Finolex Industries Limited (FINPIPE) Earnings Call Transcript
October 23, 2023
Earnings Call Speaker Segments
Gentlemen, good day. And welcome to Finolex Industries' Q2 FY '24 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] 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 Q2 FY '24 Post-results Con Call of Finolex Industries. From the management side, we have Mr. Ajit, MD; and Mr. Niraj, CFO. Now I hand over the call to Ajit for opening remarks, post which the floor will be open for Q&A. Thanks. Over to you, Ajit.
Thank you, Arun. Good morning, ladies and gentlemen. Greetings for the festival season for Navaratri and Dussehra. Welcome to the investor conference call for Q2 FY '24 earnings release. We thank you all for continued support and interest in Finolex Industries Limited. Q2 FY '24 continues to witness a volume growth on a year-on-year basis on the back of continued improvement in demand largely from the plumbing and sanitation segment. Operating performance also witnessed a substantial improvement during the quarter. Let me give you some of the performance indicators for the first (sic) [ second ] quarter, Q2 FY '24 highlights. Total income from operations was INR 883.15 crores for Q2 FY '24, down 6.16% against INR 941.13 crores in Q2 FY '23. EBITDA for the company stood at INR 102.98 crores for FY '24 Q2 against EBITDA loss of INR 142.67 crores for Q2 FY '23. EBITDA margins during this quarter increased on a year-on-year basis of -- 11.66% compared to a negative margin of 15.16% in corresponding previous quarter of Q2 FY '23. The company reported profit after tax of INR 93.78 crores in Q2 FY '24 as compared to a loss of INR 93.92 crores in Q2 FY '23. Now getting into the segmental performance: the pipes and fittings. Pipes and fittings revenue increased by 7% to INR 857.15 crores in Q2 FY '24 from INR 801.73 crores in Q2 FY '23. Volume in pipes and fittings segment reported a growth of 6% year-on-year to 62,914 metric tons in Q2 FY '24 against 59,218 metric tons in the corresponding last quarter. The EBIT in pipes and fittings segment was INR 67.60 crores in Q2 FY '24 compared to EBIT loss of INR 47.63 crores in Q2 FY '23. Moving to PVC resin segment. Revenue in the resin segment decreased 38% year-on-year to INR 297.85 crores in Q2 FY '24 to (sic) [ from ] INR 481.07 crores in Q2 FY '23. The volume in resin segment decreased 31% to 37,516 metric tons in Q2 FY '24 against 54,063 metric tons in Q2 FY '23. EBIT in resin segment was INR 20.40 crores in Q2 FY '24 compared to a loss of INR 110.68 crores in the corresponding previous year. The company continues to have a strong balance sheet, with a cash surplus of roughly INR 1,500 crores as on 30th September '23. Let me now leave the floor open to questions. Thank you.
[Operator Instructions] We have the first question from the line of Mr. Achal Lohade from JM Financial.
Can you help us understand if there was any inventory gain in 2Q? And given the current PVC prices, do you look at inventory loss in both the resin as well as piping segments? Yes...
So in Q2, overall, the prices of PVC went up by INR 4 during the quarter, starting from mid-July to August, so there was marginal inventory gain but not very material. And the prices, which fell subsequently, that price fall started 30th September, 1st October, onwards, so [ that mean ], for the quarter, there was no material inventory loss per se.
And given what has happened in the first 3 of the -- 3 weeks of the month and if we assume the current price sustains, could there be a substantial inventory loss?
Not substantial, but yes, some inventory loss will be there because, see, the prices fell very sharply. In a matter of 7, 8 days, they went down by INR 11. The positive thing is that, this morning, the prices have gone up by INR 1. So that fall, it seems, have been arrested, and -- but we'll see how it pans out.
Understood. In terms of the CPVC price, we see that the prices have come off. Is it possible for you to kind of give us some sense in terms of what is the extent of price reduction? And do you see further price reduction in terms of the raw material price for CPVC?
Yes. So yes, prices have come down for CPVC, but unlike PVC, there is no standard benchmark which kind of goes for CPVC, so we cannot give you any specific numbers [ and see ] how much, but roughly, we can say that, 5%, prices have come off very recently.
And has that caused any inventory loss?
No, not [indiscernible], not material.
Understood. And this is a -- so that anti-dumping duty on the Korean and Chinese CPVC resins, that's coming up for renewal/expiry in next year, so if theoretically it was to go away, how do you see it impacting the industry [ enough ]?
