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Supreme Industries Ltd
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Ladies and gentlemen, good day, and welcome to The Supreme Industries Q1 FY '23 Earnings Conference Call hosted by DAM Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aasim Bharde from DAM Capital. Thank you, and over to you, sir.
Okay, thanks, [indiscernible]. Good evening, and thanks to everyone who have logged into Supreme Industries Q1 Results Conference Call. Today, we have the senior leadership of the company present to take us through the results and post which, we will have a Q&A session.
I would now turn the call to Mr. Taparia for his opening remarks. Thank you, and over to you, sir.
Thank you very much, Mr. Bharde. I am M. P. Taparia, Managing Director of The Supreme Industries Limited. I, along with my colleagues, Shri P.C. Somani, CFO; and R.J. Saboo, Vice President, Corporate Affairs and Company Secretary, welcome all the participants who are participating in the discussion of unaudited stand-alone and consolidated financial results for the first quarter ended June 30, 2022.
The stand-alone results and the consolidated results are already with you. I'll give a brief on company product, operating performance and other highlights.
The company sold 108,922 tons of plastic goods and achieved net product turnover of INR 2,159 crores during the first quarter of the current year against sales of 71,264 ton and net product turnover of INR 1,310 crores in the corresponding quarter of previous year, achieving volume and product value growth of about 53% and 66%, respectively.
The high volume growth was mainly due to lower base of previous year when business was barely effective due to COVID second wave effect. Total consolidated income and operating profit for the first quarter of the current year amounted to INR 2,211 crores and INR 327 crores as compared to INR 1,346 crores and INR 267 crores for the corresponding quarter of the previous year, recording increase of 64% and 22%, respectively.
The constipated profit before tax and profit after tax for the first quarter of the current year amounted to INR 268 crores and INR 214 crores as compared to INR 213 crores and INR 170 crores for the corresponding quarter of the previous year, recording increase of 26%. The business scenario of all the product segments of the company for the quarter ended 30th June 2022 as compared to the corresponding quarter of previous year has been hedged under.
Plastic Piping System business grew 65% in volume and 76% in value term. Packaging Product segment business grew by 12% in volume and 34% in value term. Industrial Products segment business grew by 36% in volume [indiscernible].
Sorry, to interrupt you sir, this is the operator. The audio is breaking from your line.
[Technical Difficulty]
Hello? Is it clear now?
Yes, sir, now it is better, yes.
Should I repeat again?
Yes, sir.
Industrial Products segment business grew by 36% in volume and 52% in value term. Consumer Product segment business grew by 77% in volume and 98% in value term. The overall turnover of value-added product increased to INR 761 crores during the current quarter as compared to INR 516 crores in the corresponding period of previous year, achieving growth of 47%.
The company has cash surplus of INR 533 crores as on 30th June 2022 against cash surplus of INR 518 crores as on 31st March 2022.
Business outlook. The company continues its objective to aggressively grow Plastic Piping System business. The company is implementing green field expansion, launching new applications and systems and continue to enlarge its product basket along with brownfield expansion in existing plants.
New unit at Guwahati in Assam has commenced commercial production and units at Cuttak & Erode are likely to go in production by September, October 2022. The company has augmented its offering in Plumbing Systems by introducing PEX plain pipe and PEX composite pipe, which are ideal pipe systems to carry hot water. All these initiatives will give required impetus to the division to grow faster and seize the growing business opportunities.
The company's Olefin fittings & Electrofusion fittings have received positive response in "Nal Se Jal" scheme, which government has committed to implement throughout the country by the year 2024.
The business of Cross Laminated Film products is getting impacted by fierce competition from look-alike products. The thrust in the current year will be in promoting non-Tarpaulin applications, targeting new customers in existing markets and making breakthrough in export market where company still has to penetrate.
The company plans to launch relative new models and remain focused in the Premium Range of Plastic Furniture, which will help in overall growth in this business segment.
In Industrial Component division, business conditions are showing signs of gradual improvement. Company expects positive demand scenario in sectors of appliances like washing machine, air conditioners, cooler, refrigerator segment where it has good presence.
Material handling division has been able to add many new customers all over the country and would strive to continue enlarge its customer base and product portfolio.
In Composite LPG Cylinder division, repeated orders from existing as well as new customers are encouraging. Supplies against the Letter of Intent from Indian Oil Corporation have commenced and existing capacity is running at full capacity.
Work on doubling the capacity is progressing smoothly and likely to be operational by November 2022.
