Finolex Industries Ltd Q1 2022 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Sir, a couple of questions. One is, from a capital allocation standpoint, are we looking to enhance our resin-making capacity or add more EDC, ethylene to cover up on the VCM side? Any thoughts?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Sir, should one assume that what you are referring to is more on the VCM side or it applies even for EDC and ethylene?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. So nothing on this side, on the CapEx side. That's encouraging. Sir, secondly, one of the larger players or groups in India, they have announced nearly 2 million tonnes of PVC capacity in Gujarat. And this is via carbide route, and the group has captive coal, port, other things. So they will be lower on the cost curve. So just trying to understand, I think you indicated that the PVC manufacturing capacity in India is around 1.5 million tonnes, and the demand is around 3.3. So the gap is, say, around less than 2 million tonnes. So if hypothetically this capacity comes in, wherein the cost curve for the company is lower than EDC/ethylene/VCM route, what would it mean to our business model? And secondly, on the local premiums for PVC Resin, is it something which could be detrimental? Because they could actually potentially close in the gap of imports into the country.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Sure, sir. Sir, just a few follow-ups. Sir, which is the other catalyst that you indicated besides mercury?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Sir, I didn't get you, sir, sorry.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Barium chloride. Okay. That's one. Sir, secondly, if...

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Sure. Sure. Sir, my second and third questions over here. Sir, would there be any sense on basically how much will be the conversion cost if it is on captive coal versus the conversion cost that we incur via EDC/ethylene route and... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2021 / 5:30AM, FINX.NS - Q1 2022 Finolex Industries Ltd Earnings Call

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Right. Sir, is there any threshold above which the coal prices go, the carbide route becomes unviable? Anything of that sort based on your...

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. And sir, are we familiar with any capacities in China being taken down because they're high polluting and by carbide route, which can incrementally give better pricing on PVC in a more structural way going forward? Is there any theme of that sort or anything that you're hearing of?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Right. Perfect, sir. This is very helpful. And sir, last question, sir, you indicated that agri percentage on volume terms was 68% to 69% for Q1. Sir, can you give the same numbers for Q4 FY '21 and Q1 FY '21, please?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Yes, sir. Sir, prior quarter and corresponding period last year.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Correct. Sir, just wanted to know in volumetric terms even if you view for Q4 FY '21, that should be fine. I'm just trying to understand the realization movement on a sequential basis.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Sure, sir. I'll follow up on this with you separately.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Whabi sir, are you there?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Yes. Whabi sir, there was a question on capital allocation given cash on books is significant. Akhir, are you there? Akhil Kalluri Yes. So sir, the question was basically, we have a reasonably large cash balance, almost INR 600-odd crores. Operating cash flow is also fairly healthy. And you just indicated that incremental CapEx in both resin as well as pipes is not going to be material over the next couple of years. So I just wanted to understand if you are thinking of any of other areas that the company is exploring from a capital allocation perspective? If not, can the payout ratios increase further from current levels?

Question: Amit Zade - Antique Stockbroking Ltd., Research Division - Analyst : Am I audible?

Question: Amit Zade - Antique Stockbroking Ltd., Research Division - Analyst : My question is on the demand side. So sir, what kind of demand are we seeing from government projects because we have seen government allocation in all these have been doubled for FY '22? And an extension to this question, sir. Assuming hypothetically, let's say, 100% of the allocation is actually materialized on the ground, so what kind of demand it can create in the existing pipes industries?

Question: Amit Zade - Antique Stockbroking Ltd., Research Division - Analyst : Okay. So you also see the risk to these budgeted estimates?

Question: Amit Zade - Antique Stockbroking Ltd., Research Division - Analyst : Right, sir. So sir -- and just a follow-up with this. So suppose if government is allocating INR 100 for all these projects, so what amount of demand it will translate into for pipes, say, 5%, 10% of this? How should we look at this number, sir?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : This would be the last question, I think. We don't have any further questions. Sir, a very simple question. If the PVC, EDC, ethylene, VCM prices remain at the current levels for the full of Q2 quarter, would we be looking at inventory losses in Q2? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2021 / 5:30AM, FINX.NS - Q1 2022 Finolex Industries Ltd Earnings Call

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. Sir, can you give some...

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. Sir, can you give more color like typically for Q2, our PVC resin production is more towards EDC, ethylene route, right? I think last year was an exception, but historically, would that premise be correct?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. And sir, what you indicated that the last week prices for both EDC and ethylene, I think it was 690 versus 709, and ethylene, it was higher actually, $1,005 versus $991. So should one presume that there would be inventory losses because I think ethylene prices are higher, but EDC prices are lower? Or is it like a wait and watch on how it actually plays out?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Yes, sir.

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. Sure. That's helpful. And sir, lastly, earlier we had spoken about, basically, the variable component for the marketing people. Is there any update on that particular matter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2021 / 5:30AM, FINX.NS - Q1 2022 Finolex Industries Ltd Earnings Call

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Okay. Perfect. Rutuja, do we have any further questions?

Question: Ritesh Shah - Investec Bank plc, Research Division - Analyst : Great. I'd like to thank the management for giving Investec Capital opportunity to host them. And I'll again hand over the call to Mr. Math for any concluding remarks, please.