See. If it goes away, frankly, it -- I would personally see it as a positive for the pipe makers because obviously the raw material becomes cheaper. So from a pipe makers perspective, it would be a positive move in my view.
And as we speak, are we sourcing entirely from overseas? Or we are buying local as well, CPVC...
So we are buying locally also and importing as well.
Would it be possible to tell us the mix, sir?
Not really. And there is no fixed mix. It keeps changing. See, for CPVC, we have multiple suppliers. And depending on pricing and our requirements, orders are placed. So we don't have any quantity commitments with any of the suppliers, so that mix keeps changing, Achal.
And is there a price difference between the local and the imports? And if yes, could you quantify, sir?
There is a small difference but not material.
Okay. Understood. In terms of the spreads, if you could help us in terms of the prices and the spreads for PVC, EDC, VCM for the second quarter and the current one.
Yes. So for Q2, PVC was at $847. EDC was at $276 and VCM was average $690. The PVC-EDC delta for second quarter was $571. And the PVC-VCM delta was $157.
And as we speak currently...
And I have last week's numbers with me. I don't have today's numbers because prices have again changed, but PVC was at $770. EDC was at $320. VCM was at $675. The PVC-EDC delta today is $450, and the VCM-PVC delta is $95.
Understood. Understood. And just last question and I'll fall back in the queue again; with respect to the volume guidance for the full year, if it is possible to give us.
So 15% is something that we are very confident of. 15% to 20% growth in pipes and fittings segment should be there.
And given what has happened in the first half, you think that is a conservative number or that is...
No. That is something that we are confident could happen. It's not very conservative.
The next question is from the line of Rahul Agarwal from InCred Capital.
A few questions. Firstly, what happened to resin production? Could you just please explain? I think, obviously, the number looks pretty low, so there has to be reason for that.
So thanks for your question, Rahul. We had supply issues, especially from -- due to major breakdowns in Middle East suppliers. And as a result, the supply of EDC and VCM were constrained. And as a result, there was a drop in resin production.
Is that sorted now?
Yes. It is in the process of getting sorted, so overall for the year, we expect that overall resin production will not be to the extent of what has been produced in the past. We expect anywhere between 200,000 and 220,000 metric tons.
Got it. Similarly, for pipes, I think the company should have done better. What is your reading there and outlook? I think you've already discussed 15%, 20% pipes and fitting growth, but just in terms of 2Q, are you happy with what has happened? And how do you see October panning out?
So Rahul, to -- for the movement which we were expecting to have more contribution coming from the plumbing and sanitation segment, that, we're well on the way. You would have noticed what Niraj just mentioned. There was volatility in the resin prices, and it was a downward movement. And the price-sensitive segment which constitutes a higher percentage of our business, which is the agri segment, there was a little bit of hesitation on the part of the network and the customers pulling in or making purchases as they were anticipating a price drop. And therefore, you see a 6% to 7% growth. Otherwise, in terms of non-agri segment or plumbing and sanitation segment, we have seen a significant growth.
So first half non-agri mix would be like how much for the company? And if you could help me with the Y-o-Y trend, please, in terms of mix.
So Q2, our mix was 40:60 non-agri and agri. Last year, same period, it was 37%.
This is volume.
Volume, yes.
How about first half?
First half, it is 32%. And last year, it was 30%. See. Generally, Q2 being slow in agri, our non-agri as a ratio is better, but what we have seen this quarter has been the best of all the quarters so far. And as Ajit said, our growth in non-agri has been much, much more, as compared to agri.
Got it, sir. And last question: Any decisions taken on either CapEx or the way you're building up the channel, new product launches or dividend payout that we should know of?
See. Rahul, we will announce it, but we are actively -- we are looking for expansion, definitely, because we will be running out of our capacity in the next couple of years. So several projects in the pipeline, but we will announce it once it fructifies, yes.
The next question is from the line of Bhavin Pande from Athena Investments.
Am I audible?
Yes, you are.
Yes, sure. Just one thing. So a lot of marketing initiatives we are taking. So I mean what will be approach to just, I mean, increased market share. Or like how are we going about it? And what sort of payback period we can look at this?
