Finolex Industries Limited (FINPIPE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Finolex Industries Limited, hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Shah, Head Mid-Market Coverage and ESG at Investec India. Thank you, and over to you, sir.

Thank you, Rutuja. Thank you all for joining Finolex quarterly conference call. We have with us Mr. Sanjay Math, Managing Director; and Mr. Anil Whabi, Chief Financial Officer; and Mr. Niraj Kedia, Deputy CFO, with us for the call. I'd request Math sir to start with the initial comments, post which we'll have a Q&A session. Over and thank you so much, sir.

Thank you, Ritesh. Good morning to all of you. I welcome you all here to the investor conference call to discuss the Q2 FY '22 earnings. Thank you for your continued interest in Finolex Industries Limited. The company has once again reported a robust set of financial numbers. EDC prices are continued to be at all-time high. The demand scenario is also good, which is a positive sign for further market. There are -- there has been outstanding improvement in all of our operating parameters. Let me give you some performance indicators for the Q2 of the financial year 2022. So the highlights. Total income from operations was INR 1,082.95 crores for quarter '22, up by 84.9% against INR 585.55 crores in Q2 '21. Volume in Pipes and Fittings segment grew by 27% to 55,453 metric tonnes in Q2 '22 against 43,618 metric tonnes in Q2 '21. EBITDA stood at INR 301 crores for Q2 '22, up by 108% against INR 144.76 crores for Q2 '21. Profit after tax is at INR 235 crores for Q2 '22, up by 96.4% against INR 119.72 crores for Q2 '21. Half yearly income, INR 2,048 crores, up by 79% from INR 1,147 crores last year. And profit after tax for the half year is INR 381 crores, up by 118% from INR 175 crores last year. Now getting into segmental performance. EBIT in Resin segment was INR 311 crores, up by 133% last year. And EBIT for Pipes and Fittings segment is INR 57 crores, up by 46% last year. We have a net cash surplus of INR 916 crores as of 30th of September '21. Now let me leave the floor open for the questions. I have here with me, our finance team, Mr. Anil Whabi, and Mr. Niraj Kedia, who will answer the questions on data-related issues and financial issues. So thank you, gentlemen. Let's go for the question and answers.

[Operator Instructions] The first question is from the line of Rahul Agarwal from Incred Capital.

Congratulations for a great set of number. Sir, I had 3 questions. Firstly, to start with, could you give some more color as in what really happened in the quarter in terms of execution? For example, agri mix. Fitting mix is obviously much better versus -- if I compare it last 3 years in the same quarter. South and West recovery post-COVID CPVC. Overall, what did you feel about your execution versus your own expectation? And what went in your favor? That is first question, sir.

So see, from an execution perspective, if you see Q2 I'm talking about Pipes and Fittings, this has been the first time in the history of the company, where Q2 numbers in terms of volumes have more or less been in line or equal to Q1 numbers. Historically, if you see, Q2 is generally a weak quarter because of the monsoon, the pipeline activity is less in the farms, and even construction activity is lower. But this year, with around 53,000 tonnes, we are -- 55,000 tonnes, we are almost neck to neck with Q1. So that way from an execution perspective, I don't know how much you put it in execution and demand. But -- so this has been slightly better than our own expectations. We were hoping for a higher volume any which ways, but this has been good. And in terms of fittings, you already said the ratio has been better. Even in terms of agri, non-agri, because of the lower season for agri products, the ratio of non-agri has, in fact, more improved. It's almost 40% this year -- this quarter, sorry.

Yes, I think I can give you a breakup on agri, non-agri. Year-on-year, 58 by 42. So 58 agri and non-agri 42 for quarter '22.

Got it, sir. And how about CPVC and South and West markets, did that contribute much higher this time around?

CPVC has done well this time. I think CPVC growth is about quarter-on-quarter was 50%, but on year-on-year was 77%. Last year was a pandemic year. So quarter 1 and 2 was pandemic more. So the growth in CPVC on year-on-year is 77%. But quarter 1 to quarter 2, we are 50% up.

That's in terms of volume, right?

That's in terms of volume.

