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Supreme Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Supreme Industries hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aasim Bharde from DAM Capital Advisors Limited. Thank you. And over to you, sir.
Thank you, Rupeeja. Good evening, everyone, and Season's Greetings to all. Today, on behalf of DAM Capital Advisors, I welcome all of you for Supreme Industries' Q2 Results Conference Call. I would like to thank Supreme for giving us the opportunity to host them on this forum today. From the management side, we have: Mr. M.P. Taparia, Managing Director; Mr. P.C. Somani, Chief Financial Officer; and Mr. Rajendra Saboo, VP, Corporate Affairs and Company Secretary. I will now hand over the floor to Mr. Taparia [indiscernible] with that, we can open the floor for Q&A. Thank you, and over to you, sir.
Thank you very much. I am M.P. Taparia, Managing Director of The Supreme Industries Limited. I, along with my colleagues, Shri P.C. Somani, Chief Financial Officer; and Shri R.J. Saboo, Vice President, Corporate Affairs and Company Secretary, welcome all the participants who are participating in the discussion of the unaudited stand-alone and consolidated financial results for the quarter and half year ended 30th September 2021. The stand-alone results and the consolidated results are already with you. I'll give a brief on company's product operating performance and other highlights. The company sold 102,673 metric tons of plastic goods and achieved net product turnover of INR 1,901 crores during the second quarter of the current year against sales of 94,836 tons of plastic goods and achieved net product turnover of INR 1,322 crores in the corresponding quarter of previous year, achieving volume and product volume growth of around 8% and 44%, respectively. The company sold 173,937 tons of plastic goods and achieved net product turnover of INR 3,211 crores during the first half of the current year against sales of 186,287 tons and net product turnover of INR 2,362 crores in the corresponding half year of previous year, resulting in a volume de-growth of about 7% and product volume growth of around 36%. Total consolidated income and operating profit for the second quarter of the current year amounted to between INR 1,932 crores and INR 350 crores as compared to INR 1,378 crores and INR 282 crores for the corresponding quarter of the previous year, recording an increase of around 40% and 24%, respectively. Total consolidated income and operating profit for the half year and current year amounted to INR 3,279 crores and INR 617 crores as compared to INR 2,434 crores and INR 396 crores for the corresponding period of the previous year, recording an increase of around 35% and 56%, respectively. The consolidated profit before tax and profit after tax for the second quarter of the current year amounted to INR 296 crores and INR 229 crores as compared to INR 228 crores and INR 175 crores for the corresponding quarter of the previous year, recording increase of 30% and 31%, respectively. The consolidated profit before tax and profit after tax for the half year of the current year amounted to INR 509 crores and INR 399 crores as compared to INR 283 crores and INR 215 crores for the corresponding period of the previous year, recording increase of 80% and 86%, respectively. The business scenario of all the product segment of the company for the second quarter of current year ended 30th September 2021 as compared to corresponding quarter in the previous year has been as under: Plastic Piping System business grew 9% by volume and 50% in value term. Packaging Products segment business grew 5% in volume and 26% in value term. Industrial Products segment business grew 10% in volume and 39% in value term. Consumer Products segment business grew by 4% in volume and 20% in value term. The overall turnover of value-added products increased to INR 758 crores during the current second quarter as compared to INR 533 crores in the corresponding period of previous year, achieving growth of 42%. The Board of Directors has declared the interim dividend at 300%, that is INR 6 per share of INR 2 each for the financial year '21/'22. The dividend will be paid to those shareholders whose names stand on the register of members as on the record date, 31st November 2021. The company has cash surplus funds of INR 331 crores as on 30th September 2021 as against cash surplus funds of INR 759 crores as on 31st March 2021. As the effect of second wave of COVID-19 started ebbing down, there was revival of business in all the segments serviced by the company. In spite of continuous rise in all grades of polymer prices, the company had volume growth in all its segments. The polymer prices have risen between 7% to 28% during this quarter. Highest increase was in the price of PVC resin, where price have gone up by INR 34 per kilo. The price increase trend continues unabated in the current quarter also. In plastic pipe segment, the demand from housing segment has revived. The company had 9% volume growth in pipe system during the quarter. In spite of current high price, the demand outlook in housing and agri segment looks maintainable. There is a shift in higher demand for CPVC system as the prices of that system have not gone higher compared to the price increase in PVC system. The company's progress in putting up plants in Guwahati, Cuttack and Erode are moving smoothly. All these plants will be operational between January 2022 to May 2022. The company's envisaged CapEx plant of INR 521 crores for the year, including carried-forward commitment of previous year, is going on smoothly. The company is adding new system over and above its existing 36 systems in Plastic Pipe System during this financial year, for which the investment plan going smoothly. The new system adds PEX pipes, PEX composite pipes and electrofusion olefin fittings, new model of furnitures, polypropylene pipe systems, varieties of