Finolex Industries Limited (FINPIPE) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Finolex Industries Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Arun Baid from ICICI Securities. Thank you, and over to you, sir.

Thank you, Saniya. On behalf of ICICI Securities, I welcome you all to the Q1 FY '27 Post Results Con Call of Finolex Industries. From the management side, we have Mr. Udipt Agarwal, Managing Director; and Mr. Chandan Verma, CFO. Now I hand the call over to Udipt, post which we'll open the floor to question and answers. Thank you.

Thank you, Arun, and good afternoon, ladies and gentlemen. Welcome to Finolex Industries Earnings Call for Quarter 1 FY '26, '27. We all are very pleased to have you here. I remind everybody that this call may contain certain forward-looking statements based on management's current expectations. Actual results may differ. I want to begin by saying that the quarter 1 of this current financial year was marked by volatility in polymer prices, which became the dominant macro factor for the industry during the quarter. Average PVC prices is higher year-on-year at about USD 875 per metric tonne (sic) [ USD 873 per metric tonne ] in the quarter as compared to about USD 707 per metric tonne average according to the ICIS reports largely carrying forward the elevated levels seen in the quarter 4 of FY '26 as well. However, prices saw a sharp intra-quarter correction, which triggered a channel destocking and impacted volumes even during what is typically a seasonally strong pre-monsoon quarter for us. Two regulatory developments, which I would like to also bring to everybody's attention is that the withdrawal of the customs duty exemption on PVC resin prices, which happened during the mid of July and the imposition of the minimum import price for the PVC resin. These 2 developments should help and support some stability in the PVC prices as we go forward. And I think this should also help with the channel inventories, and we look forward to having somewhat improved volume and business momentum over the coming quarters. As we all know that PVC demand in India follows a well-established seasonal pattern. Demand peaks in the pre-monsoon period, January to May period as the farmers and the agriculture segment prepare for the Kharif seasons. And then it starts to moderate a little bit during quarter 2, quarter 3. And then we also again see the impact coming up and back in again in end of quarter 2, quarter 3 because of the Rabi season coming in. With this, I would also like to give a little bit comment about the -- as we look into the rest of the year, I mean, we are -- we remain optimistic, however, with a caution about recovery of the volumes and realization as the inventories normalize, polymer prices stabilize, guided by the current 2 developments which I talked about, the recent customs duty and MIP interventions. We believe that the structural demand drivers continue to remain in place and intact, and will continue to underpin the medium-term confidence. This year, we are also celebrating 45 years of Finolex Pipes and Industries. We remain equally committed to our brand, our distribution partners and the communities which we serve. Thank you for your continued trust and support. I will pass on the floor to Mr. Chandan Verma who will talk about the numbers on the quarter 1 FY '27 performance, and then we will open the floor to question and answers. Over to you, Chandan.

Good afternoon, everyone. So, as you know, the number already we have published in our investor presentation uploaded on the site, though I want to give you a brief highlight on the numbers what we have. So, overall sales volume declined by 27% from the corresponding quarter of the last year. Total volume we have registered around 68,000 metric tonnes during the Q1 FY '27. Though we have seen a decline in revenue (sic) [ volume ] by 27%, the overall decline in revenue is moderated by around 15% only. And our total revenue for the Q1 is INR 884 crores compared to INR 143 crores (sic) [ INR 1,043 crores ] of the same quarter of the last year. We have seen a significant and healthy jump in EBITDA by 14% and the EBITDA margin improved from 9% to 12%. Current quarter EBITDA stood at INR 107 crores, whereas the last quarter of the same year -- same quarter of last year, it was INR 94 crores. PBT is currently at INR 148 crores and PAT is around INR 107 crores. We have a strong liquidity as we continue. We are having INR 2,636 crores of cash in hand, which we will continue to have in our balance sheet over the time. The floor is now open for the questions. We invite question one by one, and we will address as and when possible.

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital.

I have a couple of questions, but before that, a couple of data points, so it will help us to ask the relevant questions. So for this quarter, what was the agri share, fitting share, CPVC share in the total volume?

Current quarter, we have -- the agri share is 69%, and fittings share within agri 5% and within non-agri is 25%. And overall, this is -- fittings percent on a total volume is 11%.

