Finolex Industries Ltd (FINPIPE) Q4 FY21 Earnings Concall Transcript

Finolex Industries Ltd (NSE:FINPIPE) Q4 FY21 Earnings Concall dated Jun. 28, 2021.

Corporate Participants:

Sanjay S. Math — Managing Director

Anil V. Whabi — Director, Finance

Niraj Kedia — Deputy Chief Financial Officer

Analysts:

Ritesh Shah — Investec — Analyst

Aditya Bagul — Axis Capital — Analyst

Sonali Salgaonkar — Jefferies India — Analyst

Chirag Setalvad — HDFC Asset Management — Analyst

Praveen Sahay — Edelweiss Financial Services — Analyst

Pranav Tendolkar — Rare Enterprises — Analyst

Rajesh Ravi — HDFC Securities — Analyst

Tarang Agarwal — Old Bridge Capital Management — Analyst

Achal Lohade — JM Financial — Analyst

Kashyap Pujara — Front End Partners — Analyst

Rahul Agarwal — Incred Capital — Analyst

Utkarsh Nopany — Haitong Securities — Analyst

Unidentified Participant — — Analyst

Vipul Shah — Sumangal Investments — Analyst

Arun Baid — BOB Capital Markets — Analyst

Ankit Gupta — Bamboo Capital Partners — Analyst

Karan Bhatelia — Asian Markets Securities — Analyst

Prateek Bhatnagar — HSBC Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Finolex Industries Ltd. Q4 FY ’21 Earnings Conference Call hosted by Investec Capital Services India Private Ltd. [Operator Instructions]

I now hand the conference over to Mr. Ritesh Shah. Thank you, and over to you, Mr. Shah.

Ritesh Shah — Investec — Analyst

Thank you, Nirav. It’s a pleasure to host Finolex management today for Q4 conference call. We have with us, Mr. Sanjay Math, Managing Director and Mr. Anil Whabi, Director Finance and CFO. I’ll request Mr. Math and Mr. Whabi for initial remarks, post which, we will have a Q&A session.

Over to you Math sir. Thank you so much.

Sanjay S. Math — Managing Director

Thank you, Ritesh. Good morning all ladies and gentlemen. I heartily welcome you on behalf of Finolex Industries Limited to this investor conference call. Hope you all are safe and thank you for your continued interest in Finolex Industries.

We are happy to talk about the fourth quarter results for the year 2021. Finolex Industries ends the year of ’21 on a historic high, surpassing performance of previous years. During this quarter, higher volumes on the resin front and better realizations, have resulted in the highest ever revenue and net profit for annual, as well as for this quarterly basis. There has been outstanding improvement in all our operating parameters.

To give you some performance indicators for Q4 of this financial year 2021. The highlights for this quarter; total income from operations was INR1,249 crores up 62.5% against INR767 crores in quarter four last year. EBITDA margin has stood at INR424 crore in this quarter, up by 305% against INR105 crores in the quarter four of last year. Profit after tax is at INR297 crores for this quarter, up by 433% against INR56 crores in the quarter four last year. So you can see, the performance in quarter four has been exceptionally high.

I will give you the highlights for the entire year 2021. The total income from operations is INR3,463 crores in the year ’21, up by 16% against INR2,984 crores, in last year FY 2020. EBITDA margin has stood INR1,062 crores in this year, up by 122% against INR478 crores last year. Profit after tax is at INR728 crores for the year 2021, up by 124% against INR324 crore for financial year last year. So during the year, the company generated INR940 crores of cash from the operations.

Now getting to the segmental performance, EBIT margin in the resin segment was INR328 crores in this quarter, up by 947% last year, and EBIT margin in Pipes and Fittings segment is INR69.5 crores, up by 11% last year. So we continue to be a net debt free company, with a net cash surplus of INR825 crores as at 31st March, 2021.

And with these numbers, I leave it to you for questions. I am accompanied by my colleagues from the finance department, our CFO and Director Finance, Mr. Anil Whabi; and Mr. Niraj Kedia is also accompanying him. So any financial questions, they will answer. So I will leave this session open to questions from the floor. Thank you gentlemen.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Ritesh Shah. Please go ahead.

Ritesh Shah — Investec — Analyst

Yeah, I will just start with the questions, till we have a question queue. Sir my first question is — first, congratulations on a good set of numbers. My first question is, given we have sizable quantum of cash on books, how should one look at, one is, the capacities right now. The capacity expansion plans over next three years? And secondly, do we have any stated dividend payout policy in place? That’s the first question. And we’ll open up the queue post this. Thanks.

Sanjay S. Math — Managing Director

I will talk about capacity. At present, our capacity is 3,70,000 tonnes on the pipes and about 28,000 tonnes on fittings. We are quite well covered for the next two to three years in terms of our volumes that we will be selling in the market. I think this year, there is some contraction, which you have seen already. The capacity utilization has remained low, because of that contraction. So there is excess capacity at present available, and there is nothing like we are falling short of capacity. But as the as the market really grows up, and we have signs of getting up, I think we are definitely going into capacity expansion.

On the front of dividend, I think Whabiji, can you give an answer on this?

Anil V. Whabi — Director, Finance

Ritesh, if you have noticed, normally our payout ratio is somewhere between 40% to 50%, and this year we have proposed 100% normal dividend and 100% special dividend, and if that is agreed, then the dividend payout ratio will be about 34% for this year.

Ritesh Shah — Investec — Analyst

Sure. That helps. I’ll join back the queue. Nirav, over to you please.

Operator

Thank you. The next question is from the line of Aditya from Axis Capital. Please go ahead.

Aditya Bagul — Axis Capital — Analyst

Hi sir. Mr. Math and Mr. Whabi, congratulations on a great set of numbers. Sir, just wanted to understand from you, April and May have been quite impacted because of COVID 2.0. So how has been the agri demand there, and what is our outlook in terms of piping demand going forward? And in the same breath, if you can help us understand, what is the agri, non-agri mix and how do you see that going forward? That would be helpful sir?

Sanjay S. Math — Managing Director

As you know, that from March end itself, there is second wave of COVID. And April, most of these states went into lockdown. I think out of — in India, somewhere around 20, 22 states were in lockdown. So the demand for resin, as well as for the pipes, has definitely contracted and got affected. So this quarter, there may be a very big setback on the agri pipes. Whereas we are able to continue non-agri demand little better, and the agri setback. Going ahead, I think the numbers of the COVID cases are decreasing, and there is quite a bit of unlocking that is happening in most of the states, except the southern states, where the numbers are still high, particularly Maharashtra. Andhra. Karnataka, Tamil Nadu, Kerala, these are the five states which are affected more, and that is where the unlocking is still restricted. Whereas in the northern part, as well as on the eastern part, I think the unlocking is done already. So the growth should start. I think we see that the normal growth should coming up in the next quarter. So hopefully, if there is no third wave, the conditions will be better.

In terms of agri and non-agri mix, I think our non-agri growth has been better than the agri. Agri has been contracting almost all our — in quarter one, which contracted by 42% and quarter two, it was little better quarter. Quarter three was better for agri 4.5%. But again, quarter four, we have seen a contraction of minus 14%. Whereas non-agri has been doing quite better. If we look at that quarter one last year, we had minus 50% in non-agri also, because there was no construction going on. But later on it has picked up and if we look at quarter two, three and four together, there was a growth of 10%. Quarter three and four, it was 13% and quarter four itself is about 22%. Now this momentum of non-agri is definitely what we have seen, as which should be continued, if there is unlocking. And agri will depend mostly on the monsoon effect. Presently now monsoon has already set in, and almost three quarter of the country is covered by monsoon. So possibly agri demand has not picked up and it may remain subdued at the monsoon level. Whereas non agri, we are hopeful that it will definitely pick up.

Aditya Bagul — Axis Capital — Analyst

Sir, that’s very helpful. Sir, just two follow-ups on that. If you can help us understand — while you gave us a texture, if you can help us understand where are we vis-a-vis last year, that would be very helpful, only in some qualitative measures. So last year, I think that our total growth was impacted to the extent of almost 40%. So do we expect Q1 to be similar or — just trying to get some color on that?