In Protective Packaging Division, business conditions are improving. It has started doing good business in its consumer products, sports goods, yoga mats, kids puzzle and toys. Good growth is shown in export market as well. The company expects good business for the division and continue to develop various customized solutions for the user industry.
Performance Packing Film has done well. Exports have also grown and received good response from countries in Middle East, Africa and Europe. With improved product mix and focus on increasing customer base, the company would soon have all its capacity fully tied up, and will look for expansion opportunities. The company remains optimistic in various business segments where it operates.
The company's envisaged CapEx plan for the year '22 to '23 of about INR 700 crores, including carry forward commitment to INR 280 crores is progressing smoothly and shall be funded entirely from internal accruals.
The prices of different polymers particularly polypropylene, low density polyethylene and poly vinyl chloride, i.e., PVC have gone down between INR 19 per kilo to INR 46 per kilo since beginning of the year till now date, i.e., a reduction between 13% to 32%.
Your company in large consumer of PVC resin which has witnessed the sharpest fall since April 2022. This sharp reduction would result in inventory losses. Yet this price fall will boost demand of company products. Company expects business conditions to improve from September '22 onward and will lead to higher volume growth in Plastic Piping business in the remaining period of the year.
This is a brief and overall summary for the quarter and year ended under reference. Thank you for your patience.
Now I and my colleagues, Shri P.C. Somani and Shri R.J. Saboo are available to reply to various queries read by all of you. Thank you very much.
[Operator Instructions] The first question is from the line of Sujit Jain from ASK Investment Managers.
Sir, 2 questions on the industry size in FY '22 as we can map it and your market share as we see. And plus your take on the differential between the PVC and CPVC because CPVC has not dropped. Will that impact the demand of CPVC?
No, CPVC, it is used for mostly plumbing application. And for plumbing application, as people require water line, which can carry hot water is a very different market. So it doesn't have much impact on demand. CPVC demand is well maintained.
Even PVC demand has grown very nicely. In the whole country, the demand in the first quarter has gone up by 27% in volume. Our company, the demand has grown up by 55% by volume because we are getting into big segment in agriculture market last year due to COVID in the month of April and May, the agriculture demand got a big bridging. This year agriculture demand was quite okay.
And in FY '22, what would be the industry size and your estimated market share?
I told you the industry overall FY '22 is degrowth. The country is degrowth, our company also is degrowth.
In terms of value, what that market would be in FY '22 and your market share roughly overall in Pipes.
I don't recall immediately for me. Overall plastic piping market is around INR 40,000 crores. But in last 2 years, there were tremendous fluctuation in prices. It started going up from INR 70 a kilo to INR 160 per kilo. Now it has come down to INR 94 a kilo. So [indiscernible] very volatile time more about the quantity.
And what is our estimated market share now in the industry?
Money market share?
Market share in terms of volume, if you talk…
Yes, in terms of volume.
Yes, the organized sector will be roughty around 15%.
Okay. And in terms of new products that you mentioned, the contribution to sales as you see going forward?
Not clear.
Share of new product.
No, share of new product, what -- we are launching this year -- we are launching this year only. Earlier years, I don't have immediately reply to give you, but definitely I can only say that whatever new product will launched in last 4, 5 years. All the product proved a big success.
Sure. And one last question is on your interview to one of the channels over the results, you spoke about 15% volume growth. That volume growth you're seeing for pipes or overall plastics?
As an overall company.
And for pipes, what is your estimate of growth for FY '23?
Pipe, overall, will be higher.
The next question is from the line of Rahul Agarwal from Incred Capital.
Just to carry forward the previous participant's question. If I look at what the company sold during April to June 2019, which is I'm taking you back 3 years pre-COVID on a 3-year CAGR basis, we are still lower than what volumes would be at that point of time. And I think some reference to the media interview we're talking about. Overall, I just need some help to understand fiscal '23 volume growth. The Pipe should be higher than 15% and overall company should be about 15% Y-o-Y. Is that understanding correct?
No, I say 15% volume growth of the company as a whole and Pipe will be higher than 15%.
Fiscal '23?
I'm talking '22, '23, the current year.
Okay, sir. Got it. Any guidance you would like to give on the EBITDA per ton? Because my sense is you did about INR 25 per kg this quarter, which obviously has some kind of inventory loss built in here. Should we model like INR 20 a kg, what we did in fiscal '20? I mean that's the pricing currently happening? Is that correct?