So in terms [indiscernible] focus is especially on growing the non-agri segment because we are fairly strong in the agri segment. So we have targeted cities and states which we are going after for the non-agri sales. And we have segregated -- this is on an organization basis. We have segregated our teams into 2 focused areas. So that is something which has happened over the last financial year, so which is starting to bear fruit right now. And in terms of [indiscernible], we are going very, very focused on specific target segments. And our connect with the influencer community, which is extremely important for the non-agri or the plumbing and sanitation segment, has increased significantly as well, including several engagement programs which has been initiated of late.
Okay. And sorry if you have already mentioned it and I missed it, but what is -- what attributes to this Q-on-Q decline in volume?
So this is, say, Q1 and Q4, generally the peak seasons. That is when the agri demand is at the highest. So if you're talking sequentially, Q2 has always traditionally been poor because volumes drop because of monsoons. Pipes cannot be laid. Even the construction activity kind of slows down, so you'll typically generally find Q2 being slower than Q1.
Okay. Okay, but in terms of then top line, if you look at on Y-o-Y basis, I mean, there's some decline, so -- and that's why I'm just wondering. Was it that this Q2 was worse than last Q2, something like that?
No. So see. On a value term, if you're comparing with last year, our volumes are up in the pipes and fittings segment, but PVC prices have corrected since then. So if you remember, Q2 last year was actually not a very good quarter for us. We lost a lot of money because PVC prices fell very sharply. And they've kind of reached the normal levels, so when you look at the top line number, there is an impact of the reduction in PVC prices.
Okay. Okay. Wonderful. And just one last thing, what was our agri and non-agri mix for this quarter?
60:40, 60 agri, 40 non-agri.
Okay. And how has it moved Y-o-Y as well as Q-o-Q?
So last year, same period, it was 63, 37.
The next question is from the line of Ritesh Shah from Investec.
A couple of questions. So first is, how should we read into volume growth? 6% looks pretty low. The context in which I would seek the answer over here is does the management look at volume growth with respect to peers or from a market share standpoint. I do understand we do not take direct government orders, but if we look at from a [ presumed operative ] basis, this looks a tad lower. How should we read into this, sir?
So thanks for your question, Ritesh. See the volume growth which we have seen for the pipes and fittings segment of almost 6% year-on-year. What I would also suggest is that, see, if you are looking at product mix, a significant portion of our -- as Niraj mentioned, 60% of our volumes come from agri segment. And agri segment is a much more price-sensitive segment. And in anticipation of the PVC price drop, many of the purchases were postponed, and as a result, it has impacted overall volumes. And that is one of the significant impact that you see, that [ it has added ] 6%. Once the price stabilizes and given the moderate rainfall this year, we expect that the volumes in the agri segment is likely to grow from here on, yes, based on the assumption that the PVC prices will stabilize.
Okay. And sir, if I put it the other way: So we also see inventory built up in the system. Had it not been for this inventory buildup, which I presume it's probably on back of destock in the channel, what sort of volume growth we could have probably seen...
You are referring to in terms of, if the price movement was not there, what would have been the volume movement.
Sir, I'm referring to -- so there is inventory which has [ moved up ] for us. So I presume that is with respect to the prices going down, demand being a bit slow. Had that decline not been there or inventory stocking not been there, what sort of volume growth we would have probably seen...
We could have -- we would have seen at least 20% to 23% growth in this quarter.
Okay. And sir, you indicate this is something which is specific to us. Or this would be industry-wide phenomena wherein the inventories have actually [ moved up ] because of the price declines. [Technical Difficulty]
Ladies and gentlemen, I'm really sorry for the inconvenience, but we have now joined the management line. So sir, Mr. Shah, if you can [ please repeat your question ].
Yes, yes. Sir, I had a few other questions -- am I audible, sir?
Yes, Ritesh, you are [indiscernible], yes...
Yes, yes. Sir, any incremental color on the credit days, which I think have marginally increased? That is one. That's the second question. I have a third question for Ajit sir as well.
No, so -- there is -- see working capital. I mean there is slight increase in this quarter, but fundamentally, nothing has changed, so this should normalize as we head in over -- head into the year. There's no strategic or tactical shift which has happened in credit terms.
Okay. So sir, just to understand on PVC agri pipes. It still continues to remain cash and carry for us, right?
Yes, yes.
And on CPVC, what sort of credit do we give in the marketplace...
See there is no separate credit for CPVC versus other non-agri. So see -- and even -- maybe even when you're giving us credit, [ it's to the participant dealers ], then it becomes slightly difficult to segregate [ key scope for CPVC so much ] for this. So generally it is 30 to 60 days [ and ] which is given for all [indiscernible].