Okay. Got it. Sir, second question was on inventory gain. Could you help with some number? Or was there any inventory gain at all?

Not really. We didn't have much inventory gains. So we -- if you see the resin prices actually, in June, they were down actually. When we last spoke, they had started going down. And August, September, October, these 3 months, the PVC prices are up almost INR 40. But in our case, we don't have much of inventory gains because we anyway carry a lesser inventory. In resin, yes, there is a bit of inventory gain. But in Pipes and Fittings, not really.

Yes, I understand pipes, obviously, you carry low inventory, but I was referring to Resin segment only.

Yes, there is a marginal inventory gain in Resin.

Okay. Got it, sir. Could you quantify that?

Difficult to quantify.

Okay. And lastly, I'm referring to your balance sheet. The other current liability we shot up March over September, it's about INR 600 crores versus INR 340 crores in March. Any specific reason for this?

No, there is no specific reason. I mean these are just normal working capital cycles. They keep going up and down. So there is no specific reason as such for it.

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

Sir, can you give the numbers for the average numbers for the PVC, resin, EDC, ethylene and VCM?

Anil Whabiji, can you give that?

Yes sir. See, for Q2, average PVC was 1,514. EDC was 724, ethylene was 985 and VCM was 1,123.

Okay. So just if I look at last quarter, Q1 to Q2, the spread has gone down. And even on the indexes, if I look at the PVC or EDC, the spread is going down. How that's affecting the business?

No, no. Spread has not moved much during Q1 to Q2, right? That's what you're saying.

Yes. So if I look at your number for the Q1, that was somewhere around $830. Now it's a $790. So -- and even in the -- right now, at the current prices, if I look at the indices, here also, it's -- the spread is lower. So how is that sir?

We got an advantage of the inventory, which we had bought before we closed our jetty in the pre-monsoon period. So that was the advantage we got for this quarter.

Okay. Okay. Got it. And if you can give also the CPVC numbers, sales number and the volume number?

PVC number -- PVC was 55,458.

Mr. Math, he's asking for CPVC.

CPVC.

So CPVC was roughly 3,600 tonnes.

Okay. And the sales number for that?

Roughly 350 crores.

Sorry, say again, sir?

Sorry, roughly INR 125 crores.

Okay. For the quarter?

For the quarter, yes.

Okay. Okay. And on the volume side, because this quarter, the volume had significant improvement in the [indiscernible] observed. So do we believe that after 2 season of a lull period for agri pipe, some kind of a pickup we will see with the season coming in?

So they are both aspects to it. See, one aspect is that because of high PVC prices, there is a deterrent. A lot of people -- because it's a major CapEx for the farmers, so at times -- so we are seeing some resistance from the farmers to do major CapEx. They are doing some patchwork here and there, and they're differing their decisions to do that CapEx. But one set of another farmers who have already deferred this decision by quite a bit. Now we're almost 1.5 years since the lockdown began -- started last year. So they are both aspects to it. So there is some demand pull from the guys who have deferred it beyond a point which they cannot contain, and there is deferral from another set of people who are finding it too expensive right now.

The next question is from the line of Shrenik Bachhawat from JM Financial.

Sir, I wanted to understand your view on when do you think that the global supply issue for PVC will abate. That's my first question. And my second question is that as you have around INR 900 crores of cash, how do we plan to allocate that? Like what is the capital allocation strategy going ahead?

Let me understand your first question on supply for PVC. What is it?

So when do you think that the global supply for the PVC resin will stop and the global PVC resin prices will normalize?

I think today, at present, still there is a supply constraint on PVC. And there is very limited international trade that is happening on PVC. Demand for PVC in India is good and that is why the prices of PVC in India are much higher. Compared to even other places, Indian market is definitely on a higher side. Going ahead, how this will unfold is still a question mark. I think there is pandemic in Europe still going on. I think the recovery is possible in China because they have opened up now for the carbide route. So -- and China is full on carbide route and the PVC available there is there, then possibly the prices may start cooling down and supply will be available. I think that is how we look at it. So there is going to be another...

Hello?

Yes.

Yes, Mr. Math, we lost you a bit there.