There will be inventory loss in the current quarter also. After 23rd of June up to today, the PVC prices have dropped again by INR 20 a kilo. So when we shared overall price drop by INR 46 a kilo. That is starting from 1st April up to Saturday. And they continue to be drop has happened between 23rd June to Saturday.
So there will be inventory loss -- there is more inventory loss in the month of July and August. But we believe that now the prices in PVC is low to bottom. So coming from September onwards, the prices may marginally improve also and even demand – the demand season starts. So September to March '23, we expect better business.
Got it, sir. Any guidance on EBITDA per kg for the year, '22, '23?
EBITDA for the company only I can tell you.
EBITDA per kg we don't...
EBITDA per kg, we don't predict.
No problem, sir. For the company, what is the guidance?
Company, we guided around 15%.
Operating margin.
Operating profit margin first quarter was 12.24%. For the full year, we anticipate 15% operating margin.
Got it sir, last question on agri and non-agri sales. Could you help me with the mix like in terms of piping how much is agri pipe mix for this quarter? And the demand was you said it was better than last year, obviously, but overall, did we have destocking issues? And do you think this should turnaround going into the next season? I mean, obviously, that starts fourth quarter of '22, '23.
I can say during the month of April, June, the demand for agri market was quite robust. But as we told earlier also, that whatever agri pipe will sell, they necessarily not go to farming area. Many areas for housing also people use agri pipe [ SWR ] pipe.
So overall, percentage we cannot say. But we can say demand size though it was a high price compared to 2 years before the demand for agriculture pipe was robust. We just gave you 65% volume growth in this quarter in Plastic Pipe.
The next question is from the line of Achal Lohade from JM Financial.
Sir, just a clarification. You mentioned 15% volume growth for the company for plastic pipes even higher. So if I do a rough math, what you have done in first quarter this year, it implies a 21% volume growth in rest of the 9 months, Y-o-Y. When you were saying the agri wasn't impacted in fourth quarter and first quarter. So how do we add this up, sir? Do you think the plumbing growth will be so strong where agri growth will drive this kind of a growth?
In the current year, the growth was uniform. The growth was nice in agriculture. Growth was okay in housing. Growth was okay in infrastructure. All the 3 segments have shown positive growth in this quarter.
That is on Y-o-Y basis I presume, sir, right?
Y-o-Y. Also for the full year, we anticipate good growth in all the 3 segments.
Got it. Sir, if you could give some indication as to what was the inventory loss in first quarter? Would that be 50 crores, 60 crores?
It would be able to reply you properly in the month of October. We -- still we have to suffer inventory loss in this quarter.
But there was some inventory loss in first quarter. Have I got that understanding right?
100% , we're right . When the prices are dropping, there is no way to make loss. That's why you are seeing our margin overall has dropped from -- to 12.24% in first quarter. Instead of -- inspite of 12.24% low margin in the first quarter, we maintained an operating margin of 15%.
Understood. Is it possible to give some clarity on the CPVC demand in terms of how was the volume growth for us, what would be our market share? A broad sense would be of great help, sir.
CPVC demand is quite robust. We have increased our market share. We have grown double digit, and we anticipate to grow double digit in remaining 3 quarters.
Possible to quantify the market share, would we be like 20% of the organized market...
That is classified information, but it is more than 20%.
Understood. And if I may ask on the industry, sir, what is the aggregate volume for FY '22 for Plastic Pipes and Fitting?
Growth was 25% -- 27% first quarter.
No, no, sir, FY '22, what was the volume in terms of -- would that be 2.5 million tons? Would that be 2 million tons.
FY '22 is a degrowth.
Correct. If you could help us with the number, sir. Would you have that?
FY '22 there was a degrowth of the [indiscernible] total share was 674,000 tons, which was even 2020, when it was 489,000, but if you compare with years '19, '20, the first quarter, the share was 900,000 tons. And last year, it was INR 674,000.
So compared to '19, '20, that degrowth was around 25% compared to '19, '20. 2021 was a disaster with regard on 25th March, the country was closed. So in the year 2021, April, May, June the business was all closed. The demand was very weak. Am I clear?
Thank you so much for your...
The next question is from the line of Kunal Lakhan from CLSA.
Sir, on the margin guidance side, you said that in Q2, you are expecting further inventory losses because in the month of July alone PVC prices have dropped like 17% -- odd. But at the same time, you're maintaining 15% guidance for FY '23. So second half, you're building in like margins of upwards of 17% and 18%. Just wanted to understand what will be the drivers of these margins? Are we expecting PVC prices to bounce back to INR 130, INR 140 levels or what are the quarter going?