crates and laminates in cross-laminated films, protective packaging and performance film. They will be adding new applications from these substrates. [indiscernible] complete market reach is being targeted to spread to more [indiscernible] for all its product. Overall, in [indiscernible], company is aware there's many [indiscernible] there, so various products [indiscernible] vigorously to increase our reach in more and more [indiscernible]. The demand for tarpaulin and made-up products made from XF film is maintained at a higher level. The company is able to pass the increased raw material prices to its end product. Furniture business has gone up by around 4% in volume in the quarter. The company has launched successfully new models. In spite of chip shortage, industrial component business has grown in the quarter with a promising future for second half of the year. Material handling division has shown 16% volume growth. Company continues to add new product range to add value to its customer. It continues to deepen its market reach. Composite cylinder division has shown surplus in the quarter after several years of its operation. The increased acceptance of this cylinder from domestic and internal market augurs well for this segment in future. The company had a volume growth of 3% in Protective Packaging division and 10% in Performance Packaging Films in the quarter. Overall, in packaging segment, company's focus is to boost export business and develop new applications, laminating with different substrates to add increased value for its customers. The company is a solution provider to protect the content by innovative packaging. Several new varieties of products have been launched in bath fittings division. The appointment of new dealers in the division are continuing. The business is also growing. The company expect to reach INR 75 crores business in this division this year. This is a brief and overall summary for the second quarter and first half of the year under reference. Thank you for your presence. Now I and my colleagues, Shri P.C. Somani and Shri R.J. Saboo, are available to reply to various inquiries you may have. Thank you very much.
[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.
Sir, I had some broader questions, not specific to the results. On the volume side, I can see fiscal '19, '20, '21 all being close to about 4 lakh tons in overall of volumes last 3 years, the first half of this year looking about 7% Y-o-Y down in volumes. Could you help me understand the direction in terms of volume CAGR, what you're looking for? And will we grow in fiscal '22? And if you could just help me in terms of next 2 years? That's my first question.
As we have seen in the first half, overall, our volumes have gone down principally due to demand [indiscernible] in every pipe segment in April, May, June this year. And the COVID-19 was very much widely spread in the rural area. That loss, we could not recover fully in the quarter 2. So in quarter 2, plastic pipe [indiscernible]. We are confident that in the remaining 6 months, we will recover the lost volume in our plastic pipe division, but there was severe loss of around 20,000 tons in the first quarter. Overall, we anticipate this year, the volume growth will be still around 3%. With wins, we will still move in the circle of 400,000 plus we'll not change the current number of [indiscernible] numbers. [indiscernible] per year, last year and this year. So definitely, we are on the path to grow volume. But in this year, we don't think that we can grow by more than 3% or 4%.
Got it, sir. That helps. And my second question, sir, again is more on the EBITDA per ton and margins. So broadly speaking, fiscal '16 to fiscal '20, if I look at the 5-year average, it is about INR 20 per kilo, right, on the entire product on the company level. Fiscal '21 obviously was INR 25 a kilo because of improved product mix and stuff like that. Assuming a scenario where PVC resin prices go back to INR 70, INR 75, on a steady-state basis, your EBITDA per ton would be higher than INR 20 a kilo?
No. We will definitely -- when the price will drop to INR 75, at one time, we will have good inventory loss.
Sir, I understand that. I'm saying excluding inventory loss on a steady-state basis.
You see with that change of product mix, what we are now doing, revising our lower value-added items and adding more and more to systems, new SKUs. So definitely, it should be maintained or should be improved.
Note, our value addition was higher than INR 20 a kilo. Last year, we sold around 300,000 ton Plastic Pipe System.
At company level.
Company level of plastic pipe you're asking. But you were talking PVC, yes? You were talking PVC or company level?
No, I'm asking about company level, sir.
At the company level, we're talking more than INR 20. I mean, 400,000 tons, if you include depreciation, also we are INR 900 crores.
[indiscernible]
EBITDA per ton, sir. At company level, the average was about INR 20 a kilo. But anyway, broadly, my point is when PVC resin prices normalize, right, obviously there will be inventory loss, which I understand. But adjusted to that, because of your improved product mix in favor of value-added products, your EBITDA per ton should be higher than INR 20 a kilo directionally is what I'm trying to...
Yes.
Annually, it was higher than INR 20 a kilo last year also. If I exclude the inventory gain also, it was definitely higher than INR 20 a kilo.
Yes, sir. Got it. And sir...
Excluding inventory gain, it was INR 100 crores or 400,000 tons [indiscernible] INR 20 a kilo.
Yes, I got that. And lastly, I wanted to check on the inventory. It looks pretty high, about 90 days of COGS. Any specific reason why it is at INR 1,160 crores? That's my last question.
Because previously, again we were [indiscernible] shortage. So we had to keep more [indiscernible] within our stock.
Okay. So this is like raw material stocking, is it?
More raw material and somewhat more finished goods also.
