Finolex Industries Limited Conference Call November 13, 2014 · Finolex Industries Conference Call...

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Finolex Industries Limited Conference Call

November 13, 2014

MANAGEMENT: MR. PRAKASH CHHABRIA – EXECUTIVE CHAIRMAN

MR. SAURABH DHANORKAR – MANAGING DIRECTOR

ANALYST: MR. MILAN BAVISHI – SR. VICE PRESIDENT - S-ANCIAL

ADVISORS PRIVATE LIMITED

Finolex Industries Conference Call November 13, 2014

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Operator: Ladies and gentlemen, good day and welcome to the Finolex Industries Limited, Q2 FY-15

earnings conference call hosted by S-Ancial Advisors Private Limited. As a reminder all

participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask

questions after the presentation concludes. Should you need assistance during this conference

call please signal an operator by pressing * and 0 on your touchtone telephone. Please note that

this conference is being recorded. I now hand the conference over to Mr. Milan Bavishi from S-

Ancial Advisors. Thank you and over to you.

Milan Bavishi: I, on behalf of S-Ancial Advisors welcome you to the Q2 FY-15 results conference call of

Finolex Industries Limited. We have with us Mr. Prakash Chhabria, executive chairman and Mr.

Saurabh Dhanorkar, managing director. I now hand over the call to Mr. Prakash Chhabria for

opening remarks. Over to you, sir.

Prakash Chhabria: Good afternoon everyone and welcome to Finolex Industries investor conference call. The

revenues for the quarter ended September ’14 were Rs. 386 crores as compared to Rs. 390 crores

in Q2 FY-14 practically recording a flat growth on year-on-year basis. The EBITDA before

exceptional items was Rs. 45 crores as against Rs. 82 crores during Q2 FY-14, down 45% year-

on-year. Profit before tax in the quarter was Rs. 22 crores as against Rs. 39 crores. Profit after tax

in the quarter was Rs. 14 crores as against 27 crores in Q2 FY-14 lower by 48% on year-on-year

basis. Broadly the reasons for the drop in profitability during the quarter were as follows: Cost of

material consumed as inventory of raw material prior to Jetty shutdown was at a higher price and

the approximate impact of this was about Rs. 20 crores.

Point number 2: power and fuel stores and spares consumed and other expenses are high due to

maintenance and repair shutdown of PVC plant, as was planned. There was no repair of the PVC

plant last year in the same time. Start up was within schedule and cost except for the power plant

which has still not started. The total amount attributed to this is about 10 crores.

Item number 3: lower other income during current quarter deleveraging of investments

approximately Rs. 7 crores. It total of about 37 crores. During the quarter the PVC, EDC average

spread was $601 per metric ton as against $660 per metric ton during Q2 FY-14.

I’m happy to say that our new warehouse in Cuttack, Odissa has received favorable response

from the dealers in northeast market. The warehouse will help us in increasing market share as

well in geographically diversifying the revenues. The union budget 2014 has several exciting

measures which will ensure substantial growth for PVC demand, various scheme undertaken by

the government that is Swachh Bharat Abhiyan, toilet blocks for the poor augurs well for the

business.

Finolex Industries is now metamorphosing into a company engaged in the business of managing

water. The move has been prompted by the looming water crisis in India which is home to 18%

of the global population but has only 4% of usable water resources. India’s water crisis is

accentuated further through distribution losses in the carriage of water. Finolex is planning to

create solutions which will help prevent such leakage. To reflect this new focus in the business,


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the company also unveiled a new brand identity. The company’s tagline of ‘Tarakki Zindagibhar’

is a lifetime prosperity to the consumer through water management. The company will soon be

aggressively communicating its position through a new television and video campaign; a new

website and will as well cascade into the social media. Now I open the floor for questions, thank

you.

Operator: Thank you very much, sir. Ladies and gentlemen we will now begin the question and answer

session. Our first question is from the line of Maulik Patel of Equirus Securities. Please go

ahead.

Maulik Patel: Sir, can you please repeat what was the production loss because of this maintenance shutdown?

Prakash Chhabria: Production loss is about Rs. 10 crores which includes the power plant being shutdown. And

unfortunately the power plant has still not started whereas the PVC plant has fully started on

time, within schedule, within cost.

Maulik Patel: Sir, when we took this shutdown, in which period?

Prakash Chhabria: In the month of September.

Maulik Patel: So that means that you are using a very high cost power in the month of October and November

also.

Prakash Chhabria: Also from MSEB.

Maulik Patel: From MSEB. So there is a going to be a revenue loss at the same time the cost of power is going

to be higher in Q3?

Prakash Chhabria: That is true.

Maulik Patel: Sir, on PVC prices how corrected from $1060, $1070 in international market to $960, can you

please elaborate what kind of impact it will have in our business?

