Niraj Kedia, Deputy Chief Financial Officer (CFO), Finolex Industries Ltd, talks about demand trends, performance in Q4FY21, price increase, growth prospects in FY22 and CapEx plans among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:
Q: The company has seen a strong performance in the previous quarter. What kind of growth trends are visible in the fourth quarter and do you think that the performance will continue, or it can be better on the back of strong demand?
A: If you have a look at this year and the way it started then in the first quarter there were lockdowns in the industry and production were close. It also had an impact on our volumes and there was a reduction of 41% in the first quarter but as the year progressed, we have seen a lot of upswing in the demand. If you see, then there was a catch-up to a great extent in quantities in the second quarter and there was a reduction of 9%. In the third quarter, we were able to achieve a 5% increment in the quantity. If we talk about the whole industry, keeping in mind that this was a corona year, then the capacity and demand of the whole industry have been very robust and there is a fall of just 9-10%. If seen from that perspective, then this year’s demand has been quite good. But what has happened is that the PVC prices in the global markets are very high at present. If you have a look at the trends then in the last two years, i.e. FY19 and FY20, generally the PVC prices stood at around $900 and in April due to the lockdowns it came down to $650 then in August it came back to $900, in November it stood at $1200 and currently it stands at around $1600. So, if you have a look based on the prices of August or $900, which is an average price where it stands, generally, then PVC prices in global and Indian markets have grown up by almost 85%. Due to this, some deferment is visible in the market, so the ability to predict the demand as such has slightly reduced but overall as I said, given it was a COVID year, the demand was quite robust and we are hopeful that we will be able to meet the shortfall, whatever it was.
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Q: You have talked about the PVC prices and the trend is towards the upside. Can you summarise its impact that what has happened, and price rise are in offing, if yes, what can be its quantum and how will you handle it so that it has minimum impact on the margins?
A: If we will talk about the Indian markets then PVC pipes and fitting prices are at international parity. So, the global prices are followed even in India and the price change is generally given quickly to the market, irrespective of whoever is the PVC price manufacturer. So, the same trend is going on and in this, we should look at two things separately in which is the Agri sector and non-Agri sector. If we will talk about the non-Agri, then overall PVC pipes and fitting are a very small part of the construction cost. So, just because the PVC prices have increased, it should not have any deferment in the demand. If we will have a look at the year’s performance of the industry as well as ours then there has not been such a decline in the non-Agri sector. It has been better than the Agri sector. If we will have a look in agriculture, there are two-three things in it, like, when the pipeline is installed then in many cases, the farmer does not put the pipeline alone. Generally, there is a group of 5-6 farmers who collectively buy because the pipeline passes through the fields of those 5-6 farmers. Therefore, it is not so that there can be a deferment but if anyone farmer among those 5-6 farmers has some commercial constraints and he feels that it is expensive then he might defer that decision. Similarly, what happens many times, the farmers take loans from the banks, get their projects approved but – the kind of price rise we have seen in the PVC in the last few months – if something happens in which he had got some project sanctioned and the price increases then possibilities are there can be deferment in his plan. But due to this, it will not be a continuous business and there will be a time when there will be pent-up demand. We were hoping that there will be some relaxation in the PVC prices but if you have a look then there has been a snowstorm in the US due to which there are supply constraints. Secondly, some shutdowns are expected in the first half from global PVC producers in the Middle East and other places, due to which we are seeing that this tension of pricing will be there for the next 2-3 months. Let’s see how the market behaves after June.
Q: Growth prospects are visible in real estate and infrastructure construction and they will have a positive impact on your company. What growth you are anticipating on that front, especially in the real estate and construction set up?
A: As I have already said that the impact of high prices of PVC is less. I will not say that it will not have any impact on us but that is farther better suited as compared to the agricultural market just because the overall component of PVC is less. At the same time, it should be seen that the rest of the materials that are used in construction, like steel among others, are also priced highly. So, as such, we can see the demand but overall, when the whole economy opens up completely, we are expecting that there will be an improvement in the demand.
Q: What are your growth targets in the top line, bottom line and margin in FY22? Also, tell us about the CapEx plan and expansion plan for the company?
A: I don’t know, how much I can say about the fourth quarter right now, but you can have a look at the third quarter and the nine months till December, the results have been quite good, there was a drop in quantities, but we achieved the revenue at the last year’s level. The profits were also better, and we hope that it continues. When it comes to CapEx plans, we had some incremental CapEx plans this year, which were deferred due to COVID. As such, we don’t have any major CapEx plan because what happens in our industry is that you can increase capacity by incurring modular changes. But in the next 1-2 years, we are planning a CapEx of Rs 100-200 crore.