Okay. That is helpful. And sir, last question is on competitive intensity in the marketplace. One of the larger South Indian players, I think they are facing a lot of challenges internally into the company. They are pretty strong in column pipes. Finolex also has had always presence in column pipes since quite some time, so are we reaping any benefits? Or do we see any gradual benefits to accrue to us over the time line, be it on the loyalty of the dealers changing towards us? Anything on that sort, sir?
So Ritesh, our focus have been in column and casing pipes. And we have been strengthening that going forward, and as a result, we do expect an uptick for us.
Sure. And sir, lastly, on capital allocation, we have a huge cash balance. I think, since Mr. Whabi days, we have been hearing that, next quarter or so next year, we'll hear something on capital allocation, either CapEx or payout. Sir, any firm time line over here by when we can expect the use of funds?
See, Ritesh, to be very honest: We do need expansion of our capacities in the next couple of years because we expect our volumes to -- our capacities to max out. And once we have figured that one out, we will be moving the rest of the remaining cash to the shareholders, but we will have to fix our CapEx first.
[Operator Instructions] The next question is from the line of [ Mr. Vipul Kumar Shah from Sumangal Investment ].
Sir, this 60:40 agri/non-agri mix, is it -- volume-wise, right, sir?
Yes, volume-wise.
So any color on value-wise mix?
No. Generally, we don't share because they are not separate subsegments, so volume is something that we feel is a good indicator.
Okay. And can you share CPVC volume? And what was the same last year, corresponding quarter?
We don't give CPVC and other subsegment-wise numbers.
Previously, you have shared...
Yes. So 2 quarters ago, we stopped doing that because, see, these are not separate segments for us. So polymer-wise, it is -- we felt, is not right to share.
So at least directionally you can say what is the year-over-year growth in CPVC segment.
It is better than overall non-agri. I can say that.
Better than overall non-agri, right?
Because CPVC has been growing faster than -- this has been [ a faster-growing segment ].
The next question is from the line of Mr. Udit Gajiwala from Yes Securities.
Sir, the -- firstly, on the resins front, where do you see the stability in the resin prices coming? So you are still sorting out the issues of the supplier, so a steady quarter, hopefully, should be from Q4. Is that understanding correct?
Yes. Even I also concur with your view. By Q4 is, again, my personal view, that we should see some sort of normalization in the profitability in the resin segment.
Sir -- so full year, what kind of EBIT per kg are you expecting for the resins front?
We should -- around INR 7 to INR 8 for the full year average.
Got it. And sir, secondly, on the pipes, your previous comments suggest that in the H2 -- so the plumbing mix will be much higher than agri, so in that pipe business, do we see any improvement in EBIT per kg? And similarly, what will be your full year guidance for that segment?
See. For the full year, the pipes segment, we should be between the INR 10 to INR 12 mark.
Okay. And sir, just directionally in next 2, 3 years, when we are expecting to grow our non-agri portfolio at a faster pace. So how do you see these numbers for EBIT per kg moving in pipes segment specifically? Because we will also have a CapEx cost that will be coming up if you are planning accordingly.
Yes. See. Gradually with our improvement in the non-agri mix, this EBIT in the pipes segment should move towards INR 14.
The next question is from the line of Rahul Agarwal from InCred Capital.
On the new fitting plant, the 12,000 tonnes which you put, what was the utilization in 2Q and first half?
So the plant capacity is approximately 900 to 1,000 metric tons at this point of time. And our utilization has been upwards of 60%.
Got it. And Niraj, just one thing on the resin. I think the spreads are down Q-o-Q, right? I mean the delta you mentioned currently versus last month. I understand that the quarter is yet to go through, but the guidance which you're giving, INR 7 to INR 8 a kg, I think [ half ] average is about INR 3. But isn't that too optimistic, to achieve that INR 8 a kg for resin?
See. my view is as follows, Rahul. Again you're right because we don't control how commodity prices move, but see my view is, VCM, I feel that it should correct more before the next one starts. So that should kind of help us improve. A lot of this also is impacted by when are we buying the stock. So if you see, this month, we have probably just taken just 1 vessel. We'll probably take 2 vessels. And if you look at the volume terms, for the first half in resin, we have done roughly -- see. Of the 220,000 tonnes that we have to do in resin, a larger volume will happen in the second half, so that should kind of help us.