Not only in PVC Pipe business the effect. We have in each segment of business. And this was season period of all those segments. And the polymer prices have not followed only in PVC, they followed in PP and they will follow in polyethylene. They will follow in polystyrene.
So in certain products, we'll be able to improve our operating margin. It's a business optimism, but business forecast, we are making would not only Plastic Piping business, any forecast will be made for the company.
No, I get it. But your Plastic Piping products contribute the bulk of your top line and EBITDA.
12.25% is too low.
Sure, sure. Secondly, I just wanted to understand on the volume growth side also, on the 15% volume growth you expect agri, housing and industrials to continue to grow in the rest of the year as well. I mean just wanted to understand what is the cause of this optimism because we have not -- we've seen subdued growth in the last 3, 4 years. So the sudden pickup in the optimism, just wanted to understand.
Now the -- COVID is behind, I don't think COVID is that much lethal and the CapEx cycle started. Exports are better. The monsoon is better, the food grain sowing is going in a big way. We anticipate that the inflation has now peak up -- peaked out. The inflation is only going to come down going forward. So there is no reason to be pessimistic for anything. Economy is in fine shape. The [indiscernible] economy is in fine shape, so demand will be better from our segments.
The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
Sir, my first question is on the Cross Laminated Film business. Is it possible to quantify how has this business done? And what are we doing to get our margins back on track?
We will be getting our margins back by increasing business of value-added product and by initiating business in export market. We are pleased to share with you that we have added 3 more countries in this year, first quarter. We are putting more resources to reach more countries in the world market. Today, the country -- company is reaching in 28 countries in the world.
Even in Latin America, goods are going. Europe, we are exporting. So many countries, we are exporting. And we want to increase more and more share of business coming from export market. And export, we sell mostly non-Tarpaulin product where we get better margin. Being very labor intensive product, specialized product for the special segments.
And we are seeing every month improved business in those segments. Our metal business also growing very nicely. And we are increasing the range of metal business. And though we are -- we told that look-alike product is in difficult -- is cutting competition, but we are hearing many failure report of look-alike product. We remain more optimistic of our Cross Laminated Film business going forward.
So sir, how big would be the exports now for us in this product? And what kind of margins would we making in the export business?
Volume, we can talk only when we close the year. But it is definitely far better than last year.
But sir, on export revenue, any quantification this quarter, how has been the exports? What is the amount of exports?
Revenue, we can check and inform. I don't have number immediately with me of what is the value of export what we made. Sorry, I don't have immediately with me. But volume be sure we are getting better price.
Sure. Sir, secondly, in terms of the Pipe business, how is the channel inventory? Would it be fair to say it's at all-time low levels?
Yes, perhaps it is very very low level [indiscernible].
Sorry to interrupt you, sir, the line is not clear from your line, please check.
[Technical Difficulty]
I don't know. I'm very close to my mic and speaker. Now – you can't hear me?
No sir, we cannot hear your audio.
We are able to speak very clearly.
Now it is better sir.
Now better?
Yes, sir, we can hear you. Yes, sir, you can comment on the channel inventory?
Channel inventory, Piping is quite low. With continuous prices falling they are very scared. So I can think they are completely hand to mouth or many items they stroke out. So when the trend changes, they will get tremendous share of order with our Pipe company, and we'll be well placed. By that time we'll be starting with 3 new locations.
What we started as 2 locations, we start in September, October with more volume available and we can service customers further better.
And sir, my last question is how are the margins in your Composite Cylinder business when we get to full utilization?
Composite Cylinder made very good money last month and are running the plant fully. And by November this year, we will be leasing capacity of 1 million pieces per year. That should improve margins further starting from January, February, March. December, January, February, March, we expect margins to further improve.
And is this a value-added product for us?
Yes, it is value-added product.
The next question is from the line of Sailesh Raja from B&K Securities.
My questions are pertaining to Supreme Petrochem. Sir actually our polystyrene capacity production in FY '20 was closer to 5.5 lakh tons. So due to now Euro and U.S. sanction against Russia. So what is the expected export opportunity for Supreme Petro?
And also with the widening demand and supply, sir, how fast we can fill the new polystyrene and EPS capacity, sir, which is going to commission from September month.
