Finolex Industries Limited (FINPIPE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 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. Thank you, and over to you, sir.

Thank you, Rutuja. Welcome all to Finolex Q3 conference call. I trust you and your families are fine and safe. We have with us from the management, Mr. Sanjay Math, Managing Director; Mr. Anil Whabi, Chief Financial Officer; and Mr. Niraj Kedia, Deputy CFO. I'll request the management to start with initial comments and post which we'll move to a Q&A session. Over to you, Mr. Math. Thank you so much.

Thank you, Ritesh. Good morning, ladies and gentlemen, and hello, everyone. We welcome to the investor conference call to discuss Q3 FY '22 earnings release. Thank you for your continued interest in Finolex Industries Limited. Now before we start, let me wish you all a very happy New Year 2022 and hope every one of you and your families are keeping safe. PVC prices reached historic high over last year. However, there has been substantial volatility in PVC prices in the last few months. After a short period of correction mid-last year, the prices again went up sharply. But in the last couple of months, the PVC prices have come down by roughly 20%. In dollar terms, PVC prices are currently around USD 1,500 levels, down from the high of USD 1,900 levels 3 months ago. The PVC to EDC delta has also reduced from USD 980 levels a quarter ago to roughly USD 580 levels currently. Falling PVC prices had an adverse effect on PVC demand sentiment in general. In addition to the falling PVC prices, various parts of the country witnessed torrential rains during the third quarter. These factors together resulted in a lower-than-expected demand, especially on the agri side. On the real estate and construction segment, the demand was good, but there is a supply constraint of additives and raw materials, mainly due to logistical constraints on container shortages and some port closures. The demand is expected to improve with the season opening up on agri segment and easing of supply chain bottlenecks on the real estate segment. Let me give you some performance indicators for the third quarter of financial year 2022. The highlights: Total income from operations was INR 1,005 crores for the quarter FY '22, down by 5.7% against the same quarter last year, INR 1,066 last year. The volume in Pipes & Fittings segment reduced 15% to 46,994 metric tonnes against 55,299 metric tonnes last year's third quarter. EBITDA stood at INR 242 crores for this quarter, down 30% against INR 346 crores same quarter last year. Profit after tax was at INR 178 crores for this quarter, down 30% against INR 256 crores last quarter -- sorry, same quarter last year. Now getting into segmental performance, EBIT in resin segment was INR 177 crores, down 28% versus last year. And EBIT in Pipes & Fittings segment was INR 55 crores, down 40% versus last year. We continue to move in the direction of increasing non-agri in overall product mix. During this quarter, the agri to non-agri ratio was almost 60% to 40% per value and 65% to 35% in volume terms. This is in line with our target to have 60 to 40 agri to non-agri mix in the midterm. Let me open the floor for questions now. Thank you.

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

Sir, 3 quick questions. Firstly, how is the situation in January? What is your reading in terms of channel inventory? How does 4Q look like? Will it recover the entire lost volumes of 3Q and 4Q? Anyway, it's a strong quarter for you because agri helps you in picking up in terms of channel inventory. Any thoughts, sir, on how does it look like?

I think the outlook in January is also not very bright. The agri sector has still not opened and the demand is subdued. So the pipe demand has not yet picked up. So we are waiting. I think hopefully, it will open up by February after the budget. This is what we see. It's only about a week's time now. So from then on, I think we should have some impetus to the pipe demand.

What could be the reasons from your view as it relates to COVID. Is that the reason or generally because PVC is still volatile? Is that the reason? In your sense, what is the reason for pipe market picking up on the agri side?

I think there are 2 reasons yet we can just predict upon. One reason is that people still feel that there is a price correction going to happen. One aspect that is there that the anti-dumping duty for U.S. as well as China will be removed in February So whether there will be some correction coming on PVC branches, this is one reason that people may be reading on that any price correction is possible. That is one. Secondly, the agri sector has still not opened. I think there is rains still going on in some parts of the country. And that has also subdued the demand for agri sector, whereas we see that the non-agri sector is definitely doing better over the period in this year, quarter-on-quarter as well as on the year-on-year. I think the non-agri sector has done better for us but the volume compared to agri is lower. That is why it doesn't reflect into the total volume. I think going forward, we see that by mid-February at least, the agri sector has to definitely open. So in this quarter, I think we will get somewhere around 1.5 months to show as a good demand coming for the next quarter.

Sir, secondly, any progress on the land sale and decisions on utilizing this cash for buyback or dividends? What is happening there?

So land is status quo, however, only this year. So land is status quo. We are in -- it's in process. So it's not a very quick thing where we -- it doesn't happen very quickly because we have modalities involved. So we are in the process of completing the transactions. It's not one transaction, but a few of them. So that will take its due course, but we hope to close at least some bit of it before March of this year.

