just quantify that one?

It is higher. So it will be somewhere in double-digit numbers, close -- low double-digit numbers.

Low double-digit number, okay. And sir, what's the general duration price in -- for CPVC?

Reason for that also is because the investment also are higher in the fittings business.

Okay. And we actually outsource our entire fittings business, right? I mean, we have specific companies which set up their business for that?

Yes. Exclusive for us, yes.

Yes. Okay. Any plans in terms of setting up on our own or...

There are plans, but still on the drawing board.

Okay. Okay. Sir, last question, if you could just give me what's the CPVC resin price? And where do we actually import it from? So up till now, we were doing it in Lubrizol. So what's the plan ahead?

There are many, many suppliers, not only one. So we...

Sir, what could be the...

We [indiscernible] component as well as domestic components.

Okay. What could be the CPVC resin price, if you could use per tonne on...

I think it depends upon the suppliers this one, but they are somewhere around INR 150 resin price.

INR 150, is that right?

Yes. INR 150, INR 155.

Okay. This is rupees or in dollars?

I'm talking about rupees.

The next question is from the line of Karan Bhatelia from AM Securities.

Yes. All my questions have been answered. Thank you.

The next question is from the line of [ Shanti Patel from SK Investments. ]

Sir, I just wanted to know where our company spends in the industry in terms of profit and the turnover? And who are our main competitor, main 3 or 4 companies?

I think there are 6 large pipe fittings company. Finolex is one. Supreme is second. Jain Irrigation is third. Then there's Astral. There is Ashirvad. And there is Prince. These are the 6 large organized sector pipes and fitting companies.

Correct. And where we stand in terms of profit and in the industry?

I think everyone has its own unique position. We don't see that -- there are some players who are good in non-agri sector. There are some players who are good in agri sector. So comparing each other is not a right way of doing it because the composition of agri to non-agri varies with each player. Their sizes are different. Their volumes are different. Their investments are different. So...

No, I understood. Because it is not comparable, because it is not identical proportion of non-agri and agri.

Exactly.

The next question is from the line of Chirag from HDFC Mutual Fund.

Sir, a quick follow-up. You mentioned that non-agri is 46% of revenue. I missed the percentage by volume?

38%.

And what would that have been in the previous quarter FY '20?

See, I don't have the number for last years. But this ratio is favorable for non-agri during the monsoon because agri is down. And we are strong on agri. And so as the agri picks up, the ratio will fall down [Technical Difficulty] non-agri.

And sir, for the full year, is there a big difference in margin between agri and non-agri, because, as you said, in agri, you have less fittings and the fitting margins are higher. But you obviously have a volume advantage and you're very strong on the agri side. So on a net-net level, when you look at EBIT, is there a significant difference in EBIT between...

In general, yes, non-agri has better margins than the agri. One thing is there, the composition of fittings to pipes is also higher in non-agri because it is -- indoor piping requires more number of fittings than... [Technical Difficulty]

We're requesting participants to please stay on line, we are just trying to reconnect the management back to the conference. Requesting all of you all to please stay connected. Requesting participants to please stay connected, we have the management speakers on line. Sir, we have the question from the line of Chirag.

Yes. So I was talking about the margins. In general, non-agri has better margins, and they have a more composition of fittings to pipes ratio compared to agri pipes. And this is the difference between the 2.

Right. And to what extent is that difference be?

Normally, agri price is around 6% to 8% of fittings. Whereas in the non-agri pipes, it could be double digit, around 14%, 15%.

This is the fittings contribution, not the margin contribution?

Yes. So fitting composition is more in non-agri, as I said, 14%, 15%...

The next question is from the line of Achal Lohade from JM Financial.

Apologies, if I'm kind of repeating the question. My question was, A, in terms of capacity, what is the current utilization? And do we have any plans to look at greenfield capacities in the eastern or the north part of India?

I think I will -- we will be looking at it. This is a cyclic business, particularly based on the agricultural piping contributing more in our business. So the capacities utilization is low in -- during the monsoon period, and capacity utilization gets limited in the non-monsoon period when the markets are good for agri. So the overall capacity utilization remains around 75%, which will be 50% during monsoon and maybe 100% during the peak season. The capacity addition is also looked into whether we have make or buy decisions. Now whether that is beneficial to us? I think we make those decisions purely on business basis. Whether we make it in the geography or we subcontracted from a particular vendor. That -- those type of decisions will be purely business decisions.

Right. At this point in time, how much would be the subcontracting contribution to our pipes division?

Somewhere around...

In pipes division, it will be about 10%, 12%.