Prakash Chhabria: Yes, so if you’ll see it has already made an impact also in Q2 because of two things. A: PVC

prices went down but B: even the dollar/rupee, the rupee strengthened. So usually if the rupee

weakens at this time then it offsets the rupee selling price in the market in India. But if both of

those happen at the same time like it has happening now then it does make an effect in the

bottom line of the company as well as in the top line.

Maulik Patel: That I understand but what kind of a spread contraction you can see because you have a very

long inventory cycle, generally more than two months of an inventory cycle, so the EDC and

ethylene which you have purchased now going to be processed but then by the time that there is

a sharp correction in the PVC, so is it possible for us to expect further contraction or a very low

kind of another spread in Q3 also?


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Prakash Chhabria: No. So, let me answer it differently. The effect of that contraction is felt in Q2 always because of

the Jetty shutdown so when we buy our product we have to buy it before mid May.

Maulik Patel: Correct.

Prakash Chhabria: Correct. And after that if the prices of EDC go down then it obviously affects me. So like it did

now this time, correct? But when it comes to Q3 by that time that inventory of EDC which was

in the tanks is usually nothing, it’s just vapor is left, so therefore at that time it doesn’t effected

that bad. So then you’re not in the same thing as comparing that versus today.

Maulik Patel: Okay. Okay and sir on the PVC pipe business, what is, I think I asked this question in the past

also, what do you think the industry will work out on a percentage margin business or the

contribution business side? Because we have seen domestic, the PVC prices gone down from Rs.

80 per kg sometime in August to now Rs. 70 per kg.

Prakash Chhabria: Correct.

Maulik Patel: So do you think that the contribution per unit in a PVC pipe business will come down?

Prakash Chhabria: No, if you will see my second quarter segment results it is still there maintained.

Maulik Patel: That till the second quarter. I’m talking about going forward.

Prakash Chhabria: So going forward when the season opens up, you know, like I keep saying if you look at it we

follow a Gregorian calendar.

Maulik Patel: I understand Gregorian calendar that we will see in a demand, there will be in a business side but

as in industry will it work on a percentage margin?

Prakash Chhabria: No, no, in the pipe business the margins between PVC and PVC pipe is not going to shrink.

Maulik Patel: Okay.

Prakash Chhabria: It’ll not shrink. If anything happens it can only improve now because again the demand opens

up.

Maulik Patel: Have you reduced the prices in the last month of so?

Prakash Chhabria: Yeah, definitely, along with PVC, pipe has to go down.

Maulik Patel: It has to go down, right?

Prakash Chhabria: Yeah, yeah, yeah.

Maulik Patel: Okay. So what kind of price correction we have taken?


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Prakash Chhabria: So if PVC went down by Rs. 3 the pipe has also went down by Rs. 3.

Maulik Patel: Okay, the same we have taken in the price correction?

Prakash Chhabria: Yeah, yeah. This is always… this is what happens always.

Maulik Patel: Yeah, this happens… because this industry always pass through the price increase.

Prakash Chhabria: Exactly.

Maulik Patel: Okay, okay. And sir, the last question. In this particular presentation you have provided some

information on the column pipe and the CPVC, if you can further elaborate your efforts to

announce the value added product or probably announce the margin in the PVC pipe business.

Prakash Chhabria: Yes, so on 4th and 5th of November, last week, we had a huge internal sales conference which

ended with 6th of November where we had all our dealers and sales people together in Pune. So

in all we spent three days together to see new product launches and diversifying into products

which are water related and which can be carried by the channel, the distribution channel so that

we can leverage that whole channel indo doing more businesses. So coming to especially column

pipe and CPVC, column pipe got launched just a few months ago. The response I would not say

has been very good but it has been encouraging. After the conference many people who were not

aware or who were not being pushed, so to say, were fully pushed out. And plus let us not forget

column pipe was launched little bit at the wrong timing, it was just at the verge of starting of

monsoon. So now is when we will really see the benefits and efforts of the marketing team and

the marketing efforts to see how column pipes is absorbed and sold into the market.

Maulik Patel: Sir, last question. In the beginning of this financial year, we guided for approximately 12 to 15

percent of a volume growth in the PVC pipe.


Maulik Patel: Do you still maintain that guidance?

Prakash Chhabria: Yes, if you see my six monthly, because you see, when you do quarterly it becomes too much.

Maulik Patel: Correct.

Prakash Chhabria: And that’s why I say it has to be only annual. But to answer that question even if you look at my

six monthly versus six monthly of last year I am still better off I think, number say that.

Maulik Patel: We did around 8% volume growth in the first half.

Prakash Chhabria: Yeah, yes.

Maulik Patel: Okay, so we are confident then we can do around 12, 15.


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Prakash Chhabria: Yeah, definitely. If something like that Nilofar comes again and again it takes away 20 days of a

month then again I’ll be stuck and I’ll have said yes to you but I cannot predict if another Nilofar

is coming or not but otherwise there is no need to even say that won’t happen. I mean that is not

in a question that should be raised.

Maulik Patel: And sir… okay, I will come back to question in again, I think I already asked many questions.