Sanjay S. Math — Managing Director

Aditya, yes Q1 will suffer, because all three months, there has been a setback in this quarter. So slowly, as the market picks up, but with this onset of monsoon, agri is not likely to see the volumes that we should have seen. So obviously, there is impact in Q1.

Aditya Bagul — Axis Capital — Analyst

Understood sir. Understood sir. So that’s very helpful. My second question is in terms of our margins, more so with our raise in margin, right. I mean on a steady state basis, are raise in margins have been close to about INR11,000, INR12,000, INR13,000 rupees per ton? And that number has increased meaningfully over the last three or four quarters? Obviously there has been some tailwind because of rising cost of inputs. But if you can help us try and get some understanding on how do you see this going forward, either in terms of EBIT per tonne, or in terms of margin, then it would be very helpful.

Sanjay S. Math — Managing Director

See Aditya, in case of resin you know, there is a volatility which plays its role. Last year we did exceedingly well, because the PVC prices moved up very sharply and they have been at historic high for some time. So because of which, the EBIT margin per ton also was much better. As the prices normalized, I suppose that then again it will move towards the normal levels of EBIT. But how long this will take, we do not know.

Aditya Bagul — Axis Capital — Analyst

Sure sir. Just to ask that question slightly differently. On a steady state basis, do we expect a 17%, 18% EBIT margin on our PVC raise?

Sanjay S. Math — Managing Director

Aditya, it’s very difficult to say. See, each part of this has different dynamics. You know PVC moves in a different direction than the inputs. EDC ethylene, VCM can move in different directions. So it’s difficult to say that steady state will be this. But you are right, somewhere around 15% has been our historic average.

Aditya Bagul — Axis Capital — Analyst

Understood. That’s very helpful. Thank you so much and best of luck for the quarters to come.

Sanjay S. Math — Managing Director

Thank you.

Aditya Bagul — Axis Capital — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Sonali from Jefferies India. Please go ahead.

Sonali Salgaonkar — Jefferies India — Analyst

So thank you for the opportunity and congratulations on a great set of numbers. Sir, my first question is, could you help us with the PVC to EDC spread in Q4, as well as FY ’21 as a whole please?

Anil V. Whabi — Director, Finance

Yeah sure, Sonali. In QVC to EDC spread, for Q4 is 877?

Sonali Salgaonkar — Jefferies India — Analyst

And what was it in Q4 FY ’20?

Anil V. Whabi — Director, Finance

It was 574.

Sonali Salgaonkar — Jefferies India — Analyst

Sir, and what is it currently as we speak right now?

Anil V. Whabi — Director, Finance

Currently at present, it is about 750 or so.

Sonali Salgaonkar — Jefferies India — Analyst

750? All right. Sir my second question is regarding the pipes’ EBIT margin in Q4 FY ’21. Now all your metrics have been outstanding in Q4, but there is a slight dip in the pipes’ EBIT margin. Now if we are saying that our plumbing mix is advancing or garnering higher demand than our agri mix, how should we look at the EBIT margin and the reason for the contraction on the same?

Niraj Kedia — Deputy Chief Financial Officer

Sonali, I think you are comparing on Q-on-Q basis. If you look at Y-o-Y basis, it has improved.

Sonali Salgaonkar — Jefferies India — Analyst

Sir, for Q4.

Anil V. Whabi — Director, Finance

Yes, in Q4 also. On Y-o-Y basis, it has improved.

Sonali Salgaonkar — Jefferies India — Analyst

Okay. Sir, I will get back to this. Because Y-o-Y — sir, wasn’t it 9.9% in Q4 FY ’20, the PVC pipes and…

Anil V. Whabi — Director, Finance

No I am saying, on EBIT per tonne.

Sonali Salgaonkar — Jefferies India — Analyst

Okay, got it. Got it. Sir my third question is, you know, if we could — just broadly give about our strategic view on our evolving plumbing mix versus our agri mix. Sir, currently, I think we are 70% in agri, for the past two quarters, we have been speaking about in — foraying more into plumbing. So any kind of update or the kind of distribution we have enhanced for that, would be quite helpful.

Anil V. Whabi — Director, Finance

Sonali, if you will see, in ’18-’19 this in terms of value, the ratio was 70%-30%. Now FY ’21 we have ended, the ratio is 63%-37%.

Sonali Salgaonkar — Jefferies India — Analyst

Okay. 63%-37% this year. Great sir. Sir, and any color on — or any updates in terms of how much we have evolved, in what regions we are boosting our non-agri, in what categories, etc?

Anil V. Whabi — Director, Finance

We are trying to address in all the regions. So it will take time — yeah.

Sonali Salgaonkar — Jefferies India — Analyst

Sure. Sir and my last question is for CPVC volumes and revenue, in FY ’21 versus FY ’20?

Anil V. Whabi — Director, Finance

See, FY ’21, volume was 9,635 tonnes.

Sonali Salgaonkar — Jefferies India — Analyst

Sir, versus FY ’20?

Anil V. Whabi — Director, Finance

FY ’20 was 9,299 tonnes.

Sonali Salgaonkar — Jefferies India — Analyst

Okay. Sir, and revenue?

Anil V. Whabi — Director, Finance

Revenue is — FY ’21 is INR297 crores.

Sonali Salgaonkar — Jefferies India — Analyst

Okay. FY ’20 revenue?

Anil V. Whabi — Director, Finance

And FY ’20 was INR290 crores.

Sonali Salgaonkar — Jefferies India — Analyst

Sure. Sir and just one last question regarding our vision, where do we expect our non-agri mix to go, say over the next five years?

Sanjay S. Math — Managing Director

See, the growth is seen to be more in non-agri compared to agri. So our mix has to be changing continuously. I think how fast we can get into more non-agri, is the question. This ratio will definitely be improving. Now as Whabi ji said, on the revenue basis, it is at present 63%-37%. Crossing 60%-40% is the next target that we are looking at. That is on revenue side.

Sonali Salgaonkar — Jefferies India — Analyst

Got it, sir. Sir, and what about our retail touch points?

Sanjay S. Math — Managing Director

Continues to be more than 21,000.

Sonali Salgaonkar — Jefferies India — Analyst

Sure. Sir, any indication how much we have added in FY ’21?

Anil V. Whabi — Director, Finance

No, I don’t have that number.

Sonali Salgaonkar — Jefferies India — Analyst

Got it. Thank you, sir.

Operator

Thank you. The next question is from the line of Chirag from HDFC Asset Management. Please go ahead.

Chirag Setalvad — HDFC Asset Management — Analyst

Hi, good morning and congratulations for a fantastic quarter and year result.

Sanjay S. Math — Managing Director

Good morning. Thank you, Chirag.

Chirag Setalvad — HDFC Asset Management — Analyst

So I have a few questions. One, if you could tell us for the fourth quarter and for FY ’21, the prices for PVC, EDC, ethylene and VCM?

Anil V. Whabi — Director, Finance

Yeah, sure. We can give you. The fourth quarter PVC prices, INR1,483 for PVC. EDC is INR605, ethylene INR963, and VCM is INR1,152.

Chirag Setalvad — HDFC Asset Management — Analyst

1152?

Anil V. Whabi — Director, Finance

1152. PVC-EDC delta INR877, and PVC to VCM delta, INR331.

Chirag Setalvad — HDFC Asset Management — Analyst

And for the full year?

Anil V. Whabi — Director, Finance

For the full year…

Niraj Kedia — Deputy Chief Financial Officer

PVC was INR1,094…

Anil V. Whabi — Director, Finance

PVC is INR1,094. EDC is INR384, ethylene INR768, VCM INR835. PVC-EDC is INR711 and PVC-VCM, INR260.

Chirag Setalvad — HDFC Asset Management — Analyst

And would you have for the fourth quarter of 20 as well?

Anil V. Whabi — Director, Finance

Yes. Take the PVC, INR883, EDC INR308, ethylene INR688, VCM INR758. PVC-EDC INR574, PVC-VCM INR125.

