Finolex Industries Ltd Q3 2024 Earnings Call Transcript

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

Question: Keshav Lahoti - HDFC Securities Limited, - Analyst : Hi, good afternoon, thank you for the opportunity. So wanted to get a sense, there has been some raising price correction in Q3. Is there any inventory loss involved?

Question: Keshav Lahoti - HDFC Securities Limited, - Analyst : Understood, understood. What is the sense on the demand, like H1 has been pretty strong for pipes volume, but we have seen some softening in quarter 3, how should we read it and what sort of volume growth you are looking for this year and color would be helpful like demand agri-wise

Question: Keshav Lahoti - HDFC Securities Limited, - Analyst : Okay. Understood. So, your agri-pipes would have seen a sharp degrowth in quarter 3 year-on-year. What would that number look like and how is your quarter 3 agri and non-agri mix?

Question: Keshav Lahoti - HDFC Securities Limited, - Analyst : Okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Keshav Lahoti - HDFC Securities Limited, - Analyst : Yeah. Got that number. So, in terms of Q3?

Question: Keshav Lahoti - HDFC Securities Limited, - Analyst : Okay. Understood. I got it. Thank you. That is it from my side.

Question: Karan Bhatelia - Asian Markets Securities - Analyst : Hi, sir. Am I audible?

Question: Karan Bhatelia - Asian Markets Securities - Analyst : Sir, I just wanted to understand, given the ongoing global supply chain challenges because of, red sea any difficulty with respect to sourcing of EDC, VCM, and how do we see things shipping up for next three months?

Question: Karan Bhatelia - Asian Markets Securities - Analyst : Right. So, we have got strong inventories of two, three months when it comes to EDC, VCM?

Question: Karan Bhatelia - Asian Markets Securities - Analyst : I am saying, do we now have two or three months of inventory of EDC, VCM, you know, at the company level?

Question: Karan Bhatelia - Asian Markets Securities - Analyst : Right. Thanks for the clarification. And on, sir, Finolex question, you know, how do we see Infra as a segment growing for FY '24 after phenomenal, you know, volume growth in the Infra segment for FY '23?

Question: Karan Bhatelia - Asian Markets Securities - Analyst : No. So, for Plasma and for Infra as an industry as a whole. So, how do we see that shaping for FY '24 on a very heavy base of FY '23?

Question: Karan Bhatelia - Asian Markets Securities - Analyst : Right. Great. Thanks. Thanks for all your clarification. That is from my end.

Question: Sneha Talreja - Nuvama Wealth Management Limited - Analyst : Good afternoon, sir. And thanks a lot for the opportunity. So, from my end, firstly, when you said volume growth, what is the kind of volume growth we are likely to see in this particular year? Earlier, we were guiding for 15%. But looking at the run rate, we are at 10% YTD. What should we expect for FY '24? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Sneha Talreja - Nuvama Wealth Management Limited - Analyst : Right. So, that's what my understanding was that the real quarter is expected to come in. So, what's your expectation in agri? Is it looking up? Because Q4 is the main quarter along with Q1.

Question: Sneha Talreja - Nuvama Wealth Management Limited - Analyst : Sure. Along with that, any direction in PVC prices that you are seeing, given that there are supply disruptions globally, which have just started to pan out? Are we seeing any sharp up move in PVC prices from here on?

Question: Sneha Talreja - Nuvama Wealth Management Limited - Analyst : Understood. And how is CPVC pricing been faring? Has the bottom again been met or are we still seeing some cooling off of prices?

Question: Sneha Talreja - Nuvama Wealth Management Limited - Analyst : Understood, sir. Thanks. Thanks, Professor. I'll get back in the queue for further questions.

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Thank you for the opportunity, sir. Just wanted clarification on a couple of things. First is that I wanted to understand what kind of response are we seeing from our channel partners given to that coming soon the agri demand is supposed to pick up. So, what kind of response are we seeing? Are they waiting to play out if there is any further fall in PVC prices or is there a decent response from there?