Understood. And would you be able to kind of talk about the regional mix? As in how much would south, west, northeast would be contributing to our pipes revenue?

I think we are very strong on south and west. South about 38%, west about 34%, and rest of it is north and the east.

Right. And just last question, if I may, sir. With respect to non-agri business for pipes, specifically, how much is the overlap? I mean, do we require to kind of have a separate line of distribution for the non-agri business? And where are we in terms of the execution of that?

I think we are working on that. As I said last time also that we are working on such of the things. And it is under implementation. Slowly, we are moving in that direction.

[Operator Instructions] The next question is from the line of [ Rahul Soni from Smiths. ]

Hello?

Hello.

Yes. Sir, most of my questions have been answered, sir. Thank you.

Okay. Thank you.

The next question is from the line of Shreyas Bhukhanwala from Canara Robeco.

Just 2 questions. On the region-wise, any specific regions seeing much better demand compared to other regions?

I think even the region-wise, if you see that south is definitely the highest demand. The next one is north. The third one is west. And east is less. East is about 15%, south is about 35%, west is about -- north is about 25%, west is about 22%, 23%. South is having both agri as well as non-agri demand. North is mostly non-agri. East is weak in both. And west is good in agri. So every player has its own geography and own segment to operate on.

Sir, basically, I was asking on the current demand, as in which regions are seeing better demand?

We can't say that, particularly in the sense because agricultural demand is different in different sectors. And presently, real estate sector is not doing so well. So I can't say at the present how the demand is shifting in the 2.

Got it. Sure. And sir, what we are looking at is -- what you said earlier, you are looking at flattish kind of likely volumes in FY '21 on pipe segment, right?

Yes. Last year, we made about 254,000 tonnes. We should be around 250,000 tonnes. This is what we are looking at.

Sir, and any sense on how October has been -- I do understand it's just 25, 27 days, just a month also, but how it has been [ produced? ] More or less, the activity has been similar to last October?

Yes. Last October was not so good, so don't compare with that. Last October was monsoon and flooding all over. So it's not very good. Compared to September, definitely October is good this year.

The next question is from the line of Karan Bhatelia from AM Securities.

Sir, how is it is shaping up in Haryana, Punjab and U.P. because we are seeing a lot of farmers protesting against the farm bill. So how are things shaping up there? Hello?

Yes. I can't hear you.

Hello?

Hello, we lost you in between. Can you please repeat?

Yes. Sure. Sir, in last couple of days, we are seeing a lot of protest from Punjab, Haryana and U.P. over the farm bill. So how do you see that situation for us? How has the demand shaped up, especially in these 3 states?

I think you're not audible. I can't hear anything. Whabiji, could you hear it?

See, I don't think...

Yes. Can you hear me now?

No, no. Those protests will not have any impact on the demand for pipes.

Well, members of the management, are you'll able to hear Mr. Bhatelia?

I think the voice is cracking for me. Maybe...

Am I audible now?

Yes, sir, you are audible on the audio call.

So can I repeat the question?

Yes, sir. Could you please repeat your question.

Yes. Sir, we've seen farmers educating against the farm bill, especially in 3 states, U.P., Punjab and Haryana. So any impact on the piping side? And how is the scenario now?

No, there will not be any impact of such projects because these are not related.

Hello. My line has gone bad. I'm not able to hear anything. It's breaking, voice is breaking, yes.

Okay. Sir, just allow me a minute. I will just call you back. Just allow me a minute. Well, ladies and gentlemen, requesting you all to please stay connected, we are just trying to reconnect the chair person. Requesting all participants to please stay on line. [Operator Instructions]

It's okay now. Yes.

Okay. Just allow me a minute, I'm just trying to reconnect Mr. Whabi as well. And then we can proceed with the next question. Mr. Whabi, are you able to hear as well now?

Yes, I am able to hear.

Okay. We take the next question from the line of Soundarya Venkatesh from ithought Financial.

Sir, there are a couple of questions. So as an industry, where are we heading towards in terms of products, like UPVC, CPVC, HDPE? Where is the industry moving in terms of product?

Hello, I think we lost you again in between.

Okay. Hello. Can you hear me now?

Yes.

Sir, where are we heading towards in terms of industry towards which products the industry is moving, let's say, UPVC, CPVC, HDPE, where are we moving?

See...