Chirag Setalvad — HDFC Asset Management — Analyst

Perfect. Sir the second question was, in terms of profitability, you mentioned the average for PBIT per tonne, when you look at PVC resin. Actually over the last five years, if you were to exclude FY ’21, has been closer to INR12,000, not closer to INR15,000. In fact the peak has been INR15,000 in FY ’17. So where do you think this is — you know, I know this is a very volatile segment, and these prices can change very substantially. But if you could help us understand, both in the resin business, as well as in the pipe business, what do you think are sustainable margins?

Anil V. Whabi — Director, Finance

Chirag, for PVC resin segment, as you know it’s difficult to state and you are right, ur historic average has been around INR15,000. So hopefully in coming years also, it should remain. But it is difficult to say, because you do not know how — what way the prices will move in each quarter. But if you see it — for the year it averages out to around that figure.

Chirag Setalvad — HDFC Asset Management — Analyst

[Indecipherable] but the average for the last five years, excluding FY ’21 has been actually INR11,500 or INR12,000?

Anil V. Whabi — Director, Finance

Yes. But you know after that, if you see — you are aware that the duties were raised on PVC resin. So after that, it has inched up from INR12,000 it has moved closer to INR15,000. So — but pipe segment is relatively stable. So there, you know that — the margins have improved on an average from INR8 a kg which we had few years back, and has gone up to INR10 and beyond.

Chirag Setalvad — HDFC Asset Management — Analyst

And do you think that level of INR10 is sustainable?

Anil V. Whabi — Director, Finance

We hope it would.

Chirag Setalvad — HDFC Asset Management — Analyst

And why has it moved up in pipes? We understand because of commodity price movement in pipes. Why has it moved up? Is it…

Anil V. Whabi — Director, Finance

No, no. It is because of higher focus as we discussed just a little while back in higher growth in non-agri, it does help. Fittings volume growth does help. More CPVC business. So all these things coupled together, has helped.

Chirag Setalvad — HDFC Asset Management — Analyst

Sure. And lastly, what were the inventory gains for the full year in either of the segments, if any?

Anil V. Whabi — Director, Finance

It is difficult state. But in our case inventory gains may not be high, because pipe — in pipe segment, we do not carry large inventory of PVC resin.

Chirag Setalvad — HDFC Asset Management — Analyst

Fair enough. And sir last question from my side, what is the capex for this year?

Anil V. Whabi — Director, Finance

For FY ’21?

Chirag Setalvad — HDFC Asset Management — Analyst

For FY ’22.

Anil V. Whabi — Director, Finance

FY ’22, about INR100 crores. Right now, as Mr. Math also mentioned. Right now, the expansion on pipe side has not been taken into consideration. So normal replacement and these — the investments will be there. So about INR100 crores.

Chirag Setalvad — HDFC Asset Management — Analyst

Okay.

Anil V. Whabi — Director, Finance

But the moment we see signs of improvement, we will go for expansion.

Chirag Setalvad — HDFC Asset Management — Analyst

Sure. Okay, great. Thank you.

Anil V. Whabi — Director, Finance

Thank you, Chirag.

Operator

Thank you. The next question is from the line of Praveen Sahay from Edelweiss Financial Services. Please go ahead.

Praveen Sahay — Edelweiss Financial Services — Analyst

Yeah, hi. Thank you for taking my question and many congratulations on the call. Great set of numbers. So, sir my question is on the degrowth in the volume. So definitely, the I3 [Phonetic] has not done well. So my question is, how much is this volume, degrowth is the driven by the price, because the prices has shot up significantly, and definitely there is — one part is the lockdown and COVID. So how much of this is — do you see it, as the price has gone up and that’s why there is a restriction from the bank?

Sanjay S. Math — Managing Director

Praveen, this is actually difficult to state. Both the factors have played their role. The prices, as well as the disruption — pandemic disruption. So both have played their role. But it is difficult to pinpoint, how much would [Indecipherable] for one.

Praveen Sahay — Edelweiss Financial Services — Analyst

So, and on the pricing, as we know that the PVC resin prices goes to $50 and $70 per metric tonne now, come down to some $13.50 or so. So where you see this stabilization to go? Like because economies are opening, factories are opening in the western world.

Anil V. Whabi — Director, Finance

We are looking at various reports coming from ICI or IHS. I think this year, there will be some softening coming up, but it is not going to be at the level of the normal long term average of INR1,000 to INR1,050. I think it will stabilize somewhere about INR1,200 to INR1,300, that is why the prediction given by the ICI is — these prices will be remaining above 20% to 25% higher than the long-term average. So what is the prediction…

Praveen Sahay — Edelweiss Financial Services — Analyst

Any specific reason for this prediction sir, or you are looking at some dynamics changing in the global world?

Anil V. Whabi — Director, Finance

It all depends upon — still, there is a contraction in all over the world. I think the COVID waves are not receded. I think many countries are still under partial lockdowns. So inter region trades are in problem, and most of the integrated producers are producing to the level of intra-region trades. There are some of the issues which are there on the trade side. Freight rates have gone up. Container rates have gone up. So that is one part, which is also affecting the overall pricing or CFR level. And there are people who are taking up some of the long-term shutdowns, taking the advantage of this COVID situation. There is a little bit of imbalance between supply and demand. Although the supply-demand imbalance is not so much, that it will be disproportionately — this price hike is supported. At the same time there is some shortage on supply side than the demand side.

Praveen Sahay — Edelweiss Financial Services — Analyst

So you expect that this spread of PVC-EDC is also to be in the range of around $700?

Anil V. Whabi — Director, Finance

That we cannot say, because you see, all the inputs are slowly adjusting to the final PVC price. For example EDC has also moved up in last year. VCM also has been moving up. VCM is — today also, if you see, VCM is about $1,100. So it is not like, the long-term average for VCM is about $700, $750, when PVC is about $900, $950. Okay. So as PVC moves, the VCM also moves, and then EDC also moves up…

Praveen Sahay — Edelweiss Financial Services — Analyst

Got it.

Anil V. Whabi — Director, Finance

Individually will be correcting themselves in terms of the input prices. So what is important for us, is not that, it is the importance is the margins between the PVC-EDC delta, and VCM-PVC delta.

Praveen Sahay — Edelweiss Financial Services — Analyst

Right, right. The next question is sir, related to the CPVC. So how much of the volume you are targeting to grow in this business? Is this 99,600 metric tonnes you are doing — so how much like, can…

Anil V. Whabi — Director, Finance

I think last quarter, in quarter four, we have done 3,692 — about 3,700 tonnes. We see that kind of a momentum maintaining, across 14,000 tonnes. But that is our hope, that we continue to operate on that range. Unfortunately, Q1 has given us a setback because of the pandemic, and the activities have been stalled. But that is what we can see, that there is a continuous growth in CPVC. Q4 total growth was about 42%. Q2, Q3, Q4 total growth was 25%, and Q4 itself is 67% over the last year. So you can see that the growth has been from 25% to 40% to 60% in these last three quarters. Q1 being very low, because we did not have any business in Q1 last year, and that is where it was minus 62% in Q1 and so the overall year, we have grown just hardly 3.6%. But momentum we can…

Praveen Sahay — Edelweiss Financial Services — Analyst

You have the capacity to go above, right? You have a capacity to go up in this segment?

Anil V. Whabi — Director, Finance

We have a capacity to go up. Yes.

Praveen Sahay — Edelweiss Financial Services — Analyst

So any number you can put in…

Operator

I am sorry to interrupt you. I would request you to come back in the question queue.

Praveen Sahay — Edelweiss Financial Services — Analyst

Yeah, sure.

Operator

Thank you. The next question is from the line of Pranav Tendolkar from Rare Enterprises. Please go ahead.

Pranav Tendolkar — Rare Enterprises — Analyst

Hi, sorry to have missed this, if it was already given. But sir can you just tell us what was the volume growth and pricing growth in two categories, that is agri and non-agri? Is that possible, in terms of say, tonnage?

Anil V. Whabi — Director, Finance

Volume growth, that number is not right now available.

Pranav Tendolkar — Rare Enterprises — Analyst

Okay. Okay. So that is one. Sir, also what I’ve noticed is that, your working capital is much better than other players. And so is there a different business strategies than other place that you think is beneficial for you?