So on a full basis, September is a good time to look forward for that 700, 750 crores to come in.

Let's see. Let's see how it pans out. I cannot comment or comment for September as of now. But some part, we'll definitely see before March. That's the state of it now.

And thoughts on dividends or buybacks to utilize this cash? Is there any way of a surplus today also?

Yes. So that will be evaluated, and we'll take a call when that happens.

Okay. And lastly, sir, if you could help us with the PVC volumes and revenue for third quarter and 9 months, that will be helpful.

So CPVC volumes were -- for 3 quarters -- for Q3, right?

Yes, 3Q and 9 months, please.

Yes. So roughly 3,300 tonnes was for Q3 and 9,400 tonnes for the 9 months.

And the top line, please?

Top line is 125 crores for 3 months and 340 crores for the 9 months.

The next question is from the line of Chirag from HDFC Asset Management.

A few booking questions from my side, if you could help with what PVC, EDC, ethylene and VCM prices were in the third quarter versus the third quarter of the previous year and what are they at the moment?

Third quarter this year, PVC $1,753. Last year it was $1,235. EDC this quarter $959, and last quarter was $470 last year...

Was $400?

$470 last year third quarter.

4 7 0, yes.

Okay. Now PVC to EDC delta this year third quarter is $795. Last year was $765. And PVC to VCM delta...

So what would be the ethylene and VCM prices this quarter and previous quarter?

VCM price is $1,403 this quarter and last year was $960.

And ethylene, sir?

Ethylene, $1,068 this quarter and $843 last year.

And sir, what are the current prices for all of these at the moment?

Current prices, PVC is $1,500. EDC is $920. Ethylene, $965. VCM, $210.

So what was fitting volumes and value this quarter?

Fitting volume this quarter is 6,121.

And value?

I think -- Niraj, do you have value?

Yes. So fitting is roughly INR 200 crores.

Right. So the last question from my side, sir. There's obviously been a lot of volatility in PCV prices and spreads. So 2 questions. So 1 is that considering that prices have fallen quite recently, is there a possibility of an inventory loss in the fourth quarter? And where do you see margins settling in at for an average for, let's say, going forward next year, following year? What is a reasonable number to work with?

Niraj, go ahead.

Yes. So in terms of inventory loss, we don't see so much of it. We don't have so much of inventory loss, I think, because we make our own PVC. But we'll see how -- and some are worse, relating to earlier. So it all depends how these PVC prices move. Obviously, there is a reduction, sharp reduction in PVC prices. The margins will be adversely impacted. But that remains to be seen. On a going forward, a regular basis, there's always a time lag. What we saw last year was that PVC prices went up sharply, whereas the raw material prices, it took them some time to inch up. Now when the reverse happens, the same thing is likely to happen as it happens, it will be limited. So it will depend on how big the lag is. Generally, it is not very long. But on a maintainable basis, we are doing INR 10, INR 12 per kilo. That is the mid-driven margin in the long term.

INR 10, INR 12 a kilo in resins.

In pipes.

No, sir. What I meant in resin. So where do you see this margin over a period of time, which is roughly 40,000 per tonne this quarter. Where do you think that can eventually settle in at?

Chirag, for PVC, the thing is you are aware that it's difficult to say where will it end up. It all depends, as we have said, on this price [ volatility ].

The next question is from the line of Praveen Sahay from Edelweiss Financial.

Just on the fitting revenue, how much you said? Just to clarify.

200 crores.

Okay. So my question pertaining to the demand side. As in the last call also, you highlighted that the last 2 seasons for the agri were a very subdued demand. And now we are in the third season. And still like the third quarter, we had not seen on some other reason rain or hailstorm. So what's your commentary now, like whether the farmer will further -- even the prices were on the -- fluctuating on the higher side, do you believe this deployment will continue? Or really, we -- this demand to pick up in the coming season?

I think the last 2 years, we had the torrential rain and extended monsoon also. And that has definitely affected the demand on the pipes. Last year also, it was very late opening up of the agri sector. I think almost it was not as good as the earlier ones. Even though the economy has picked up in the third and fourth quarter of last year, still the demand for agri never opened up to the extent it was there pre-pandemic. I do not see that it is because of the pandemic that has happened, but it is basically because of the rains, untimely rains that happened. That is 1 reason. There is a reason to believe that the high prices also might have affected some demand, although we can't really quantify that, but there is a possibility that high prices also could be affecting the demand. So that is where we are waiting on prices to maybe soften out. So the demand for this year may be picking up only by the second harvest, where we were mid of next month. We should be seeing some demand growth.

So on this, some consumer companies are highlighting the slowdown in the country. So what's your view on that? This slowdown is continuing, and that's not going to get some pickup in the agri pipe or so?