Prakash Chhabria: Thank you.

Operator: Thank you. Next question is from the line of Nehal Shah from Antique. Please go ahead.

Nehal Shah: Good evening, sir.

Prakash Chhabria: Good evening.

Nehal Shah: Sir, three/four questions. Sir, on the power plant shutdown, what was the reason for the

shutdown?

Prakash Chhabria: We… in earlier days we used to have a PVC plant shutdown every year.

Nehal Shah: Right.

Prakash Chhabria: So with new expertise and new knowledge and new whatever we were able to carry out

shutdowns of the PVC plant and postpone to every two years. So therefore there was nothing last

year and therefore that is done this year. So while they were doing the PVC shutdown, BHEL

who is the suppliers of the power plant said that why don’t we take the opportunity of just

opening and seeing things. While they were opening up and seeing things and they made a

mistake, let’s say, and that mistake has caused the shutdown of the power plant.

Nehal Shah: Okay.

Prakash Chhabria: While we speak today, the whole new team and the whole thing and everything has reached

Ratnagiri, Mr. Math who’s a director on the board is rushing back to Ratnagiri today itself so that

tomorrow morning his there on site witnessing it then hopefully by two, three days more it

should start.

Nehal Shah: Okay, so it’ll take only two, three days for it to resume operations?

Prakash Chhabria: If everything goes well as per the BHEL team.

Nehal Shah: Right. Sir, another question is what was the volume growth in fittings in particular during the

quarter?

Prakash Chhabria: Again, flat.


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Nehal Shah: Flattish despite the warehouse being operation?

Prakash Chhabria: Again, the warehouse came in at a time when it was expected to be flattish, no?

Nehal Shah: Okay.

Prakash Chhabria: See, if I had come in the month of Jan/Feb right at the peak season then I would have said, oh, I

did fantastic growth.

Nehal Shah: Sure.

Prakash Chhabria: But I didn’t do the timing because of that. I did the timing because of lack of experience. I don’t

have experience in warehousing. So I need to iron out a lot of issues so therefore I chose a time

when it is going to be easy on everybody right from the SAP system to physical human

availability, everything. So that’s why it was done then and it’s all part of the thing.

Nehal Shah: Fair enough. Fair enough, sir. Sir, another question is, can you just emphasize more on the

impact of Nilofar on this quarter’s performance?

Prakash Chhabria: On the third quarter?

Nehal Shah: No, in Q2.

Prakash Chhabria: Q2, yeah, Q2, you see all these things cause-effect, because as a farmer he has to see that the

range has stopped, as a farmer he has to see the land has dried up before he starts trenching, he

doesn’t have the money to trench and then the rain comes again, so the trench will automatically

get filled up.

Nehal Shah: Sure.

Prakash Chhabria: And he doesn’t have another Rs. 5000 or 10000 to re-spend on doing the re-things. So therefore

what they do and we have seen it for the last 25 years is they postpone their purchases. And

postpone their purchases, again, I go back, I’m sorry but I have to go back to something called

the Gregorian calendar. And you keep saying I’ll cut it off on this date but you can cut it off but

neither clouds nor the farmer looks at that. And we also cannot focus on that. We have to focus

on the farmer, he’s my customer.

Nehal Shah: So basically it was because of two things, one was Nilofar and second was falling PVC prices

which obviously dealers and distributors would have withheld the purchases for time being?

Prakash Chhabria: Exactly, exactly.

Nehal Shah: So it was double whammy this quarter?

Prakash Chhabria: Yeah.


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Nehal Shah: And sir, my final question now is as far as the target for column pipes and CPVC and another

thing is as far as raw material security for CPVC is concerned.

Prakash Chhabria: There is no insecurity for raw material purchase of CPVC, first of all.

Nehal Shah: Okay.

Prakash Chhabria: Secondly, CPVC… what was the question CPVC and?

Nehal Shah: Sir, CPVC first is the raw material security where -- are we buying it from Arkema only?

Prakash Chhabria: Yeah. The moment from Arkema and there’s another Indian supplier who’s going to come up

very soon.

Nehal Shah: Sure.

Prakash Chhabria: And actually there’ll be two or three Indian suppliers coming up with CPVC products in the next

one or two years. So CPVC is going to very soon become a commodity just like a PVC, UPVC

pipe.

Nehal Shah: And sir, what are your targets as far as both CPVC as well as column pipes are concerned?

Prakash Chhabria: We are growing but you know my base for PVC column pipe is so small.

Nehal Shah: Yeah, yeah, absolutely. Right.

Prakash Chhabria: So even if I say I’m going to double it that double on my whole base is still not going to be that

great.

Nehal Shah: Okay. And sir…

Prakash Chhabria: We are looking at doubling it, that is a fact.

Nehal Shah: And sir, your long term targets on column pipes? I think column pipes obviously suits our model

because obviously it’s all agribase…

Prakash Chhabria: See, my capacity… my capacity for column pipes at the moment is 10000 metric tons per year.