Actually, every product has its own unique selling proposition and application. CPVC is good for hot and cold water and drinking water. UPVC is a general piping segment application coming from agricultural, irrigation product, bore well products and some of the sanitation and drainage products, okay? So UPVC gets application there. In terms of HDPE, has many other unique features, which make them application in oil and gas. When they have corrosion resistance, they're good. Also what an application for large-size public utility, water piping and also good for gas distribution in the cities for fuel gas. And -- so there are definitely different applications where in a certain polymer has a better market. So it is not a comparable thing that whether UPVC will grow, whether CPVC will grow and whether they will substitute each other. Depending on the application growth, the growth of that particular resin will also grow. For example, just to give you, HDPE prices today are almost comparable with UPVC prices. As we've seen that the PVC prices are hardening further and you don't see that migration of piping to HDPE from PVC to the extent that the prices would have justified. So it is not the pricing, it is not anything, it is the application characteristic of a particular resin which defines its market application.

Okay. Sir, my next question is in non-agri pipe, let's say, in building, what is the total amount of money that is spent on piping, plastic pipings per building? Like, do you have any ballpark numbers?

I can't get to your question because the voice is breaking. But Whabiji, could you hear any?

No, I couldn't hear the full question.

Can I ask it again now?

Yes.

Sir, in non-agri pipes in buildings, what is the amount of pipes that is used for building volume?

No. Of course, it will depend on the size of the building. So it does vary. But in any building, the pipes value is treated as a [indiscernible] cycle for any building.

Okay. Sir, my next question is, I know that fittings have better margin as compared to pipes, but what is the difference in the margin for fittings and pipe in number?

Yes. I mentioned this earlier. Fittings is close low double-digit number, while pipes is about 8%.

The next question is from the line of [ Anand Jain, individual investor. ]

I just wanted to understand the opportunity that exists for us in this entire government initiative of Jal Jeevan Abhiyan all for the organized players?

Which Abhiyan, for you're saying, Jal?

Jal Jeevan Abhiyan, the central government initiative for tap water for every house.

Nal se Jal, [Foreign Language] that is what...

Nal se Jal. Yes. Yes. What kind of a...

So Nal se Jal is a government program. And it will have different, different sectors to operate. First thing is public utility piping, which is coming from a long distance to the cities, then city distribution piping and then it will be the last end piping going into the houses. So we -- the market for large size piping will be captured by maybe HDPE, maybe DI or maybe OPVC. The market for the large piping will be again UPVC. So see, there are different, different applications for different, different purposes.

So we have an opportunity for us at some point of time in this?

Yes, we also look at these opportunities. And there are programs which are driven by the state governments, actually. And then there are tenders and biddings going on. We supply through our channels.

Okay. My second question is, sir, we have seen that one of our competitors on the agri side, Jain Irrigation, is in some kind of financial problems. So do you see that we will be gaining market share against them in due course of time? Can you just highlight this on the agri side, how do you see this as volume?

We can't comment on somebody else's market share because they are still operating and how much they have lost and what is really happening. We can't say -- we look at our own self in terms of total market and what is our market share.

Has it changed on the agri side? Because Jain used to be a dominant player all across India, Jain Irrigation. So do you see our market share rising on the agri side significantly because I mean...

Jain was at the last and also in micro irrigation. So there were more on sprinklers and micro irrigation projects, which were contributing more on their revenues. On the irrigation piping, yes, they were -- their particular part of irrigation piping versus micro irrigation, we don't have that number. But at the same time, we are not in irrigation products ourselves. So we are only in -- on the micro irrigation products. We are only on the upstream irrigation products.

But we have an associate/subsidiary, which is into micro irrigation, right?

Yes. Finolex Plasson is our macro irrigation norm, they are doing that, so.

So they are taking some market share is what you could assume?

We hope so, that if Jain Irrigation has completely stopped, then only -- but I don't think they have stopped completely.

Okay. Sir, last question from my side is, what is the capacity utilization right now? What was it last year? And what was it in the last quarter, both on the pipes side -- pipes and on the [ listing ] side?

Capacity -- installed capacity is almost same.

Capacity utilization level?

Capacity utilization levels, as I said earlier, also about 75% overall year-on-year.

But in Q2, it normally falls to less than 50%, and so it is this year also.

So this is both for resin or for just pipes? I'm for asking for resin, also?

Resin is full, 100%. So resins has never operated on this demand -- cyclic demand. Resin is full capacity because beyond piping application, there are various other applications for resin, for which our resin can also go.

Okay. Okay. So resin is at 100% and piping is at around 75% right now?

Exactly.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ritesh Shah for closing comments. Over to you, sir.

Yes. Thanks, Janice. Thanks, everyone, for joining on the conference call. Whabi sir must have any closing remarks from you?

Nothing, Ritesh, at present.

Great. Thank you so much. Thank you all for joining the conference.

Thank you all for participating. Thank you.

Thank you.

Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you all for joining. You may now disconnect your lines.