The new plant of 80,000 tons will be in operation from September, 1.5 tons from today. So up to June, we were not able to meet the domestic demand. In July is a safe season. So demand definitely, we started now exporting back. We may be exporting first 5,000 ton monthly. We are already present in more than 100 countries. That is very well accepted, and we are in good demand in export market.
Okay. So how fast we can fill this capacity sir, new capacity?
New capacity, may not be able to sell completely domestically. So whatever we cannot sell domestically, we'll put in export market.
Sir, we can fill in 2 years sir?
Sorry?
We can fill the capacity in 2 years?
We should not take 2 years. It depends on how the economy moves on the consumer plant side. Our majority goods to consumer plants. With inflation getting peaked out with good monsoon, we believe the demand should be better from the festive season, will start from September.
Okay, sir. My second question is due to this global demand-supply mismatch, is it possible for Supreme Petro to have a mix of both fixed pricing contract and spot contract with customers so as to reduce the volatility in the business, sir?
We are very alert how to procure our raw material. The complete take of the global situation, they are very large customer to buy our raw material. We get the best possible terms.
Okay. Sir, last year we did sales volume of INR 2.73 lakhs. So what was the volume in 1Q? And what is the expected volume growth this year in FY '23?
In the first quarter?
Yes, sir.
We showed polystyrene -- first quarter -- overall volume may be. I don't have immediate number with me. As I told you we sold out the plant fully.
Okay, okay, sir. And one last question, Sir. Can you share how is the current spread for the company?
Overall in the first quarter, we sold 70,480 tons.
Overall, we sold 70,480, all the polystyrene and specialty polystyrene compound and expanded polystyrene combined, we sold 70,500 tons.
Okay. This is including XPS sir?
Including SPC and including EPS.
Okay, okay. So one last question, how is the current spread, sir, for the company?
Current?
Current spread, sir.
I'm not clear what you are asking. Current what?
No, current spread, styrene monomer and polystyrene spread?
[ Polystyrene ] prices have gone down a little bit so we also dropped price of polystyrene. All the polymer prices are dropping. So polystyrene is one of the polymer only. The prices are dropping and styrene raw material price is also dropping.
The next question is from the line of Sneha Talreja from Edelweiss Securities.
We'll move on to the next question from the line of Rajesh Kumar Ravi from HDFC Securities.
We'll move on to the next question from the line of Ritesh Shah from Investec.
Couple of questions. One is, where do we source our PVC and CPVC resin from? And what is the sort of inventory base that we usually maintain? That's the first question.
The PVC, we source from local producer that is Reliance Industry in chem plast. And we also import from main countries of the world. So we source locally and internationally. CPVC was sourced from Kaneka and many other suppliers.
And sir inventory days that we usually maintain?
Inventory days, this year our inventory is low.
Inventory days.
Inventory days, we have to maintain to run our plant fully. Not to demand is there, we are obliged to keep the goods available to meet the demand. We got 9,000 SKUs. So inventory would be always there in the company. Inventory is there of raw material, inventory is there of finished goods.
Right. Sir, inventory days, maybe will it be upwards of 2 months for PVC, CPVC or would it be lower, sir?
30 to 45 days, depending upon the season and the tile, it will be between 30 to 45 days, both put together.
Okay. Okay. That's helpful. Sir, second question is on new product launches. Just saw the presentation. Can you give some color on Electrofusion Fittings, PP Compression Fittings and AQUAKRAFT Bath Fittings, what sort of opportunity do we see over here?
Our bath fitting was very well accepted. We anticipate 100% growth in business in this year. Our Electrofusion fitting and compression molded switching has been very well accepted for Nal Se Jal scheme. We are selling every month, good quantity. We are increasing the range also. Our [indiscernible] will start production very shortly in Guwahati in the month of August.
Our conduit electrical system with Pipe and Switching will be in operation from November this year. Industrial Valve will be also in operation by November this year. We are introducing 5 new systems and 2 have already gone into production. The rest will go in 3 to 4 months.
Sorry to interrupt you sir, the audio, the line is not clear. Please check.
[Technical Difficulty]
Now clear? Now clear?
No sir, it's not.
Not clear. I'm very close to the speaker. Not clear?
Now it is clear, sir.
Okay. So I repeat, again, our electrical conduit system, there is Pipe and Fittings should be in market by November. Our [indiscernible] will be in market from next month. Our Electrofusion fitting and Olefin fittings are already in the market. Industrial valve will be in the market by November this year. So the all the systems starting from now up to November will be in the market.