Anil V. Whabi — Director, Finance

No, no, we have been following cash and carry model for a very long period.

Pranav Tendolkar — Rare Enterprises — Analyst

Correct, correct, correct. I know that. So I’m just asking that, is that beneficial? In the sense, if you just provide some working capital, will not that be helping your [Indecipherable]?

Anil V. Whabi — Director, Finance

So earlier, If you look — three years back, entire business was on cash and carry basis. Then off late, we have started providing credit in non-agri part of the business.

Pranav Tendolkar — Rare Enterprises — Analyst

Okay. Sir, over last one year, I agree that there was some pent-up demand. But do you see any structural changes in the demands that have also contributed to increasing volume? So something like homebuilding going up or something like infrastructure going up — or any structural changes that you see will — that will sustain over next one year?

Anil V. Whabi — Director, Finance

No, see this — of course because of pandemic, this also has been affected. But if you look at the medium term, we are sure that because of large unmet demand in housing, the activity will pick up and there will be volume growth in agri pipes, in irrigation. Past few years have not seen the growth that it should have. So they are also — with all these government initiatives and the change in farm practices, we should see growth. But we see that in housing, the growth will be better. That’s what we feel.

Pranav Tendolkar — Rare Enterprises — Analyst

Okay. Okay. Okay, sir.

Operator

Thanks a lot. Thank you. The next question is from the line of Rajesh Ravi from HDFC Securities. Please go ahead.

Rajesh Ravi — HDFC Securities — Analyst

Yeah, hi, good afternoon, sir. This is Rajesh Ravi here. Sir congratulations on a great set of numbers. I have a few queries. Firstly, in terms of the pricing trend that we are seeing currently, across agri, non-agri pipes, what sort of price increase we have seen in first quarter?

Anil V. Whabi — Director, Finance

See, prices — as PVC prices move down, obviously the pipe prices also have come down in tandem.

Rajesh Ravi — HDFC Securities — Analyst

Okay, how — yeah.

Anil V. Whabi — Director, Finance

So PVC prices have corrected by about 20% in the international market, and the prices are correcting in India as well.

Rajesh Ravi — HDFC Securities — Analyst

Okay. And in terms of the retention — at retention level, do you see that sustaining too, or reprice the cost pass-through, which the cooling off of the PVC prices, with that the PVC pipes price impact is higher? How is the scenario?

Anil V. Whabi — Director, Finance

No, no. When the volumes are low, obviously in the falling prices situation, there will be complete pass through to gain some traction in the volumes.

Rajesh Ravi — HDFC Securities — Analyst

Okay, and how it is in the non-agri portfolio sir?

Niraj Kedia — Deputy Chief Financial Officer

In both.

Rajesh Ravi — HDFC Securities — Analyst

Because there the demand is, as I said that, we are seeing good demand. I mean, and assuming the industries…

Niraj Kedia — Deputy Chief Financial Officer

But historically also, the PVC price movements have been passed on into the market completely.

Rajesh Ravi — HDFC Securities — Analyst

Right.

Niraj Kedia — Deputy Chief Financial Officer

So that is what is happening now also.

Rajesh Ravi — HDFC Securities — Analyst

And if we see 4Q versus 3Q, your realizations. Like for your pipes and fitting realization increased by INR20 a kg, versus third quarter. And if I see even the resin realization from INR102 to INR122. So there isn’t a similar increase in both the resins as well as the pipes realization. While at margin level play, there is from INR16 a kg, you realize EBIT margin had come down to almost to INR11.5, there is a five rupee contraction.

Anil V. Whabi — Director, Finance

Yes. But you are looking at Q3 only. If you look at Q2 or earlier quarters, it was around INR11.

Rajesh Ravi — HDFC Securities — Analyst

Yeah, I agree. So I think Q3 was having some exceptional gains, which is getting…

Anil V. Whabi — Director, Finance

It was — because of some lower costs, and there have been some provisions in the Q4, which have increased the costs.

Rajesh Ravi — HDFC Securities — Analyst

Okay.

Anil V. Whabi — Director, Finance

So it is the effect of that.

Rajesh Ravi — HDFC Securities — Analyst

Okay, and lastly in terms of — now that the PVC price is coming down and that getting passed through, what sort of recovery are you looking in the agri demand?

Anil V. Whabi — Director, Finance

See Q1 is almost lost because of the pandemic disruption. Monsoon season, you know. So Q2 there is hardly any volume in agri. So hopefully from Q3 onwards, if the situation is normal, we should see a pickup in agri pipes.

Operator

Thank you very much. Sorry to interrupt you. I request you to come back in the question queue for a follow-up question. The next question is from the line of Tarang Agarwal from Old Bridge Capital Management. Please go ahead.

Tarang Agarwal — Old Bridge Capital Management — Analyst

Hello sir, good morning. Just a question on the non-agri front. Sir, if you could give some flavor on what’s really any geographical location or what industry segment has driven volumes in FY ’21, and some peek into what is driving your bullishness on the specific areas in the non-agri business, for the year to come by?

Sanjay S. Math — Managing Director

See non-agri business, we are doing all across India, and is not specifically that every — any region has been shown an extra growth over the last year. I think our distributions in geographical terms has remained almost same in non-agri. The growth has been in retail, rather than on the institutional sale. By increasing the touch points from 18,000 to 21,000, I think this now started showing results on our non-agri growth in retail.

Tarang Agarwal — Old Bridge Capital Management — Analyst

Okay. That’s it. Thank you.

Operator

Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial — Analyst

Yeah. Congratulation for the great set of numbers there. Thank you for the opportunity. My first question is, in terms of the geographical mix, if you could — at the aggregate level for us, how much would be south and west and north and east, if you could highlight for FY ’21, sir?

Sanjay S. Math — Managing Director

See, traditionally, we have been strong in west, and south, which account for almost 75% of our business.

Achal Lohade — JM Financial — Analyst

Right, okay. Would it be able to — possible to give a breakup, like 40%-35%…

Sanjay S. Math — Managing Director

No, I don’t have those numbers.

Achal Lohade — JM Financial — Analyst

Okay. No problem sir. Secondly, in terms of the — what we hear is that, some of the agri pipes also go into plumbing.

Sanjay S. Math — Managing Director

Yes, you’re right.

Achal Lohade — JM Financial — Analyst

So, is it the case with us as well? So is there any guesstimate here, how much of is already — do you consider that as part of agri or non-agri?

Sanjay S. Math — Managing Director

See what we produce is we consider for agri. But you are right, some of it does go for applications and housing as well, especially in states like Punjab or elsewhere or many cases in South as well. So some part of it does go into other application.

Achal Lohade — JM Financial — Analyst

Right. And any benefit of this Jal Jeevan Mission of the government, in terms of projects or in terms of retail sales in your opinion, given our distribution reach in the rural?

Sanjay S. Math — Managing Director

See, it has just started. So there will be volumes in the coming years. Yes.

Achal Lohade — JM Financial — Analyst

Understood. And just one data point, sir, if you could help us with the fittings volume and revenue for FY ’20, ’21?

Anil V. Whabi — Director, Finance

Fittings volume for FY ’21 is 20,000, Q4.

Achal Lohade — JM Financial — Analyst

And for FY ’20?

Anil V. Whabi — Director, Finance

The same number, 20,666. This is because in Q1, we had a big setback. Whereas later on, I think there has been an improvement in fittings.

Achal Lohade — JM Financial — Analyst

Understood. And how much of that would be CPVC sir? In both the years?

Anil V. Whabi — Director, Finance

CPVC separately on fittings, we have not got the number. CPVC by itself we have given the number, no?

Achal Lohade — JM Financial — Analyst

Yeah, yeah. Sure, sure. And just last question if I may, sir. With respect to — given the high prices you know, we hear that farmers have postponed the demand. But the question here is that, is that the demand lost forever, will that come back in a big way, in the next year? And what is the typical replacement cycle, in case of agri pipes?