Nehal Shah: Right.

Prakash Chhabria: Correct. So soon as I get closer to that, for me to go and make it from 10,000 to 20,000 will

hardly take the three months.

Nehal Shah: Right.


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Prakash Chhabria: So what we did in November, first week of November, when we had all of this people in Pune

was to reenergize the channel for two things, A: my current business that is pipes & fittings and

B: what new can we do because my dealer network is so strong.

Nehal Shah: Right.

Prakash Chhabria: So you’ll not believe, on the 6th of November when we had dinner, we had 1200 people for

dinner.

Nehal Shah: Right.

Prakash Chhabria: And it was something you should have… its going for the photographs and part of the videos are

going to get loaded on our website I think by Monday or Tuesday.

Nehal Shah: Sure.

Prakash Chhabria: So I’ll request all of you to please just go through the whole site.

Nehal Shah: Right.

Prakash Chhabria: And we have launched the brand new website called www.finolexwater.com, and Monday,

Tuesday, it’s already active, but Monday, Tuesday it will be loaded with all these things, so I

would request you to kindly see that.

Nehal Shah: Sir, and one thing which is obviously applaudable is few feedbacks from few of the people who

had participated there in their conference was very encouraging, so.

Prakash Chhabria: Yeah, yeah, it was a superb thing, I mean, if you had seen it.

Nehal Shah: So basically I’ve heard the same thing, so definitely people are definitely pumped up, so that is

for sure. Thanks a lot.

Prakash Chhabria: Thank you, sir.

Nehal Shah: Yes, sir.

Operator: Thank you very much. Next question is from the line of Kalpesh Gothi of Walfort Financial. Sir,

please go ahead.

Kalpesh Gothi: Hello, good evening, sir.


Kalpesh Gothi: Sir, what was the average PVC price for the second quarter?


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Prakash Chhabria: Just one second. Average PVC price for second quarter. Rs. 74,000 per metric ton.

Kalpesh Gothi: Okay. And Sir, do we have the high inventory?

Prakash Chhabria: Of?

Kalpesh Gothi: Of the raw material.

Prakash Chhabria: Luckily it is coming down. so nothing to worry about as such.

Kalpesh Gothi: Okay, so do we expect some of the high inventory to be used in Q3?

Prakash Chhabria: Yeah, because Q3 started in October.

Kalpesh Gothi: Right. And sir, how is the demand?

Prakash Chhabria: Demand as compared to last week is big difference that’s why I’m feeling happy. If you had this

concall with me last week I would be even a different tone. But this change dramatically and this

happens every year and this happens every year.

Kalpesh Gothi: Okay, fair enough, sir.

Prakash Chhabria: This happens towards every year, we go through this every year so it’s part of our life.

Kalpesh Gothi: And sir, what was our Capex plan for next three years?

Prakash Chhabria: Look, Capex still maintain 30 crores a year.

Kalpesh Gothi: Okay. And sir, can you…

Prakash Chhabria: Even in this new initiative of water, what we are looking at is not really setting up brand new

manufacturing and, you know, do Capex and all that. What we are looking at is leveraging on the

network. So basically…

Kalpesh Gothi: But can you more elaborate about the which product you are going to launch?

Prakash Chhabria: So all of this started out, let me just give you a small brief. They started because of our new

government, our new prime minister launching new items, new ideas. What are the new areas>

Swachh Abhiyan, Your 100 Smart Cities or whatever, what do they talk about, there’s one

common thing in all of that. That is a human being.

Kalpesh Gothi: Right, sir.

Prakash Chhabria: So as long as there is a human being involved, human being requires water, water to drink, water

to eat through the food, which automatically mean that this is brand new demand being set up by


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the government. We find internally that if the government can do these things then why can’t

Finolex? Why can’t we use our network to leverage it and do other products but restricting it

only to things related to water. So when my dealer goes in front of, let’s say, an architect or goes

in front of a plumber or goes in front of a farmer he goes with a wider portfolio, so if the guy is

going to spend Rs. 10 why not try to take more out of his Rs. 10 into our business. So that’s how

we launched this whole scheme. Now if you see 100 new cities, smart cities or whatever they are

not all coming up tomorrow morning neither are they all going to come up in Pune. They will

start coming from tomorrow all the way for the next 5 to 7 years. They will not all come up in

Pune but they’ll come up all across the country. So by what we did on the 6th of November is

pass on a message to everybody that this is how we are going to prepare for your architect, for

your plumber and for your farmer for the next 5 years. This is how we’re going to do it.

Kalpesh Gothi: Okay, fair enough, sir. Thank you, thank you.


Operator: Thank you very much. Our next question is from the line of Ritesh Shah of Espirito Santo, please

go ahead.

Ritesh Shah: Hi, sir, thanks for the opportunity.

Prakash Chhabria: Hi.

Ritesh Shah: Sir, can you please throw some more details on the 20 crore adverse impact, if you could help

with some data on pricing exactly what was the average pricing and what the pricing is right

now?