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Understood. So, we are still waiting for them to pick up on sales from the channel partners. And secondly, I wanted to understand that the remainder land parcel that we have, I believe it is close to 36 acres. Are we planning any sale on that front or are we still planning to keep it with us?

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Are we in talks with anyone for the land yet or is it still in the very early stages?

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Understood. Okay. Okay. Thanks a lot and all the best, sir.

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Intent is-- Understood. Okay. Thank you so much. So, just one last part. Can we have some clarity on what would be the value of the land of 36 acres?

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Understood. Okay. Perfect. Thank you so much, sir. And all the best.

Question: Rajesh Ravi - HDFC Securities - Analyst : Hi, sir. Good morning. Am I audible?

Question: Rajesh Ravi - HDFC Securities - Analyst : So, first, a few bookkeeping questions. Could you share the agri mix in volume and value term in Q3 and for FY-- 9 months FY '24, please?

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. In terms of the, for the Q3, what was the filing EDC and VCM prices and what are the current ranges for these three? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. Great, sir. In terms of the business, how are you looking at your CPVC? You know, I understand you have stopped sharing the numbers for that, but what is your view given that you are around 4% to 5% of the total volume, you know, until last year. So, what is your view given that raising supply domestically is increasing? So, are you looking to increase this segment significantly from 4% to 5% level? And if so, what is the, you know, what level you are looking at?

Question: Rajesh Ravi - HDFC Securities - Analyst : CPVC, sir. CPVC pipes.

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. So, on a small base, you are not looking any significant given that make-only fine-tune and then, you know, the result next year would all be make-only fine-tune is already increased capacity significantly and even the result capacity will come next year. So, for the domestic supply increasing and you are already being present in this market, what is your outlook from this 4% to 5% currently? Could it be significant at 10% to 15% level?

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. Understood. So, the resident availability would not be a trigger for you to exponentially increase the volume. So, this is your, you know, growth potential, you know, your growth trajectory. And sir, you mentioned that you have some inventory losses. I understand you will not be able to separate it segmentally. But on a total basis in Q3, what could be your inventory losses which you have booked in numbers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. No, I am asking, you know, if you have booked in your accounting, if you have taken account for any losses. Understand--

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. Great. Lastly, all this land sale and all, whenever you do, you generate some gains. So, what are your CapEx plans? You also sitted on a good amount of cash. So, what about any expansion plans across both the segments?

Question: Rajesh Ravi - HDFC Securities - Analyst : Okay. That is all from my side. For now, I will come back in queue.

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : Sir, first question is on the cash flow path. So, if I see, over the past seven quarters, we have generated a positive cash approval of INR 575 crores when we do the addition of net profit plus depreciation. And I believe that there would have been also a release of working capital due to substantial decline in the PVC resin prices. But our net cash balance has remained at a similar level at INR 1550 odd crores over the past seven quarters. So, can you please explain where we have deployed around INR 600 crores of cash over the past seven quarters period and how we are planning to utilize this surplus cash going forward, which we are carrying in the book?

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : So, you are saying that this INR 600 crores of cash which we have generated mainly through operation has been deployed only in the form of CapEx and dividends because for working capital, the cash would have got released from the system with decline in prices.

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : And how much CapEx we have incurred in this nine month of FY '24?

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : Yes, sure. And how are you planning to utilize the existing surplus cash balance going forward?

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : We have been hearing this point again and again, but it has been quite a long time. So, what would be that trigger which we are looking at to come to the decision point?

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : Do we have any plan to enter into new product category like Infra, Pipe and Tanks in near future?

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : And sir, on the PVC resin side, are we facing any issue on the availability of PVC resin raw material that is VCM and ADC because if I see our production has been on a lower side on a consistent basis compared to what we were doing during pre-COVID period.