I think we -- generally, we don't talk about economic slowdown. Although the numbers show that the GDP is going to grow by 9%. Agri also will be growing by 4%, 4% or so. So that doesn't speak and it does not get reflected into the demand of pipes. So these 2 are still not related so much, whether there is an economic slowdown or there's not, the sector itself is not showing some demand pickup.

And also you had highlighted related to the plumbing segment has done good for you for this quarter. How much is the contribution for this quarter coming?

Non-agri, we have 60:40 by value, and 65:35, by volume. So that's picked up to that extent.

Just to correct. I mean it's -- to clarify, it is the other way around. I mean it is [ more ] on every year.

Yes, yes. So in the non-agri, the CPVC volume has not done anywhere if I look at the sequential. So like PVC, it has done very well, not likely?

I think CPVC has done very well. Over the last year, it has grown by 57% for the 9 months period. And over the pre-pandemic year, I think it has grown by 32%. So this 9 months, CPVC has grown better. So this is one in the non-agri sector which has done better.

Okay. Just to clarify, sir, how much was the volume for the third quarter last year, CPVC?

So 3,400 tonnes this quarter.

3,300 this quarter versus last year was, I think, 3,600.

Also last year was 3,000 tonnes.

3,000, yes, yes, 3,000 tonnes.

So if you see Q-on-Q, it is 3,000, 3,300, 3,400. But on a 9-month basis, last year was roughly 6,000 and now it's roughly 9,400.

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

So my first question is the split between agri and non-agri in terms of the pipes volume. So when we talk about 15% year-on-year just in Q3, how much would be the dip in agri versus non-agri?

You want only pipes or fittings, separate?

No, no. Both pipes and fittings, sir.

So agri -- in terms of volumes, Q-on-Q, they are down by 24% and non-agri is, in fact, slightly higher actually by 4%.

Sorry, sir, could you repeat that?

Non-agri is higher by 4%.

Okay. Got it. Sir, a similar figure for year-on-year, please?

Agri is down 5% and non-agri is up 30%.

Understand. Sir, from within non-agri, that's mainly plumbing, are we seeing traction from both rural and urban? Or is it more of an urban-centric phenomenon?

Typically, plumbing sanitation is more urban, right?

Right. So urban is the key driver for our non-agri volume?

Urban and semi-urban, yes.

Right. And also you mentioned in your opening remarks that in the long term, you would like to increase your non-agri to about 40% of your overall mix. So what are the key steps that we are taking in this direction in terms of either increasing the distribution of the SKU? And also a related question, what are our SKUs right now?

So you're right, one of our steps in that direction is to have our broader SKU range. Now we are almost there actually in terms of SKUs when it comes to non-agri. So in total today, we have roughly 2,200 SKUs, of which I would say non-agri are roughly 1,200. So 1,200 to 1,300 SKUs in non-agri, so that is 1 step. And also on the distribution chain, as you rightly said, there is focus at least the last 1.5 years because of this pandemic. Obviously, there was some slowdown there and pending new dealers and reaching out to new markets. It was overall the constraints. But the idea is to have a wider distribution network in the urban and semi-urban areas and market -- and these are the markets especially that there's more penetration in these areas.

So which are the key markets that we are targeting?

There is no specific market as such. So there will be -- there are markets where we are strong. So the impetus is there to maintain that leadership in those markets. They would be mostly our south markets and western markets. And obviously, there is -- wherever we are not in the #1 or #2 position like -- so that is where we would like to increase it. We would include some of the northern markets, some of these eastern markets.

Understand. Sir, last question from my side. Any guidance on CapEx? Because we were in a wait-and-watch mode for increasing your capacities, especially in pipes. And secondly, any color on the current channel inventory that we are witnessing in January?

So when it comes to CapEx on capacity front, in pipes, we don't think as of now there is any major requirement because we are yet to reach the pre-pandemic levels. So once -- so there is headroom available there. There is an incremental CapEx which -- continuous CapEx, which is happening on the fitting side of it. So that is continuing to happen. And when it comes to channel inventory, as Mr. Math said, there's an anticipation that the prices would go down. So people are destocking and getting very minimal inventory levels.

Right. Sir, any quantum of CapEx that you want to write?

So 100 crores is something that we have told earlier also.

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

Just a follow-up, sir, from the previous question. Can you give the geographical split for a non-agri business?

Geographical split is not really in the order.

Okay. And sir, just to clarify, the non-agri is 40% in volume terms, is that correct?

Yes. No, 35%, actually. Our target is to reach 40% on a consistent level. See what happens, there are quarters where agri because of the season, agri is lesser. So in those quarters, you will see a higher non-agri contribution. But when you look at it from an annual perspective, there, the target is 40% on agri.

The next question is from the line of Utkarsh Nopany from Haitong Securities.

Sir, I just made a few data points, if you can help me out. First is what is the fittings' revenue in Q3 FY '21?

FY '21.