Got it, sir. And one question was on the supplier issue. So essentially, the guy couldn't supply, and obviously, it's a profitable quarter for us. I don't know how the contracts are signed with them, but is there any compensation which you're [ liable ] for? Or would you claim for that, or is it something that we have to let go?
See this is generally force majeure clauses are there. He did not -- he could not -- it's not that he did not supply. He could not supply.
Yes. They had a change in technology and they did not anticipate it taking this long for the restart-up of plant. And that was one of the reasons why we had to -- we did not get some of the shipments.
So I don't know about a long history here, but essentially -- so it doesn't mean that we are [ liable ] to any compensation from them, right?
No.
No.
Not in this particular instance.
Got it. And lastly, CPVC volumes and fittings. I know that you don't share it, but could you give some positive flavor in terms of growth for 2Q and first half for CPVC and fittings, please?
Fittings also has -- the overall growth of fittings has been higher than overall non-agri growth, okay? As a ratio also, fittings have improved substantially. I would say 3 to -- 3 basis points, as compared to last year.
And CPVC growth, just pure in terms of growth, 2Q or first half, whatever you could and share...
So it is better than the non-agri growth, overall growth of CPVC.
The next question is from the line of Ritesh Shah from Investec.
Sir, if we could just highlight, how much is our total fittings capacity right now? And out of the total volumes that we do, what part of it is captive? And is there a contribution from outsourcing, still, element over there?
So we have roughly 48,000 tonnes of capacity in fittings, okay? Of this, 12,000 is what we have in-house capacity right now. And balance is outsourced, but it's captive. I mean for only Finolex use.
Okay. And what Ajit sir indicated in my prior question, that we will look at incremental CapEx. Is this something which is going to be more only towards pipes and fittings? And there won't be anything for sure on the [ upstream ] side, either towards the jetty or PVC-VCM mass balancing over there.
Yes.
So should I assume that entirely it's going to be on the pipes and fittings side, nothing else?
Yes, yes.
Okay. Perfect. And sir, lastly, any update on the land bank? I think a part of the land parcel is still there which is still yet to be monetized.
No. We are still in talks, to be honest. We were hopeful of closing one transaction, but we have not been able to close it yet. But most likely, again my view, by end of this year, one more substantial chunk, we should be able to dispose.
Okay. And lastly, sir, I'll just try my luck. Would you like to comment anything on Finolex Industries, Finolex Cables? Does it impact the company in any which ways...
So Ritesh, as you always know, it's an independent company. As a management team, we are focused on our own performance. What happens at the promoter level is something which we don't get into, and for us, it will not be appropriate to comment on that.
The next question is from the line of Abhishek Ghosh from DSP.
Sir, just one question, in terms of the other expenses as a percentage of revenue has -- seems to moved up. So is it because of ad spend? Or is there any other spend that's sitting there...
That ratio seems probably higher because of the lower top line. I'm assuming you're comparing this with Q1.
Yes, but where I'm coming from is, if you broadly look at your quarters where you have lower revenues, you also see a decline in other expenses. This quarter, we have not seen any decline in other expenses despite a lower top line, so that's the only thing that we are looking at.
No. So...
If you see historically: Your other expenses as a percentage of revenue is more like 19%. It's more like 23% in the current quarter, so that is where...
So some advertising spend has come up. So that is a reason why you see an increase.
So Q-on-Q also, you have seen higher ad spend.
Yes.
Okay. Okay. And is it more focused towards -- that should be more focused towards the plumbing part of the business, right?
Yes, yes, yes, correct.
And is it more focused towards only metros of certain regions? Any color of that, sir, would be helpful.
So it is not only towards metro. See the kind of activity that we do in marketing. So for example, even when we have screen, our presence on screen, we kind of stay away from very expensive [ IPL ] sort of things. We are there [ certainly ], but our presence, you will find more in content which is seen by our relatable customer segment. For instance, we were...
And influencers.
And influencers. For example, some of the shows that we kind of participated last year, like Bigg Boss; and this year, on Khatron Ke Khiladi. So these are shows which have large viewerships of our relevant segment. And you'll see our spends more in the BTL sort of spends.
And if you actually saw in -- during current world cup as well how logo will be present in the TV screens, which is -- and amount of viewership and the comments which we have got on that has been quite significant.
Okay. And Ajit, would you have any sense around [ the details ] in terms of the overall -- while you have seen about a 6% kind of volume growth, what would be the industry volume growth for 2Q from the resin numbers? Any sense would you have around that?