The next question is from the line of [ Kashyap ] from [ Telami Partners ].
Congrats for a decent number in such times. I had a couple of questions. First is if you can just explain your thoughts on how you see the raw material cycle panning out on the PVC side, it continues to remain tight. And what are your thoughts on by when things will get a bit normalized? Or do you think this tightness will persist? Just some thoughts on how one should look at it.
Clearly, PVC has gone into a super cycle mode, [indiscernible] which may remain even in the year 2023. Because there was not much capacity coming up in PVC. The question is [indiscernible] should not completely petrochemical, it is also around 50% chlor-alkali. AGC is now [indiscernible] with 1 million ton capacity. But they are getting the [indiscernible] into the country, which we expect to arrive and then the plant in operation by 2024. Adani is planning [indiscernible] imported coal from Australia, maybe 2 million tons. But this also may not come before 2024. So this is Indian condition. India is today dependent 55% imports. When you have so much dependence on import, then country become more vulnerable. We are paying the top price of PVC in the world market. Compared to us is only Latin America or Turkey. And they are also more dependent on imports. We believe overall such a dire scenario may start [indiscernible] sometime in March, April, not before. And apart from less available PVC, we have a problem with shipping lines. The fares are extremely high. And the ships' movements are very slow due to the COVID restriction on every port. We are told also there is some [indiscernible] in the shipment movement. So I think shipping lines and everything may become slightly normal for 6 months. Currently, PVC prices in India are going to go further higher in the quarter this year until October, December quarter, which is a trend.
Sure. Fair enough. And sir, would it be fair to assume that given such a scenario of tightness, our inventory days will sustain on a higher side because we will obviously not want to start with the factory of the raw materials. So we will obviously keep higher level of inventory than we used to normally keep when situation was normal. So maybe for the next 6 months to 1 year, we might just have an elevated level of inventory.
Some inventories are maintained. There is some gain, but there's some loss in production cost also, where we are not running our pipe plant at full capacity. These pipe plants, we are running at a lower capacity because we are losing business. So that's why we are saying that we may only see 3% volume growth.
Sure. Fair enough, sir. And just do you think that CPVC, which has not gone up as much, will probably also see a cycle similar to PVC? Or do you think that, that will remain? Because that's been surprising. It's been pretty stable relative to what PVC has kind of seen.
Additional quantity is not available in the world. It has become completely short now. Because increased demand, we never expect it. How we compare [indiscernible] volume growth in PVC, and we are not able to meet the demand.
Okay. And sir, finally, on Supreme Petrochemicals, that also has been -- they have been going through a super cycle as far as the spreads are concerned. And there also, I think there is these -- there also, the cycle seems strong. Can you actually give your thoughts on how we see the spread going forward?
So last year, the spread was unusually very high. It was not a sustainable spread. Now this spread has come down a little bit. But fortunately, we have got huge demand from Indian market. Our plant is fully sold-out. Today, we are not able to meet the demand in the country. Fortunately, our expansion plant is going very smoothly. And we hope that our expanded capacity will be in operation by April, May next year. We would give a capacity of 130,000 tons of polystyrene and EPS. Recently, both the products are short from our company. We are running the plant flat out, even around 24,000 tons per month in the market. And that is not adequate to meet the country's demand. So Supreme Petrochem [indiscernible] of demand-supply side.
Sure. So at one point, we also export. Would it be fair to assume that we are basically now not able to even meet the domestic demand, exports are virtually down to 0 now?
Not 0, we had some customer commitments, so we may be exporting around 1,000 tons per month. [indiscernible] raw material to give. Our [indiscernible] is to look after the Indian market.
Sure. And sir, the second company which went out of the system as far as capacity is concerned, there is no chance of them coming back because obviously this is going to take a huge amount of time for it to recalibrate operations. So that vacuum remains?
[indiscernible] they can recharge, and we have not heard any alternative plan.
The next question is from the line of Chirag Lodaya from Valuequest.
Sir, my first question was on agri demand. So what is your expectation from upcoming agri season?
Agri demand for pipe started 10, 12 days before. But then there was -- [indiscernible] and Maharashtra, Bengal, Karnataka, Madhya Pradesh, so temporarily the demand has slowed down. But [indiscernible] we believe when the things become normal, the normal agri demand will come back to PVC.
Okay. And on a full year basis, you said that you will grow your volumes around 3% to 4%. But when it comes to specific pipe division, what is the expectation? Will we be able to surpass last year's pipes volume? Or it is difficult to call that volume?
So definitely, we are minus by around 15,000 in pipes. We hope that we will record [indiscernible] loss and there is some margin, 1% growth in [indiscernible] pipes this year. We can't recover the lost business, what we lost in the period, the peak period for pipe demand.
No. So sir, what you're trying to say is last year, whatever volumes you would have done in H2, you will be able to do that similar volume, right?
What we didn't do last year, we will do better this year.
So on a year basis, we should be maintaining or achieving a nominal growth in piping volume.