Yes. So I was talking about the PVC market. The global trade, as you know, is still restricted. Going ahead, it may improve basically because China is opening up on carbide route. I think the coal supplies are released for carbide. And that may improve the position in China. The prices in China are supposed to be cooling down now. I think you can see the trend is coming down there. But at the same time, Chinese material is still not there in the market. And maybe in time to come, maybe next quarter time, there will be some cooling expected.

Sure, sir. And sir, what is the plan to -- about cash allocation going ahead?

See, we -- as we have been saying, we don't intend to keep a large cash on our balance sheet. So as the time comes, we will have some plans, but nothing right now. So no large cash balance will be kept for a long time on the balance sheet.

Sure, sir. And sorry to repeat the question. Could you please give the PVC average prices for the quarter?

I think we gave you the prices. The PVC price for the quarter, 1,540 net average. EDC price 724. Ethylene 985. VCM 1,123. The spread between PVC to EDC, 790; and PVC to VCM, 391.

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

Sir, first, can you provide some color on EDC, ethylene and VCM. Basically the sourcing or the comfort that we have on sourcing for these 3 key raw materials. And also the resin production was lower on a sequential basis. Was it because of a raw material issue? Or was it a plant shutdown? How should one understand that?

I think you may be knowing that we have contractual agreements for EDC as well as VCM supply. So our EDC route supplies are contracted with most of the Middle East producers. Unless they have a problem in their own plants, I think the supplies are normal. This year, there was a shutdown, possibly all of you know that QVC as well as SABIC has a shutdown now going on, and they have disrupted. But we have covered our supplies on EDC as well as on VCM for this quarter. And there are some other suppliers we have tied up. So alternate supplies have been made, and there is availability of both EDC as well as VCM. So our PVC production from EDC route as well as from VCM route will continue to operate. Now your question about the last quarter, there was -- at the beginning of May -- in the middle of May rather, on 16th of May, there was a cyclone which was called the Tauktae cyclone, passed through the Western Coast of India. At that time, our seasonal shipping was to end. So the last ship of ethylene was canceled only because of this cyclonic condition. And that put down our supplies for EDC route. And normally, we don't operate VCM route during the monsoon. And that is why you may see up in our PVC production, because VCM route is closed down as well as the EDC route was short supplied on ethylene. And so you have seen this drop in our PVC production.

That's very useful. Sir, my question...

And Ritesh, plus, generally, we have a planned shutdown in the third quarter. So this year, because of the breakdown, we had pushed that -- the plan earlier. So there was a bigger gap. But this plant shutdown, which was earlier for Q3, now that will not happen. So there will be some offset there.

That's quite comforting. My second question is, sir, how should one reflect on the resin prices. You indicated it was $1,549 for the quarter. What we understand is in China, there have been caps on coal pricing. And because of that, as you indicated, most of the production is via carbide route. So the cost curve over there will come down. So do you expect some softness in resin pricing? And if I have to break this question further, do you think this is a problem on back of supply? Or is it back -- on back of freight issues? How should one understand it? So if it is $1,549 is it possible for you to break it up the freight cost and the FOB charges? Just trying to get some sense on where it can actually normalize.

I think, Ritesh, let us understand this business in some other way around. The prices are also reflected on the raw material prices. So the delta normally is maintained between PVC to VCM as well as PVC to EDC. At present, when the prices are going up, the prices for the raw material supplies also go up. So the question is not the, per se, what is the resin price or the future price? How much is the delta that will create the business in? And that delta normally is the business for the suppliers as well as the consumers, and the delta is normally maintained. So sometimes you will get a higher delta because there is a phase lag. But sometimes you may be seeing that when the prices start cooling down, possibly this delta may come down, but it will finally settle down to a level that it is useful for the PVC producers also. So that is one part. The second part is on the coal. Coal prices, if you have seen before the monsoon, they were around $50. Today, they are going up to about $120, $130. Now this is the price change that has happened on coal. So that is not that the coal prices have been capped. It is the international coal prices are way high than what they were last year. Now to some extent, those who have got coal available internally, they may keep the coal prices for their own suppliers. So domestically, China may try to give coal at a price which is not at the international price. At the same time, it may not be so reflective that whether that price is going to bring down to a very large extent, the PVC prices. I think as such carbide route is high energy consuming as well as it is definitely costlier than the normal ethylene route. So how that will reflect in a longer term and what will be the parity of ethylene route versus the carbide route, that only some time will tell us. To some extent, the availability of PVC will be more in China. So there will not be a PVC trade, which is coming from Northeastern Asia, going to China, which will be -- possibly be diverted somewhere else. So the availability coming to India may be a little higher. The cooling down will depend upon present supply conditions. At present, it is a supply constraint, which is increasing the prices in India. So if the supply improves, that possibly will change the pricing mechanism. But at the same time, when the prices of PVC cool, the delta also will start moving down, but it will be a temporary phase. The equilibrium will be immediately restored to the level that the PVC producers also have the similar margins, which are there, which will be at the long-term margins of the average of last 5 years there.

