Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Baid. Thank you, and over to you, sir.
Good morning, ladies and gentlemen. On behalf of ICICI Securities, I welcome you all to the Q1 FY 20 25 Post-Sale Concall of Finolex Industries. From the management side, we have Mr. Ajit Venkataraman, MD, and Mr. Chandan Verma, Deputy CFO. Now, I hand over the call to Ajit for his opening remarks. After this, we will open the floor for Q&A. Over to you, Ajit.
Thank you, Arun. Good morning, ladies and gentlemen. Welcome to the Investor Conference Call, the Q1 FY 20 25 earnings release. We thank you all for continued support and interest in Finolex Industries Limited. The company closed the quarter with a good improvement in the operating performance despite almost flattish volume in the pipes and fitting segment. This quarter, the company has reported an exceptional gain of INR 417 crore coming from sale of leasehold land of 25.27 acres. Let me take you through some of the performance indicators. Q1 FY 20 25 highlights. Total income from operations was INR 1,140 crore for Q1 FY 20 25, down 2.6%.
Hello. Please stay connected. The management line is disconnected. We are connecting them.
That to INR 1,650 crores in corresponding previous quarter. Now, let me leave the floor open to questions. Thank you.
Hello. Hello, Abhay, sir.
Yeah.
Sorry to say, but the conference was not starting. Can you please say the introduction part again?
Yes, sir.
You're connected now.
But do you want me to go through the whole thing all over again?
Yes, sir.
All right.
Thank you.
Thanks, Arun. Good morning, ladies and gentlemen. Welcome to the Investor Conference Call, the Q1 FY 2024 earnings release. We thank you all for continued support and interest in Finolex Industries Limited. The company closed the quarter with a good improvement in operating performance despite almost flattish volume in pipes and fittings segment. This quarter, the company has reported an exceptional gain of INR 417 crores coming from sale of leasehold land of 25.27 acres. Let me now take you through some of the performance indicators. Q1 FY 20 25 highlights. Total income from operations was INR 1,140 crores for Q1 FY 20 25, down 2.67% against INR 1,179.17 crores in Q1 FY 20 24. EBITDA increased by 53% year-on-year to INR 206.65 crores in Q1 FY 20 25 compared to INR 152.47 crores in Q1 FY 20 24.
EBITDA margin during this quarter stood at 18.12% compared to 12.93% in corresponding previous quarter of Q1 FY 20 24. The company reported a PAT of INR 505.20 crores in Q1 FY 20 25. This includes exceptional gain from the sale of land against INR 110.88 crores in Q1 FY 20 24. Now, getting into the segmental performances. Pipes and Fittings revenue decreased by 2.67% year-on-year to INR 1,123 crores in Q1 FY 20 25 from INR 1,154 crores in Q1 FY 20 24. Volume in the segment decreased marginally by 1.69% year-on-year to 90,620 metric tons in Q1 FY 20 25 against 92,181 metric tons in corresponding last quarter. The EBIT in the segment increased by 6% to INR 134.40 crores in Q1 FY 20 25 compared to INR 126.44 crores in Q1 FY 20 24.
Moving to PVC Resin segment, revenue in the segment stood at INR 548.23 crores in Q1 FY 20 25 compared to INR 359.41 crores in Q1 FY 20 24. Volume in the segment increased significantly by 51.11% to 69,625 metric tons in Q1 FY 20 25 against 46,074 metric tons in Q1 FY 20 24. EBIT in resin segment stood at INR 69.11 crores in Q1 FY 20 25 compared to INR 3.12 crores in corresponding previous year's quarters. The company continued to have a strong balance sheet with a net cash surplus of roughly INR 2,400 crores as of 30 June 2024 compared to INR 1,650 crores in the corresponding previous year's quarter. Let me now leave the floor open for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Udit Gajiwala from Yes Securities. Please go ahead.
Yeah. Hi, sir. Thank you for taking up my question. So firstly, in terms of pipe volume growth, I mean, we have seen peers reporting around 20% growth. I mean, what went wrong for us, or what were the segments that dragged the growth?
See, we have had good growth in the plumbing and sanitation segment. Thank you, Udit, for the question. We had good growth in pipes and the plumbing and sanitation segment, but we were faced with certain supply constraints in the first two months of the quarter, which resulted in the low volumes. But at the same time, our profitability per kg for the pipes and fitting segment has improved significantly.