No, because the -- asking to maintain the last year volume is around 14% volume growth you required in H2, which is a tall task number. So I was just trying to reconfirm it...
Last year's quantity we sold last year in 6 months, we'll do better in this year in 6 months is what we presume today.
Got it. But on a full year basis, it might be below last year because I think one was...
Yes, full year basis, it will be below again.
Got it. And then secondly, on overall pipe division margins, how one should look at this, given the volatility in PVC prices? And is it fair to assume that Q3 margins would be better than Q2?
[indiscernible]
Margins, you see prices continue to remain and continue to go high. So in terms of percentage, margins come down because your [indiscernible] and development both go down.
[indiscernible] margin there.
So mathematically, the margin will come down if the prices continue to rise in a similar fashion.
Okay. So what is the sustainable margins you are looking, particularly in pipe division?
Maybe around 15%.
The next question is from the line of Sonali Salgaonkar from Jefferies India.
My first question is could you share with us the operating margins in terms of percentages for Q2 FY '22 across segments?
Operating margin. I think this time, we had our EBIT. So our desire to discontinue giving the operating margins per se.
Understood, sir. Sir, my second question is how would you look at expanding or probably increasing the volumes in your CPVC? Are there any thoughts on expanding the CPVC product mix within CP?
Our CPVC volume growth was at 30%. We have increased our capacity by between new plant in Jadcherla. We are also -- we have also put new capacity in Gadegaon. So we definitely we sell more volume from CPVC in this year compared to last year.
The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
Congrats for this performance in a tough environment. My first question is that if you look at the price realization in 2Q and compare it with 1Q, then there is just about a marginal increase in price realization. So what we understand is that bulk of the PVC price increase has happened in the second half of the quarter. So is that the reason why there is just a marginal increase in price realization and maybe in the third quarter, you will see a much higher realization in price? Is that a fair understanding?
And we see the first quarter that we see price are going down by INR 19 a kilo. Second quarter went up by INR 34 a kilo. So there are too much volatility. So month-by-month, I can't compare it, I can't tell you. Net-net, the price of PVC had gone up by INR 15 a kilo. We see what was the price, 31st March, and what was the price on 30th September.
Right, sir.
And the second thing, Bhargav, in the first quarter, there were less or no [indiscernible] pipes.
Understand. That's why there's just a small movement on a Q-on-Q basis?
Yes.
But sir, assuming the PVC prices hold at these levels, whilst on a margin -- percentage margin basis, you might see a reduction. But on a EBITDA per [ kilo ], we should see an increase, right? I mean, assuming the PVC price increase or stay at these levels because you accumulate a lot of inventory as of September, almost INR 400 crores of inventories.
Given the situation, we are reluctant. We want to maintain the price, maintain a market of the product. So we increased the price also after a week, 2 weeks, slightly more than 2 weeks. We don't increase the price immediately.
So sir, so far, in the third quarter, have you seen any price increase in pipes?
Yes, in pipes.
Yes. I don't have the number in front of me.
Okay. But we have seen some increase in the [indiscernible], right?
Formally, our policy when the prices go down, we drop immediately. And then so then we increased it slightly with [indiscernible].
Sir, my second question is that on a 2-year volume CAGR, if you look at pipes, it is close to about 3%. And this is despite a rising consolidation happening in the market. Is it fair to say that on a 2-year basis, India as a country overall would have seen a decline in overall pipe consumption or how to look at that scenario, sir?
There may be decline this year also. Last year, there was a growth of around 13%, 14% in industrial pipes in the country. We see also [indiscernible] growth. But we are not clear, but we believe they were generally around 4% this year.
Okay. And this was mainly led by lower demand for agri. Is that a fair understanding?
Lower demand, there is a lower demand there because where we do more [indiscernible] also. There are many types of [indiscernible] pipes that are being produced. And people are going for a cheaper quality PVC pipe. Price has gone too high.
And sir, my last question is that in the value-added product side, we've seen almost a 42% growth. Is it possible to share what has led to such a strong growth, which segments have led to this growth?
We introduced several new products in pipe. We also in [indiscernible] particularly given also on material handling, there also, yes, okay, [indiscernible] to increase the share and range of each of their products in other segments of business.
The next question is from the line of Utkarsh Nopany from Haitong.
Sir, so just to continue with the previous question. Like what we see that our pipe EBITDA per unit has gone down from INR 36 per kg in June quarter to INR 31 per kg in September quarter. Despite we have a better product mix in September quarter due to low agri pipe sales volume and favorable resin price movement in September quarter versus unfavorable resin price movement in Q1 quarter. So sir, do you see any possibility that we may have to operate at a lower margin going forward to clock decent volume growth as we are still operating at almost double the rate of pipe EBITDA per unit, which we used to clock in the past?