See I will not be able to comment on the competition, but in general, the industry have been growing anywhere between 10%, 15% average.
And [ you guys ]...
As I mentioned, we have been impacted a little bit more severely because of our volume mix. And that's a reason why -- our movement towards the non-agri segment.
But for the year, you expect also to grow at 15% so you'll at least maintain your market share...
Yes. That is our expectation, yes.
Okay, okay. And the capacity constraint element will only come in, in FY '26 is what you believe...
Correct. In the next 2 to 3 years, yes, we are anticipating that, and therefore, we are doing what is needed at this point of time.
Okay. And also, in order to tap into newer regions, like not newer but various states probably market shares are not higher, are you also looking to get into something kind of an outsourcing model or a warehouse capacity? Any changes that you're bringing to your distribution? Because you're -- if I broadly look at your retail touch points, they have been stagnating [ in at ] about 21,000 for some time now. So any thoughts around that?
See. Although the retail -- see. For example, our dealers and distributors are around 800, whereas our retail network is growing. So a couple of years back, we were at around 20,000. We are up, almost 23,000 now. And one of the things which we are doing is that -- there is also churn in the sense that the nonperforming dealers are getting out. And we are introducing more and more performing dealers, so -- and although the number seems to be stagnant, the quality of the network also has improved significantly. That is one thing which we are doing. And what was the other question?
No, sir. I was trying to understand that, in terms of getting into new regions -- or maybe there are regions where your market shares are lower. Are you trying to put up a warehouse or some people also...
So other aspects of it where we are working really hard on innovating, this is the logistics itself. So we have several proofs of concepts running at various parts of the country, trying to get closer to the market. And once they are successful, we'll be rolling it out to the rest of the country.
The next question is from the line of Dhruv Muchhal from HDFC AMC.
Sir, any update on the import -- the PVC import quality order which the government had probably brought in? I'm not sure if it was implemented, so any updates if you have you can share?
So the quota system was implemented, but till now we don't know how it is being monitored. I don't think, personally, it is being, but it has -- what it has done is -- some of those imports have reduced which was coming off inferior-quality PVC. That has reduced, but from a quota perspective, how it is being managed, we don't know. I don't think it is being managed as of now.
So the order is not effective as of yet. It's just the few of the order that it's...
[ No, no, no ]. See. Government did come out with the quota and all of that, but how they are monitoring it, I am not sure.
[Operator Instructions] The next question is from the line of Vaibhav Muley from Jefferies India.
I think he's dropped...
Mr. Muley, unfortunately, we are not able to hear you, so if you wish to ask a question, please rejoin the queue. The next question is from the line of Praveen Sahay from PL India.
I have one query related to the margin front. So if I look at -- your gross margin has improved, whereas EBITDA margin has contracted. Even in the time of -- when the PVC-EDC spread is on the higher end, that's benefited. As well as, as you mentioned, that's the plumbing is up 40% for the quarter. That's maybe also benefited, so -- and also you had given a indicative, the way-forward EBIT per kg for pipe to be range of around INR 14, which was not in the past quarters. We had not seen such, so first, sir, what exactly the EBITDA margin contraction reason. Definitely, you had a set advertisement, but is it only advertisement? Or something else to look at and the way forward how you are going to look this. Because advertisement is not in a quarter. I believe it's going to be continuing. So that is my question.
So you are right. There is a gross margins improvement in the pipes segment also. That is because of the mix change, but on a net basis when you see, the volume that we did in Q1 was close to 90,000 tonnes, whereas in this quarter we have done 60,000 tonnes. So your other fixed costs kind of gets amortized over a smaller quantity, so you get that negative impact in a per tonne profitability. I hope I was able to answer you.
Yes, yes. Right, right. So the way forward, we will -- yes, go ahead.
And -- yes. So way forward, INR 14 is something that we are aspiring for in a few years time, not in this year. See, as our non-agri to agri improves more towards a 50-50 mark, we aspire that our margin in the pipes segment should also move up to INR 14 and plus, but for the current year, what we are saying is it should remain in INR 10 to INR 12 kg.
Okay. Okay. Got it. Second, sir, is related to the realization of the PVC resin, if I look at the external realization which is around 29% higher than the overall blended realization. So have you sell -- sold the PVC resin at a higher price in the external market?