And Bath fittings, what I told it is very well accepted now -- and this year, we anticipate 100% growth in business compared to last year.
Sir, this is very useful, if I may, I have a follow-up question. Sir, what is the size of opportunity that we are targeting for, say, industrial walls or Electrofusion fittings or conduits that you indicated?
I can already say this all will be value-added product.
Okay. Sir, can this be INR 100 crore plus segment?
Markets size very difficult to calculate. But what will be the market side, we will go on building capacity cumulative demand.
Right. Sir, if I put it the other way, can either of these variables or new products. Can they be INR 100 crores plus in 2 years?
INR 100 crore plus -- 100% -- INR 100 crores will be there in most of the product even in 1 year after they go into production. After they go into production, INR 100 crores will be the business from each of the segment in 1 year.
The next question is from the line of Venkatesh Balasubramanian from Axis Capital.
If I go back to the inventory loss issue you mentioned that if you didn't have inventory losses in the first quarter, your margins would have been 15%. Is it correct?
I don't know, but inventory loss in the first quarter, inventory loss will be there in second quarter also.
No. But what I don't understand is how to -- why you don't even know how much of the inventory loss. Otherwise, how are you making the accounts?
If there was no inventory loss, the margin would be better than 12%.
Okay. Now at a different level, when you are pricing products across various plastic products, which you make pipes and everything else, how do you actually think about pricing. Let's say, your raw material -- is it like you think that I need to make a certain margin on these products and you price? Or is it like you think that if my cost is x, I need to make INR 10 or INR 15 per kg more? How do you think about pricing?
Different products, different pricing policy.
Yes, okay. How do you think about it in the Piping side?
Piping side, the prices are dropped next day.
Okay. So that means that you're thinking of it in terms of per kg only, am I correct, sir?
We've got many, many years of calculation. So what is the method of calculation that is our own classified information, we drop it next day.
Okay. No one of the questions which was asked by one of the earlier participants was -- again, it was on EBITDA per kg. I mean I know you said you don't track it that way, but just to highlight in FY '20, your EBITDA per kg was around INR 20 per kg for the last 4 or 5 years. So it was largely constant. It was 20 -- INR 19, INR 21 like that on an average INR 20 till FY '20. This jumped to INR 31...
Correct. I don't see it was constant. In last 2 years, there are inflated profit due to inventory gain. The price going up. So we had much more profit in the year '20, '21 and '21, '22.
Are we -- over longer term -- not longer term over the next couple of years once, as you said, PVC prices are close to the bottom. So by second quarter, most of the inventory losses would have gone. On a steady-state basis do you think that EBITDA per kg will go back to INR 20 per kg?
We have not shared EBITDA per kg. So I can't comment EBITDA per kg.
Okay. The last -- the other question is on Supreme Petrochem. I think from 1st July of the current year, there is a ban on single-use plastics and quite a lot of products are made of polystyrene in the single-use plastics. So do you think that whatever EBITDA margins you had FY '21 of 21% and FY '20 to 18% in the first quarter also EBITDA margins was on the higher side in Supreme Petrochem, which is almost 17%. Do you think this can actually correct sharply? Or is it like you can hold this 16%, 17% margin in Supreme Petrochem.
I think there is nothing to do with single-use plastic because single-use plastic is very small percentage of our sale, the margin was better due to higher freight rate for goods coming to India. Now the freight rates have started dropping. So definitely, the margin will sink now.
The next question is from the line of Jiten Doshi from Enam Asset Management.
I had just 2 questions. One was on the CapEx. You're incurring a very strong CapEx of INR 700 crores as you have indicated in your presentation this year. Would this be a recurring feature? That means can we expect every year, you will be spending about INR 700 crores going forward?
It depends. But this year, we committed to you earlier in our AGM also that we may spend INR 300 crores plus every year next 2 years also on Piping System.
Okay.
So this year there was an additional investment of INR 50 on Plumbing on the composition index, which may not be required next year.
Right. So I can assume that against 700, you are saying INR 300 crore to INR 350 next year onwards?
Next year onwards, I'll say Piping definitely, we'll invest.
And overall for the company?
Overall, also for the company, maybe it may be not less than INR 500 crores.
Okay. All right. And Tapariaji, you mentioned that there will be -- there was a destocking. So you expect restocking to happen in Q3 or it will happen continuously between Q3 and Q4?
Destocking last year or this year?
No, this year, whatever destocking that has taken place, would you see restocking happening in quarter 3 or quarter 4?