Sir, what were the supply constraints? Was it because we have not heard it be industry-wide as such a phenomenon, given that it was a peak agri season? I mean, so could you please elaborate? I mean, what was the?
Our plants were running at peak capacity during that period.
Okay. And what was the quantum of inventory gains for the quarter? Hello?
Yes, sir. Just one moment.
Sure.
There was no significant inventory gains for the quarter.
All right. And sir, this in resin business as well, the EBIT margin, given where the delta has improved, are we seeing some spillover that will happen in the following quarter in terms of inventory gains or improved profitability or lower prices could have been then the margins here?
See, we have seen a certain degree of volatility in the past few months in the resin segment. We have seen the prices rise and drop as well as of last few weeks. And therefore, there is not going to be much of a inventory gain or loss going into the future as well.
Okay. Lastly, what kind of a pipe volume growth do you expect for FY 20 25?
See, we maintain a 10%-15% volume growth, which we had forecast in the beginning of the year.
This was on CAGR basis, right, for next 2-3 years, if I'm not mistaken?
No, no. This year as well. CAGR also, we expect a 10%-15% growth here.
Okay. I'll follow up the question. Thank you.
Sure.
Thank you, sir. The next question is from the line of Sonali from Jefferies. Please go ahead. Hello, Sonali. Please go ahead.
Yes. Yes. Sorry for this. Okay. Sir, my first question is again a follow-up in terms of volume growth. Could you divide the volume growth between agri and non-agri for this quarter, please?
We normally don't give you the split of agri and non-agri. Typically, we don't release that. We have seen a much significant growth in the plumbing and sanitation non-agri segment compared to the agri.
Understand. Sir, I just wanted probably the growth rates because I just wanted to understand this -2% pipe stick line, how much did agri degrow actually because of supply growth?
The agri has what I would say is that we don't split to give you the split up between the agri and non-agri growth. In the plumbing and sanitation segment, we have seen growth in line with the industry.
Understand. Sir, my second question is again regarding to the supply constraint that you mentioned your plants were operating at full capacities. What was the utilization that we were operating at, sir? And going forward, if there is such a strong summer again, what comfort do we have that we will not be able we will not be hindered by such supply constraint again because the demand was very strong?
Correct. Sonali, what we had, we have been operating anywhere between 80%-85% in our plants. We are already putting in plans. We always do planning in two ways. One is adding incremental capacities in our existing facilities, which we do from time to time. But we are also planning out the long-term growth plans. Based on the long-term growth plans, we are looking at capacity expansion as well. These are on the drawing board at the moment, and we will announce it as soon as we are ready to do that.
Sir, as of now, our CapEx guidance, have we increased that, or it's the same that we guided for last quarter for FY 20 25?
We normally have a CapEx guidance of almost INR 150 crore for the year. As soon as we have the plan for the expansion ready, we will be announcing it.
Understood. Sir, last question from my side. Sorry if I missed. I joined the call a little bit late. What's the PVC, EDC, VCM price for this quarter versus last? That's year-on-year. And also the spread.
So if you look at the PVC price in Q1 FY 20 24, the average price was about $805, whereas in Q1 FY 20 25, it was $855, the average. And if you look at the EDC, it was $337 in Q1 FY 20 24 versus a $322 average of Q1 FY 20 25. And VCM was almost the same, $672 and $671 in Q1 FY 20 24 and FY 20 25. If you look at the delta, that is where the difference comes in. For PVC, EDC delta in Q1 FY 20 24, we had $468 versus in Q1 FY 20 25, it was $533. In PVC, VCM delta, Q1 FY 20 24, it was $133, whereas in Q1 FY 20 25, it was $184. If you were to look at the prices as of now, probably 25 July 2024, the PVC prices had come down to $820. The PVC, EDC delta was $480, and the PVC, VCM delta had come down to $80.
80. 80.
That's right.
Okay. Sir, just one last question, sorry, to squeeze this in. On the margins, there is a very strong weight to margins that we have got, but you mentioned that we do not have any significant inventory gains. So what are the drivers that you would attribute to the margin growth, especially because your volume in the agri was also impacted? So I don't consider a big operating leverage to that. So what are the key drivers for such a strong margin gain?