Yes, sir.

INR 150 crores.

Okay. And how much CapEx we have incurred in the 9 months of FY '22?

FY '22, we would have roughly INR 50 crores to INR 60 crores.

Okay. And we are planning to spend another INR 40-odd crore in this March quarter. Is that correct?

Hopefully, yes.

And what would be the CapEx guidance for FY '23?

Similar levels.

Okay. So we are not planning to increase the capacity in FY '23 or am I correct?

As I said, when it comes to pipes, there is already enough headroom available. We have done roughly 250,000 tonnes before pandemic hit us. We have to reach that level. So to that extent, in pipes, there is already capacity available. Once we reach near at those levels, then we will be adding capacities. But adding capacity is not very difficult or not very costly in our business. We can always add capacities in modular level.

Okay. Fine, sir. And how many new SKUs you are planning to add, say, over the next 15-month period, say, by March '23?

Sorry.

How many new SKUs we are planning to add, say, by March '23?

March '23, see, I can't answer. I can't put a number to that right now because this is a continuous process. There are a lot of SKUs in various stages. Once an SKU is introduced, there are many things which happened before, there are some market, there is study, designing and all of that. So there are SKUs in line up. I can't give you a number, how much would that be.

Sure, sir. And sir, lastly, like if we see over the last 8 quarters, your average EBITDA per kg is [ 200 ] for the pipe division. It's close to around INR 12.5 per kg, where we have not seen much of volume growth. We have seen a negative operating leverage. So if we are anticipating volume growth, then why we are being conservative on our guidance that we are still maintaining the same outlook of INR 10 to INR 12 EBITDA per unit?

Sorry, I didn't get you.

Sir, if we see over the last 8 quarter period, our EBITDA per unit for pipe division is around INR 12.5 per kg, where we have not seen the benefit of operating leverage as our volume is in a negative territory. So going forward on the guidance, earlier you have just made the comment that we are still looking for INR 10 to INR 12 EBITDA per kg kind of a guidance for the pipe division. So I just wanted to know why we are so conservative in our guidance, is it because that we are anticipating the agri pipe contribution to start moving up so our EBITDA per unit run rate is likely to go down?

See, when -- this mix also changes. You might say that we are slightly conservative. But that is the maintainable margin, on coal also.

Sir, I'm still not getting the point because at 1 side, we are saying that we are planning to increase our non-agri sales volume mix to 40%. That is our medium-term goal. And on the other side, we are saying that like the current run rate of INR 12.5 per kg looks to be a bit not sustainable. It is likely to go down.

So what we are saying is 10 to 12 is maintainable. That's what we are saying.

The next question is from the line of a Bhargav Buddhadev from Kotak.

I just wanted to know what has been the increase in advertising and marketing spend because 8-year spend for Finolex have been rising. And also wanted to know whether these spends are going to increase or sustainable in nature.

See, our advertising spends are roughly between 1%, 1.5% of the top line, and that will be something which will be maintained.

And what was this earlier?

It has been in the same range. Obviously, there was -- in the pandemic year, the activities were lower. But otherwise, 1.25% is the number that we see for.

And secondly, in terms of CPVC, have we taken price hikes in the last 3 to 4 months?

There was 1 small correction that happened, but nothing major.

And from here on, do we expect price hikes? Or you think prices will be more or less in this range?

Cost also has been going up for CPVC inputs. So obviously, with that, the prices will change.

Okay. But then I've heard the range, right, that there was a price cut in CPVC in the third quarter?

No, no. There has been price rise within our CPVC. There has been shortage of material and there have been price hikes.

Is it possible to quantify that?

No, that -- see, it depends on supplier to supplier. Each supplier has quoted their prices. But generally, the prices have moved up in the third quarter.

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

A couple of questions from my side. So sir, first on this PVC volatility. As you mentioned, there have been substantial volatility in the last few months. If you can help us understand what is leading to this volatility. Is it increased imports from China or it is something else which is leading to this kind of volatility?

It is volatility in general. Overall international market prices are changing. It is not only the Indian market prices that are there. I think there has been a correction in China also. I think China presently is about $1,300. South Asia is the highest level of PVC prices. Between India, Pakistan and the nearby areas, these are above $1,500, $1,550. Now China at present has worked anti-dumping duty for India. So that may be going in month of February. That is where the volatility is still expected that maybe there is a softening of PVC prices, which we will come to know in the next 2, 3 weeks.

But what this volatility is to do with increased production, lower demand? Is there any global phenomena which is causing this volatility?

I think there is a trade only within the region. There is a problem coming up or the rate as well as containers not availability. And that has restricted even the supply chain on raw materials. The imports coming to India are still not to the tune of the earlier ones. And they are running somewhere around 1 lakh tonnes to 1 lakh 20,000 tonnes, which is normally about more than 1 lakh 50,000, 1 lakh 60,000 tonnes. So there is some shortage on the supply side from imports. Domestic suppliers are anyway running the plants to their capacity. So the demand assets is running somewhere matching the production only. This is a difficult phenomena, which is still people have not seen that there is a pickup in total PVC demand all across.