I don't [indiscernible]
What you say per kg EBITDA in pipe was higher in Q1 compared to Q2. We had certain inventory here in Q1 because of the low price of [indiscernible]
They cannot [indiscernible] in any quarter. The price has gone down.
I understand is that, like...
As we've said, we have not calculated way -- I don't like to give immediately to you. On Q1, Q2, I don't really try to give you what was the price relationship. I can't seem to...
Yes. Same, product mix and the pricing that way.
Sir, actually, what I wanted to understand, is basically the pipe volume growth rate on a 2-year CAGR basis, it was 8.5% in last September quarter, September 2020 quarter, which has gone down to 3.5% in this September quarter despite having much better industry dynamics. Now SPC, our EBITDA per unit has also gone down on a sequential basis despite having much better resin price movement. So I just wanted to understand from you, do we need to operate at a lower EBITDA margin to clock decent volume growth rate going forward?
This -- you say this quarter, our -- or a year going down, I'm not aware what you're asking.
How can it go down.
How can it go down, I don't know this quarter. How first EBITDA will go down. I don't do a number. I can calculate that as a reply to you. We do not jump into [ percentage ] again.
Sure, sir.
We don't have any problem with it.
Sir, just wanted to understand. The last thing from you is that whether the EBITDA per unit, which was there in September quarter, can we think that we can continue to operate at that level at least moving forward?
We have no idea what EBITDA per unit.
No, no. Directionally, we can give you -- we should improve the EBITDA in terms of percentage of purchasing. Because of the various new products or new things being introduced in the per basis getting changed on a regular basis. We are introducing new systems also in the piping segment. That also should add it.
I don't know. It should be appropriate. I can't get reply other than your [indiscernible].
The next question is from the line of Akhil Parekh from Elara Capital.
Sir, my first question is you mentioned in your comments that this is a PVC side of [indiscernible]. Even for a medium term, like for next 1 to 2 years, is this -- will this take a happy scenario for companies like Supreme and other big players in terms of the realization of growth as well as implementing margin? Just on your perspective and experience.
Basically, depletion will remain short. Over our next year, depletion will remain short. So maintain all plant, big expansion of this one, please.
Okay. Okay. But in general, we have done very well in an inflationary environment. So does that imply that we will continue to do better basically as compared to, say, smaller unorganized deals?
No. Our purchase is very large from domestic players. And they are running the plant properly. So we get adequate quantity from domestic players.
Okay. And second in the result update, you have mentioned that there is a shift in higher demand for PVC systems as the prices of the system have not gone high, compared to PVC systems. And does that imply that demand has shifted from PVC to CPVC because there has been...
You are right.
But isn't it right that the application of CPVC and PVC companies are completely different?
[indiscernible] earlier, they were buying only up to one each of opportunity pipe. Now for a large time also 1.5, 2, 2.5, 3 and 4 inch, they are simply to purchasing each of the PVC and CPVC. But it cannot all be PVC.
Okay. Okay. Sir, last question on the capacity significantly highlights segment or not so much the capacity is and where it is expected to reside now.
Snapshot, capacity.
Yes. Capacity, on 31st March '21, we had a total capacity of about 697,000 metric tons. And by end of this year, we anticipate it should be somewhere about 750,000. So 50,000 metric tons will still come into production by end of this year, additionally.
Okay. And segmental capacity?
The breakup of 750,000. The plastic pipe will be 547,000. Industrial product, 80,000. Packaging product, 88,000, and consumer products, 33,000.
33,000, right?
Yes.
33,000. Is that -- within plastic pipes, would you be able to combine it with PVC?
CPVC, PVC, we don't do separate data.
The next question is from the line of Ritesh Shah from Investec.
Sir, a couple of questions. Sir, in one of the answers, you indicated that we have increased -- there has been price increases with a lag because you want to maintain market share. Sir, I just want to understand why -- how should one place this basically, price increases with a lag? Because to my understanding, when reliance increases, prices immediately increase, prices in a core in 10 days. Is it something to do with the price elasticity? And if this particular comment, is it for any specific, is it for tarpaulin or is it for plastic piping? Sir, how should one understand this?
Tarpaulin, also, I don't indicate the price next -- same in the furniture, same in plastic pipe. We're going to increase the price net.
In pipe, we used to, but business is volatile.
Well, pipe, plastic, we generally don't indicate. But now with such a distributor increase -- our distributor given commitment to several bidders to supply in the piping systems, that will remain very difficult. So we'll take care of our market base also. And simply, in Q3 price, we can't give you an update. We are selling products. We are not selling raw material.
That's useful, sir. Sir, what is the B2B part of our sales on plastic piping?
Our B2B, B2C. We don't share B2B. We share B2B for supply [ machine ]. Upon piping plastic system, B2B, B2C.
Okay. Okay. But sir, there would be some project sales. I'm just trying to get a sense for that.
Order of share, again made by our distributors.