One is definitely operational efficiency in our plants. That is one. Second also is that since there was a volume constraint, we had controlled our discounts in the market.
Understood. You think that you will control it going forward as well, or will revert back to status quo?
See, Q2 is typically the weak quarter of the year, and therefore, it should come back to normal in this quarter.
Understood. Sir, thank you so much. That's all from my side. All the best.
Thank you, Sonali.
Thank you. The next question is from the line of Pujan Shah from Molecule Ventures. Please go ahead.
Hello. Am I audible?
Yes, you are, Pujan.
Yeah, yeah. Sir, on our industry traction, we have been seeing in the growth of PVCO pipe, and also a few companies have been aggressively growing. So what's our call on that part and how we have been planning to grow, or are we focusing on to that part as well?
So we are currently focusing on UPVC and CPVC only at this point of time. The new products which are coming into the market, it's under observation. But at this point of time, we are waiting and watching to see how the products perform in the market because these products have been in the market for almost 10 years now.
Okay. Okay. What is the difference? Why have a few companies been aggressively growing? Is it advantage, cost advantage, or it's about the structural ease of installation compared to the replacement of any ductile line pipes? What's the takeoff on PVCO?
So PVCO pipes are definitely lighter in weight because they are much thinner. But it has taken a long time for it to take traction in the market. It's almost 10 years now, and still acceptance is something which is a work in progress.
Okay. Okay. Got it, sir. Thank you so much. Thank you so much.
Thank you, sir. The next question is from the line of Sneha Talreja from Nuvama. Please go ahead.
Hi. Good morning, sir. Just a couple of questions from my end while you, of course, mentioned the current pricing both on the PVC, EDC front, and VCM front. Could we actually understand the PVC scenario from your end? Why did the prices actually increase so much, and why does it suddenly fall? What could be your outlook here, or will we continue to see the volatility during the entire year?
See, it's very difficult to gaze into the crystal ball and give you a prediction, but there are several factors which have been influencing the pricing of PVC. They are mainly driven by the housing market in both China and the US, which have shown a sign of weakness. Therefore, we have seen a lot of material coming into India and resulting in price drops. At the same time, there are also factors such as BIS norms being implemented, which are going to be influencing the pricing of PVC in the market. It is much more of a wait-and-watch as to whether the BIS norms come into effect immediately, or it is likely to see a further price movement as we have seen sometime in the past. Therefore, many of these factors are going to influence how the PVC price movement will happen.
But at the moment, it is much more of material availability in the market, which is driving the price down.
The logistics challenges that the PVC was seeing, has that all gone away?
Correct. Correct. We had that aspect of it when we saw the price movement up, but I think that has eased right now, and therefore, availability has improved, and thereby the reduction in price, which you have seen in the past couple of weeks.
Understood. Secondly, any finalization or any, are we getting closer towards anti-dumping duty or actually duty being levied on PVC?
So it has already been implemented in CPVC, but UPVC is something which is, I think there was an indication of August, September timeframe, but it depends upon whether it will be implemented or not.
Sure. Understood. Lastly, on your CapEx plan, any finalization there? When can we see some finalization happening? Any timeline to it?
In the next quarter, we should be in a position to come up with a firm plan.
Sure. Understood, sir. Thanks a lot and all the best.
Thank you.
Thank you. The next question is from the line of Praveen Sahay from PL Capital. Please go ahead.
Yeah. Hi, sir. Thank you for taking my question. The first question is related to the volume of pipe and fitting. So as you had mentioned, that the capacity constant, which has led to some lower volume. But if I look at your production versus sales, usually in the first quarter, it's been in the range of 100%. But this time, we can see that's around 96% of your production converted to the sales. So is there something else as well you want to highlight in the lower volume growth?
No, no. The plants have been operating at peak capacity, which we normally do in Q4 and Q1. There is nothing abnormal in that.
Okay. Okay. Because see, the production which you had done versus sales, which seems lower, so that's why I had asked this question. Okay. So is there any outsourced capacity right now you have?
We do have a certain degree of outsourced capacity, but that is very small compared to the in-house capacity, especially for pipes.
Okay. In the non-agri segment, you had grown better in this quarter. Also, in the earlier calls, you had given guidance of a 20% volume growth in the non-agri segment for this year. Are you on the track for achieving 20% of a growth in the non-agri segment for a full year?
