In conversation with Niraj Kedia, CFO, Finolex Industries Ltd

In tune with the government’s various policies to support the development of both urban and rural infrastructure and provide a boost to the agriculture sector, the demand for pipes and fittings is bound to grow, says Niraj Kedia, CFO, Finolex Industries

What is your outlook on India’s PVC pipes and fittings sector?

The India PVC pipes market size was valued at USD 3 billion in 2016 and is expected to expand at a compounded annual growth rate (CAGR) of about 10 per cent to reach USD 6 billion by 2023. There has been an upward demand for pipes in the irrigation, building and construction industry which has further added impetus towards the growth and demand of PVC pipes in India. A recent study by CRISIL estimates that the operating profit of pipes and fittings manufacturers will witness sustained demand from government initiatives in water sanitation.

Improvement in real estate demand will boost the sector revenue another 7-10 per cent despite the high base. It is expected that the operating profitability will also be healthy despite some moderation from the peak logged last fiscal due to a surge in input prices. Healthy cash accruals and strong balance-sheets will keep credit profiles stable, notwithstanding an expected increase in capital expenditure over the current and next fiscals.

Finolex Industries’ FY22 revenue and net profit registered robust YoY growth of 34 per cent and 66 per cent, respectively. What factors are responsible for your healthy financial performance despite the challenging conditions?

PVC pipes and fittings volume registered a growth of 31 per cent year-on-year to 78,628 MT and PVC resin volume registered a growth of 5.2 per cent YoY to 79,182 MT. There has been a correction in PVC prices since November 2021 and pickup in demand from both the plumbing and agriculture segments that resulted in strong volume growth. The demand scenario remained robust with growth in volumes.

The company’s operating performance has consistently shown good improvement. We will remain focused on increasing the share of non-agriculture products in total sales. PVC pipes’ demand from the plumbing space continued to remain strong, while demand from the agriculture segment has also improved due to correction in prices, resulting in improved affordability. We are optimistic on demand from both these segments and are aiming at double-digit volume growth in FY23.

With the surge in commodity prices along with high levels of inflation leading to a rise in input costs, what measures are you implementing to safeguard profit margins?

In the commodity business, prices are always subject to volatility and swings. So, there would always be scenarios when you are either on the favourable side of the price cycle or on the unfavourable side. To mitigate risks, we run a tight ship by having optimum stock levels, being prudent in passing on the price changes to customers and keeping a watchful eye on expected pricing trends.

Can you highlight the key growth triggers?

The company has reported robust set of financial numbers by reporting the highest-ever quarterly and annual revenues. PVC prices after touching all-time high of USD 1,900 per metric tonne have now come down to less than USD 1500. The demand scenario remained robust with growth in volumes. Our efforts focused on capturing the expected increase in demand, expanding our distribution network throughout the country and promoting brand and quality consciousness amongst consumers.

At the moment, what are your top strategic priorities?

Faster growth in plumbing and sanitation remains one of our strategic priorities. Another priority is to remain consistent and maintain continuous quality production along with portfolio enhancement.

What is your earnings outlook for FY23?

The growth outlook remains strong, driven by the government’s focus on expanding areas under irrigation and increasing urban infrastructure spending which determines demand for water supply and sanitation along with affordable housing projects in urban, semi-urban and rural areas. Various schemes and initiatives like PMKSY, Smart Cities, Housing for All, Jal Jeevan Mission, etc. would provide stronger impetus to industry growth. This in turn would be further aided by the growing penetration of branded plumbing pipes in the affordable housing project segment and need-based replacement potential of plumbing pipes.