Right. And sir, what is the quantum of PCV today? Is it 10%?

For U.S. and China, there are different rates. In terms of dollars, they're okay.

And what would be that roughly in percentage terms, range?

Yes, about 8%, 10%.

Sir, my second question was on volumes for agri as well as non-agri. So if you can just split agri versus non-agri volume for the first 9 months, that would be helpful.

I don't have those numbers. I don't have it with me at the moment.

So agri in terms of volumes for the 9 months was 1 lakh tonnes, non-agri was 55,000 tonnes.

Versus last year?

Versus last year was 1 lakh 10,000 and 42,000.

And in terms of profitability, sir, when you say 10% to 12%, it's a long-term maintainable number. But if I just want to understand in terms of non-agri profitability versus agri, how that would translate into this?

That will be difficult to share. Because see, one thing we must also understand while we also say agri, non-agri, there are various parts of the whole number, some of our own markets. In some of the north especially, a lot of our agri products are used for non-agri applications. So then this bifurcation or differentiation between agri, non-agri becomes very difficult. So while you're asking me to provide these numbers, not necessarily. They are absolutely purely used for agri and non-agri.

And sir, in this quarter, we have seen impact on our PVC raising external demand. So that has to do with this volatility, right? I mean there were -- people would have postponed purchases and that would have led to this decline in volumes, absolute volumes, right?

Yes, yes.

And do you expect that to recover in coming months once things get clear post budget?

Once prices stabilize, then things will become better or more clearer. See, when prices are falling and especially how we have done in the last couple of months, then it's like catching the falling knife. Everybody wants to catch a knife but it is one versus edge has passed. So that always plays in the minds of people or the consumer or the dealers. So once there is stability, we will see -- we hope that the demand will be back.

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

I have a couple of questions. One is inventory at the company level is definitely high. Would it be possible for you to split it up between pipes and fittings and resin? That is one. Secondly, what is the normal inventory in the channel? How many days versus how much would it be right now? Just trying to understand there has been a big element of channel destock. If normalization happens, and then what sort of volume growth -- actually automatically, it will reflect on the basis of channel destock.

Ritesh, the inventory breakup, I don't think we have it readily available.

Okay. No worries, sir. And sir, how should one read the channel destocking? What sort of inventory does the channel carry? How much would it be right now?

Channel today, because of this volatility in prices is carrying very low inventory levels. So they generally delist, pick the material only when they see the receipt of orders. Inventories at present are very low.

Okay, okay. But sir, if we look at the numbers on the non-agri side, if I heard it right, you indicated 30% year-on-year volume growth. Was that number right?

So 30% was compared to FY '20 9 months.

Okay, okay. Sir, my second question was Masar indicated that there were supply constraints on additives and other goods. So just wanted to check any specific attitudes which is a problem, which probably can help organize sector given that sourcing will be better. That's one. Secondly, was CPVC sourcing a problem in the quarter? And how is that -- how should one look at it incrementally?

I think there are certain additives, which are required for processing of the PVC pipes. These additives somehow are not available. Some of the companies in Europe or in U.S. have closed down. There are some container problems. So the availability has been restricted. The only alternative is to look at domestic suppliers and try out the new suppliers. So we are in that process that continuously, we are looking at alternate suppliers on various additives. Now some of the additives, which I can talk about, the recharging, stabilizers or maybe high-impact modifiers or maybe some early green waxes or even TiO2 coming from KRONOS. So these are some of the additives which are in short supply. They are getting delayed so their delivery times are getting longer and longer because of some of the reasons of the transportation and the logistics. This definitely put pressure on us. We have been able to manage with alternate sources and maybe domestic suppliers also.

And sir, on CPVC side?

On CPVC, also, there are certain constraints on the supply, but we have been, again, broad-basing our suppliers. So the basket of suppliers is also increasing, and we are able to maintain our CPVC supply chain. So far, so good. We hope that the logistical problems will ease out and more free trade will happen, particularly on CPVC.

Sir, what I wanted to understand, is it a supply-supply problem? Or is it a logistic issue on the CPVC side?

There is supplier constraints. Maybe their capacity also have frozen or are getting limited.

Okay, okay. And sir, just one thing you indicated on U.S.-China anti-dumping duties, you indicated around 8% to 10%. Is there any affirmative time line by when we will actually hear something on this from DGTF (sic) [ DGFT ]? Or can it keep on lingering for a little longer? Like is there an end date or a year or a 5-year tenure where this particular duty expire? Sorry for my ignorance over here, sir.

