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Supreme Industries Ltd
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Good afternoon, ladies and gentlemen. I'm Felicia, moderator of Supreme Industries Q3 FY '23 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note this conference is recorded.
I would now like to hand over the floor to Mr. Aasim Bharde from DAM Capital. Thank you, and over to you, sir.
Thank you, and good evening, everyone. On behalf of DAM Capital, I would like to welcome all to Supreme Industries Q3 Results Conference Call. From the Supreme team, we have Mr. M.P. Taparia, Managing Director; Mr. P.C. Somani, CFO; and Mr. R.J. Saboo, VP, Corporate Affairs and Company Secretary. Over to you, Mr. Taparia, for your opening comments.
Thank you very much, Mr. Aasim. I'm M.P. Taparia, Managing Director of The Supreme Industries Limited. I, along with my colleagues, Shri P.C. Somani, Chief Finance Officer; and Shri R.J. Saboo, Vice President, Corporate Affair and Company Secretary, welcome all the participants who are participating in the discussion of the unaudited standalone and consolidated financial results for the quarter and 9 months ended December 31, 2022.
The standalone results and the consolidated results are already with you. I will give briefly on company's product operating performance and other highlights. The company sold 138,362 tonnes of plastic goods and achieved net product turnover of INR 2,284 crores during the third quarter of the current year against sales of 91,364 tonnes of plastic goods and achieved net product turnover of INR 1,895 crores in the corresponding quarter of previous year, achieving volume and product value growth of about 51% and 21%, respectively.
The company sold 359,087 tonnes of plastic goods and achieved net product turnover of INR 6,500 crores during the 9 months of the current year against sales of 265,301 tonnes and net product turnover of INR 5,106 crores (sic) [ INR 5,148 crores ] in the corresponding 9 months of previous year, achieving volume and product value growth of about 35% and 27%, respectively.
Total consolidated income and operating profit for the third quarter of the current year amounted to INR 2,319 crores and INR 331 crores as compared to INR 1,948 crores and INR 359 crores of the corresponding quarter of the previous year, resulting in consolidated income increase of about 19% and operating profit decrease of about 10%.
Total consolidated income and operating profit for the 9 months of the current year amounted to INR 6,622 crores and INR 824 crores as compared to INR 5,227 crores and INR 985 crores for the corresponding period of the previous year, resulting in consolidated income increase of about 26% and operating profit decrease of about 15%, respectively.
The consolidated profit before tax and profit after tax for the third quarter of the current year amounted to INR 273 crores and INR 210 crores as compared to INR 314 crores and INR 246 crores for the corresponding quarter of the previous year, resulting in decrease of around 13% and 15%, respectively.
The consolidated profit before tax and profit after tax for the 9 months of the current year amounted to INR 647 crores and INR 506 crores as compared to INR 823 crores and INR 645 crores for the corresponding period of the previous year, resulting in decrease of around 21% and 22%, respectively. The business scenario of all the product segments of the company for the third quarter of the current year ended December 31, 2022, as compared to the corresponding quarter in the previous year has been hedged under.
Plastic piping system business grew by 82% in volume and 31% in value terms. Packaging Products segment business degrew by 12% in volume and 7% in value terms. Industrial Products segment business grew by 20% in volume and 24% in value terms. Consumer Products segment business degrew by 5% in volume and 9% in value terms.
The overall turnover of value-added products increased to INR 826 crores during the third quarter of current year as compared to INR 665 crores in the corresponding quarter of previous year, achieving growth of 24%. The company has total cash surplus of INR 687 crores as on December 31, 2022, as regard cash surplus of INR 518 crores as on March 31, 2022.
Business outlook. Plastic Pipe system business profitability continued to be impacted due to foreign PVC prices until November 2022. December onward, PVC prices have started upward March. The low prices of PVC, along with the destocking by the retail chain, improved business substantially in December. Pipe system prices, in spite of increase in PVC prices, remain affordable.
Demand from housing, agriculture and infrastructure is quite improving. The company achieved 51% volume growth in third quarter on a lower base of corresponding quarter in the previous year, as huge destocking took place in third quarter. For 9-month period ended December 2022, piping business has witnessed volume growth of 48%, which is quite encouraging. PVC prices, which had dropped by INR 66 per kilo, that means 45% up in this year till November, has recurred again by INR 15 per kilo since then. It looks that price of PVC will remain end bound, which augurs well for the business. The company expects to maintain a growth momentum with increased end of system, which are commissioned in this year along with affordable raw material prices.
New greenfield project for plastic piping system at Erode in Tamil Nadu has commenced commercial production from December and there will be some delay. Upcoming facility at Cuttack in Odisha has [Technical Difficulty] production in this month. Our brownfield expansion of capacity and range of products are working smoothly. The company newly introduced olefin fitting and pressure piping system are getting encouraging response from market and poised for good growth in time to come. The company's launched cable sealed conduit system in this month.