Yes. The focus has been on that segment, and we are still slated to grow aggressively in that segment.
Okay. And lastly, on the raw material side, see, last quarter also, if I look at in the May month, when we had a call, you had given a spread of $480. And ultimately, this quarter ended on $533. And again, it's gone back in July to the $480. So is there only the demand supply which is impacting, or something else also to read into it?
So typically, the EDC and VCM prices come in with a lag, and therefore, you will see this kind of a movement. Other than that, I think what we have also done is we have, especially with EDC, we used to stock up for the entire summer before the rainy season. Now, we have found alternative solutions for that. And therefore, we don't have to store EDC in large quantities and therefore insulate ourselves from huge price fluctuations.
Okay. Okay. Great, sir. And just to confirm, the capacity of pipes and fittings, 438,000 right now you have?
Yeah. It's approximately 470,000 metric tons. Pipes and fittings together. Yeah.
Yeah. Yeah. Thank you, sir. Thank you. All the best.
Thank you. Thank you, Praveen.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Utkarsh Nopany from BOBCAPS. Please go ahead.
Yes, sir. Sir, I need a clarification. Your in-house pipes and fittings capacity is 470,000. Is it correct?
470,000. That's right.
Okay. So, sir, if we see our pipe capacity on a YOY basis has gone up by around close to 17%. And even on a five-year basis, it has gone up substantially by more than 25% or 30% odd. But if we look at our pipe sales volume, it has gone down on both YOY basis and five-year basis. So what is the actual reason that why we are underperforming the industry on a consistent basis, sir?
So we are in a transition from our focus on agri to non-agri. This is a journey which we have undertaken about three to four years back. This transition will have seen certain ups and downs. Our focus is shifting towards non-agri segment, which is less cyclical. And therefore, the movement that you see in terms of but what our aim is to make sure that in the next three to four years, we have an agri-non-agri split by volume of about 50/50. So that is something which we are in transition, and you are going to see that.
Okay. Sir, a connecting question is that definitely, we are looking to increase the share of the non-agri pipes. What we are seeing is that our pipe segment, EBITDA per unit, which used to be around 8-9 INR/kg, has gone up to around 15 INR/kg. And there has not been a major improvement, say, compared to the pre-COVID period. And our PVC resin, EBITDA per unit, which earlier used to be around 15 INR/kg, has now gone down to around 9-10 INR/kg. So just wanted to know whether there has been any change in our PVC resin pricing policy for captive consumption, which is resulting in lower profitability for PVC resin segment and better profitability for the pipe segment.
See, our transfer pricing, which happens from PVC resin segment to pipe segment, is at market value. So there is no change in that policy. Yeah. But what we have seen is that we have a shift taking place in the product mix and more fittings being sold, which is also resulting in, if you remember, last March, we had our fitting capacity increased by almost 25%. So our aim is to try and improve the non-agri segment, which correspondingly improves the fitting sales as well. And that results in improved margins.
Sir, again, I am coming back to this question. On a Q1, if we see our pipe, a bit up per unit of pipe margin has improved. Despite Q1 being an agri-dominated quarter, there was an element of negative operating leverage played out during the quarter, and the fittings ratio as a proportion of your total sales volume, which we have mentioned in the presentation, remaining the same. So when the industry is seeing a margin contraction, how come our margin is improving on a Q1, Q2 basis?
See, the more non-agri segment improves, the more the contribution of fitting in the overall mix improves corresponding to that. So, for example, in the agri segment, the fitting contributes anywhere between 3%-4% of the fittings, I mean, of the volume. Whereas in non-agri segment, it is anywhere between 15%-25%. So correspondingly, you will see an improvement in the margins.
Okay. Thanks a lot, sir.
Thank you.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, a couple of questions. First is, sir, can you detail where do the credit days stand, given it had bumped up on March and basis?
Number of days of credit?
Yes.
Go ahead.
Great. Great.
Yeah.
For the credit days, it's roughly around between 60-70 days, around.
For the non-agri sector?
Agri sector, we are at zero credit days.
Okay. Fine. Sir, my second question was more from a regulatory aspect. We do understand that there is a quality control order which is structured on PVC, likewise on EDC, IPMIN, and VCM. How are we positioned to tackle this? So most of our suppliers already have the BIS certification, so we don't see much of a challenge.