The duty is expiring next month, but it may be continued also. It is again a question mark.

Okay, sure. And sir, one last question. Sir, competition has been launching multiple brands under CPVC. This possibly could be a function that unit economics might not be stacking up. Is it something which actually benefits for a brand like Finolex, wherein we are actually looking to grow aggressively on the non-agri side of things?

I think we have developed this umbrella brand. It is not specific to only agri and non-agri. So it is basically a brand where [indiscernible], and it is definitely a brand which talks of quality rather than on specific products. So it is not a product-specific brand so far. We like to see that the leverage of our brand value is extended to all products together.

And sir, one last question. Did we go for discounting in the months of November and December to actually push volumes? Basically, it's probably right on the volume. So the volume growth is negative, but it does not...

No, nothing out of the turn, the normal season coming up a scheme and all, nothing out of turn because in November, demand itself was very low. So even if we would have given high discounts, because there's no demand, well what's the point?

Okay. And nothing on credit as well? No change?

No. Primarily no change.

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

Sir, a couple of questions from my end. Firstly, with regard to CPVC anti-dumping duty. There was a recent news on PVC flexi imported from China, where they have revoked dumping duty, which was due to 31st of January. Is it something related to us? Or can we expect similar duty revoke happening in PVC resins also?

I think there are a lot of pressures coming from the processor side also. But there is a general demand coming up from the processor where the total general duty, which is 10% on PVC, should be reduced. On the other hand, the domestic resin producers are also looking that this should not happen because already there are some FTAs which are affecting the margins on the domestic producers. So between the 2, on the one side, there are producers of resin. On the other side, there are consumers of resin. Between the duty, structure is decided by the government. I think at present, we see that it will be continued to the level that it is presently there.

Sure, sir. And if it doesn't, would it mean that there'll be a direct cotton prices by around 10 odd rupee -- 10-odd percent, given that you said that prices are hovering at around $1,500, and in China, they're hovering around $1,300. Is that understanding correct?

China at present is $1,300, but at the same time, they have their logistical issues also. May not be that there will be a correction even if it happens to about 5% or 7%, not more.

Got it. Got it. And sir, second question was basically related to -- currently, what are the sizes in the gray market of PVC? Because for some time, we were looking about a big gray market discount in the PVC market when Reliance can't. All of these companies in the domestic market have PVC prices in the range of -- I mean this was already running at premium. So what's the current status after this current price cuts? Has the prices come in line with what they were running in the gray market? Or there is still some level of discount?

I think the gray market prices are very volatile. Sometimes they're at premium, sometimes they have discount. I mean you can't predict it like this. It all depends upon how much is the import material that is coming to the country. And if it is a delay, supposing somebody has ordered a material at a higher price and now it has come after 3 months and the price is now corrected already, then they dump it also because otherwise they carry huge losses. So this type of trading volumes, which are there, there beside the gray market. So depending on the actual availability of the free volume available in the market. Otherwise, domestic suppliers have got a steady production level and steady supply level.

Sir, one last question, which is again related to some government notifications only, which is BIS norms. Any clarity, there are times we heard about getting it implemented, at times it's completely ignored and not getting implemented. Any particular status on what you feel is the intention of the government here?

The intention was that we must have a standard quality of the material that is being used in the country, whether it is from the domestic supplier or it is from the external suppliers. And there is a lot of gray material that comes up with low-quality stuff also in the country, and that affects the entire -- the pricing level. And that is why BIS standard has been introduced so that everyone, whoever wants to sell a material in India must conform to a BIS standard. And this has been now implemented. All the products, not even the PVC, but at the same time, the supplies coming to the PVC manufacturers, like EDC, VCM, all are now linked to BIS. So every product has got a BIS standard. And all the suppliers who are supplying it in the country as well as the domestic producers must have a BIS license for these products. I think that is good that we also make something which is standardized. It's just like reach. European Union has a particular standard for every chemical that they use, the similar thing may be happening that BIS is the only agency in India who can control the quality of materials which are entirely being used in India. And that is why this becomes mandatory for domestic suppliers as well as the external suppliers.

The next question is from the line of [ SM Kumar ] an individual investor.

We have 2 questions. So first question regarding how much cash available in our book.

Roughly, net cash of roughly 500 crores.

Okay, so do you have any plans for inorganic acquisition in the months, upcoming years?

So we are not close to any opportunities, but there's nothing specifically identified as of now.

Okay. So further regarding questions, digital marketing. So what are the steps we have taken to improve our digital marketing through any function where you clearly can because nowadays, most of farmers are using the social media. So do you have any strategic plan to improve our digital marketing? Any area on that?

Yes, we do. In fact, we already, I would say, focused on digital marketing. We reach out to our customers. And you're right, even in rural markets, digital is becoming the norm of the day. So we are actively pursuing digital channels like the technical ones, the social media, social interactions, Facebooks and all of that. So we have a team which kind of keep working on this.