Sure, sir. And sir, last question. Sir, is there any shortage of PVC or CPVC in the local markets? Based on our understanding, when we interact with the market, we understand even the larger players, they are suffocated on CPVC volumes. In fact, a few large players have actually even taken shutdowns. So how are we placed? I think PVC will be least of the problem for us. But if you can detail on how the CPVC market is. And on the PVC side, is there still a gray market premium wherein one can get comfort that the current prices will, at least given at the current levels until March based on the import shipments, which are happening by the larger players or by the industry.

Okay. I think the CPVC market in India is somewhere around 160,000 to 200,000 tonnes. Unfortunately, there is only 1 -- 2 CPVC producers, 1 is Lubrizol, 1 is DCW. DCW has a capacity of 10,000 and Lubrizol has a capacity of 50,000. So only 60,000 tonnes are local-made CPVC. Out of, say, around 200,000 tonnes, which is a demand in the market. Even if we give the factor for pandemic, the demand is about 150,000, 160,000 tonnes. And there's local supply of 60,000 tonnes. So most of it is coming from abroad, and it is import. Now import, as you know, is presently disrupted because of various logistical problems also. And that is where the problem for CPVC shortages is arising. There is no immediate solution at present, but, yes, CPVC will restore to the level. But once the logistical problems are resolved, I think CPVC supplies will also resume. Some of the producers in India have problem of shortages of CPVC. Somehow, we are able to maintain our supplies. We have diversified our alternate sources, and we have been able to maintain our production so far. I think going ahead, there is a challenging position for all of us. It is not that we will be only saying that the other producers are not able to do and we are able to do. I think the challenges are similar. And maybe our diversification of supplies will maintain us through the next quarters.

And sir, on PVC price gap between what the current prices are versus the import shipments, which have been booked by the larger players in the industry, I think still there's a wide gap. How should one understand this?

I didn't get you. What is a wide gap in what?

So what we understand is the larger industry players, the shipments what they have been importing, it has been at $1,900 to $2,000-plus, vis-a-vis to the current Reliance prices in India, which are quite low. So sir, how should one read into this? Like as you explained on CPVC, there is a supply issue, which is there. So even on PVC, is the supply issue that acute?

PVC supply issue is acute. The demand is there and the supplies are limited. The imports roughly should have been about 130,000 to 150,000 tonnes a month, which are not happening. And their domestic production cannot go up beyond, say, 120,000 -- 130,000 tonnes. So total demand could be around 250,000 to 260,000 tonnes. Out of that, the import component is coming down because of logistical problems and the supply constraints. And that is where the supplies from the imported prices are going up for India. Because demand is high, supply is limited. Now the question is whether there is a parity between the import price and the domestic prices. I think more or less the domestic prices are trying to follow the international prices, the import prices. So there is a time gap and they're a little lower than the imported price. This is definitely better for the local producers also that the domestic supply is a little cheaper than the imported price. And that is why you will see there is an -- open market price is higher than the actual list price of the domestic suppliers.

The next question is from the line of Rajesh Ravi from HDFC.

If you have shared the CPVC volume and revenue for the quarter, please?

We've already shared, Rajesh.

Yes. If you could, I missed the initial comments.

So CPVC volumes for the quarter was roughly 3,600 tonnes and in terms of revenue, roughly INR 125 crores.