Prakash Chhabria: Of what?

Ritesh Shah: Say for ethylene or VCM.

Prakash Chhabria: Okay, Mr. Dhanorkar has got the number.

Saurabh Dhanorkar: Hi, Ritesh.

Ritesh Shah: Hi, sir, thank you.

Saurabh Dhanorkar: Basically the big impact has come in EDC. EDC which was around 18,000 in September ’13 that

quarter this quarter was around 27,000 so almost 50% increase in EDC, about 10% increase in

the cost of ethylene. PVC also did go up from about 70,000 to 74,000 but that could not

completely offset this increase.

Ritesh Shah: Sir, ethylene can you please quantify the absolute value? You said 10% increase?

Saurabh Dhanorkar: Ethylene went up from about 84,000 to 92,000.


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Ritesh Shah: Okay. I wanted to understand some basic question. It’s very basic, like you cited that PVC, EDC

spreads have declined. Now, globally if EDC prices go down how should one look at the resin

prices, is it something that comes with a lack, how do you look at it?

Saurabh Dhanorkar: No, in fact EDC does not really follow PVC so closely because EDC has its own demand supply

and PVC has its own demand supply and as we have been maintaining that structurally EDC is

getting long and the spread should increase. Unfortunately that has not happened because one

after the other some of the existing plants have been going down, earlier Saudi Arabia went

down then Qatar had a long shutdown so because of this that extra quantify of EDC which was

expected to come into the market has still not even today that has not really hit, so even if

PVC… now as we are talking today EDC has come down to about $380 from a peak of $460 but

that has been a very slow drop, so to come back to your question. It’s not a one-to-one or a

month-to-month equation between PVC and EDC.

Ritesh Shah: Okay, so can you conclude that EDC prices will come down and necessarily does not imply that

PVC will immediately follow given the cost variables are very different?

Prakash Chhabria: No, no Ritesh. See, PVC will not come down because of EDC, ethylene but PVC will come

down because of season like what we saw in the last two, three, four weeks, five weeks, six

weeks or whatever. So regardless of EDC coming down or not PVC will start going up again as

soon as the demand picks up, and what we are saying as of today.

Ritesh Shah: Sir, please correct me if I’m wrong but will PVC pricing be more of a function of demand supply

or it will be more of cost push?

Prakash Chhabria: Yes, yes, demand supply, demand supply.

Ritesh Shah: Because if I look at ethylene prices it’s actually moving up in North America and in Europe it’s

actually going down.


Ritesh Shah: So, I’m not able to understand how the resin prices are behaving when one looks at it in

conjunction with EDC.

Prakash Chhabria: But resin, like I said, does not follow that, resin follows demand supply.

Ritesh Shah: Okay. Perfect. And sir, lastly any update on the land sale?

Prakash Chhabria: Still under negotiation. There was a team of people who even went to Japan, because what we

decided is wherever our prime minister goes, somebody should go from our side to meet people

in Japan, so there was a conference or the exhibition over there, so when I say a team of one

person went from our side to meet the people in Japan to see what investments they are looking

for in India and then they are potential clients for FDI into India. So we started being more

proactive, so let’s see how things happen.


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Ritesh Shah: Okay. And sir, last question we have launched an excellent ad campaign.


Ritesh Shah: What is the expense associated with that and how do we see it?

Prakash Chhabria: For the total add campaign including TV, radio, et cetera, et cetera, everything will be about Rs.

15 crores.

Ritesh Shah: Okay.

Prakash Chhabria: 15.6 to be precise.

Ritesh Shah: Okay, perfect. Thanks a lot.


Operator: Thank you. Next question is from the line of Sitaram Agarwal of Tree Line Investment

Management, please go ahead.

Sitaram Agarwal: Hi, thanks for taking my question. Early in the call you mentioned something about CPVC and

how the number of suppliers in India are increasing and it’s going to be commoditized in the next

few years. Can you elaborate a bit more on that?

Prakash Chhabria: You mean to say the manufacturers who are going to come up?

Sitaram Agarwal: Yes.

Prakash Chhabria: So the first one who’s expected to come up is DCW.

Sitaram Agarwal: Okay.

Prakash Chhabria: Hello.

Sitaram Agarwal: Yeah, yeah, yeah.

Prakash Chhabria: And the second one they have announced but I don’t think they’ve started work on it, I mean we

don’t have that much information so that will wait but that’s going to be hopefully, Reliance.

Sitaram Agarwal: Okay, so these are going to be CPVC resin/compound suppliers just like you have Lubrizol in

Arkema and…

Prakash Chhabria: That’s right.


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Sitaram Agarwal: Okay. And what your sense in terms of what their quality is going to be compared to the

international players from which all the Indian pipe manufacturers are sourcing.

Prakash Chhabria: Why do you ask such questions, boss? Why don’t you have confidence in India or Indian

manufacturers? If we could produce UPVC, why can’t we produce CPVC. If we can produce

UPVC pipe and CPVC pipe why will we not be able to produce? They are all first class players.