Anil V. Whabi — Director, Finance

I think agri pipes is also a durable item. The life of the agri pipes is about 25 years. So it is not necessarily, that it needs to be done, when the high prices are there. So when the price correction you’ve seen, definitely the demand has to come back. The irrigation demand in India, it is — only about 40% of the land is irrigated and 60% is still rainfed. So there is a lot of land yet to be irrigated. So agri demand has to be there for years to come. I think we are not really worried about demand not going to be there. It may be a temporary phase, because of the higher price possibly or because of the pandemic people have postponed their decision, right? It doesn’t mean that it will not come back when the pandemic is over and the prices are almost getting corrected to the long-term average.

Achal Lohade — JM Financial — Analyst

Understood. Thank you so much, sir. Wish you all the best.

Sanjay S. Math — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Chirag from HDFC Asset Management. Please go ahead.

Chirag Setalvad — HDFC Asset Management — Analyst

Sir just a quick data point, if you could tell us the PVC, EDC, ethylene and VCM prices for last year FY ’20, and the current prices as well?

Anil V. Whabi — Director, Finance

Yes, I’ll give you. Last year PVC was 884 average. EDC 324, ethylene 774, VCM 738, PVC/EDC, Delta 559 and PVC/VCM, Delta 146, this is FY ’20. I think you have the FY ’21 numbers?

Chirag Setalvad — HDFC Asset Management — Analyst

Yes, we have the FY ’21. And just the current prices as well, sir.

Anil V. Whabi — Director, Finance

Current prices are somewhere on the EPVC 1,380, EDC 665, ethylene 835, VCM 1,055. PVC/EDC, Delta 715, and VCM — PVC/VCM, Delta 325.

Chirag Setalvad — HDFC Asset Management — Analyst

Okay, sir.

Anil V. Whabi — Director, Finance

This is as of 24th, I’m not talking about [Technical Issues] data, okay?

Chirag Setalvad — HDFC Asset Management — Analyst

Sure. Fair enough. Perfect, thank you.

Operator

Thank you. The next question is from the line of Kashyap Pujara from Front End [Phonetic] Partners. Please go ahead.

Kashyap Pujara — Front End Partners — Analyst

Yes. Hi and congratulations for good set of numbers, and thanks for the opportunity to ask a question. I just had one question on the capex front, while you mentioned the capex is only INR100 crores. I just wanted to check the broader view of the management given that we have made landmark profits on the PVC front. And historically our capacity has been close to 240,000 to 250,000 tonnes. So is there a thought process now to kind of expand capacities there? Or kind of go backward integrated and do the EDC to VCM route for the capacity, which for 50% of the capacity which is VCM to PVC? So just wanted to understand what are the broad thoughts on expanding on this front?

Sanjay S. Math — Managing Director

I think on the pipes and fittings business, we have already told you that resin capacity we have — sufficient enough for the next two to three years. And this particular segment does not require too high time for setting up additional capacity. So as we see growth in that segment and we feel that there is a limitation coming in servicing the market we will definitely get into it. And then we will decide where to do it, whether it is in the West or whether it is in the North or South or East, whatever depending on the price of the demand in that particular region. So that is definitely on the annual it will come.

About the resin capacity we last time also we said that we are still not able to get any kind of assurance on the feedstock business. The feedstocks particularly ethylene-based feedstocks are not easily available and there is no surety of those feedstocks over a longer period of 10 to 15 years, where there could be a contracted feedstocks availability, and that is where it is still under hold.

Kashyap Pujara — Front End Partners — Analyst

Okay, fine. So basically all programs on the — basically building out all weather [Phonetic] report or maybe the VCM to EDC to VCM or any incremental capacity. All those things are, kind of, on hold. We won’t be doing any [Speech Overlap]

Sanjay S. Math — Managing Director

Even if we make all weather coat we should get the assurance on the key feedstocks, you know.

Kashyap Pujara — Front End Partners — Analyst

Sure.

Sanjay S. Math — Managing Director

Otherwise the present operation doesn’t call for any other investment on the all weather report at present.

Kashyap Pujara — Front End Partners — Analyst

That’s fair. That’s all from my side. Thank you so much and wish you all best of luck.

Operator

Thank you. The next question is from the line of Rahul Agarwal from Incred Capital. Please go ahead.

Rahul Agarwal — Incred Capital — Analyst

Hi, good morning. Thank you for the opportunity and congratulations for a great set of results. Some of the questions partially got answered, I just want to clarify. On the capacity you said it’s about 370,000 tonnes for pipes and so that 28,000 tonnes of fittings is included in that, is that correct?

Sanjay S. Math — Managing Director

No sir, and fittings is separate.

Rahul Agarwal — Incred Capital — Analyst

And is that in-house or is it outsourced [Speech Overlap]

Sanjay S. Math — Managing Director

It is 50,000 tonnes of fittings, yes.

Rahul Agarwal — Incred Capital — Analyst

And 30,000 is outsourced or [Speech Overlap] capacity?

Sanjay S. Math — Managing Director

370,000, yes.

Rahul Agarwal — Incred Capital — Analyst

Yes. Is that 28,000 tonnes of fittings outsourced or in-house capacity?

Sanjay S. Math — Managing Director

It is outsourced, yes.

Rahul Agarwal — Incred Capital — Analyst

Okay.

Sanjay S. Math — Managing Director

We have long-term contracts with our subcontractors, so we are doing it.

Rahul Agarwal — Incred Capital — Analyst

Okay and CPVC is about 20,000 tonnes, right? In terms of capacity?

Sanjay S. Math — Managing Director

You’re talking of West or you’re talking of CPVC?

Rahul Agarwal — Incred Capital — Analyst

CPVC.

Sanjay S. Math — Managing Director

CPVC is part of this 300 — 3,70,000 tonnes.

Rahul Agarwal — Incred Capital — Analyst

Yes, I got that. What I was — I wanted to know was CPVC capacity was 20,000 tonnes, right?

Sanjay S. Math — Managing Director

Yes around 20,000, yes.

Rahul Agarwal — Incred Capital — Analyst

Okay, got it. So March ’22, essentially the way you described the capex plan of INR100 crores is going to be largely replacement and there is no capacity increase in March ’22 at least, is that correct?

Anil V. Whabi — Director, Finance

So if that is required, we can go through, but right now INR100 crores is only for those replacement and some margin or as such. Not for capacity expansion.

Rahul Agarwal — Incred Capital — Analyst

Okay, okay. Got it. And sir, inventory gain, so it’s very tough to understand margins on the resin side some ballpark number, could you help for fiscal ’21 as in what would be the range at least?

Sanjay S. Math — Managing Director

No, it is difficult. It’s not possible.

Rahul Agarwal — Incred Capital — Analyst

It’s not possible, okay. Got it. And does this — one small question on PVC resin captive consumption. So generally the ratio has been about 70%, 75% or whatever you produce is used captively. Is it practically possible for this number to go to 100%? Or based on input-output ratio, it will never actually happen?

Sanjay S. Math — Managing Director

No, no, no. Of course, it is possible. So the preference will be our own plant, so obviously as the plant start producing more, we will consume more in-house PVC.

Rahul Agarwal — Incred Capital — Analyst

So going forward as pipe capacity utilization goes up, obviously we should assume that the raise captive utilizing goes up, right?

Sanjay S. Math — Managing Director

Yes, it will.

Rahul Agarwal — Incred Capital — Analyst

Okay. And lastly on dividend, so obviously it’s a record cash flow year for the company. You’ve announced special incentives for employees, dividend payouts though including special dividend is 34%, which is lower than the historic average. Any specific reason for that? I would imagine the payouts have to be higher than that, right?

Sanjay S. Math — Managing Director

No, no. Payout don’t have to be higher, in our case if you see this 34% also is high. I don’t think all the companies have such a high payout ratio.

Rahul Agarwal — Incred Capital — Analyst

You know, that’s true, I’m talking about Finolex on a standalone basis. Generally you pay about 40%, 50% as you said.

Sanjay S. Math — Managing Director

Yes.

Rahul Agarwal — Incred Capital — Analyst

So in this year, I was expecting maybe as a special incentive you would actually pay higher. So any reason for the payout to be lower?

Sanjay S. Math — Managing Director

The Board discussed and decided of this.