Okay. Sir, specifically on PVC, I presume it's expected sometime next month. What do you make of it? Will it impact the local availability of PVC given imports could potentially reduce? How do you make of the demand supply situation then?
If it is implemented as per the current plan, there are certain countries which don't have the certification, which can result in a supply constraint. But there are a sufficient number of PVC manufacturers who already have the certification. So we have to wait and watch as to whether it gets implemented or it gets postponed by another six months.
Sure. And sir, you did speak about Anti-dumping duty on PVC. Have the rates been notified over here? I understand the timelines are a question mark, but have the rates been notified here?
It has been implemented for anti-dumping for CPVC.
Correct?
Yeah.
Sir, I'm asking for PVC.
PVC, not yet.
Not yet. But, sir, any idea on the rates?
No. No. No.
Okay. Fine. Sir, second is on the operational side. You indicated that controlled discounts in the market. That's the words that you used. I think it is because of the supply constraint that we had. Now, sir, if I look at the realization that we have given on sales for pipes and fittings and for PVC resin, if I look at the differential, that is, you divide pricing on PVC pipes and fittings by the PVC resin prices, that ratio is around 1.57. It has declined versus 1.61 in the prior quarter, and it is again lower than 1.60 in Q1 FY 20 24. So, sir, if the discounts have reduced, what has changed meaningfully? Is it a significantly higher percentage of CPVC or non-agri? If you could provide some color over here, it would be really useful, sir.
See, as I mentioned, our plumbing and sanitation segment has grown. Okay? And also, correspondingly, our fittings have grown. And both these segments are more profitable than the agri segment. And therefore, you will see improvement. And also, you have seen that the prices of PVC had gone up significantly in this quarter. And the company decides as to how much price to pass on.
Right. Sir, the reason to just ask this question is, even if you look at it on a sequential basis, the realization increase for PVC resin or PVC pipes and fittings is only INR 5-INR 6 only. So when we say that the mix has changed materially for this particular quarter or growth for any particular subsegment, it becomes a bit difficult to actually comprehend it, sir. So any quantification weight on CPVC or non-agri, I think it will be useful for us to better appreciate our numbers.
Probably I can connect offline. This is just also to.
Sorry.
We can connect offline, but I'm not able to answer your question at the moment.
No. No worries. Sir, just last question. There's a huge cash sitting on the balance sheet. I think the management has over time indicated that they will come up with some plans, some plans, but nothing has happened as yet. Sir, what should we make of it? Any timelines by which we can expect a higher payout or probably a larger CapEx with respect to expansion?
See, we definitely need an expansion. Therefore, as I mentioned, it is on the drawing board, and we have to let you guys know as soon as it is ready. But as I've told you before, the board has to decide. Whatever is not needed for expansion will be given back to the shareholders.
Sure, sir. Thank you so much. And thanks for the answers. Thank you.
Thank you.
Thank you. The next question is from the line of Chirag Lodaya from Valuequest. Please go ahead.
Yeah. Thank you for the opportunity. Sir, I have just two questions. One was on what is the peak volume you can achieve given the current capacity?
See, our capacity is approximately 30,000 in terms of pipes per month. And that would be about 3,500 in terms of fittings.
This is essentially on a monthly basis, right?
Correct. Correct.
Got it. Got it. So then on a quarterly basis, we can achieve 100,000+ volumes, right? I mean, that is what you're interested in.
It is. To operate plants at that peak capacity day on day for the continuous three months is a little bit difficult.
Right. Right.
Yeah.
Right. And what would be the lead time whenever a board decides? What would be the lead time to set up a capacity or line?
It's anywhere between 18-24 months, including land building equipment.
Right. Right. So, sir, given this constant, we have limitations to grow volume. So how do you plan to?
So we do. See, the thing is existing plants have got incremental volumes that can be added, which we do on a continuous basis, which we are planning as well.
Okay. Got it. Thank you very much.
Thank you.
Thank you. The next question is from the line of Vipul Kumar Anupchand Shah from Sumangal Investment. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, our volume for PVC pipe is 82,000, and fitting is 90,000. If I total it, it is 90,000, and our annual capacity is 480,000. Capacity utilization is around 70% only. In your opening remarks, you said it is 80%-85%. What I am missing here, sir?
Vipul, can you repeat that, what you just said?