Okay. Then, CPVC share is 7.5%?

CPVC share for the current quarter is around 7%, yes.

Okay. Got it. So, now given -- I understand the volume significant degrowth is there, which we have seen across the companies who have reported results, Prince and Supreme also. But in terms of the realization front, our Q-o-Q jump is just 1% versus both the companies who reported -- they reported a 7% and 9% kind of a Q-o-Q jump in the realization. So just wanted to understand why our realization was not on Q-o-Q basis a jump?

Okay. But on a Q-on-Q basis, if we have seen our realization per kg has gone up by 15% with the same quarter of the same year, while our peers are also in the same range. So I think we are well within the range of the realization per kg. We are not off from our other peers, whoever the data is in the public domain.

Okay. No, I'm talking about the -- on the Q-o-Q front, particularly because for Q-o-Q, as the realization which is broadly if I do the math with the volume, 1.1% Q-o-Q improvement and then the realization in this quarter versus -- I was saying that the other 2 players who have reported numbers there it was significantly higher. So I understand the volatility, but in April, there was a downtick in that. But given maybe the March where we have seen the significant prices up and maybe the pass on would be happening with maybe 10 days, 15 days lag. So that may be the reason why the other players were able to kind of show the improvement, but we haven't. So just wanted to understand, was there any specific reason on that front?

You're talking about the -- for the entire quarter or March to April only?

For Q1 versus Q4.

So, Q1 versus Q4, definitely. You have seen -- see Q4 is the year is aberration -- is the quarter for the aberration of the quarter, where we have seen an unprecedented increase in the prices of PVC. That has resulted in the unprecedented realization hike. But as we move in the Q1, and particularly in the month of April, there was a sharp decline in the PVC prices. And the PVC prices have gone, if I need to quote a number, it has gone from INR 96 to INR 92, then INR 82. This is the reason that the prices have gone down per kg. So that is how the realization has been moving from the quarter and quarter from the last year and from the current year. So it's more about the realization within the industry plus there are quite of incentive and discount also plays in the sector when we compute our landed price realization -- net realization per kg. That is how things will work upon. However, from the Q-on-Q -- quarter-on-quarter, if you see from the same quarter of the last year, we are fairly within the range bound that other public domain number we can see.

Okay. So 2 things. So on the volume and then now on the realization and obviously, that will lead to kind of a margin also. So first, on the volume, have we started seeing the kind of channel level the inventory because in last 15-odd days, we have seen a INR 12, INR 13 per kg price hike in the PVC because of MIP and the import duty withdrawal. So have we started seeing the growth in particularly in the July and maybe in the June also, have you seen that kind of a growth? And now for full year, how are we looking at on the volume front? And realization also, given the INR 12, INR 13 hike, which has happened in last 15, 20 days, can we see a sharp Q-o-Q jump in realization in Q2?

Yes. Certainly, Shravan, there has been an impact in the market because of the factors which you talked about and also the destocking in the channel. So all these have an impact both on the volume and the revenue on the realization side. And we will see how does it play out over the course of the year. But for now, yes, the minimum floor is set for the PVC price because of the MIP. And so we should see a little better quarter 2 in terms of the realizations.

And also in terms of volume, as you rightly said, post MIP, the volume has started to pick up. So we have seen a quite good uptick in the volume in the month of July as well.

So for full year, how now we can look at the volume for us as a full year?

No. So full year, see Shravan, at this moment, it's too early to say anything because PVC industry is surrounded by a lot of uncertainty and volatility. So at this moment, whatever the projection we have given during our Q4 con call, we will continue to say. We will see how the year progresses because it's only the Q1 that we have completed. Let's see how the year progresses, then we'll give any commentary on the full year numbers.

And at margin level also, any kind of a guidance that we want to give?

We will continue with our same last quarter's margin, the anticipation that we have given.

So 15% kind of a number that we have said for full year.

We said sub 15% -- sub 15%, around somewhere, we'll continue to say that if something -- if everything goes well, then we'll see how the number will look like throughout the year. But it's too early to say anything...

And there is much volatility also, I mean global geopolitical situation is still fluctuating.

And any inventory loss in Q1?