Rahul Agarwal — Incred Capital — Analyst

Okay, got it. Thank you so much. All the best, sir. Thank you so much for answering.

Operator

Thank you. The next question is from the line of Utkarsh Nopany from Haitong Securities. Please go ahead.

Utkarsh Nopany — Haitong Securities — Analyst

Yes. Hi, good morning sir. Sir, I have few question, first regarding the sales volume. So if we see our sales volume growth in FY ’21 it is around 20% down, compared to what we have done in FY ’19, which is primarily due to weak agri pipe demand. So, sir just wanted to know from you, even if PVC resin places remains high in near future. Do you expect agri pipe demand to come back strongly from December quarter onwards, if pandemic issues largely get resolved by that time period?

Sanjay S. Math — Managing Director

I think, yes. I think there are two reasons, which we gave is: one, is the price; other one is pandemic. And the demand is there in the agri section, because irrigation pipes are required. India is still not irrigated fully, so there is a demand for irrigation anyway. Agri demand has to come it’s only a time.

Utkarsh Nopany — Haitong Securities — Analyst

Okay. Sir like despite a weak demand environment in the current June quarter period. Do you think that there is a possibility of clocking similar sales volume for pipe segment in FY ’22 on expectation of pent-up demand for agri pipe coming up in the coming quarters?

Sanjay S. Math — Managing Director

I think we will definitely — last year because of pandemic and the quarter one loss we have. We have a contraction of about 16.8% on the total volumes agri plus, non-agri. Non-agri is slowly picking up for us and it is growing better than non-agri better than agri. Agri demand if it is coming back in Q3, Q4. I think our next target should be that we go back to the number of 2019.

Utkarsh Nopany — Haitong Securities — Analyst

Okay. And sir, can you please help me out with one data point that what is our agri and non-agri pipe sales volume growth rate in FY ’21 over FY ’20?

Sanjay S. Math — Managing Director

FY ’21.

Anil V. Whabi — Director, Finance

Yes, I don’t think we have those numbers right now.

Sanjay S. Math — Managing Director

I’ll give you the number agri is minus 21%, and non-agri is minus 4.5%.

Utkarsh Nopany — Haitong Securities — Analyst

Okay. And sir, regarding capital allocation…

Sanjay S. Math — Managing Director

Because of Q1 drop, you know.

Utkarsh Nopany — Haitong Securities — Analyst

Yes, sir.

Sanjay S. Math — Managing Director

So non-agri has done better in the further quarters, but the Q1 drop has not been fully compensated and so non-agri also has minus 4.5%.

Utkarsh Nopany — Haitong Securities — Analyst

Okay. And sir regarding our capital allocation policy, we have a pretty limited capex outlay of INR100 crores at the moment for FY ’22. And we have a net cash position of INR825 crores, plus historically we have been generating cash flow from operation of around INR400 crores to INR500 crores annually in the past. So wanted to know, do we have any plan for buyback of shares in the future considering the large cash balance we are having and limited capex program in the near future?

Anil V. Whabi — Director, Finance

See, one thing is sure, we will not continue to keep large cash on our balance sheet. So we will look for investment opportunities in projects. And if that doesn’t come through obviously money has to go back to shareholders.

Utkarsh Nopany — Haitong Securities — Analyst

Okay. And sir, lastly how many SKUs do we have currently for pipes and fittings as of March end?

Anil V. Whabi — Director, Finance

It’s 2,100 plus.

Utkarsh Nopany — Haitong Securities — Analyst

Okay, thanks a lot, sir.

Anil V. Whabi — Director, Finance

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line on Mr. Ritesh Shah. Please go ahead.

Ritesh Shah — Investec — Analyst

Yes. Hi, thanks for the opportunity. Sir my first question is, how should we look at a scenario wherein the PVC resin prices are going down. The inventory days have reduced on a year-on-year basis, but it’s still higher as compared to last couple of years. How should one look at it, if you can break it up between raw material and finished goods, so that would be quite useful?

Anil V. Whabi — Director, Finance

See obviously in these times it is the finished good inventory, which has accumulated. Raw material inventory anyway for our imports, we need to have 2 months inventory always. So once the things normalize, the finished good inventory should come down.

Ritesh Shah — Investec — Analyst

Sure. Sir, would it be possible for you to quantify how much is the average cost of raw material inventory that we have for EDC, ethylene and VCM?

Anil V. Whabi — Director, Finance

No, no, see as I said, the two months inventory we always have for these items.

Ritesh Shah — Investec — Analyst

Okay.

Anil V. Whabi — Director, Finance

So that will continue to be there. Obviously in value terms, it depends on the prices of these inputs.

Ritesh Shah — Investec — Analyst

Question is on the employee cost, we understand that there was a variable component, which is a great thing. Two questions over here: one is what was — what is the normalized employee cost going forward, that is one? Secondly, we have earlier spoken about bringing in a variable component linked to sales for the marketing and sales people. Has it something, which has changed as a policy as a management more or I’d say last one year or something?

Anil V. Whabi — Director, Finance

See in Q4, the numbers you see are one-time costs, but on variable pay front we are working within the company.

Ritesh Shah — Investec — Analyst

Okay, okay. And sir on new product launches, we have seen our peers had actually get into newer variables like tanks, walls etc, etc. Just wanted to understand the company’s thought process given we have such a solid brand at distribution. We are getting into non-agri aggressively, but how should one look at the new product launches to optimize on the current brand and distribution that the company has?

Anil V. Whabi — Director, Finance

So we have been looking at these opportunities. Right now, there is nothing, which can be mentioned right now. But yes, with the passage of time we would see that some products we do enter into — new lines.

Ritesh Shah — Investec — Analyst

Okay. And sir, lastly just to reconfirm on working capital. Have we changed our working capital policy on agri pipes probably for a small tenure or something that will be moved away from cash and carry? And specifically for CPVC, how much is the credit that we given the marketplace right now?

Anil V. Whabi — Director, Finance

Normally credit in this is given on 45 to 60 days. But on agri we continue to do on cash and carry business.

Ritesh Shah — Investec — Analyst

And it hasn’t changed, it continues to remain cash and carry right?

Anil V. Whabi — Director, Finance

Yes, yes.

Ritesh Shah — Investec — Analyst

Okay, perfect. Thank you so much.

Anil V. Whabi — Director, Finance

See in some like difficult times like this, we may allow some credit. But as a policy, we are continuing with cash and carry in agri.

Ritesh Shah — Investec — Analyst

Okay. So, sir the working capital number that you’re looking at on margin basis, does it capture a element of some credit on the agri side, which will actually normalize going forward?

Anil V. Whabi — Director, Finance

Yes, yes.

Ritesh Shah — Investec — Analyst

Okay. That helps, sir. Thank you so much. Thank you. Neerav, we can take the questions, please.

Operator

Thank you very much. The next question is from the line of [Indecipherable].

Sanjay S. Math — Managing Director

Ritesh you need to dial with some — again, I think we seems to have been locked out.

Operator

He is connected, sir.

Sanjay S. Math — Managing Director

Yes.

Operator

The next question is from the line of [Technical Issues] from Goodwill Warehousing. Please go ahead.

Unidentified Participant — — Analyst

Hi, my question was regarding that we are a Pan-India player and we want to expand more. But our production is stuck in the West of India. So will freight costs and you’re rising fuel cost affect our competitive advantage, because our competition in — has plants all across India?

Sanjay S. Math — Managing Director

[Technical Issues] definitely affects to some extent. But what we have said last time also that unless there is a critical mass for a particular region, we will not be taking up the investments and setting up a unit there. More or less East and North are the area. North we are supplying through our Masar plant, that is Baroda. The only question is about the East.

Unidentified Participant — — Analyst

Okay, okay. So if there is a scale then only it will make sense. Okay, okay.

Sanjay S. Math — Managing Director

That’s right.

Unidentified Participant — — Analyst

Okay, thank you.

Operator

Thank you. The next question is from the line of Vipul Shah from Sumangal Investments. Please go ahead.