No, I said your total PVC pipe and fitting volume is 90,000. This quarter.
Okay.
Our installed capacity is 480,000. So if you annualize it, our capacity utilization works out a little over 70%. Whereas in your remarks, you said our utilization was 80%-85%. So what I'm missing here, sir?
So when you talk about peak capacity, that is, your machines are operating at 100%. It's completely going. So you do have maintenance stoppages. You do have changeover time, etc., which are not factored in there.
Okay. So practically, what is the maximum capacity we can work with annually? So it is not 470,000.
It is lower than that. It will be about what we typically say is that we run at about 85% of that number.
85% of 470,000, right, sir?
Correct.
Correct. And sir, you said VCM Delta has come down to $80 as of today.
That's right.
Since we have one line with VCM, so can we expect a reduced profitability in this quarter?
So typically, what we have is that during the rainy season or during quarter two, we typically don't mainly manufacture with EDC. Yeah? And yes, you will have some impact because of the VCM Delta reducing.
And lastly, sir, since we are running at almost full capacity, are we planning to increase our pipe capacity addition, which generally is 30,000 tons?
We have to.
What is the capacity addition plan over the next 1-2 years?
See, typically, we don't go for small capacity additions. All our plants are approximately 100,000-150,000 metric tons each per annum capacity. We believe that this business thrives on scale, and anywhere between 100,000 and 150,000 is what we typically plan for additional capacities.
Lastly, all additional capacity will be greenfield, should I suppose?
We are evaluating that at this current point of time, Vipul.
Sir, one small suggestion, if you directionally, if you can give some indication about your agri-non-agri mix, so many questions are raised around that. It will be really helpful.
For this quarter, it is 70/30.
70/30.
Yeah.
Okay, sir. Thank you and all the best.
Thank you. Thank you.
Thank you. The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. I just want to understand one thing. We knew in advance pipes demand has been pretty strong. It has been staying strong. Still, we faced capacity constraints. So it was not like demand came all of a sudden. And still, management is drawing up the plan for capacity expansion. So why is it taking so long?
So we are seeing what we believe is to make sure that we put the capacity in the right place, Kethan. Unlike many of our players in the industry, we do not have capacities being put up all across the country. So when we are putting it up, we want to make sure that it is in the right location, and it is in the right logistics location to serve the market, both from the existing customer base as well as where we want to expand. So that is taking a little bit of time. So we want to spend as much time possible to make sure that we make the right decision before we implement. So it is not a black and white answer. And therefore, it is taking a little bit of time.
Understood. Got it. Like your new capacity possibly might take more two years to come in. Already, we have faced capacity constraint in this year. So how you think about next two years? Again, the same issue will go through or how you want to navigate it? Or do we have scope of debottlenecking too?
Kethan, what we are looking also is that, see, in two of our plants, in same Masar, which is near Baroda and Ratnagiri, we have sufficient land parcel to do incremental expansion. Okay? So it is not going to so we can put up additional capacities in those two locations. And therefore, we are already planning for it. So the new capacity which I'm talking about, which is probably 100,000-150,000 capacity, it's a completely different exercise. But incremental capacity, adding few lines, adding extruders, etc., is something which we can do in the existing plants as well. And therefore, coming up with incremental capacity can take place within six to eight months.
Understood. Got it. Just some color on how has been the CPVC volume growth? Whether CPVC volume growth has been possibly fastest among everything this quarter, how should we look at? Some color, maybe some range?
We typically don't talk about the individual CPVC components in the whole range. But since so it is in line with the non-agri growth here.
Understood. Got it. And your fittings outsourcing would be higher in fittings, right?
Correct.
Understood. Any range? Would you like to highlight?
Well, it's the same. See, the thing is that, as I mentioned, the fittings contribution to non-agri or plumbing and sanitation is anywhere between 15%-25%. And therefore, fittings aspect of it has also seen growth.
Understood. Got it. One last question from my side. Whatever 30,000 and 3,500 per month number you highlighted, that is the actual production possible each month, right?
Yeah. That's the peak production possible each month.
Got it. So 4 lakh is the production you can do annualized from your plant peak potential.
Correct.
Okay. Thank you. That's it from my side.
Thanks.
Thank you. The next question is from the line of Udit Gajiwala from Yes Securities. Please go ahead.