DCW is a first class player. They’ve been around for long years. I don’t know when Reliance

will start work but if Reliance starts work and if Reliance produces CPVC, it’s going to be same.

It’s going to be a class product. These are world class product, both of them. There is no issue.

Sitaram Agarwal: Okay, fair enough. Yeah, that’s it. That’s it from my side. Thanks.

Operator: Thank you. Next question is from the line of Anuj Makhija from Ambit Capital. Please go ahead.

Anuj Makhija: Hi, sir. Sir, you mentioned that you’re increasing your branding initiatives, can you provide some

more color on the initiatives taken by Finolex Industries?

Prakash Chhabria: Okay. So the idea is that pipes bring water from the source that is the river to the field and the

water which comes into the field is life… is jaan and that life gives life to greenery to the crop in

your field which gives you money, you as the farmer, it gives you money, it gives the people you

employed, gives prosperity to everybody around you, the farmland. So what we are saying is, we

are also a very important part of it, is like the main artery in your heart. If the main artery is un-

clogged working properly, available all the time, your body, your brains, everything will work

because you got oxygen, blood through everywhere. So therefore our tagline now is ‘Tarakki

Zindagibhar’. So what is ‘Tarakki Zindagibhar’ that because of this you are able to progress. We

bring prosperity into the field of India by making sure the pipes are performing 24/7 for you as

and when you require to bring water from the river to source. So going on a broader scale on that

branding, ‘Tarakki Zindagibhar’ we are looking at newer products to come in within that cycle of

water, within the umbrella of water.

Anuj Makhija: So, sir, would you have more focus on national advertising or rural local advertising or say on

TV or radio, what would be your high focus area?

Prakash Chhabria: So it’s going to be -- it’s been broken up scientifically, so we start first with television gets

tapered out then as television gets papered out then we get into radio and press and then

simultaneously we will start slowly into with social media. So therefore a brand new website,

therefore brand new facebook, twitter everything, everything to do with social media so we’ve

got agencies who are handling things independently in very specialized way, carrying the same

branding, so the branding is centralized.

Anuj Makhija: And Sir, you mentioned that Finolex has gained market share in this quarter, can you provide

some more color as to which reason has Finolex gained market share from and maybe who are

the market share losers?


Page 15 of 21

Prakash Chhabria: No, I have not mentioned anything about markets shares raining in any place. It’s overall.

Anuj Makhija: Okay.

Prakash Chhabria: It’s an overall gain. I said the pipe business has been flattish or whatever but it has been overall,

it’s not particular areas.

Anuj Makhija: Okay.

Prakash Chhabria: Our business is 70% agri and 30% non-agri, that still continues.

Anuj Makhija: Okay. So, any specific region, I think you shut up a new warehouse in East India so did that help

you gain market share?

Prakash Chhabria: Well, that’s what I just mentioned earlier that when we set it up was again during the low season.

Anuj Makhija: Okay.

Prakash Chhabria: For it to outperform anything and do any magic is not going to happen so now we’ll see how it

starts performing as the market starts opening up.

Anuj Makhija: Okay. And sir, you earlier mentioned that in 2 to 3 years CPVC would become a commoditized

product as more domestic suppliers come in. Given that’s the case then why is Finolex Industries

is increasing focus on CPVC pipe if it’s going to…

Prakash Chhabria: I am not increasing focus. It’s just part of my portfolio, that’s all. My 70% agriculture still

continues not become 40%. Agri is not become 40.

Anuj Makhija: Okay. So, you do not have any plans to increase CPVC capacity for that?

Prakash Chhabria: No, as the market because we keep growing. For me, it’s a pipe. I don’t qualify it as UPVC,

CPVC, this, it’s a pipe and as the pipe demand grows in different markets whether it is agri, non-

agri whether it is North India, South India, that’s what I’ll keep doing. I’ll keep growing.

Anuj Makhija: Okay. That’s it from my end. Thank you very much.


Operator: Thank you. Next question is from the line of Hemang Patodia of Anvil. Please go ahead.

Hemang Patoria: Hello.

Prakash Chhabria: Hi.

Hemang Patoria: Yeah. I want the production number of PVC resin and PVC pipes and for the quarter?


Page 16 of 21

Prakash Chhabria: Sorry.

Hemang Patoria: I want the production number for the PVC resin and PVC pipe for the quarter.

Prakash Chhabria: Dhanorkar will just do it.

Saurabh Dhanorkar: Yeah. Production for the quarter PVC was 31,600 metric tons.

Hemang Patoria: Okay.

Saurabh Dhanorkar: Against 40,800 metric tons in the corresponding quarter last year, so about 23% down. And the

production of pipes & fittings was about 39,000 against 45,000.

Hemang Patoria: Okay. Now how much sold to the third party, PVC?

Saurabh Dhanorkar: PVC sold to third party about 9000 tons.