So see. If you see: Our external sale of resin has been very, very minimal. And you see higher realization there because we sell -- we also make emulsion-grade PVC. The realization of the emulsion grade is better than the suspension-grade PVC that we sell, so you see a better overall realization [ in the PVC ] segment...
And how is the difference, just to clarify, sir, emulsion versus that?
So the difference is more than INR 30.
The next question is from the line of Mr. Achal Lohade from JM Financial.
What I wanted to check for the PVC resins. Is it possible for you to kind of give some statistics about the industry in terms of how much was domestic PVC resin production in India? How much was import? And of the total availability, how much goes into pipes? And how much goes for other usages?
So in overall market, I think [ at least ] 73% of all the PVC which is consumed in India goes into the pipes and fittings segment. Of the overall PVCs resin which is consumed, almost 50% is imported. Only about 50% is made locally. And...
[indiscernible], sir -- yes.
[indiscernible]...
Sorry. I can't hear you, sir -- okay. Sorry.
Can you hear me now...
A little better towards the end, yes. Now I can hear.
Yes. So I don't have the exact numbers for you right now, but about 50% of India's PVC needs are imported still.
Right, right -- no, because we have been hearing this 50-50 for a while, so I wanted to check if there is a change...
No new capacity has come up. No new capacity has come...
But at the same time, the consumption would have grown, so I presume the imports would have gone up beyond 50%. And I wanted to see the change. Because when you say 10% to 15% growth for the industry, is this also being supported by the resin imports number...
So that also depends upon what -- the capacity utilization of current PVC producers as well. So although Finolex has been producing at its capacity, I'm not sure other manufacturers have been producing at their capacity, so the upside is definitely, but as you would have heard in media, that there are a few more manufacturers who are looking into establishing large manufacturing facilities for PVC in India going forward, which might come up in the next 4 to 5 years.
The next question is from the line of Nikhil Agrawal from VT Capital.
Sir, just wanted a clarification. You said that, that channel was anticipating price cuts in the PVC segment, so they were not -- there was not enough buying. So was this only -- restricted to the agri segment, or was it in the plumbing segment as well?
See overall market. This is a tendency that -- when they expect because -- to make it very clear: The pricing is very efficient in the pipes and fittings segment. The movements, there is a rise in PVC prices or drop in PVC prices. It gets translated into the pricing in the markets within 1 or 2 days maximum, so anybody holding a higher-value inventory and the PVC price falls, they will be under loss. So typically, in a dropping-PVC-price scenario, the work [ pulls ] back on holding any inventory. The moment see -- they see prices going up, they start pulling inventory. And in a dropping market, yes, they will expect price protection as well. Or otherwise, the inventory -- they don't hold inventory at all. So that is the dynamics of the market. And therefore, if you look at the pipes and fittings segment, which is the non-agri segment, it's they are much less elastic. For example, any building and construction, pipes and fittings contribute only 1.5% to 2% of the project price, whereas -- and whereas in agri segment, it's the farmer who is buying it with his own [indiscernible]. They are highly price sensitive, and therefore, any movement in price [ of resin ], you have that segment pulling back immediately.
Okay. So the impact was mostly restricted to the agri pipe segment, the anticipation of price falling, right?
That's right.
Okay, great. And sir, just...
I won't say only agri segment but [ predominantly ].
Majorly, okay, got it. Just another clarification: You said differential between -- suspension PVC is about INR 30 more than the emulsion-grade PVC.
It ranges. Currently, it is less than INR 30. It is INR 25.
Okay, okay. And it is mostly suspension-grade PVC which is used to make pipes, right?
Yes, yes. Emulsion grade has different usage. It is mostly for medical equipment and [indiscernible].
Okay. And what would be the raw material for this emulsion grade? Or the same as suspension.
Yes, same, yes.
The next question is from the line of Abhishek Ghosh from DSP.
Sir, just in terms of we have seen a very sharp price correction, as we speak, in the month of October; and with some amount of price improvement now, a marginal one. So now the [ trade ] will have a lot more confidence given the behavioral aspect that one sees towards the price movements in terms of volume uptick. Any thoughts?
Yes, we anticipate. Given the annual rainfall scenario which have been suboptimal in many parts of the country and given the stability of PVC prices, we expect that the uptick -- there will be an uptick in demand going forward.
Okay. And any -- given the crude price movement, do you have any thoughts on PVC prices trend over the next 6 to 9 months, any thoughts?