So, see, there are inventory losses and it's too early -- inventory gain and loss definitely would be there, but it's too -- not to report it at this moment. Whatever the gain and loss that is there, that will be utilized over the period of Q1, Q2 over the period in time.

The next question is from the line of from Praneet SJ Investments.

So I just had one question in terms of the volume degrowth. I understand that the market is down and everything, but we have -- I think, the degrown substantially compared to our peers in the market. Just trying to understand what exactly happened?

Shravan -- I mean, as you know, our dominance or our larger presence in the agri segment, which was more affected than the other, which is the plumbing or non-agri segment as you call it. So that's the primary reason what we see as part of the reason for lower volumes for us other than the channel which we talked about in the beginning of the call.

Understood, sir. And in terms of expansion, I understand the tighter market is off and everything. Do we have any idea in terms of expanding capacity? Do you have any plan in terms of increasing our plans in any of the quarter?

Yes. So the capacity planning is always done on a long-term basis -- mid- to long-term basis. So capacity or the CapEx plans do not get impacted by the short-term macroeconomic environment as all our plans with respect to CapEx and capacity expansions remain in place.

No, sir. But at this point of time, do we have any greenfield or brownfield things we want to do? Because I understand it here right now with that probably plants, we can only cater to largely agri and our mix is also mostly focused that way. In terms of reducing reliance, are we doing anything in terms of more material like putting plants closer to urban locations or something like that?

Yes. So we are expanding capacity, and we are also augmenting capacity via debottlenecking. So as we have said in our previous calls also the capital outlay for [indiscernible] continues to remain around INR 125 crores to INR 200 crores range, and that remains intact.

Got it, sir. So do we see structurally anything affecting us because at least on the ground level, it's been noted that Finolex has not been that aggressive as compared to other peers. So what do you have to say about that? Because there has been many people who have been seeing that on the ground at least?

So at this moment, our capacity, see we have the headroom to grow, right? At the moment, we have the total installed capacity of 520 and our last year volume was 333 only. But still we have the headroom to grow at a healthy rate of 10% to 12%. So let our installed capacity get exhausted because first, because...

We're [indiscernible]

Yes. And apart from that also, as Mr. Agarwal has just pointed out, there is a continuous process going on in our organization with respect to debottlenecking, where we remove our old lower capacity extruder and keep adding our higher capacity extruder. So in a way, within the same territory, the -- few capacity we keep adding every year rather than announcing a big in terms of greenfield and brownfield expansion. And still, as I have mentioned, we still have the headroom to grow at a healthy 10%, 12% over the current -- at least 2028 year, next 1 year, 1.5 years.

Correct, sir. I understand there's headroom to grow. It's just that we -- because the last few years and like whatever there's been some at least distress in terms of agri segment also. I'm trying to understand, is there a potential that we can -- we are actually meaningfully looking for some other segment because I know you already have plans beyond agri itself, but is it working out is my question?

So other sector because the non-agri is a wide area where we are looking into, but not in the other additional sector. We are definitely not at the moment looking for sector.

Understood. Sir, sorry, one final question. In terms of JJM, do we expect any substantial revenue growth from JJM 2.0 from September, they expect some substantial rollout. So how does the company see it?

See, JJM 2.0 for the current financial year, government has announced the layout of INR 56 -- INR 67,000 crores, somewhere ballpark there. The second point is how is the realization, how is the distribution of this? I think in JJM 2., they also have a different mechanism of distributing the corpus. And as you would know that all our business is through channel. So all our channel partners participate in this. And so we do not have a direct major or direct correlation of the JJM impact, or any other for that matter, the other infrastructure related schemes onto our core volume because as I said, all the sales are through channel. But yes, as the money gets distributed from the government funds, that will certainly have an overall impact on the demand.

Sir, but in terms of allocation, is it -- in terms of the sheer quantum of value, is it higher than JJM 1.0, for JJM 2.0 for piping, at least for the segments we cater to?

I think on an overall basis, it is not higher than JJM 1.0.

Okay. So in terms of value also?

Yes, in terms of the value I'm talking about. I think I don't have to remember the JJM 1.0 number on the top of my head, but I know that JJM 2.0 is about INR 67,000 crores, and it is lower than JJM 1.