Okay. Okay. That's useful. Sir, secondly, would it be possible for you to comment on how much did the industry grow in this particular quarter? What I'm trying to understand is the amount of market share gains that the company would have won, given there is a large core market premium or are smaller guys finding it difficult to procure resin? So I think that's a big advantage to the company. So sir, just trying to understand on the market share gains, sir.
I think market share, we'll talk better in upgrade.
Okay. Sir, one last question, if I may. Sir, can you quantify -- indicate, which are the segments wherein we are doing more than INR 100 crores of business on an annualized run rate basis? And you also indicated on [ barter ] division around INR 75 crores of indicative business of this year, which is very encouraging. So sir, can you some -- highlight on which are the segments wherein we could be clocking more than INR 100 crores, so including tanks, walls...
As you've heard of us, we are going to close INR 100 crores next year for sure. Marginally driven, we are going to close INR 100 crores next year for sure.
Are there segments that...
As I said, our [ sole ] project will be INR 50 crore plus. Again, INR 100 crores, I can't talk INR 100 crores unless you -- INR 100 crores next year, I can't reply like this.
Right. Sir, tanks, we have been...
With tanks, we are holding. We are -- now we could talk INR 200 crore plus.
The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.
Sir, if you can just help us understand new BS norms, which has kind of got affected from 1st October. How will that kind of impact the overall market from the medium-term perspective and mostly through the unorganized test?
That will be scaled by the high court. That BS order will be scaled by the high court.
Okay. So we'll have to wait for...
Yes, we are not making, but there are so many pipe systems where we extend that. So you can't have BS [indiscernible] you can't make a pipe. There are so many systems operating in our country, but we -- until now, systems are not established.
Okay. Sir, what proportion of the Indian market would be -- or Indian pipe market would be that non-BS pipes?
As I told you, there are other pipes which should -- we should have in the -- we should have BS [indiscernible] that went proportionally different. And secondly, when there are may standards and people are making non-BS products. If I -- BS as a standard, but there are many people who are making non-BS pipe, which is local pipe and many people are buying that pipe. So We don't have a quantification of the quantum. I can't share to it. Non-BS pipe is quite popular in the country. In many rural areas, people are buying non-BS pipe only. The [indiscernible] the plant orders that it was shared by, well, I think Maharashtra yesterday. So we don't think that's largely sustainable. There are no BAs. Not about -- there are certain private [indiscernible] non-BS pipes also. We don't [indiscernible] to a larger extent.
Okay. Got that. Sir, the other thing is, in our earlier con calls, because of short supply of PVC and other things and working capital increase, there was this whole unorganized market share gains from the unorganized segment. But simultaneously also because of higher PVC prices, we are seeing down trading happening. So how would the branded players fare with vis-a-vis the non-branded or the unorganized guys during the last 6 months? Any color on that?
No. Slowly, slowly, the share of branded players will go on going but it will be slow. It cannot be dramatically shipped. But that is definitely the market share will grow and increase, it's not percentage over the period.
Okay. Okay. Sir, just one more aspect is there was a lot of demand improvement, which was expected because of the Nalge and the water projects, which the comments was kind of lifting. So 1Q was obviously impacted. But are you seeing any pickup there and that should also be a big demand driver going forward? Any thoughts around it?
The demand should come now [indiscernible] from the [ vendor ]. On any event, you can't put the pipe. You need that to put the Pipe. So the structure demand remains slow during the rainy season. We anticipate the demand lowers from November. It weaken in November to May.
Okay. Okay. And sir, just one last question. In terms of the packaging segment, volumes appear a little muted there. Was that the impact because of Silpaulin part of it with Kerala not doing well? Was that the reason or any thoughts around it?
No, no. Silpaulin demand is growing and [indiscernible] demand is also growing. Only particularly demand was not growing to the extent what we anticipate. We told you 50 per division, the growth was only 3%. [indiscernible] growth by more than 10%.
The next question is from the line of [ Shailesh ] from BNK Securities.
My questions are pertaining to Supreme Petrol. Sir, any progress on plan with regards to ABS? And also, given the tailwinds of China plus 1, are we planning to bring more products in Supreme Petrol as we have strong balance sheet and pending cash approvals?
Presently, the plan is on ABS for sure. We hope to ramp up the technology in next 4 to 5 weeks. And then we immediately put the plant [ sales ] in working progress. And there are industries are already going on for expanding capacity of [ police charging ] and expanding the EPS also. But presently, we have no plan of adding more vertical, but we'll go on growing in the existing vertical. So new vertical is going to come.
By when, sir?
New verticals now when the catalog agreement is signed, then we will announce to everybody when the plant is going to start. But as of today, the technical agreement is not signed. So they will not get to -- we cannot announce today.
Okay. Okay, sir. So also historically, we used to do EBITDA per kg at INR 7 to INR 8. But last year, FY '21, we did INR 27 per kg EBITDA due to change in demand/supply dynamics. So what is the sustainable EBITDA per kg your target in the long term?