Hemang Patoria: Okay, thank you very much. That’s it.

Operator: Thank you. Before we take the next question, we’d like to remind participants that you may enter

* followed by 1 to ask a question. Our next question is from line of Maulik Patel of Equirus

Securities. Please go ahead.

Maulik Patel: Sir, what kind of inventory loss we made? I still couldn’t get it. 10 crore or 20 crore? 10 crore

you mentioned about this power plant and related loss?

Saurabh Dhanorkar: Yeah, on the raw material about 20 crores.

Maulik Patel: So that is in which segment we have, both PVC and PVC pipe or it’s in the…

Saurabh Dhanorkar: Mainly PVC, very small amount in pipes because of the imported PVC which we had brought in

anticipation of the shutdown.

Maulik Patel: Okay.

Saurabh Dhanorkar: But mainly that is in PVC.

Maulik Patel: So we don’t have too much of an inventory loss in a PVC pipe segment?

Saurabh Dhanorkar: No.

Maulik Patel: Sir, on your balance sheet, the capital employed which you give in a segment wise, the reason

some significant increase in another segment on a sequential basis and even if you look at on a

year-on-year basis, there is some increase.


Page 17 of 21

Saurabh Dhanorkar: Other than segments?

Maulik Patel: Other than segments, yes, sir.

Saurabh Dhanorkar: That is basically investments.

Maulik Patel: But sir, our investment has not… Okay, that is… you want to say to say it’s basically investment

only?

Saurabh Dhanorkar: Yeah, because see, the cash flows moves as per the demand supply so compared to last quarter if

you see 30th September 2013, it was 273 crores now it has become 305 crores.

Maulik Patel: That I understand. I was talking about sequential from June 14 to September 14 it has moved up

138 crore to 305 crore but the cash flow has not probably significant increase.

Saurabh Dhanorkar: Yeah, that we’ll have to get back to you on that.

Maulik Patel: Okay, fine. I understand. And sir, one more question on this EDC prices and the spread. Sir, what

was your gross spread in a PVC segment in the Q2? Approximately how much you have made?

Saurabh Dhanorkar: Gross, in PVC, EDC, PVC delta you mean?

Maulik Patel: Yeah.

Saurabh Dhanorkar: The delta is in about $600.

Maulik Patel: About 600?

Prakash Chhabria: Yeah.

Maulik Patel: Okay. And currently what is the delta?

Saurabh Dhanorkar: Currently, around the same. It’s not changed much.

Maulik Patel: It’s not changed. Okay. And is it possible for you to give what is your external sales and internal

sales figure for the PVC resin?

Saurabh Dhanorkar: PVC external is 9000 tons.

Maulik Patel: 9000, okay.

Saurabh Dhanorkar: And internal is about 19000 tons.

Maulik Patel: 19000 ton. Sir, on the shutdown which you have mentioned do we take shutdown every year, sir?

Similar shutdown or this time it was the longer?


Page 18 of 21

Saurabh Dhanorkar: No, no, for these type of appliance you have to take periodic shutdown so now we do alternate

year. So last year there was no shutdown, this year this was a plant shutdown, about 21 days.

Maulik Patel: Okay. Because I can see in the volume data which I have since FY-12, this 28000 is one of the

lowest production we have witnessed in the last 16 quarters. Does the shutdown becomes a little

longer than earlier plant shutdown?

Saurabh Dhanorkar: Yeah, this was… normally we have about 10 days but this time it was planned to be a little

longer shutdown so what happens…

Maulik Patel: For how much days?

Prakash Chhabria: What happens is if you shutdown every year versus trying to shutdown every second year if you

add per year, let’s say, 10 and 10 becomes 20, I’m just saying overall, I’m not saying exact, I’m

saying overall, but if you try to push it to one year only then instead of 20 you have to do it in 15,

so that particular year instead of suffering for 10 suffers for 15 but overall as a company you

benefit a lot.

Maulik Patel: Okay.

Prakash Chhabria: So the company is doing it on basis of benefitting the company not just because of quarterly or

anything.

Maulik Patel: And sir, what is the PVC prices right now in the market you are getting it?

Saurabh Dhanorkar: About 70000.

Maulik Patel: About 70000, so it’s approximately around $1120?

Saurabh Dhanorkar: No, no, thousand something.

Maulik Patel: Yeah, you’re talking about rupees. I was talking about dollar per ton.

Saurabh Dhanorkar: Yeah, yeah.

Maulik Patel: $1120. And…

Prakash Chhabria: What are 1120? There’s no 1120.

Maulik Patel: I was talking about PVC dollar realization.

Saurabh Dhanorkar: Yeah, yeah but when you take… this is including duty right?

Maulik Patel: Yeah, this was I’m talking about including duty of 7%.


Page 19 of 21

Prakash Chhabria: When you say including duty, 11.20, okay.

Maulik Patel: Otherwise I think it is right now around 9.65 somewhere?