Vipul Shah — Sumangal Investments — Analyst

Hi, sir. Thank you and congratulations for great set of numbers. Prakash, sir generally comes for this March ending quarter calls, but I think were due to some pre-engagement he may not have come. My question is what is our capacity for CPVC pipe currently? And are we going to add any capacity in this particular segment?

Sanjay S. Math — Managing Director

I think our CPVC is made in the same facilities. There is nothing like a separate capacity where CPVC and UPVC.

Vipul Shah — Sumangal Investments — Analyst

They are fungible.

Sanjay S. Math — Managing Director

So we can switch from one to another anytime.

Vipul Shah — Sumangal Investments — Analyst

Okay, okay, sir. So, last year it was around 20,000 tons, if I remember right?

Sanjay S. Math — Managing Director

This is our notional number as I said the switching is easily possible from one product to another product. So depending on which product is having the demand in that sense [Technical Issues]

Vipul Shah — Sumangal Investments — Analyst

And sir, lastly, what is the pricing discount of our CPVC products versus more established peers? In percentage terms?

Sanjay S. Math — Managing Director

[Technical Issues]

Operator

I’m sorry to interrupt you. [Indecipherable] losing your audio.

Anil V. Whabi — Director, Finance

Hello?

Operator

Mr. Whabi?

Anil V. Whabi — Director, Finance

[Technical Issues]

Operator

Sir, sorry, we are unable to hear you. Participants please stay connected while we rejoin Mr. Whabi back to the call. Ladies and gentlemen, please stay connected while we rejoin Mr. Whabi back to the call. Participants, we have line from Mr. Whabi reconnected. Sir you may go ahead.

Vipul Shah — Sumangal Investments — Analyst

Yes, sir. So I was just asking, what is our discount in CPVC products, as compared to our established peers? Hello? Hello?

Operator

Hello? Mr. Whabi can you hear us?

Vipul Shah — Sumangal Investments — Analyst

I don’t think he is there.

Operator

Sir the line from Mr. Whabi got disconnected once again.

Vipul Shah — Sumangal Investments — Analyst

Neerav is Mr. Math there on the call?

Operator

Yes.

Sanjay S. Math — Managing Director

I think that question Mr. Whabi will answer. You have any other questions?

Vipul Shah — Sumangal Investments — Analyst

No, no, sir.

Operator

Sorry to interrupt you. We have Whabi, sir reconnected back to the call sir.

Sanjay S. Math — Managing Director

Yes.

Anil V. Whabi — Director, Finance

Hello?

Operator

Vipul, sir may I request you to repeat question once again, please.

Vipul Shah — Sumangal Investments — Analyst

Yes, so I just wanted to know what is the price discount in CPVC segment versus our established players in terms of percentage?

Anil V. Whabi — Director, Finance

No, no, there is no space discount. The supplies are made at the ruling market prices. So I don’t think there is any discount to the price in the market. And we define our own prices.

Vipul Shah — Sumangal Investments — Analyst

Okay, sir. Okay, thank you.

Operator

Thank you. The next question is from the line of Mr. Arun Baid from BOB Capital Markets. Please go ahead.

Arun Baid — BOB Capital Markets — Analyst

Sir, just one clarification, you said that we want to target FY ’19 volumes in FY ’22, is that correct, sir?

Anil V. Whabi — Director, Finance

Yes, which is something like that.

Sanjay S. Math — Managing Director

Last year was contraction minus 16.8%.

Arun Baid — BOB Capital Markets — Analyst

Right, sir.

Sanjay S. Math — Managing Director

And that cannot be a baseline, we will definitely grow beyond that, but at least reach the growth level [Technical Issues] demand has contracted…

Operator

Mr. Math, sorry to interrupt you. We have…

Sanjay S. Math — Managing Director

[Technical Issues]

Operator

Sorry to interrupt you Sanjay, sir. Your audio is not coming so clear.

Sanjay S. Math — Managing Director

[Technical Issues]

Operator

Participants please stay connected while we rejoin Sanjay sir back to the call. Ladies and gentlemen, please stay connected while we rejoin Mr. Sanjay back to the call.

Anil V. Whabi — Director, Finance

While he is getting. I’m Anil Whabi here. See we did about 263,000 tonnes in FY ’19.

Arun Baid — BOB Capital Markets — Analyst

Right, sir.

Anil V. Whabi — Director, Finance

See what he is trying to say, at least we would try to cost that number.

Arun Baid — BOB Capital Markets — Analyst

In FY ’22 itself, right?

Anil V. Whabi — Director, Finance

Yes, yes, yes. But with the current situation.

Arun Baid — BOB Capital Markets — Analyst

Yes, sir. Because Q1 we know is bad that’s why I just want to clarify that point, despite that we are seeing that, right sir.

Anil V. Whabi — Director, Finance

We are trying to target that, yes.

Arun Baid — BOB Capital Markets — Analyst

Yes, and sir…

Operator

Sorry to interrupt you. We have Mr. Math connected back to the call.

Arun Baid — BOB Capital Markets — Analyst

Yes, sir.

Sanjay S. Math — Managing Director

Yes, can I talk now — you’re — am I audible now?

Operator

Yes.

Arun Baid — BOB Capital Markets — Analyst

Yes.

Sanjay S. Math — Managing Director

I think, last year was different year, because of the Q1 we lost business and that is why the overall year contraction was about 16% or 16.5%. So recovering back to the level of ’19 is what is the first target that we are really looking at.

Arun Baid — BOB Capital Markets — Analyst

And sir, that is despite that bad Q1, I’m just asking that, because Q1 we know is that bad, right? So despite that you are targeting, that’s nice [Indecipherable]

Sanjay S. Math — Managing Director

Q1 is bad did it. Not as bad as last year, I think we will be little bit better than last year.

Arun Baid — BOB Capital Markets — Analyst

Right. And sir, just one more clarification was that Anil, sir somewhere mentioned that INR15,000 rupees per metric tonne is what we should look at on a normalized basis in PVC resin business. So that 15,000 number as even earlier participant asked historically has been lower, so that number we are sure when things normalize as of today it maybe different. But that is — we are pretty sure of that number, right?

Sanjay S. Math — Managing Director

No, no, no. I never said we then look at that number or we are sure about that number. I mentioned, historically, if you see past few years that has been the average.

Arun Baid — BOB Capital Markets — Analyst

Yes. Yes, right, sir.

Sanjay S. Math — Managing Director

So, but even if when the things normalize, I’m not sure whether we can do that number. In case of PVC and I think as we said.

Arun Baid — BOB Capital Markets — Analyst

Okay, okay, great, sir. Great, sir. I understand. Thank you, sir. Thank you.

Operator

Thank you. The next question is from the line on the Ankit Gupta from Bamboo Capital Partners. Please go ahead.

Ankit Gupta — Bamboo Capital Partners — Analyst

Yes, thanks for the opportunity. Sir, just wanted to check with you any specific geographies, which are facing challenging on the PVC pipe — any specific geographies on agri pipe and which is facing challenge?

Sanjay S. Math — Managing Director

I think we are very strong on South and West. All these five states, as I said Andhra, Karnataka, Tamil Nadu, Kerala and Maharashtra all five states are under pandemic. And there are all very stringent lockdown conditions. We are losing business on agri in these five states.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure, sure. And sir, on overall annual basis let’s say, if there is no further disruption on the forward side going forward for the rest of the nine months. Do you think we can come back to FY ’20 levels — FY 20 levels again on the pipe and fittings segment?

Sanjay S. Math — Managing Director

See we hope that this pandemic will be over, and there is no great third wave that we — what we talk about. If there is a third wave, I don’t know how it will go [Indecipherable]. So these are the things that are unknowns, we should not be predicting something which we have no control on. But if there are no — there is no third wave and the pandemic is receding as we see now from 4 lakh cases to about 60,000 or below 60,000 cases now. So if that continues, then the market is also will getting open more and more. We’ll see that the normal condition will prevail and those people who have not done whatever in the last one year possibly will come back to the market.

Ankit Gupta — Bamboo Capital Partners — Analyst

Okay. Okay. Thank you, sir.

Operator

Thank you. The next question is from the line of from Aditya from Axis Capital Limited. Please go ahead.

