Prince Pipes and Fittings Limited (PRINCEPIPE.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Earnings Conference Call of Prince Pipes and Fittings Limited hosted by MUFG Intime. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumeet Khaitan from MUFG Intime. Thank you, and over to you, sir.

Yes. Good morning, everyone. I welcome you all to the earnings conference call to discuss Q1 FY '26 results of Prince Pipes and Fittings Limited. To discuss the results, we have from the management, Mr. Parag Chheda, Joint Managing Director; Mr. Nihar Chheda, Vice President, Strategy; and Mr. Anand Gupta, Chief Financial Officer. They will take you through the results and the business performance, after which we will proceed for a Q&A session. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to investor presentation and other filings that can be found on the company's website. With this, I now hand over the call to the management for their opening remarks. Over to you, sir.

Thank you, Sumeet. Good morning, and thank you all for joining us for our quarter 1 FY '26 financial results. The presentation and the press release have been issued to the stock exchanges and uploaded on our website. I hope everyone has been able to go through the same. FY '25 unfolded against a backdrop of considerable macroeconomic headwinds. The year was defined by persistent inflationary pressures, subdued demand across core end user segments and a marked reduction in government infrastructure spending. These factors triggered caution inventory optimization by our channel partners in key markets. Amplifying these challenges was the heightened volatility in PVC resin prices, which exerted pressure on both volume growth and profitability across the industry. As we stepped into quarter 1 of FY '26, the challenging demand environment persisted. The sharp correction in PVC resin prices led to inventory losses in the trade channel, which temporarily compressed our margins. Despite these headwinds, our volumes registered a 4% Y-o-Y increase to 43,735 metric tonnes, while revenue degrew by 4% Y-o-Y, reflecting the impact of a weaker realization arising from price fluctuations. In response to this challenging backdrop, we maintained a clear focus on reinforcing operational resilience and executing our long-term strategic priorities. Our deliberate efforts to enhance brand visibility, deepen the channel engagement and accelerate marketing initiatives are beginning to translate into tangible volume-led growth. On the brand building front, we are expanding our consumer touch points across high visibility travel corridors. Our collaboration with Indian Railways for branding in premium trains has significantly strengthened our presence on one of the India's most prestigious and widely viewed transport networks. These initiatives ensure that our brand is both visible and relatable to consumers wherever they travel. Simultaneously, we are executing planned capital expenditure to support our growth ambitions. Our eighth manufacturing facility in Bihar, which commenced operations last quarter, continues to operate efficiently. The Phase 2 expansion at this plant is progressing on schedule and is expected to be completed by quarter 2 FY '26, further augmenting our capacity to serve emerging markets. Innovation continues to be a cornerstone of our strategy. We remain focused on enhancing our product portfolio with innovative offerings while simultaneously strengthening our distribution network across regions. I'm pleased to share that our Bathware segment, Aquel, has now expanded in the South region following successful launches in the North and West. In addition, we have set up dedicated teams in the East, reinforcing our ability to penetrate new markets effectively. We believe these strategic initiatives will further accelerate our growth momentum and contribute meaningfully to delivering sustainable value for all our stakeholders. Looking ahead, we are optimistic about a gradual recovery in demand, supported by the government's renewed thrust on infrastructure spending. Our strategic focus on geographical expansion, product innovation and operational excellence position us well to navigate near-term market uncertainties and capture long-term growth opportunities. In conclusion, despite external headwinds, we are confident that our strong fundamentals, diversified product portfolio and customer-centric approach position us well for sustained long-term growth. Thank you for your time. I will now hand it over to our CFO, Mr. Anand Gupta, to take you through the key financial highlights.