See there is not too much of a correlation between the two. The PVC prices are influenced by caustic production, crude oil prices, et cetera, so it is very difficult to predict based on crude oil prices.
Okay, but do you think, after the sharp price drop in PVC, it should at least stabilize? And that should give...
We expect the bottom has been reached.
The next question is from the line of Aasim from DAM Capital.
Just one question. So you mentioned that Q2 volume underperformance on pipes is majorly to do with your agri mix being higher, but is your geographic mix more skewed towards South and West also a factor that may have weighed down on volume?
Not really. Because our strongholds are West and South, where we'll have decent demand of agri coming from those regions.
Okay. Because I mean, amongst the interactions that we had with the channel players, I think what we heard was because -- I mean there was a better range earlier, so accordingly, agri pipes sales were weaker. And then I think September month had the PVC price overhang, so anyway, pipes sales were weak. I just wanted to check. Basically the understanding that I wanted to get out of here was, if you were a more balanced player across India and not a West and South player, would you have done better in Q2.
No. If you actually see the pipe demand -- pipes and fittings demand is based on the GDP from each of these regions. And West and South are the strongest, so I don't think -- it's not because of the geographic spend.
Okay. And just lastly: So earlier in Q2, PVC prices were actually, I think, moving upwards, so did you see any sense of channel restocking on the agri side during that time?
See. That time, if you see, that the increase was in small tranches, INR 1, INR 1.5, so -- and that we were approaching the end of season. So we did not see much channel stocking at that time.
But then I mean just to come back to the September period. I mean it is, anyway, a weak season for agri, right, so if there was a PVC price overhang, why would agri as a segment do relatively weaker then, to drag down the overall volume?
[indiscernible] honestly, [ really ask me ], July and August were in fact very good months. So the whole -- I will say the [ better-some ] growth -- or the growth of both agri and non-agri kind of continued every month, month-on-month from April onwards, April, May, June, July, August. In September, there are a couple of things which have happened which impacted agri more. One was monsoon kind of reached everywhere and there were rains. Secondly, while price correction did not happen, there was a strong indication of prices going down. The prices prevailing in the country were higher than the import offers which were being offered, so there was a long period of, I will say, an overhang where there is an anticipation of price reduction, but it did not happen. So that actually played a bigger role. If this price correction would have probably happened in the first week of September itself, then we might not have seen so much of [ this going ]. That's my view, but the fact that this overhang of [indiscernible] going to be a price correction, price [ reduction ] for a month, that had a very negative [ impact ].
The next question is from the line of [ Sriram Rajan ], who is an individual investor.
Just 2 questions, actually. In terms of agri and non-agri, where are the margins more for the company?
Agri is a high-volume, low-margin business. And non-agri is a [ high-margin ] business [indiscernible] the profitability in non-agri is more than agri.
Yes. And is there any intention or -- to change the ratio 40:60 to a higher mix from a sales -- yes.
So not very long ago, we used to have a ratio of 80:20, from 2017, '18 onwards. And that is when -- since then, we have been focusing and trying to improve this ratio. And that's why we see comfortably that we are in the 65:35 mark. Our endeavor is that, in a few years time, we should reach at least 50:50 in both the segments.
Okay. That's very helpful. And in terms of given that the building and the real estate market has significant tailwinds, at least for the next [ 4, 5 ] years, is that an important segment for us, actually selling directly to the builders?
Yes, absolutely, yes, yes, absolutely.
Okay. Would you mind sharing, what fraction of your non-agri business would that be? Or it's a little too small now.
So just so I'm clear. We do not sell anything directly to any builder or [ employee ]. Whatever sales we do, it's from channel partners only.
Okay. And see the plumbers, et cetera taking it. And off the shelf is one, but a builder buying something in block for the entire construction of 1,000 flats, is that a segment you're actually intentionally focusing on? Or it's something that the channel partners has to focus...
No, no. We do that, so what happens is, while we do not sell it directly, we don't bill it to the builder directly, but it is our team. We have a dedicated team which works continuously only on these projects. We call them project business. And they -- at times, they work independently. At times, they take support from the local dealer, distribution in their area. And they kind of jointly make the value proportion to the builder, [ but ] that happens.
Thank you so much. As there are no further questions, I would like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. Thank you all for attending today's call. Obviously, if you have any further questions, please feel free to reach out to us. And season's greetings. Happy Vijayadashami to everybody. Thank you.
Thank you so much. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
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