The next question is from the line of Ashwin Agarwal from Akash Ganga Investments.

Sir, my first question would be a bookkeeping question. So as we have a higher consumption of internal consumption of PVC resins, how do we benchmark in the terms of revenue? And how do we book itself? Like can you just give some broad idea onto that? [Technical Difficulty]

Sorry, my connection was lost. Can you please repeat that question?

Yes, yes. So as we have a higher internal consumption of PVC resins, and so I just wanted to understand how do we benchmark as a price, because the prices are so volatile, so how do you benchmark in terms of revenue as well -- or in terms of Finolex Industries?

So our internal transfer happened at market rates.

Okay. So -- and on that, what we require, we will get at the market rate, right? So that will be the thing.

Yes.

Okay. And sir, my second question would be on this -- can you just give a broad idea on EDC, VCM route? Can you just give some -- what is the ratio right now? What we are making in PVC resins with this ratio?

From EDC route, we make about 60% and from VCM route, we make 40%.

40%, right?

Yes.

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

So my question relates to pricing of our CPVC products. So how do we -- our prices compare in relation to the market leader, are we -- at what level of discount compared to market leaders?

See, I don't know who you are referring to when you say the market leader, but we generally price, this is our input cost and the margin that we want to keep. There are some markets where the prices are -- they're not really the same everywhere. But depending on territories. Some territories, we are slightly overpriced, some we're underpriced. I mean we have more pricing advantage. So it's difficult to say that how much are we driving because we don't price keeping any competitor in mind. We do our own math, our own economics, and that's how we price our goods.

And regarding the sourcing of raw material for previous -- previously, we had an exclusive agreement with Lubrizol. So we are sourcing 100% from them or we have multiple channels?

We have multiple channels. We had a procurement contract with Lubrizol, but that we closed down last year, in fact.

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

Most of my questions have been answered. Just 1 question. Can you talk about the PVC supply situation in China and the U.S.? Just wanted to know that if theoretically the dumping duties are removed, is there any free supply to come to India in the next few months, which would force more PCV price cuts, sir?

At present, I think there is hardly any supply coming from China as well as U.S. The main suppliers presently are Japan because there is the FTA. The next one is Thailand and Formosa from Taiwan, South Korea. So more or less, except China, all Asia Pacific people and some Southeast Asia people, even from Indonesia, Thailand, Malaysia, Philippines. A little comes from Europe. U.S. is a long distance. Presently U.S. supplies to India are still limited. Even later on also, logistically, it is far away from this. So we don't see much of a problem from U.S., but China, yes. If China really gets opened up, they will enter the Indian market in a more aggressive way. That is one possibility. At the same time, China capacity is 50% on carbide route. And so how that unfolds based on the environmental concerns, which China has gone through and whether they will be releasing again to the level that they want. So China itself, if they don't go for the carbide route aggressively, we may not have much of their service. These are some of the uncertainties on the sales, which is coming from Euro side of the planet.

But with China, there is that option that there are subsidies and even if dumping duties are removed, Chinese supplies will flow into our market and, worse, will upset the pricing dynamics here. We can't just count on that just yet.

I think some time back, China and Australia fell through their term on coal supplies. And then China had to go for Indonesian coal. The Indonesian coal prices went up. Then China also opened the internal domestic coal supplies. So these were something which went wrong. But now I think the things are taking the reverse route. So we still do not know how that will unfold on the carbide route from China.

Okay. And just one follow-up on this. So I think last year, there was talk about the demand for PVC within China has also increased, same for the U.S. as well, and that's why they were not exporting from their own markets. Has that -- the internal demand for PVC, has that gone down? Or has there been -- I mean, like capacities were shut down on the carbide side. Those are possibly opening up and hence, they are surplus to export.

I think China is such a closed-information market. Recently, there were some lockdowns, which are also [indiscernible] and all those major areas, they were locked down. One or 2 ports also were closed down in Thailand. So the trade also got affected from China. So there are certain things which are still announced on China. But, at present, there are domestic productions that are meeting their own requirements. They are making some closed trades. That has happened from China on this. But they are definitely on the PVC, they are there. Some amount of PCV could be there. But it is still not on a very large scale yet. There are more than one FTAs under those countries. Japan, these are the countries where there is a surplus for PVC, which comes to it.

The next question is from the line of [ Bharat Daga ], an individual investor.

Sir, my question is that why raw material cost increased almost 50% as compared to previous quarter. I want to know.

I think one thing you should understand, when the PVC goes up, all the raw material prices have also moved up. So EDC as well as VCM, both their prices have moved up. So raw material prices will definitely follow the previous year rate.

Okay. But it is almost 50% compared to previous quarters, sir.