Thank you, Parag bhai, and good morning, everyone. I'll be taking you through the Q1 FY '26 financials now. Our volumes for the quarter stood at 43,735 metric tonnes. It grew by 4% Y-o-Y. Revenue from operations stood at INR 580 crores and EBITDA for the quarter stood at INR 40 crores. Margin is at 7%. Profit before tax for the quarter is at INR 5 crores. And in Q1 FY '26, our working capital is at 93 days compared to 98 days from the last quarter. Receivable has shown improvement and now stand at 55 days from 61 days and inventory days is at 83 days as on 30th June 2025. With this, I open the forum for question-and-answer session.

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital.

Sir, I want to understand clearly revenue volume and EBITDA margin at least for this year. So if possible, if you can help us in terms of the quarter-wise also, so let me put it my questions better. So first, on the volume growth, so 3.7% growth we have done in this quarter. So in second quarter, how do you see the growth? And let's see the -- whatever the ADD comes by September or October. Then in the second half, how do we see and net-net for full year, how do we see the volume growth? Second, the biggest question is on the realization front. Though this quarter, 7.8% kind of a decline is there Q-o-Q. But if I look at from FY '25, it is 9-odd percent decline. So in Q2, how do we see and in the second half? So net-net, I want to understand in terms of the revenue for FY '26, it seems like we would be a kind of a 2%, 3% kind of a growth. So help me in that.

Yes. So I'll take the first question on the volume side. So volume growth has been 3.7% for first quarter. In the second quarter, July has been to a good start. So we have seen good growth in July. And we are confident of high single-digit to low double-digit kind of growth should be possible for the rest of the year going forward. As far as realizations are concerned, I mean, everyone knows we are a pass-through industry. It's mainly a function of raw material prices, which are not controllable. So if you see the decline in realizations year-on-year, June quarter to June quarter, I think we are in line with our peers of around 8%, 9% kind of a drop in realization. So I think that is going to be a function of raw material pricing. So as the -- whenever the duty is announced and the raw material prices move up, I think realizations also will move in line with that.

But as far as Q2 is concerned, the current realization are likely to remain till the time ADD doesn't come. So currently, is there a way in terms of either by increasing the CPVC share or whatever way, whether the Q1 was very bad in terms of product mix or anything? So do we see any kind of a realization improvement possible except the ADD in Q2?

Yes, I think the other way of improving realization is through product mix. Even in first quarter, we have had a better growth in CPVC compared to PVC. So as product mix improves, realizations also will improve.

Okay. And now on the margin front. So how do we see the 6.8% kind of EBITDA margin? I understand we used to guide 12-odd percent kind of a sustainable long-term EBITDA margin. But for this year, till the time ADD doesn't come, do we see even kind of an 8% kind of a margin is possible or this number will be there?

No. I think margins will improve going forward. We have seen an inventory loss of around INR 15 crores to INR 20 crores in the June quarter. Inventory losses going forward will not be there. And as volumes improve, operating leverage also will improve. So I think in terms of margins, Q2 will be better than Q1 and the second half of the year will be better than the first half.

Okay. Great. And last on the CapEx front, sir. So how much cash CapEx we have done in Q1? And for full year now, last time we said INR 220-odd crores. So for Aquel, and then remaining on the Begusarai, how much is left? And currently, the Begusarai capacity last time what we said 24,000 tonnes and now by September, will it reach to 60,000 tonnes?

So on the first part, the CapEx is in the first quarter is around INR 75 crores. And for the rest of the year, including Bihar expansion, it will be in the range of around INR 160 crores to INR 170 crores, which will take care of leftover of Bihar, which will close by 30th September. And the second part is actual commitment, which is still there, which is pending, which we have factored in our cash flow projection. And then the rest is operational CapEx for the rest of the plants. In terms of Bihar reaching out in H1, it will be close to 60,000 tonnes of capacity we'll close by 30th September.

The next question is from the line of Sneha from Nuvama.

Just a couple of questions from my end. You did mention the inventory loss number, but could you also quantify other reasons like what has been the loss from the Bathware segment? And where do we now see the margins going ex of inventory losses?

So Bathware loss is close to INR 5 crores, which translates to 0.8% to 1%. So that is the other number. And going forward, as Nihar mentioned that from Q2, margin will start improving and H2 will have a normalized kind of EBITDA after factoring Bathware loss.