Yeah. Thank you for the follow-up question, sir. Just one thing on similar lines to CapEx. So on discussion, are there any plans for any inorganic growth, or it will completely be a greenfield CapEx?
No, no. This is going to be organic growth only. We are not looking at any organic growth.
Understood. Sir, if you can throw some numbers as well on the resin business, I mean, what kind of a volume growth are you seeing over there for resin growth?
Resin growth, to put things in perspective, we have reached a point where we are not going to have any resin sales except for a few customers who need very specific grade of PVC, who we have commitments with. Other than that, almost all our capacity is consumed by Finolex, etc.
Understood. Understood. Fair enough. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Rishabh Bothra from Anand Rathi. Please go ahead.
Yes, sir. Few questions. Sorry.
Rishabh, we are not able to hear you properly.
Am I audible now?
Yes, better.
I wanted to understand the tax rate on the sale of land. What's the tax rate on that?
Yeah. Rishabh, it is at the long-term capital gain tax rate, 20% plus surcharge and sales.
Okay. Secondly, sir, the amount lying in cash and balance is quite significant if you look at last three years. I have been hearing on the call that there are plans of CapEx. But what's going on the drawing board from the management side, could you explain certain things? Because this has been going on for quite a long time. So what are you proposing to the board, and what decision the board will take is something different. But at least we can know where we are heading.
See, I know that sitting on this magnitude of cash is not the best use of our resources. One, definitely, is that the expansion plan is going to take up a certain portion of it. And beyond that, see, typically, 100,000 metric ton capacity plant will cost you anywhere between INR 300-400 crore. Okay?
Still, that will leave us a lot of cash.
I mean, what has been sent to the board is what I wanted to understand, roughly.
See, the board has to decide, yeah? It is something which is under discussion at the moment. Therefore.
Management would have definitely sent two or three proposals of which one will be decided, right?
Could you highlight one or two of the proposals?
Sorry, Kethan, this is not the right form of forum for such discussions. The board will decide.
Okay.
Yeah? Thanks.
Got it. And thirdly, in capital employed, if we see resins and pipes and fittings, there is a lot of unallocated. So is this cash component only, or is there something else also?
No, Rishabh. So unallocated, generally, it is the investment portion, which remains unallocated between the segments. Plus, as you rightly said, cash equivalents are also lying there.
Okay. This is investment in Finolex Cables, I guess.
No, no. Investment in Finolex Cables, but the cash purpose that we have, which is deployed in the liquid fund and the short-term to long-term investment, that is mainly lying in the unallocable portion.
Got it. Got it. And lastly, can you let me know, in terms of we have a captive consumption for resins, other pipe manufacturers, where do we source from? Is it from domestic market RIL, or is it overseas as well?
So in terms of resin, almost 50% of the total consumption of PVC in India is about 4 million. Out of which, 1.7 million is produced in India. The rest is imported. The import typically happens from the U.S. or from China and Far East.
Okay. My understanding, I wanted to suggest, since we have expertise in resins, why can't we set up a resin plant and supply to these manufacturers?
See, the variability of performance of resin fluctuates quite a bit.
That is known for a commodity industry.
Correct.
We don't want to be bad. We don't want to be exposing ourselves to that degree of variability. Raw material is available in plenty, and we don't want to subject ourselves to that kind of variability. Got it. Got it. I'll come back and see if other questions are there.
Sure. Sure. Thank you. Thank you, Rishabh.
Thank you. Ladies and gentlemen, just as a reminder, anyone who wishes to ask a question may press star and one on the touch-tone phone. The next question is from the line of Varun Jain from Dolat Capital. Please go ahead.
Yeah. Hi, sir. Am I audible?
Yes, you are.
Yeah. So my question was on channel inventory. So what are the general levels of channel inventory as of now? And in Q1, we saw in June, especially, a lot of PVC price variation. So when the prices were going up, did you see that the channel off-take of inventory was low? And now, since the past week since the prices have been coming down, have the PVC volumes started lifting off again? Any sense on those lines?
See, typically, what happens is when the prices are going up, the channel takes up inventory because we have got a very efficient pricing model in the market where any price increase or decrease gets passed on almost immediately to the market. So when the prices go up, the channel absorbs a lot more of the inventory. Whereas when the prices are going down, the channel holds back on taking in inventory. So we have seen a rise up and a rise down during the quarter. So it has happened both ways.
