In conversation with Niraj Kedia, CFO, Finolex Industries
We anticipate a gradual improvement in sales and margins in the near future, asserts Niraj Kedia, CFO, Finolex Industries
Which factors are presently giving a stronger impetus towards the growth and demand for PVC pipes in India? What are the prevailing demand trends?
Initially worth USD 3,159 million in 2016, the Indian PVC pipes market is expected to grow at a CAGR of 10.2 per cent to USD 6,224 million by 2023. After polyethylene and polypropylene, polyvinyl chloride (PVC) is regarded as the third most popular plastic commodity in the country. Its advantages over other materials include chemical resistance, durability, cost-effectiveness, recyclability and others, as a result of which a majority of purchasers gravitate towards it for its well-balanced offerings.
However, the surge in demand for pipes in the irrigation and building and construction industries are the two major driving forces for the expansion of the Indian PVC pipes market at present. Furthermore, the Government of India’s increasing emphasis on rural water management continues to significantly boost the demand for PVC pipes in India. Additionally, greater awareness of clean water supply in rural areas and increased investment in the country’s developing regions are expected to lend further impetus to the potential prospects of this booming industry.
Can you shed some light on your Q3FY23 and 9MFY23 results?
With regards to Q3FY23, we exceeded our expected results across all major parameters. The company’s quarterly performance was aided by a significant improvement in sales volumes for pipes fittings. The stabilisation of PVC prices is expected to further benefit the operating margin in the upcoming quarters. Although the net sales increased by 11.9 per cent YoY to Rs 11.2 billion, the adjusted net profit of Rs 0.7 billion was down by 55.2 per cent over Q3FY22. This was primarily attributable to a sharp reduction in PVC prices in the last 6-8 months.
Due to our gradual improvement in product mix in favour of the plumbing and sanitation market, healthy balance-sheet and backward integrated operations, we anticipate a gradual improvement in sales and margins in the near future. For 9MFY23, the total income from operations was Rs 3,255.99 crore, representing a 6.66 per cent YoY increase from Rs 3,052.76 crore in 9MFY22. The pipes and fittings segment experienced a 40 per cent volume growth to 2,21,574 MT while the resin segment saw a 24.54 per cent volume increase to 181,506 MT in 9MFY23 compared to 158,266 MT and 145,742 MT, respectively, in 9MFY22.
EBITDA for 9MFY23 declined by 90.03 per cent to Rs 75.11 crore from Rs 753.42 crore in 9MFY22 and the profit after tax dropped by 86.08 per cent to Rs 76.90 crore in 9MFY23 from Rs 559.67 crore in 9MFY22. What is important to note here is that after two years of heightened PVC prices, the prices have now normalised to the pre-pandemic levels. This softness in PVC price is reflected in substantial improvement in the volumes during the year, especially in Q3FY23. We are optimistic about the company’s overall earnings due to healthy demand and stability in raw material prices.
What is your current segment-wise revenue mix and how do you expect it to evolve over the next 2-3 years? Also, do you plan to further diversify your product portfolio?
In the first nine months of fiscal year 2023, the pipes and fittings segment grew 40 per cent to 221,574 metric tonnes while the resin segment increased 24.54 per cent to 181,506 metric tonnes compared to 158,266 metric tonnes and 145,742 metric tonnes in the same period of fiscal year 2022. Our country is one of the leading consumers of CPVC pipes and fittings. The Indian poly vinyl chloride (PVC) market has grown to approximately 3.1 million tonnes in FY 2022 and is expected to maintain a healthy CAGR of 7.11 per cent until FY 2032.
The increasing demand for PVC in the manufacturing of pipes and fittings for various applications in the agriculture sector is the main driver for this growth. To keep up with the surging demand in the market, we ensure that we have adequate capacities. If demand remains strong and prices remain stable, the market could continue to experience sustained growth. Our strategic priorities include achieving accelerated growth in plumbing and sanitation and maintaining consistent and continuous production of high-quality products while enhancing our portfolio to meet the rising demand.
Over the next few years, we expect the share of pipes and fittings in the plumbing and sanitation markets to improve steadily as we concentrate our focus on elements required to cater to this large sub-segment. The share of plumbing and sanitation in our total pipes and fittings volumes has increased from low double digits increase just a few years ago to almost a third today. An increase in the plumbing and sanitation mix should result in improvement of overall margins for the company.
What efforts are being undertaken to further expand your distribution network in less penetrated market regions such as North East India?
Although we have a pan-India presence, we understand the importance of expanding our distribution network in all regions, including less penetrated markets like North East India. As part of our focus on the non-agriculture segment, we are actively working to increase brand awareness, expand our product range and expand our network. We have identified areas where we can further expand our presence and are working to establish partnerships with local distributors and dealers. We are also exploring opportunities to build relations with more distribution partners to increase our reach in these regions. We believe that these efforts will help us grow in less penetrated markets and meet the demand for our products.
Currently, what are your top three strategic priorities?
Our top strategic priorities are:
- To continue to focus on enhancing our share of business from the plumbing and sanitation segment.
- To maintain and improve our strong performance in the agriculture segment.
To constantly enhance focus on digital transformation to maintain highly engaged customers.