INR 125 crores. And volume, you said 3,500.

3,600.

3,600, okay. So good pickup compared to earlier months. Okay. And the fitting, sir, revenue?

Sorry.

Fittings revenue?

So fittings, roughly INR 200 crores.

And last year, same quarter, it was how much, sir?

Roughly INR 100 crores. INR 110 crores.

INR 110 crores.

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

Most of the questions are answered. Could you just give the current trend of PVC, EDC and resin prices?

Yes, we have said these numbers twice. It will be uploaded in the transcript. You can take it from there.

No, you want the current, Sneha? You want it current, right?

I wanted current, and I think you mentioned the quarter 2 numbers.

Yes. So current PVC price is $1,900, while EDC is $1,000. Ethylene is $1,115. And VCM is $1,595.

$1,095.

$1,595.

Sure. Got it. Sir, last thing, you definitely said that Agri, there's a mixed trend which is going on in terms of demand, like some farmers who have already delayed the purchase a couple of times are coming back, while there are some who are delaying it. Could you also give some qualitative aspects on what's happening on the plumbing segment? Is there any larger amount of shift which is happening towards CPVC pipes, given that PVC prices are at historical high or trends like distributors are delaying the purchases?

No, see, for plumbing sanitation segment, the pipes are C-class items. So I don't think there will be much deferment as far as the projects are concerned. And yes, there could be some slight shift towards CPVC, that is why you see CPVC volumes being higher.

The next question is from the line of Udit from YES Securities.

Just a brief guidance that how do you see the CapEx moving forward for coming 2 years?

See, normally our CapEx over -- it is around INR 100 crores, INR 150 crores in a year. So -- that is how it will be. But yes, in coming months and some period, we will have to plan some expansion in pipe segments. So there, we may see a little higher, but roughly it should range between INR 100 crores, INR 200 crores only.

Okay. Okay. And sir, on the demand, like the follow-up, like, do you see any pent-up demand that will follow up in H2 of this year? Or some -- because PVC prices are unlikely to come down, so do you see there's still -- there will be some stagnancy from the rural market? Or how do you see the demand?

No, it remains to be seen.

Mr. Udit, does this answer your question. As there is no response from the line, we'll move to the next question, which is from the line of Kaushal Shah from Dhanki Securities.

Sir, I just wanted to know if there was any further update on the land sale, which was proposed about 2 months back. So any update on that?

No major update. It is going to be a long process. So this will take some time. So it is progressing.

All right, sir. So does it mean that we've kind of still not -- it is just a -- we've still not received any firm proposal or so...

No, no, there are firm proposals. The process takes a long time. There are approvals required. So we are proceeding with that. So this will take a little time.

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

Congratulations for a great set of numbers. Sir, my question is regarding low production of -- previously, you alluded to the reason, but this -- due to this low production of PVC in last quarter, will the production of PVC Pipes and Fittings will be affected in current quarter?

No, we have resumed all our PVC operation to the full level. So both EDC route as well as VCM route, both the plants are running fully. There is no shortage of resin for the PVC Pipes and Fittings.

And sir, what was the VCM to PVC delta in this quarter?

VCM to PVC delta is 391.

In this second quarter, 391?

391, yes.

And lastly, sir, can you give CPVC volume for the first quarter of this year?

CPVC volume first quarter was 2,430.

2-4-3-0.

3,600 is for this quarter, 2,400 in the last quarter. The improvement is 50%.

And what was the same in the corresponding quarter of last financial year?

Last financial year was 2,000. So there is an increase of 77% volume-wise.

The next question is from the line of Rahul Agarwal from Incred Capital.

Just one thing on this MIDC land sale. So minimum INR 725 crores expected. Could you help with some kind of more details on this transaction? Essentially, I understand it's a long process. But purely net of cash -- net of tax, what would be the cash inflow for the company? What are the existing structures at this land parcel? Who are the nature of buyers here? And you said -- in the press release you also mentioned it's going to be full or in part or in piecemeal. So any time lines like 2 years, 3 years, how much does the transition will actually take time? Some more details, please.