Understood. And the second point was you also mentioned inventory days is standing at about 81-odd days. Could you quantify that how much would be the inventory for raw material as well as finished goods here? And what's your target for inventory levels next quarter or the year-end?

Yes. So inventory actually has reduced from June quarter -- from March end to June end. So I will give you the exact numbers in terms of days. In March, raw material was around 45 days, which has come down to now 35 days. So we have seen a reduction of 10 days. I think the target here would be to keep this around 30 days. So we are close to our target. We have seen a sharp reduction in the past quarter of around 10 days. Finished goods has -- we -- in March end was 35 days, which at June end is around 40 days, which is a 5-day increase, which is we are okay with because we are gearing up for better demand going forward. So on a -- in terms of the target that you asked, I would like to keep it between 70 to 75 days, around 30 to 35 days of raw material and balance finished good.

[Operator Instructions] The next question is from the line of Keshav Lahoti from HDFC Securities.

Sir, as you highlighted, the CPVC growth is better. So earlier, it was growing by double digit highlighted by you. So should we expect the CPVC volume growth was double digit in this quarter also?

I think it was -- I will stay away from giving exact numbers, but it was high single digit.

Understood. Got it. And sir, how are the trends on the incentive side in the market? Has it changed? Has it increased, decreased? How is it? What sort of incentive, higher incentive you're giving to dealers now?

See, I think sentiments in the channel are better than what it was in the previous quarter. So we have not seen very sharp decreases in PVC. There have been decrease, but it's not been very sharp the way it was before. And I think PVC prices have bottomed out, if not close to bottom. So I think sentiment of channel is only improving. So it's not an on and off switch. We can't just pull the trade incentives, but we have started rationalizing where required. And where we think that we need to continue giving the incentives, we are going to continue giving the incentives. So we need to find the right balance between, of course, improving margins. But today, main focus of the organization is on improving volume growth and capacity utilization.

Got it. Got it. And sir, how -- when we expect the ballpark number of 12% margin, whether this will be achieved this year? Or is it time to reach this number, a long-term target?

Can you say that again?

So normally, company guides in the long run, the EBITDA margin of the company would be 12%. So should we expect this by Q4? Or is it possibly 1 or 2 years away?

No, I think by Q4, we should be normalized, if not by Q3.

Understood. Got it. One last question, sir, you haven't mentioned Bathware revenue yet, right?

Give me 1 minute. Revenue, net revenue for first quarter of Bathware is INR 11 crores.

[Operator Instructions] The next question is from the line of Pranav Mehta from Equirus Securities.

Sir, I wanted to understand on two things. One is on the interest cost. So that has seen a sharp jump. So anything one-off there?

So we have capitalized majority of our Bihar project and the term loan, which was taken for that purpose was capitalized till the date we commence our production. Post that, it is now operational expense. So that's why you are seeing that difference in Q1 finance cost compared to last quarter.

So sir, going forward, this would be a kind of a steady-state interest rate for this year? Or are we expecting...

Until we repay our term loan on a reducing basis, interest will be charged in P&L on term loan.

Okay. Sir, my next question was this write-back on the excess staff incentive. So exactly what was that?

So this is a normal cycle of evaluation based on company's performance. We have decided to incentivize our employees accordingly and those write-backs has come because of the lower profit company has made.

So sir, in that case, the quarterly number that you have posted for 1Q, will it remain at the same level for the rest of the year? Or are you seeing some increase in that?

No, I think -- no. So the performance-linked incentives are a reflection of the health of the organization and the profitability of the organization. Going forward, as inventory losses reduce, minimize and overall product mix improves, I think margin from second quarter will be better than first quarter and second half of the year will be significantly better than the first half of the year.

Okay. But staff costs more or less would be remaining at this level?

No, it will -- no, the cycle at our end is July to June. So in Q2, you will see the increments coming in the cost of salary.