You already know that last year delta was too high. Net delta was not sustainable.
Okay, sir. Now any long-term targets you have, sir, about INR 15?
With commodities product, you can't tell that will [indiscernible] the current number. Yes, we have seen the current product, the price swings also. And we can say that we definitely got a very lean organization, and we are cash surplus. We will not have a debt. And we will definitely are making surplus as of today on what it will look like.
So in B2C product, any further plans to expand or increase the stability of the business?
Not B2C, But definitely I said B2C, B2B. No, we don't say directly to give much.
Okay. B2B. So only distributors, any distributors we have added, sir, in the last 10 years, and what are the future plans -- in HPS business, how many distributors we have added in the last 1 or 2 years? And what is the future plan to increase the scale of business there?
I don't do -- I don't give numbers [indiscernible] in HPS now, I don't give numbers. But we are adding a distributor definitely every quarter, but I don't have a number which we can give now.
The next question is from the line of Shrenik Bacchawat from JM Financial.
Sir, my question is that in the upcoming agri season, the PVC pipe prices will be much higher than the previous season. So is that risk of agri season being impacted again, the upcoming agri season because of the extremely high PVC prices?
The only thing we expect that the farmers may reduce their purchases of large [indiscernible] we shared 110 mm, 140 mm and 160 mm. The farmers may reduce the demand for larger diameters, they may go more for expanded diameter to meet their requirement. But demand meter is right, going to be even more not less. Though the dams are helpful, farmers will like them irrigated, and this is a time where you need to place the pipes. So we don't anticipate the overall muted demand will be less, the sizes may change. Until now, we see no indication that they are not buying 110 millimeters, they are not buying 140 millimeters. We have not seen anything. Now 110 millimeters, they are selling.
Okay. And sir, as far as channel in the larger cities, previously, the larger builders used to buy pipes only from larger players like Supreme and Astral. But now as you also highlighted that they are down trading in order to save some of the cost of the PVC prices have gone up. So do you believe that in the B2B segment, the larger players have lost share to the new and upcoming players?
We have no idea. The larger [indiscernible] players are continuously -- they are my customers even today. We are not aware that they [indiscernible]. They're our customers.
Okay. So is there any drop in volumes from the large vendors?
We are not going to namedrop. Now the business is good with the other builders.
The next question is from the line of Rajesh Ravi from HDFC Securities.
I have a few questions. First, if you could talk on what was the value-added product revenue in Q2.
In Q2, value-added product was INR 758 crores.
INR 758 crores, okay. And sir, because we see the negative operating cash flow, you mentioned that you have increased the resins inventory, if I heard it right. And given that the inventory resin prices have shot up end-to-end, what sort of inventory gain is there in the 2Q numbers?
[indiscernible] give me pricing power that I don't have to give the price, and I can still supply my customers.
No, no. Inventory gain, which was booked in the...
They are not looking for any inventory gain.
No, I didn't get your answer, sir. In the reported numbers, are there any inventory gain or not, because the prices have gone up between the quarters?
We don't have any number up to September, the inventory gain.
Okay. And sir, you mentioned that prices don't go up immediately at all, and when the vendor prices go up. But that would be the trend even earlier also, right?
This time because indeed it will be very steep. I'll give you an example. On 1st December -- 1st October price went up by INR 10. And then the price went up by INR 10 a kilo. INR 10 a kilo. And still price went up by INR 20 a kilo. Then INR 20 kilo, we are going to improve it finally fully from 1st November.
Okay. So as we stand...
Certainly, we can't pass it on immediately, where it will [indiscernible] your whole marketing network.
Okay. And like, yes, in this context itself, given that the prices have shot up significantly and understand the industry is fairly consolidated and enjoys strong pricing power. But do you see any headwinds to the pricing effort in terms of passing on all these hikes, even after a lag?
We can increase the price definitely, because we get [indiscernible] of the market. We are [indiscernible].
So what is the steady-state margin you're looking at in the pipes division, at least? 20% is a fairly good EBITDA margin that you're comfortable with? Or...
Everything is very well distributed, such a big increase. But with steady state, I don't know what to talk through.
No, no, I'm not talking about the quarter and 2. I'm talking from a normal run rate, assuming things stabilize at around current levels. Is it fair to say that you can operate at 20% or 25% EBITDA margin in the piping segment?
25% EBITDA margin, I've never seen that. I don't...
No, no -- okay. No, what are the numbers you are working with?
We work only that we must get return more than 25% on capital employed.
25% on capital employed was...
That is not -- we definitely like to maintain.
Right, great. And lastly...
[indiscernible] 25% on capital employed.
And sir, on the -- in terms of demand, how -- could you throw some light on how has been the industry demand in 2Q, if you have some numbers on that?
Demand about pipes or...
Y-o-Y growth for the industry.
Well-designed pipes, demand from housing, both are maintainable, both are maintained.
So how much would have the pipes demand would have grown in 2Q? Any industry numbers would you have?