See, it is difficult to say. It should happen in 1 year, but let us wait and see. And of course, there will be tax on...

On the realization.

On realization, which will have to be paid.

So that's a long-term capital gain like 10%. Is that correct?

Long-term capital gain, yes. 10% or no, we'll have to -- I think it will be more than 10% because this is land. It will not be 10%. It will be higher.

The next question is from the line of Chirag Lodaya from Valuequest.

Sir, what is the current PVC imports happening into the country on a monthly basis?

Very difficult to say. These numbers are normally published month-to-month. They are changing, but somewhere around 60,000 to 80,000 tonnes.

Okay. Secondly, sir, what percentage of total imports on a normalized basis happens from China for us?

We don't import PVC.

No, no. In general for the industry, I'm trying to understand.

I think China is not the major supplier. Basically, it is the Taiwan, Japan and some other Southeast Asian countries. There is some coming from China. I think this breakup is available in export-import data published by the government.

Okay. The reason I was asking is -- so you mentioned that there is a recovery possible in China because carbide routes have opened up, and that can ease overall PVC prices globally. So I'm just trying to understand that correlation, if any.

The correlation was that China is also presently taking PVC from the global market. If they produce more in the local market, domestic market, there demand will go down for the international market. That way, I think the surplus could be available from other places.

Right, right. And sir, what percentage of our total production is through EDC route and what percentage from VCM route?

I think we have something like 250,000 tonnes total. Out of that, 150,000 is our EDC route and 100,000 is from the VCM route. So you can say 60-40.

Right. And this currently, any reason why the VCM spreads have come off sharply versus EDC?

VCM is also going up. I don't know what are you referring to.

So you mentioned that current...

And VCM is also going up. I think they have their own differential dynamics of supply and demand. And that is why there could be some lag in between, but both of them are moving up.

Okay. And just lastly, sir, is it fair to assume that in current quarter, we'll see a very good inventory gain and overall profitability will also be much better than what we have achieved in last quarter. Is it fair assumption?

No, I don't think so. See, inventory gain would be there if there is a sharp increase in the resin prices. Now we are saying that the resin prices are an all-time high, and then there's an expectation of softening. So there will be no more inventory gains.

Say, suppose the current prices are there for next 2 months throughout the quarter, then definitely, we should see inventory gains, right? Because last quarter, it was at say 1,514...

No, no, the previous material has already been consumed. So whatever new material comes in will come at current prices. So there's no question of inventory gain in that.

Got it. Got it. Because large part of price increases happened in the month of October, right?

September as well as October.

The next question is from the line of Karan from AMSEC.

So just wanted to understand what kind of SKU additions we've seen in plastic pipes and fittings and CPVC, if you can share the numbers?

Sorry, your questions were not very clear. We couldn't hear you.

I just wanted -- yes. Yes, I'll repeat. Sir, what kind of SKU additions we've seen in plastic pipes and fittings and especially in CPVC, if you can quantify?

See, as we said last quarter also, the SKU number is about 2,150. So I don't think we add much in from quarter-to-quarter basis. Yes, there will be some additions, slight addition, yes.

And out of this 2,150, how much could be the CPVC portfolio?

It could be around 370 SKUs.

Right. Right. And just, sir, one question from my end is, how do you see the channel inventory as of now? Because the prices are all-time high and given the fact that in near term we might see some softness, so are they at the peak inventory or they are still waiting for some correction?

Typically, they don't carry much inventory. The typical secondary partner would have inventory of 1 to 2 weeks. And that is how the trend has been. Whenever there is a rumor or a market seeing that the prices are going to go up, they slightly increase their inventory then. Plus at the same time, nobody can just buy, there has to be space to keep also. So I don't think there is a very material rise in the inventory levels with the partners as well. They range between 1 to 2.

Okay. And any update on water tank segment? That's it from my end.

No, no update on that, actually.

The next question is from the line of [ Prashant Kumar Hazariwala from Solider Financial ].

So my question is that we have seen a sharp increase in our operating margin due to all this price hikes and all this stuff, shortage of supply and all this. So what kind of operating margin we can expect going forward, like for next 1 or 2 years, sustainable? Because we have seen 20%, then 50%, and now currently, we are around 20% to 30% of kind of operating margin. So what kind of operating margin we can expect for next? That's sustainable.