Okay. And sir, just to make it clear, all the inventory loss for the inventory that you have built up has been taken, right?

Yes.

Okay. So no further -- as of now, as the prices remain, no further loss you are expecting?

Yes.

The next question is from the line of Udit Gajiwala from Yes Securities.

Just a broad understanding as to the overall view, right? So is it the volumes that will be the key focus now given that there is a lot of competition also there and all the other players have also set up new capacities. So do you see that the pricing war will continue and volumes will be a key focus and you'll have to pay for the margins?

So volumes will be the focus. Focus has always been on profitable growth. So we don't want to have any predatory pricing. We had to have aggressive trade incentives when channel sentiment was poor, especially in December quarter and Jan quarter of last financial year. But I think as PVC prices are bottoming out, sentiment is improving, that we don't see a very high resistance from the channel to stock up. So I believe going forward, we will be able to focus on profitable volume growth. And in our industry, especially for us, the way our cost structure is, operating leverage plays a big part. So the more we sell, the more profitable we will be from a cost absorption point of view. So I think the two objectives actually go hand in hand.

Got it, sir. And in your opening remarks, you mentioned that July has been good versus what you have seen in Q1. So can you point out that as to which segment you see the growth coming up or specific region, if you would like to highlight?

Mainly from building material because agri because of the monsoons was not a great agri season after, I would say, May and beginning of June. So mainly, I would say, driven by residential building material products.

[Operator Instructions] The next question is from the line of Meet Jain from Motilal Oswal.

My question is regarding the more macro scenario. As we see antidumping duty, which has been expected to come in September, October, until that prices are expected to be stable around this level as you have told and bottomed out. And in terms of demand, you mentioned that demand is expected to improve going ahead with increasing government push. So in which pockets are you seeing this demand recovering, in which locations, if you can just throw some light on that?

So I think like I said, agriculture season was short-lived, which anyway is not a big part of our revenue. It's only maybe 30% of the overall revenue. Mainly, we are a building material company focused on plumbing and SWR. So I think growth will be -- we have seen the green shoots of demand in July. And going forward, I think these are the segments that will continue to do well.

So basically, our demand will be more driven by higher launches of new residential projects across India and more CapEx from the private organization, right, then more focus on government infra?

Correct.

And 1Q, as we know, it is heavy on agriculture, but as a company, we are heavy on plumbing and SWR as you mentioned. So 1Q, we saw a good growth in residential.

So we saw -- so agri is around 30% -- 30%, 35% of revenue, which is still a significant part of our overall revenue. But we are, I would say, amongst -- in the industry, we are pretty well hedged between plumbing and agri and followed by infrastructure.

Okay. So this 30% is for the entire year or this Q1 is more agri driven hence 30%?

30% is on an annual basis. Of course, agri demand is seasonal. So you will see sort of March to June tends to be the large agri season. And in December, you see a small agri season.

So this quarter can be over 50% for us in terms of volume?

I'm sorry?

For this quarter, for 1Q, can it assume it will be over 50% this quarter because being the agri season?

No, no. The SKUs are not that large.

The next question is from the line of Utkarsh from BOB Capital.

Sir, my question is regarding your Bihar plant. So if you can just help us what would be the capacity utilization of our Bihar plant in the June quarter? And at what level we expect to operate, say, by the coming March quarter? And what would be a breakeven point for our Bihar plant?

So first, the utilization part, see, we have to understand that the complete range has to be available at the Bihar plant to make sure that the whole set of delivery is done. So right now, as we have progressed -- we have progressed to close to 58,000 tonnes, but actual efficiency of these addition in the capacity will happen from Q3 once the whole range is ready. So right now, we are building capacity, but the utilization -- effective utilization will happen from Q3 -- mid of Q2, I'll say, will start. So then we can better see that what is the effective utilization. The other part was related to when it will breakeven. So Bihar will take around 5 years to breakeven if we operate at close to 70% capacity.