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : Okay. And if you can just give some guidance that how has been our CPVC volume growth in the December quarter period and in the 9 month of FY '24?

Question: Utkarsh Nopany - Haitong Securities India Private Limited - Analyst : Okay, thanks. And I am just waiting for that CapEx number for 9 months. Yeah, that's it from me. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Abhishek Ghosh - DSP BlackRock Investment Managers Pvt. Ltd - Analyst : Hi sir, thanks for the opportunity. Just a couple of questions in terms of the resin part of it this quarter the production is much higher than your sales. So, Niraj were you referring to that data point in terms of resins?

Question: Abhishek Ghosh - DSP BlackRock Investment Managers Pvt. Ltd - Analyst : Got that. So the INR 7 of broad EBIT per kg that you have done, that also has an element of negative operating leverage to that extent for the division.

Question: Abhishek Ghosh - DSP BlackRock Investment Managers Pvt. Ltd - Analyst : Okay, got that. And just in terms of the market competitiveness at a point in time when you're not seeing pick up in Agri, do you see increase in competitive intensity by market leaders in terms of pricing and aggression? Any, any, any change in the competitive landscape that you're seeing in the marketplace?

Question: Abhishek Ghosh - DSP BlackRock Investment Managers Pvt. Ltd - Analyst : Yeah, Ajit, what I was trying to understand is at a point in time when there has been delay in pick up in the Agri demand, do you see a change in the competitive landscape of the PVC pipe market in terms of market leaders getting aggressive as far as pricing is concerned? Any, any kind of change in the landscape that you see at the competitive, competitive side?

Question: Abhishek Ghosh - DSP BlackRock Investment Managers Pvt. Ltd - Analyst : But in your assessment, given the feedback that you must be having from your marketing and the distributor interaction, is PVC price movement the sole cause of delay in pickup, or are there any other issues in terms of affordability, or last year has been very good, any other dynamics also which is playing out for the agri demand pickup?

Question: Abhishek Ghosh - DSP BlackRock Investment Managers Pvt. Ltd - Analyst : Okay. That's very helpful. Thank you so much, and wish you all the best.

Question: Umar Farooq - Crystal Builders - Analyst : Hello, am I audible?

Question: Umar Farooq - Crystal Builders - Analyst : Looking at, this is regarding the question regarding the PVC resin imports actually from, for the past one and a half years, PVC resin have been imported into India very extensively from China, as you said, dumping. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Umar Farooq - Crystal Builders - Analyst : Okay. Am I audible now?

Question: Umar Farooq - Crystal Builders - Analyst : Yeah, so the question regarding the PVC imports into India. So for the past one and a half year or two, we see PVC resin imports have been on a rising trend, especially from the China, if we can say, as a dumping. And many local producers, domestic producers have also complained about that, regarding the dumping. So how do you see going forward, if we see from the data, for the past eight months of the fiscal '24, the imports from China are already at 80% of fiscal '23. So how does this impact going forward to the domestic PVC market? Can you give me clarity on that?

Question: Umar Farooq - Crystal Builders - Analyst : Understood.

Question: Umar Farooq - Crystal Builders - Analyst : Yes, yes. Okay.

Question: Aasim Bharde - DAM Capital Advisors Limited - Analyst : Yeah, thanks for the opportunity. So first question is on the pipes business. So I presume, you know, for your non-agri segment, Finolex would need to be aggressive on the ground in terms of commercial incentivization and your ANP. I just wanted to know that, you know, assuming normal industry, assuming agri volumes are normal, is there a difference between ROCE profile for your agri and non-agri pipe business?

Question: Aasim Bharde - DAM Capital Advisors Limited - Analyst : So the takeaway basically is if you aggressively grow your non-agri business, or rather if it's growing faster, it will not be ROCE dilutive. Got it?