See, we have always been saying in Pipe segment, it was a little easier where we have per KG INR 8 to INR 10 of EBIT. And in PVC segment, it is volatile because it depends on the market circumstances. So normal EBIT in earlier years where you've seen INR 15 is much higher in past 1 year and then this H1 also. But what would be sustainable, it's difficult to say.

Tentative any -- no target, like...

We can't keep target. It's -- actually all depends on demand and supply situation globally.

Right. But we have some delta with that, right?

No, delta keeps on varying from quarter-to-quarter, from week-to-week.

It's a quarter, but we can have a lag of 1 quarter. Like let's say, price has increased this quarter so we can pass it onto the next quarter, right? So we can have a lag of 1 quarter or 2 quarters, that's it, right?

In PVC segment, our normal EBIT was INR 15 a kg if you look at the past few years, and the delta was around $550 to $600 a tonne. But currently, it is hovering around $900 a tonne. So obviously, this cannot sustain. If it comes down, normalizes. We do not know the new normal will be higher or at around $550 or $600. If it is at that level, then obviously, our EBIT could be at around INR 15 a kg.

Right. So currently, what is the EBIT per kg currently?

It exceeds INR 30 per kg.

INR 30. Almost double, right?

Yes.

Okay. And one more question. Like if, say, this is the peak of the price of PVC, right, so what kind of inventory loss we can have if this is the peak of the price, PVC price?

So when the prices come down, there will be inventory losses. When the prices go up, there will be inventory gains. It keeps on happening every quarter.

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

I just had one question. You indicated that the import prices are higher than the list price for PVC. If we analyze the numbers, so what we look at on a per kg basis for PVC versus the resin external price sale, there seems to be an element of lag. Now this is quite baffling to understand given the nature of the industry is pretty nice wherein there has been immediate pass-through. So just wanted to have a sense on why this lag? And is it for a particular segment or a particular part of the country?

So Ritesh, as we said, that present PVC prices on an import basis are $1,900. And if you take our prices also, the domestic player, at import parity, it is around close to $1,900.

Right. So sir, what I'm referring to is say if the larger industry players who do not have the advantage that we have on backward integration is they are importing shipments at $1,900, $2,000 plus. Then why is it that when it comes to the end product sale, that there is an element of lag. So I think one of the larger peers did indicate that they have a larger B2B or project basket, wherein they had certain commitments and they had to -- they could take price increases only with a lag. Is that the right way to understand it? Because it comes out to be baffling wherein import shipments are at a higher price, then why should one delay the increase in prices on the end products?

Anilji, can you answer this? You are talking about Pipes and Fitting segment versus the resin...

Yes. Yes, sir. Yes, sir.

I think the lag is only about a week or 10 days' time. It normally follows the resin price increase and pass it on to the customer.

Okay. Sir, if I look at the differential on those 2 numbers, actually, the premium on Pipes and Fittings has actually reduced. So either it has to be a change in mix or something of that sort, or fitting should have reduced which is quite unlikely. I don't know what the underlying reason is. I just wanted to have that sense. I'll probably take this offline, sir. And I just wanted to check, is there any change in our credit policy in the marketplace? Specifically on CPVC, we had started to give some credit of around 30 days. So does that still hold? And for agri, have we discontinued giving credit, which we had started temporarily?

See, in these difficult periods, we have extended a little more credit in the market to gain market share. But the policy remains the same. In agri, we will not normally give credit. And in all plumbing sanitation segment, we will give some credit as we have started doing some time back.

Okay. But sir, on agri side, we still are giving credit very selectively.

Very selectively.

Rutuja, can you make one announcement for any -- I think there is a question.

The next question is from the line of Aasim Bharde from DAM Capital Advisors Limited.

Sir, just one question. In an environment of high PVC prices currently, theoretically, do farmers have an alternative in, say, HDP pipes as well or any other polymer-like option?

Today, no. Generally, for irrigation, PVC pipes is the alternative. Because for HDP pipes, it is difficult. They won't get people also to lay the pipelines.