With all the above projects and expansion in place, company expects to achieve volume growth in excess of 35% in this segment for this year compared to previous year. The cross laminated film division has introduced many new better products and was successful in acquiring customers by entering in 4 additional countries. This division expects volume to be around the same level of previous year with improved profitability.
Industry component division is doing reasonably well. The division continues to expand its customer base to optimally use its production capacity. Business of home appliance and white goods, which constitute the largest share of the division, is seasonal in nature to some extent, and is likely to improve further with diversified customer base and acquisition of new businesses.
The division has also received letter of intent of about INR 45 crores for supplying electronic working unit component and VVPAT in addition to the earlier order of INR 76 crores. Material Handling division continued to expand its customer base and product portfolio. Business of injection and roto moulded pallets is doing well. There's good demand forecast from soft drink bottlers, which would further help the division to optimally use its production capacity.
The furniture division has done well during the first 9 months of the year, where its turnover has grown by 13% value and 8% volume of corresponding period of previous year. This division has also witnessed steep fall in polymer prices leading to improved operating margin. Company is focused to add further several varieties of premium products in this business.
In Composite LPG Cylinder division, the existing production line is running at full capacity and primarily catering to the orders issued from Indian Oil Corporation. Commissioning of the new land, doubling the capacity is completed and expect to start full production from beginning February. Protective Packaging division is putting its continuous effort to remain in the business growth path, all products across categories in the division, asset quality and value for money.
The division is closely working with customers and with us and developing new applications for variety industry, keeping their needs in mind. The division is focused to grow in volume, do value engineering and adopting new technology and manufacturing to drive improved profitability. Continuous growth is witnessed in defense, export and insulation business.
Performance Packaging Film division is working extensively on developing specialized structure film to meet newer application and customer requirements. Efforts continue to enter new category in export market and increase the customer base, which is providing fruitful with better realization and profitability.
The division is also exploring expansion opportunities. The complete CapEx plan for the year 2022, 2023 of about INR 700 crores, including carryforward commitment of INR 280 crores is progressing with a little delay from the initial schedule. New greenfield plants at Guwahati in Assam, Erode in Tamil Nadu have gone into commercial production, and plant at Cuttack is likely to commence production in February 2023.
Entire CapEx is being funded from internal resources. The prices of various polymers being used by the company, particularly polypropylene, low-density polyethylene and polyvinyl chloride have witnessed upward trend in the recent past after reaching the bottom during the current year.
Prices have gone down earlier between INR 41 per kilo to INR 66 per kilo since the beginning of the year until November, that is a reduction between 28% to 46% before rising a bit during December and January till now. Most of the fall was in PVC resin, which also resulted in substantial inventory losses, part of which is recovered during December and expected further recovery in the last quarter of the current year. The company is hopeful of achieving good business growth, both in volume and value for the year.
This is a brief and overall summary for the quarter ended in 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 asked by all of you. Thank you very much.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Rajesh Ravi from HDFC Securities.
Yes. Hello, sir. Good evening, everyone. And congrats on strong volumes in the Pipe segment since demand is quite good in this segment. Sir, am I audible?
Yes, you are audible, sir.
Great. Sir, could you quantify how much is the inventory loss booked in the third quarter? You said there is a partial recovery. But on a net basis, what is the impact?
In the first half, it was INR 230 crores. Then I think again since there was no proper margin, so some money we might have recovered. Maybe we can't quantify today. But some profit definitely, we recovered it in the month of December.
No, no. What I'm asking is in Q3 numbers, are there any inventory losses beyond 1H?
Q3 number only I'm talking. In Q3, in first 2 months, we again lost money. Only in the last month, we recovered money, which we can see that our operating margin should remain below. What was the operating margin in this quarter -- last quarter, of plastic piping?
Last quarter plastic piping was 12%.
In quarter 3, our plastic piping margin was 13.49%. We believe it was definitely 2% lower.
Okay. So the inventory would have -- okay, has this inventory loss not been there, it would be close to 15.5%, right?
You are right. Yes, correct.
Okay. Great. Great. And given that now prices have jumped from the November level, at least inventory losses are behind for the industry?
Not totally behind. We believe that we will get some inventory gains. And losing money, we have imported raw material where we lost quite heavily. In this quarter, we will gain something from our import consignment, which is going to come.
Okay, okay. And on the company level, what is the effective tax rate, sir?
Normal tax rate is 25.17%.
Okay. Okay. And sir, any guidance outlook for the volumes and margins, say, Q4, how is the demand looking up? What could be the drivers, Q4 and FY '24? And similarly, on margins, what sort of -- on margin, any outlook?