Yes. There was a lag somewhere or the other. The PVC prices reached $1,900. So that is why there was a huge differential between PVC to EDC, others from PVC to VCM. So definitely, the PVC suppliers as well as VCM suppliers, they are increasing the prices.

Okay. Then sir, second question is what's the company road map for the coming 2 years?

I didn't get your question.

What's the company's road map for the coming 2 years, sir?

Road map is in the sense that we continue to operate in a similar model. We see that the demand goes up, and we hope that we will have at least double-digit growth coming for the next year.

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

Sanjay, there's one macro backdrop, right, that the non-agri demand should see sustained and strong situation going into next 2, 3 years purely because there is a decent amount of recovery on the real estate side. The construction looks okay, both urban, semi-urban. Of course, home improvement and stuff like that are also driving some kind of renovation demand. On agri side, last 2 seasons have been hit by COVID. This year also, we are a bit delayed. My sense is the farmers will be waiting to put pipes and improve their field and wait for the rains to stop. So overall, both end customers and consumers for us on a steady-state basis looks like that the demand of our pipes should be pretty strong and we should report like very high volume growth going forward when things stabilize. And we should basically try and hit our 3 lakh tonne kind of volume for pipes and fittings. Any thoughts, sir, on this fiscal '23, '24? How -- do you agree with this or do you think there is some gap in my understanding?

Yes, Mr. Math, please go ahead.

Yes. I think your analysis is definitely a music to our ears. Definitely, we also look at and hope that the demand really comes back to agri. Agri has been going -- actually the agri growth in GDP terms is more than 3% to 4% now. Last 2 years, the rain has been good and both the average [indiscernible] crop has been good. So the money with the farmers is there. It is only the pricing that has definitely -- possibly has made the difference for going ahead with the investment on the pipe irrigational investment. I think what you are saying is right. The next 2 years, we should see that whatever shortfall on the demand that we have seen, farmers will come back and they will go ahead with the investment in irrigation. On the other hand, on the real estate also, the inventory is very low. So there is -- particularly the low-income housing definitely has now taken a route and it will definitely go ahead, and more and more instead of luxury housing. The middle-income growth and the low-income growth, that will grow. That will drive the demand on the retail basis. I think, yes, you are right. We also see that this may happen. I think we don't like to predict something. We always see that we try to meet the demand with all our supply side constraints controlled.

Got it, sir. So essentially, does that mean that wherever things normalize and we cross that 3 lakh tonne kind of number for pipes and fittings, till that point, we don't need any CapEx for resins? I mean, that is good enough to meet the PVC pipe demand. Is that correct? So there is no CapEx for next 3 years in PVC resin?

No, no CapEx for PVC resin.

Okay. Perfect. And last question, just to end the call. Any expectations from the union budget from 1st February? Anything positive, negative to your sector or company specifically? Any requests to the government as an industry you would have made? Your comments, please.

Having support to agri sector and support to the construction sector, that in any form with the government will be beneficial for us also.

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

Just one follow-up rather than clarification. This agri volume minus 5% year-on-year and non-agri of plus 30% year-on-year. Is it on the basis of FY '21 or FY '20?

FY '21.

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

Sir, I just wanted to know, just out of 1 lakh 20,000 tonnes per month import, how much it would be from China and how much it would be from U.S. currently?

I think this data is available. Maybe you can refer to that. I don't have the number now.

Any rough sense, sir, how big would be China today?

No less than 10,000 tonnes.

The next question is from the line of Tarang from Old Bridge Capital.

I have 2 questions. One, At some point in your earlier answer, you spoke about pricing being different from one region to the other, which is basically a function of your cost and whatever margins. So just wanted to understand what would be the differences in costs on resin level which would drive differential pricing? So that's number one. The second question is, my sense would be that most of the working capital that's deployed in the business would be attributable to the Pipes & Fittings business. Would that be accurate?

Large part of it, yes. But also in the resin segment also, there is inventory which is carried. So it's not there completely it is for Pipes & Fittings.

And typically, how many days of inventory is carried in resins?

30 days, roughly.

30 days. My first question, please.

Importing material, importing of goods, it's 2 months.

See, the difference in pricing comes from resale ex factory, okay? So that was our pricing for everybody is more or less the same. But how the price to the end customer, they vary. One of the major items which come into place is the freight because transportation plays a major role when the dealer or the retailer -- at what price it features in.

So [ transportation ] is the primary factor, the [ shipping ], that's it, right?

Yes.

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.

Yes. I'd like to thank the management for providing us the opportunity to host them and for very detailed commentary and insights. Thank you so much. I'll hand over the call to Mr. Math for final closing remarks.

Thank you, Ritesh, and thank you all of you who have a continued interest in Finolex Industries. We would be happy to share any more information whenever you want. And we look for your continued support in the future also. Thank you again. Thanks.

Thank you.

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