Aditya Bagul — Axis Capital — Analyst

Hi, sir. Thank you for the follow-up opportunity. I just have two small questions, sir. First is if you can help us understand within our pipe segment. What would be the normalized EBITDA or margin for our agri and non-agri business?

Anil V. Whabi — Director, Finance

Aditya, I don’t think we have those numbers, but normally from an average of INR10, INR11 agri does little lower and non-agri obviously because of higher volume of fittings is always better. And even in — on — in terms of prices, the prices are little higher in non-agri.

Aditya Bagul — Axis Capital — Analyst

Sure sir, would it be fair to assume that there could be a INR4 or INR5 delta between agri and non-agri pipes…

Anil V. Whabi — Director, Finance

Again it depends. Again it depends, you know, CPVC commands higher prices. And so within non-agri also each category has different prices. ACM is better than SWR.

Aditya Bagul — Axis Capital — Analyst

Okay. Understood, sir. That’s helpful. Second and — this is more a strategic question, just wanted to understand sir, what will it take for us to sort of transition to a business where we have 50% agri and 50% non-agri. To understand what is it that we will have to do differently to improve our share of non-agri?

Anil V. Whabi — Director, Finance

No, we have to continue doing what we are doing, so slowly with the passage of time it will happen in some years.

Aditya Bagul — Axis Capital — Analyst

Okay, sir. Understood. Thank you and best of luck.

Anil V. Whabi — Director, Finance

Thank you.

Operator

Thank you. The next question is from the line of Mr. Rajesh Ravi from HDFC Securities. Please go ahead.

Rajesh Ravi — HDFC Securities — Analyst

Yes, sir. Just one follow-up question, how much you resin demand for the pipes? Are we procuring from outside? Or is it rupee captive?

Sanjay S. Math — Managing Director

Resin is always captive.

Rajesh Ravi — HDFC Securities — Analyst

Okay, always captive. And so the pricing trends for your resins, would that be indicative of the overall PVC prices in India just wanting to understand that the important resin prices. Would be in sync with your realizations?

Anil V. Whabi — Director, Finance

Yes, you’re talking about the transfer pricing within the segment?

Rajesh Ravi — HDFC Securities — Analyst

Yes, yes, from an industry perspective the realization which you are generating in the resin segment.

Anil V. Whabi — Director, Finance

Yes.

Rajesh Ravi — HDFC Securities — Analyst

So that’d be indicative of the market price.

Anil V. Whabi — Director, Finance

Yes, of course always.

Rajesh Ravi — HDFC Securities — Analyst

Okay, okay. Great, sir, that was welcoming in. Thank you.

Operator

Thank you. The next question is from the line of Mr. Karan B from Finolex Industries. Please go ahead.

Karan Bhatelia — Asian Markets Securities — Analyst

Hi, sir. This is Karan from Asian Markets Securities. Two questions from my end. Sir, how is the dealer inventory given the fact that we are expecting still some southward movement in the PVC prices? And second we keep hearing of market consolidation playing out in the plastic piping industry. So are we at peak? Or we can see? Or we can still see some market share gains for the top piping here. Thank you.

Anil V. Whabi — Director, Finance

See normally dealers don’t stop large inventory, so they basically source pipes only when they have visibility of business. So I don’t think any of the dealers have more than eight day stocks with them.

Karan Bhatelia — Asian Markets Securities — Analyst

Okay.

Anil V. Whabi — Director, Finance

And as far as consolidation is concerned, yes, in these times unorganized market is getting affected, so slowly there will be a shift from unorganized to organized.

Karan Bhatelia — Asian Markets Securities — Analyst

Okay. Right, right. And does that we are very aggressive on the CPVC portfolio. How is our SKU strength? You mentioned 2,100 SKU is total for piping. So how much can be assume for the CPVC?

Sanjay S. Math — Managing Director

More than 300.

Anil V. Whabi — Director, Finance

375.

Karan Bhatelia — Asian Markets Securities — Analyst

Okay, thank you. Thank you, that’s it from my end.

Operator

Thank you. The next question is from the line of Mr. Prateek Bhatnagar from HSBC Securities. Please go ahead.

Prateek Bhatnagar — HSBC Securities — Analyst

Thanks a lot for taking my question. I just have one, most of my questions got answered. So the question is on the — like [Indecipherable] been shipping and trade disruptions globally there have been unavailability of container tank. So how it has impacted Finolex, was there an issue where Finolex had recent issue in importing ethylene, VCM, EDC. Have the pace and issues in terms of procurement have the freight costs for them gone up? Or have there been any force measures on the import of ethylene maybe fixed?

Sanjay S. Math — Managing Director

I think we are under long-term contracts with all our suppliers for the raw materials. So ethylene, VCM, EDC our long-term contracts. And they go by a formula of IHS declared prices. So these are all CFR India prices that prevail and there is no difference that happens on this. There has been no disruption for particularly our raw materials. The possibly there is somewhere the pricing correction that happens is as PVC prices go up, the prices of IHS also go up. So this is again a formula base, so it is not that we have any kind of disruption on that side either pricing or supply chain or in terms of logistics.

To some extent there is a setback on some additives and some imported small chemicals, which are possibly are under short supply. But we have been covering with domestic as well as imported and together we manage it.

Prateek Bhatnagar — HSBC Securities — Analyst

Right. So in the past we have seen a force majeures for example ADCs. So if something like this happens of Finolex what do you do. What — how do you take care of it?

Sanjay S. Math — Managing Director

I think, EDC force majeures have been very short-term. There will be some of the things that we are going to see is the long-term shutdowns coming up with our suppliers. In that case, we are taking say proactive actions versus getting supplies from other places. So there are many such alternate suppliers available beyond contract. So we have somewhere or rather the spot buying for such type of situations. So it is not that 100% we will be dependent on contract, some spot buying will be there. And spot prices are sometimes better than contract prices.

Prateek Bhatnagar — HSBC Securities — Analyst

Great. Okay, thanks a lot. These were the questions I have.

Operator

Thank you very much. The next question is from the line of Mr. Ritesh Shah. Please go ahead.

Ritesh Shah — Investec — Analyst

Yes. Hi, sir. Just two questions, one is, sir you indicated, we have a percentage of our production, which is why outsource fruit. Is there a thought process within the group to make it in-house?

Sanjay S. Math — Managing Director

We always work out make and buy decisions. It is not necessary that this model will be permanent. It is also possible that we can think about some of the specialty items to make ourselves and general fitting portfolio to be given on outsourcing. It all depends upon that.

Ritesh Shah — Investec — Analyst

And what would be the sort of margins while the outsourcing route.

Anil V. Whabi — Director, Finance

Ritesh, the margins do not differ much. So that is why the outsourcing continues.

Ritesh Shah — Investec — Analyst

Okay. Fair enough. Okay. And sir, any update on the Group’s structure simplification, is it something, which is a possibility we hear it from the market and the things are moving? Is there any update on that side?

Anil V. Whabi — Director, Finance

No, Ritesh, I didn’t get your question. Hello, Ritesh?

Ritesh Shah — Investec — Analyst

Yes.

Anil V. Whabi — Director, Finance

I didn’t get your question.

Ritesh Shah — Investec — Analyst

Sir the question is — is there anything progressing on the Group’s structure simplification, I’m referring to the [Speech Overlap] Yes, yes, sir. Yes, sir.

Anil V. Whabi — Director, Finance

Nothing right now.

Ritesh Shah — Investec — Analyst

Nothing right now. Okay, perfect. Thank you so much for the answers.

Anil V. Whabi — Director, Finance

Thank you.

Ritesh Shah — Investec — Analyst

Next, I think we can close the call [Indecipherable]. I would request Whabi sir and Math sir, for any closing remarks. Thank you.

Sanjay S. Math — Managing Director

Thank you all of you. We are happy that you had the right questions to ask us, and we have been able to give you the right answers. I think you are satisfied with those answers. We definitely value relationship with us and we look forward that you continue to be with us and we look at your support in terms of investments. Thank you, gentlemen. Thank you all.

Anil V. Whabi — Director, Finance

Thank you.

Operator

[Operator Closing Remarks]