We don't share that idea on piping segment only. We were told by the local [indiscernible] commission that demand has grown more in non-pipe segment, pipe segment demand has gone lower. In previous, again, 74% in pipe, 26% non-pipe. Non-pipe segment has grown much more.
Okay. Okay. And lastly, in terms of...
As you are aware, in our company pipe system, we have grown by 9% by volume.
Correct. So -- and lastly, in terms of -- now because you sit with large amount of PVC resin inventory and prices have spiked up from there on itself. And if prices hold on, will that help you in terms of better -- higher inventory gains in third quarter?
I can't explain to you in -- unfortunately, I don't know how things are going to trend in the next 2 months. I can't say anything.
On the current pricing level, the other way around, are you -- what would be your average inventory cost which you have sitted with? Is it much lower compared to the current resin prices?
I'm paying to the high price to [indiscernible], and I'm still not increase the pricing market. Yes, [indiscernible] continue to be furthermore on the [indiscernible] on the month of October, then to increase the price only from 1st November.
Okay. And this inventory, sir, how many months, which is at the end of September quarter?
Not many months. Not much.
The next question is from the line of [ Vipul Shah ] from Sumangal Investment.
Congratulations for good set of numbers. Sir, can you comment on the composite in the business in your release? You have said that after many quarters, it has returned in the black. So can you comment regarding volume growth and EBITDA or any figures?
No, I think there is nothing just to comment on volume growth, because you see this division was lagging behind for so many years. Last 1.5 year or 2 years, no foreign visitors is allowed. No visitor, no customer chain. So what we have -- what 3 things which we can say, one is the work is well established since Q3 of 2019. And our existing customers are putting repeat orders. We are exporting to Somalia, Maldives, African countries. Domestic players have also started on. They also floated tenders and they have taken good quantities and expected to be taken with repeated quantities again. So you see it in [indiscernible] tenders and they've made the soft launch in the market. Both these things offers well. And when the Western markets opens up, definitely it will be good for the division. And now the international market is opening up, the travels have started. So we are now getting good inquiries from other countries, other customers. But you see, since it's a very low base, we really can't comment on, we have done very good growth on -- when you compare to it.
Okay. Okay. So at present, its contribution to turnover is very negligible.
Correct. Correct.
The next question is from the line of [ Nakshim Mehta ] from Crescent Asset Management.
So my question is on your inventory level. As you said that PVC resin is not available, and that's why you have stocked up the inventory. So what is our order book to justify that stock up of inventory?
First, I must correct our inventory is high, not only in PVC resins. In PVC pipe also, it is also -- contained net of gross [indiscernible] generation products, we will keep during the off-season time. So a combination of so many items. This is not only PVC.
Okay. Okay. But still...
I must tell you the impression. And second, the inventory where you had gone up because the [indiscernible] price are going up.
Okay. So there is no stock up of inventory in the sense that...
I repeat again. As of today, what we are having, we don't see the inventory gain. Is it enough to sustain our market share and sustain our business, I look up to our customers' requirement.
Okay. But as you said, mentioned earlier, that you are buying more inventory because it's not available, right?
Sorry?
You're buying more inventory because it's not available. Is that...
Yes, material are available at a high price.
Okay. Materials are available at a high price. So you mean there is an inflation, right?
The price, as I told you, the price has gone up. This month the price has gone up by INR 20 a kilo.
So are you -- how are we able to pass on this to the customer? Or is it taking a hit on our margins? How is that...
Up to a time lag of 2 to 3 weeks.
Okay. Okay. No. So are we able to pass on the inflation to the customer? Or are we taking a hit on our margins?
We are saying we are able to pass on input cost to the customer after a lag of 2 to 3 weeks.
The next question is from the line of Karan from RH Market Securities.
Sir, I just wanted to understand what kind of inventory levels are the dealer distributor sitting at, given the fact that a lot of volatility in the prices are restocking more or they are sufficient in terms of the current [indiscernible]?
Of the 1,300 distributors, I cannot say on behalf of them. But we advise -- they ask us questions, we advise them, we don't keep, unless they put more inventory. We keep only -- that will increase inventory so that customer doesn't go away empty handed. If it became high inventories, there's a big chance of looking a bit [indiscernible] also.
Just one clarification. It's only when the PVC...
Then we conclude. Even then it might be cumulatively a large inventory, but it is for them to decide.
Does that answer your question, Mr. Karan?
Yes, yes. And just one last bit from my end. It is -- sir, it's only when the PVC prices shot up by INR 10 or INR 12, we take 2 to 3 weeks to pass on. But when it is like INR 2 or INR 5, we can pass it on with 1 week's lag time. Am I understanding correct?
Normally, this price increase of INR 24 a kilo, we were passing into minimum market [ appendage ].
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
We thank you very much, and we are thankful to all the investors for their very intelligent questions. We thank you, really thank all of them.
We also thank you.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.