For piping allocation. I'm asking more specific to piping. That is the overall number, right? So piping, do we have any specific insights?

I don't think I can add anything more to than what I have already said.

[Operator Instructions] The next question is from the line of Sneha Talreja from Nuvama.

A couple of questions from my end. Firstly, with respect to again, your volume growth, which has been substantially lower than peers, not only this particular quarter, but even if I look at quarter 4 now, what are your thoughts on market share loss? Because if you look at the industry level numbers also, I think industry would have degrown by around 8% to 10-odd percent versus our degrowth would be much higher in volume terms. So what are our thoughts here? And how do we expect to gain back this market share?

Thanks, Sneha for the question. I just want to bring to everybody that if we look at full year FY '26 and the top 5 reporting companies who report their volumes and on that basis, our share for the full year '22 was about -- for the full year FY '26 was about 22%, okay? And when we look at market share, we should look at it over a longer period of time and not on a quarter-to-quarter basis, but we do not have the numbers from all the reporting companies for the quarter 1 as yet. I think 1 or 2 are still to report their numbers. But I don't see any change in the market share, yes, even for the quarter 1 as compared to full year FY '26.

Okay. So let me just put it this way. If I look at top 6 companies and if I compare that data from FY '23 to '26, our market share used to be 27%, which has come down now to about 22-odd percent. This is just top 6, not even thinking about industry level growth and all. How would we fare that? And what are plans to basically get back is all I'm trying to understand.

So there is a constant push in terms of increasing penetration in the market, increasing our presence in the underrepresented areas. And that's what there's been a push from our side to increase -- to improve our volumes. There are a few segments of the market where we are not present, where other -- some of our competitors are present. So that also has to take -- you have to also take into perspective when calculating the overall market shares. So I think to better understand the question and the underlying dynamics, we have to look at absolute like-to-like. Finolex Industries is a pure-play PVC pipes and fittings producers, where other producers also have a larger share of other polymers into their portfolio. So that could also be a factor which will -- which might have an impact on the numbers the way they are looked at.

Understood. That was helpful. The second question is regarding PVC prices now that they are on upward trend. What sort of a volume rebound can we see? And more importantly, out of the total PVC price increase that we've seen in this last 1 month, how much of it is passed on to the end user at this point of time?

So Sneha, you have seen there is an upward trend, as you rightly said in the prices of PVC in the market. And I think largely, hardly barring INR 1 or 2, I think most of the thing has been passed on to the customer at this moment, talking today's date.

Understood. And how is the demand after the price increases that we've seen?

Yes. So demand is quite -- as I've -- mentioning July was quite good volume pickup that we have seen and since it's the 6 or 7 days of August only, but numbers are looking in the right direction.

The next question is from the line of Sonali from Jefferies.

Sir, my first question is again on the volume. So we understand that agri pipes is about 70% of your mix. So could you help us understand of the volume decline of 27%, how much was the decline in agri versus plumbing?

So we have seen both the overall total volume degrowth is 27%. So if you compare our volume from the Q1 of current year versus last year of the same quarter, the agri has declined by 27% and non-agri is around 24%. So both are in the same more or less the same direction.

Understand. Sir, it would be really helpful if you could help us understand the month-by-month very approximate volume trends. The reason I'm asking is because we saw maximum amount of volatility of PVC in April. So of the 27% for the quarter, how much was the degrowth in April, May and June? That would be very helpful.

I don't -- I think Chandan will have the exact numbers, he'll comment on that. But as you rightly said, April was the month where there was maximum volatility. And so April was the -- out of the 3 months, April was the lowest volume month. And then we saw the pickup in the month of May. And June was like a normal month, I would say.

So, have we...

But, Chandan, do you have the specific figures?

Yes. So this is what the trend that we -- as Mr. Agarwal rightly pointed out, April was quite a dismal performance, then May and June fairly in the way that things would have been there and July, as I mentioned, it's a quite good number. That's it.

But Chandan sir, do we have the numbers for April, May, June please?

At this moment, I don't have. We can reach out separately, then we can disclose. At this moment, I'm not -- [indiscernible] is not with me immediately month-on-month. Generally, I report the number on a quarter-on-quarter basis.