No, destocking happened first quarter. Restocking will happen immediately when the price goes up.
Okay. Okay. So if the price does not go up and it stays flat...
Can I complete the reply to your question dear, sir. We believe the drop will be complete by end of August. So restocking may start from September only.
Okay. So how many tons do you believe is...
Third quarter.
Right. So in the restocking, you would be able to sell, what, 30,000, 40,000 tons additional?
It depends. We showed in the month of March, 4,100.
Okay. Okay. So the restocking could be in that range?
It depends. I can't predict, but I give you a past example in the month of March 2022, company sold 41,000 Plastic Piping System.
Okay. Okay. Okay. So you believe that sort of growth can -- once things stabilize, we can go back to that sort of a growth trajectory?
I can't -- I'm not committing INR 41,000. We are committing -- we will have growth of more than 15% by volume in Plastic Piping System.
Okay. Okay. And sir, how are you looking at competitive pressures? How are you looking at competition in terms of pricing, new product innovations, et cetera? How are you looking at competition right now?
India is big market, we are enjoying the best position. We were the largest range. We've a very strong distributor network. We still need to reach many, many parts of the country.
So in your view, sir, long-term sustainable growth should be between 15% and 20% volume-wise?
Volume-wise, I can't commit 15%, but 10%, yes, we can commit.
10% to 12%, normal volume.
10% to 12%, this year because the previous year was very weak. But going forward, we definitely anticipate volume growth between 10% to 12% in our Plastic Piping System.
The next question is from the line of Sujit Jain from ASK Investment Managers.
Sir, just to the previous question you rightly explained how the operating profit per ton jumped in FY '21 and '22. Does that eventually revert back to the mean of close to INR 20 a kg as the prices stabilize?
We have no idea. So how can I give any number. If we don't know, we can't give any numbers. But we got -- 9,000 SKUs, each SKU got separate [ buffer ] per kilo, what proportion each SKU will sell very difficult to forecast.
Now that value added is going up for Supreme, the operating profit per ton structurally gets elevated ?
Value added growing up not only in Plastic Piping. As you -- already we've told that Composite Cylinder 100% value added. In our Cross Laminated Films major portion is value added, which segment will grow, but we can't say.
Overall, value-added product business will grow in the first quarter up till June. We had an overall growth of value-added items from INR 515 crores to INR 760 crores and up till June also.
And up till June, it was a very bad -- poor quarter, even then we had a value growth of INR 515 crores to INR 760 crores. So the value-added product growth will continue.
Surely. And is it safe to assume that we would have had an inventory loss of close to INR 55 crores, INR 60 crores in Q1 FY '23?
I can't put the number as I told you. We will try to calculate properly in the month of October, but inventory loss is obvious. When the prices are dropping such a severe drop and we say we don't lose money than we are receiving. When we told you earlier that we keep around 45-day inventory to supply -- to maintain our supply chain. Then we are supposed to suffer inventory loss and which we hope to recover also going forward.
We have seen the cycle in polymer pricing. This is nothing new for us. It goes down also, when it goes too much down, also it starts going up.
Right. And just to get this right, you said the restocking will start happening from Q3 onwards, that is September, October onwards, which means even in...
In Q2 only.
End of Q3, you said, right?
I said end of this quarter. We believe from September, they'll be restocking.
Right. So even Q2 the industry faces prospects of inventory losses.
There will be inventory loss in this quarter.
Right. So Q1, Q2 inventory losses, yet you say for the full year, 15% operating profit margin is possible, so which means H2 margin would be really strong.
Little bit lower. Normally, now a days we are getting around 17%.
Sorry, I didn't get that.
Normally, we aim to get 17% operating margin when we say 15%, means we are going to allude margin by 200 basis points.
Sure. I get that. But if you aim to earn 17% profit margin, then what is your definition of value-added products now?
Value-added product is only when we earn 17%. So whatever product we earn 17%, we count as value-added.
But just now you said is that nowadays you aim for 17% margin from the full company.
We aim to get 7% operating margin. Normally, we don't get -- we may get around 16% to 16.5%.
Right. And sir, one last question. What was the size in terms of the volumes for the entire industry FY '23?
Overall industry volume?
Overall industry volume in your estimate, Piping industry for FY '22.
No, I don't tell the numbers. I can't share. The numbers are normal, but overall, the market was weak last year for the whole country.
We had a degrowth of around 5% to 6% by volume.