Is the people and the welding part the only problem? Because right now, I think HDP prices have not kept the same pace compared to PVC. So still on the ground that HDP is not an option as per you?

Yes. And PVC also, as we have said, see, this is not going to last for long. If HDP today is $1,200, $1,300, it is expected that the PVC prices also when they normalize will come to this range.

Yes, you're right. But I think the market, especially the agri market has been waiting for a price fall for a long time and it's not happened yet. So I just wanted to understand, do farmers on the ground actually have an option or not?

No, no. True. But why it has not happened is each time it is expected that -- right now also we are saying that the prices are likely to soften. But then some event happens. The cyclones and hurricanes in U.S. one after another, then curbs in China on the coal burning. So all these and the supply chain issues also, logistics issues, which have added. So since pandemic, pandemic was the first disruption to start with, it has been followed up by several events to keep these unusual prices at current levels.

You're right, there's been something or the other that keeps happening. Yes, I get that. I get that. And any sense on the smaller players, would they have -- I mean given the current supply challenges, have they -- in your sense, have they exited the market? Or would they still be -- have taken temporary shutdown, but they may come back once PVC supplies normalize?

Difficult to say, but yes they have supported a lot of setbacks.

But still net-net, once things normalize, the industry should have been much more -- I mean the organized players would have definitely increased shares to a larger extent, and they would retain that, right?

It is expected, yes.

We'll move to the next question, which is from the line of Sonali from Jefferies.

I have joined the call a little late, hence might have missed out on the earlier commentary. Sir, my first question is, could you give us any update on how this pipe drinking water scheme or Nal Se Jal is progressing across? Because it has -- the pace was a little subdued during the COVID second wave, hence checking out on this.

No, it has still not picked up pace. For this -- for PVC pipes, this will be the last phase of that project. So it will take time before the volumes come in. Yes, there is some demand off and on, but it's not huge so far.

I understand. And so far, have all these states progressed -- started progress on this? Or this is still in a phased manner?

It's still in the phased manner, it is slow. It will take time.

Got it, sir. Sir, secondly, what proportion of your mix is plumbing right now and, say, over the next 3 to 4 years, where do you envisage that to go?

Last quarter, we had mentioned that in FY '21, this was 6,337, and we hope to improve on them as the time progresses.

Understand. Sir, what was this current quarter, Q2?

See, quarter, because of the seasonality, you will see the changes. But on an annual basis, we feel that it should slowly improve.

Got it, sir. Sir, lastly, sorry, if I'm asking this again, what is the spread PVC/EDC in Q2 current and year-on-year? That's it from my side.

Q2 spread was $790. And currently, it is $900.

Yes, Q2 last year.

Last year Q2, $654.

The next question is from the line of Pankaj Kumar from Kotak Securities.

Just one question. In the last quarter, we said like we can achieve -- we are targeting FY '20 volumes in the current year. So is there any change in the stance?

We are still wanting to do that.

Okay. And...

If you see, some gap has been bridged. Now let us see in H2, how much can we bridge further.

If that is the case of -- I mean from which side, we can see the fast ramp up. is it on the agri side or on the housing side?

I think the agri was not doing well for the last quarter. But this year, monsoon is good and the kharif crop is also good. Expected that the moisture is there in the -- and you will get a good crop for the rabi also. I think going ahead, there is a possibility of good demand from agri. So whatever we lost -- volume-wise we lose more if the agri doesn't do well. We have done very well on non-agri. We keep that momentum on non-agri going ahead with the same type of dimensions. Whereas, we would expect that the agri also will come up in the next 2 quarters. which is definitely a positive sign that we see. If that happens, then we should be definitely crossing the losses that we make pre-pandemic, and we should be reaching to the pre-pandemic levels this year. This is our expectation.

Ladies and gentlemen, this 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, Math sir for closing remarks. Thank you.

Okay. Thank you, Ritesh. I hope you are satisfied with our answers to the queries. We value your continued support, and we look forward to a good relationship with us. So thank you, all of you, and thank you for your time with us. Thank you again.

Wish you all a very Happy Diwali. Thank you.

Wish you a Happy Diwali, too.

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