But in this quarter, so we had a sense that because the channel thought that the price increases are very transient, they were not accepting them. So instead of when prices went up, instead of channel taking on more inventory, they just held back. That was what we heard from another player. So just wanted to see if you also saw this trend or not.
So if you actually see, there are a couple of things which have happened. This quarter, we had rains set in quite early compared to last year. Okay? So when you actually see June 1st onwards, we had rains set in into the country. And therefore, whereas the same period last year, it had set in in July. So as soon as the rain sets in, the agri demands drop quite significantly. But also, you need to understand that the price movement which happened, for example, in Q4, the average PVC price was INR 920. Then it came down to average price in I'm sorry. Q4 was INR 785, which went up all the way up to INR 855 in Q1. So Q4, FY 202 4 was INR 785 was the average. Q1, FY 2025 was INR 855. There was a price up.
And even during the quarter, you can see that the prices have come down. Currently, it is 820. And it just expected to fall a little bit further. So you are going to see a certain degree of volatility both ways. And a lot of the channel partners do speculate. So this is something which is quite unavoidable in this market, in this segment.
And just so current channel inventory levels are on the higher side, or they are at normalized levels?
Normalized levels at this point of time. This quarter, Q2 is any which way a slow quarter.
Okay, sir. Thank you.
Thank you. The next question is from the line of Karan Bhatelia from Asian Market Securities. Please go ahead.
Hi. Good morning. Am I audible?
Yes, you are, Karan.
Yes, sir, wanted to understand from your side, any upgrades in the EBIT per kg for pipes? Because in the last quarter, we did mention of ₹14 for the medium-term and already we are at ₹15 despite no volume growth. So your thoughts on this?
See, with the product mix improving, you will see. But it should be in the current range which we are talking about. Because as we had mentioned during the conversation, during the call, it used to be in the ₹7-₹8 range per kg, EBIT per kg. Now we are in the ₹14-₹15 EBIT per kg. And these will improve as we further improve the product mix. But at this point of time, I would say this will be the range. It will be range bound, yeah.
Right. Right. And also, we did mention of capacity expansion in the phased manner, greenfield and debottlenecking both. So where do we see the capex expansion in channel partners over the next 2-3 years?
See, we already have approximately the dealer network of 900 and the retail network of almost 30,000. The reach will continue to increase. We are much more focused on distribution model. Therefore, the dealer network will see a much slower growth, whereas the retail network will see a much faster growth.
Right. Thanks. Thanks.
Thank you.
Thank you. The next question is from the line of Diresh K. Pathak from Y2X. Please go ahead.
Yeah. Thank you. I hope I'm audible. Sir, did you say that plumbing, you have grown in line with the market?
Plumbing and sanitation, yes, we have grown. We are yet to see the results from other players. But yes, we have grown more or less in line with the market.
Did you also mention that 70/30 is the volume mix, agri-non-agri?
Right. For this quarter, yeah.
So then the agri is degrown by some low teens. Is that the industry degrowth?
Agri, you did see early set-in of monsoons. And therefore, in June, we had seen a significant drop, yeah?
But for the quarter as a whole, based on the numbers you just shared, it would imply low teens volume.
We have degrown a little bit compared to Q1, FY 2024.
Is it in line with the industry, low teens volume degrowth in agri?
I'm not 100% sure about that, yeah?
You feel industry has degrown more or less? What is your?
We have not seen too many results yet. So it will be difficult for me to say in comparison to the industry.
Okay. Any - sorry, I might have missed - but any debottlenecking that you're doing in the existing capacities?
See, we have area constraint in our Pune facility. So we are trying to debottleneck the operations there. But we do have large land parcels in the other two locations, in Ratnagiri and Masar. And we are trying to make sure that we have, in the short term, headroom for growth as well, yeah? So we are de-.
How much can be increased? 5, 10, 15? How much % capacity can be increased through debottlenecking?
Up to about 5%-10% would be what we'll be able to.
Okay. Thank you, sir.
Thank you.
Thank you. That was the last question. I will now like to hand the conference over to the management for the closing remarks.
Thank you all for attending today's call. If you have any further questions, please feel free to get in touch with us. Have a wonderful day. Thank you.
Thank you all.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.