The next question is from the line of [ Vipul Kumar Anopchand Shah ] from Sumangal Investment.
Just a clarification, this Guwahati plant is for Plastic Piping or it is electrical conduit?
It will make electric conduit also. On the same extruder you can make electrical conduit.
So it will have a flexibility to manufacture both plastic pipe as well as electrical conduit depending on the demand.
It would be [ conduit ] also, plastic pipe only -- PVC pipe only.
In Guwahati, we will be making PVC pipe and [ polyethylene ] pipe, both. We are going to make [indiscernible ] We are going to make , Roto molded tank. We are going to make blow-molded tank. We're making 5 varieties of products there.
So all can be manufactured on one line or?
There are several lines. It's a big plant you see. We are not putting for one machine.
The next question is from the line of Akhil Parekh from Centrum Broking.
My first question is on the PVC prices. So the decline in the prices, is it largely because of the increasing contribution from the Chinese inputs?
Principally because the prices went sky high. So demand started shrinking and new capacity also came up. The freight rates started coming down from the peak level. I'll give you an example, the freight from China to India went up from $60 to $210. Now they have come down to $130.
All total combined together, along with the interest rates going up. Chinese economy going slow due to COVID restriction.
So China, grew surplus. China incidentally produced 50% of our world PVC resin. Out of 45 million tons, 22 million tons PVC resin produced in China. If China has good low demand, their export increased to 250,000 ton monthly. So India was getting big share, around 80,000 to 90,000 tons per month, and they were dropping price every weekly. Along with China, Southeast Asia, Japan, they all started dropping the price.
Okay, okay. Would it be fair to say that Chinese imports would be the largest contributor to us in terms of PVC imports?
In the country, largest share is of China.
Okay, okay. And during pre-pandemic time, was it Taiwan and South Korea?
During pre-pandemic days, there was antidumping duty in China. Antidumping duty of 5-year period got over on 2nd of February this year.
Correct.
So once antidumping was removed, then China became competitive to participate in the Indian market.
Got it. Got it, sir. The second question is on the CPVC prices. You mentioned for PVC, we are at INR 95 per kg. Would you be able to highlight how -- what are the current CPVC prices? And what is the differentiate between...
CPVC price is at higher level. They are of $2,200 to $2,300 per ton. They're not made in India. They are imported -- this is a dollar price, I can tell you that calculation depends on the rupee-dollar rate.
Got it. But has the differential widened significantly in the last 2 years between PVC and CPVC because the commentary, which we used to hear that PVC and CPVC prices are more or less same in FY '19 and '20 but has more than...
That issue ended last year only. PVC price is always very low compared to CPVC.
Okay, okay. Got it, sir. And my final question is on the counterfeit products in the Cross Laminated sales, and we keep hearing from the channel partners or our market service that the unbranded players are kind of undercutting us on the prices and the quality, but this issue has been there for the last 3, 4 years, especially once we lost the patent expired for us, basically the exclusive license....
Many players have lost money. They are giving very poor quality, they got very bad name, many players out of them. We believe their business is shrinking. And even then, they are no competition to us. They sell on a kilo basis. We sell on square foot basis. So their pricing, our pricing very different.
Correct. But are there any steps we're taking to basically kind of correct the situation?
The product doesn't last. So consumer decides what product to buy. [ Silpaulin ] is best nonbrand in the country for tarpaulin. We are very proud of our product. Our quality is the best, second to none in the country.
Okay. And the market size will be INR 500 crores to INR 600 crores the Cross Laminated Film business?
Market share of tarpaulin market is a huge market, where people generally use very low-quality product. We sell for special applications. No, market is not applicable to this market. We sell for various application where there is no alternate film available. Ours is the best film product particularly application in the country.
The next question is from the line of [ Vipul Kumar Anopchand Shah ] from Sumangal Investment.
Sir, just curious to know why we are not going for backward integration. I mean, in manufacturing of PVC resins?
PVC resin we require very low-cost energy. So even Reliance company, they started for backward integration, a big plant in Abu Dhabi to make the raw material there, EDC.
And then they'll import EDC from Abu Dhabi to India. So [indiscernible] is a big issue.
As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Thank you very much for all very intelligent questions. And myself and my colleague, Shri Somaniji and Shri Saboo are very thankful to the various questions raised by our investor friends. We thank them all very much.
Thank you everyone.
Thank you, everyone.
Thank you. Thank you.
Thank you. Ladies and gentlemen, on behalf of DAM Capital, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.