Question: Aasim Bharde - DAM Capital Advisors Limited - Analyst : Yeah. And the second question is on PVC resin. I mean, just from a volume expectation for this fiscal, I think you had last quarter, you had said that you would be, you would attempt to do 200,000 metric ton to 220,000 metric ton volume sales. Given the nine month run rate and with PVC prices being range-bound, but on the lower side, do you still expect to reach that number?

Question: Aasim Bharde - DAM Capital Advisors Limited - Analyst : Right, right. Okay. Thank you very much. Yeah. There was one question on the CapEx. So the CapEx that we have done in the nine months is roughly INR85 crores.

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Yeah. Thank you for the opportunity, sir. So a couple of questions. One is in terms of the activity, they think profitability, if we look at, it's a INR 7 per year round. So we have seen that from the last quarter, it has improved, whereas the PVC/EDC is spread, and PVC/VCM spread is also lower than the last quarter. Then you have highlighted about the negative operating experience also. So I just wanted to understand that what has led to this increase in profitability?

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Yeah, so quarter on quarter, I was looking at a bit per kg for the PVC/VCM, which has gone up from INR 5.4 to INR 7. So our spread for the PVC/EDC, as well as the VCM, is lower than the last quarter. So what has led to this improvement in profitability?

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : So can we expect if the spread continues at the same level, we can be in a similar kind of profitability in coming quarters?

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Okay. So again, in terms of the profitability of pipes and fittings also, we have declined on a quarter-to-quarter basis. So is it primarily because of the product mix that has led to an inventory loss? Or it has an impact of price decline in the prices also?

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Okay. And in terms of our growth plan, basically, we are stronger in our West and South markets. But still, we are not so focused on our North and East markets. So basically, in the future, what is the plan of action, basically, to cater to this market? Because these are the large markets which is growing, and a lot of peer groups is moving towards that market. So is there any plan of action for that market? Are we already looking at that market, or still we are focusing on our core market?

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Yeah. So just to follow up that, basically, sir, we'll service from the same plants, or we are looking at plants closer to the market in the North, or any kind of, because we have a future plan to grow anyway.

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : So what is it?

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Right. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 19, 2024 / 6:30AM, FINX.NS - Q3 2024 Finolex Industries Ltd Earnings Call

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : And if we are supplying from these plants, we are still competitive with the plants which are already into that market in a Northern market primarily, or East, we are still not there. So just to understand the Northern market dynamics.

Question: Amit Srivastava - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Okay. Got it, sir. Thank you.

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Thank you for the follow-up opportunity. Sir, in one of the earlier con calls, we had mentioned that for FY '24 and pipes and fittings segment, we were looking for INR 10 to INR 12 EBIT per kilo performance. So at this juncture, sir, what do we think, what would be the achievable figure? Would we be able to achieve INR 10?

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Understood. Okay. And so, for FY '25, do we have any figure, or will we be evaluating it later on once we cross FY '24?

Question: Miraj Shah - Arihant Capital Markets Ltd - Analyst : Understood. Okay. Yeah, that is on my side. Thank you, sir.

Question: Rahil Shah - Crown Capital - Analyst : Hi, sir. So this is on the volumes again. So for the folio, you had said 15% or 20% overall. But then things are looking slow in agri segment. So what are expectations for the next year, 2025, in terms of volume? Do you stick to the same number or something else?

Question: Rahil Shah - Crown Capital - Analyst : Overall volume?

Question: Rahil Shah - Crown Capital - Analyst : And the margins for the last three quarters, they've been in the range of 12%, 13%. Any uptick expected there? Or you've also done much higher in the past. But is it too far-fetched for now, or this is the number we can look at?

Question: Rahil Shah - Crown Capital - Analyst : When you say these prices are going to be range-bound, what's the timeline? Are you talking about the next quarter, or even a good part of FY '25?

Question: Rahil Shah - Crown Capital - Analyst : Okay, so as of now, this margin band is something we can continue with, with slight improvement, like you mentioned. Alright, thank you and all the best.