Maulik Patel: 920.

Prakash Chhabria: 970, 980.

Maulik Patel: 980 and then you have the 7%. But sir in previous con call you did mention about this lot of

dumping from the China, has it stopped?

Saurabh Dhanorkar: Yeah, that has stopped now.

Maulik Patel: That has stopped, right.

Saurabh Dhanorkar: Stopped.

Maulik Patel: Okay, okay. Okay, sir, thank you.


Operator: Thank you. Next question is from the line of Vipul Shah an individual investor. Please go ahead.

Vipul Shah: Hi, good evening, sir.


Vipul Shah: Yeah, would you elaborate again that inventory loss? I couldn’t quite understand, sir. And from

the data you are provided, why your PVC sales has gone down substantially? What is the reason

for that, sir?

Prakash Chhabria: See, the first question was about inventory loss.

Vipul Shah: Yes, sir.

Saurabh Dhanorkar: It basically our Jetty closes down during May, around mid may the Jetty closes down, so we have

to import our raw material for the next four months before that. So April/May we stock up for the

next four months. Whatever EDC we had purchased at that time that cost is frozen.

Vipul Shah: Okay.

Saurabh Dhanorkar: Whereas PVC prices are dynamic base on the monthly international parity so PVC prices moved

down from about internationally from about $1100 plus to close to $1000 within the quarter, so


Page 20 of 21

the PVC prices came down whereas the raw material was already, EDC and ethylene both the

cost was frozen so that is that impact.

Vipul Shah: So that is around 20 crores?

Saurabh Dhanorkar: Correct. And about the volume you said, that is because of the shutdown we had less production

so less sales.

Vipul Shah: No, but it is quite substantial, some 27 and I think it is… 27909 metric tons against 46021.

Saurabh Dhanorkar: Yeah, correct.

Vipul Shah: So that is roughly almost 19000 metric ton left on… as compared to corresponding quarter of

last year.

Saurabh Dhanorkar: Yeah, so part of that is because we had less production. And two we anticipating the shutdown,

we also had to conserve the material for our own captive consumption because we don’t take any

chances there. So part of the material is always reserve for our own captive consumption.

Vipul Shah: So captive consumption was more, that is also one of the reasons, if I understood you correctly.

Saurabh Dhanorkar: Yeah, yeah, yeah.

Vipul Shah: Okay, thank you, sir. All the best.

Saurabh Dhanorkar: Thank you.

Operator: Thank you very much. Next question is a follow up from the like of Nehal Shah of Antique.

Please go ahead.

Nehal Shah: Thank you, sir for the opportunity. Sir, one more thing is like our EBIT margins in PVC pipes

have gone down by nearly 100 bps in this quarters, so around 80 bip so it’s gone down from 8.5

to 7.7 % which is actually in a way very encouraging considering the fact that the peers within

the industry have shown much more deceleration in the EBIT margins. Can you just elaborate on

this why are the margin so strong and what was the quantum of inventory loss within the pipe

segment, so if we adjust for inventory has the margins gone up?

Saurabh Dhanorkar: Yeah, actually the inventory loss in the pipe segment will be about 3 crores or so.

Nehal Shah: Okay.

Saurabh Dhanorkar: So if you add that up, the margins would be actually higher than that.

Nehal Shah: Okay.


Page 21 of 21

Saurabh Dhanorkar: And basically it’s been a complete pass-through, so the PVC prices whatever were… when they

went up we went up, when they went down and normally in the past we have discussed about we

passing through more than the cost increase in the pipe pricing.

Nehal Shah: Right. The brand monetization.

Saurabh Dhanorkar: Yeah, but that happens in a good demand period not in the slack seasons. During slack season

then we passed on entirely.

Nehal Shah: Right.

Saurabh Dhanorkar: Actually if you remove that inventory loss then it would have been slight improvement in the

margins.

Nehal Shah: Yeah, so exactly. So it’s gone up actually by 10 bips if we adjust for that.

Saurabh Dhanorkar: Yeah.

Nehal Shah: Okay, sir. Thanks a lot.


Operator: Thank you. Ladies and gentlemen if you would like to ask a question at this time please enter *1

now. There are no further questions from participants at this time. I would now like to hand the

conference over to Mr. Milan Bavishi for closing comments. Please go ahead, sir.

Prakash Chhabria: Thank you from the side of Finolex.

Milan Bavishi: Thank you everyone for joining the call.


Operator: Thank you very much. Ladies and gentlemen on behalf of S-Ancial Advisors Pvt Ltd that

concludes this conference call. Thank you for joining us and you may now disconnect your lines.

For Further queries:

S-Ancial Advisors Pvt. Ltd. 503, Gundecha Chambers, Nagindas Master Road, Fort, Mumbai 400 001 Email: [email protected] Contact No.: 022 6635 1001/2/3

Finolex Industries Limited D-1/10, M.I.D.C. Chinchwad, Pune 411 019 Contact No.: 020 2740 8200

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