FY '24, we will talk in April. For this year, full year, we anticipate our operating margin will be 12.5% plus and our volume growth will be around 25% for the...
Full year, 25%.
For the full company.
Okay. 25% volume growth?
Last year, we sold 393,908 tonnes. This year, we anticipate 25% volume growth for the full year.
Okay, 25%. So last quarter, you're building in slightly muted volumes is what I can understand. Okay. That would mean that Q4 volume should be flat -- similar to Q3 numbers, if I work backwards. Hello, am I audible?
Yes, you are audible.
Yes. So what I'm saying that when I look at 25% volume growth for full year, Q4 volumes appear to be flattish quarter-on-quarter and some 6%, 7% higher year-on-year.
Q3 numbers are very good.
Correct. Correct.
Q3 numbers are best along with the Q3 of last year. Last year, Q3 was unexceptionally very poor.
Yes. No issue, sir, I think that still is good. So on the CapEx front, this INR 700 crores CapEx, how much is spending for Q4, to be spent out? And what is the outlook for next year in terms of what sort of CapEx company would be looking forward to?
We'll tell in the month of April.
Okay. And how much...
This year, our commitment continues. End of the year, we will inform you total commitment made by the company. But to commit, INR 700 crores is commitment by the company, including INR 280 crore carryforward. When we say commitment, it doesn't mean that everything will arrive by March 2023, some may come into next year.
Okay. Because first half, your CapEx outgo as per cash flow statement was INR 240 crores, which is every half year, the run rate continues between INR 200 crores to INR 250 crores. So that run rate would continue in the second half.
It would continue in a similar way.
Okay. And sir, one last question. The working capital days that you report in the presentation. What is the calculation behind that? Because when we do our working capital numbers, debtors, inventory and payables, they don't match with your numbers. So where would we be missing in terms of calculation?
See, mostly the other items and excluding the cash in bank.
Your next question comes from Udit Gajiwala from YES Securities.
Sir, given the robust growth that we have seen, and you mentioned that the PVC prices started to move up in December, so sir, could you quantify that when did the dealer restocking commence? And what are the inventory days with the dealers now versus in the previous quarter?
That, we don't keep a track of the inventory in general, but definitely, dealers started restocking. And even coming forward after beginning February, the full season starts and the demand remains middle of June, very strong. So we believe that this may only increase the inventory so that they can service the customer.
Understood. And sir, could you quantify the demand driver, primarily where is it coming from? Is it rural economy that you are seeing? Or is it the plumbing end?
Demand was coming quite strongly from the agriculture segment also. So rural economy, we keep a track only each of the segment, while the demand was quite robust in the month of December.
Understood. And sir, like you had mentioned that your FY '24 on your TV interview today, you said that you are targeting for INR 9,000 crores top line. So is that figure right, so the balance would come in Q4?
We are talking FY '23.
Yes, sir, FY '23.
'23, we anticipated our turnover will be INR 9,000 crores plus.
[Operator Instructions] Next question comes from Ritesh Shah from Investec.
Sir, my first question is, can you please give us some indication on agri versus non-agri mix? And how it has moved on a year-on-year basis? That's the first question, sir.
With regard to your first question, there is no way to quantify because in India, agri pipe, our so-called agri pipes are used in housing also. So this is the same reply I give in every quarterly meet and this is the reality of business.
Sure, sir. Sir, would it be possible for you to share some trends on the CPVC volume growth?
We had a growth of 32% in 9 months.
Okay. That's encouraging. And sir, just one clarification. When we give volume growth when it comes to pipes and fittings, this does not include any residences, right?
No, no. We are talking plastic product.
Next question comes from Abhishek Ghosh from DSP Capital.
Sir, can you just help us understand what is your current capacity and post the commencement of the 3 units that you have spoken about in Tamil Nadu, Odisha? What would be your capacity looking like?
You see, our capacity at the beginning of the year was close to 725,000 metric tons. I'm talking of the company as a whole. At end of the year, it should be somewhere it's like 15,000, so about close to 90,000. Some capacity will be increased with 3 new greenfield plant and other brownfield expansions. Obviously, the volume capacity increased in Plastic Piping division only.
Correct. Okay. So all of these 90,000 tonnes, part of it has come up in December, the residual will come up over the next -- in the current and the next month, right?
Yes, you are right.
Okay. And sir, how should one, given the demand scenario in the East and South -- Southern Belt, how should one expect the ramp-up of this capacity which is coming up over the next 12 to 18 months?
We are spread throughout the country.
Sir, just referring to this new capacities which are coming up, depending on your past experience, over the next 12 to 18 months, can it reach to a 40%, 50% utilization? Is that a fair estimate?
Not 40%, 50%. Overall, we will achieve -- this is new capacity. New capacity coming only in the middle of the year. Some capacity may come in this quarter also.
This 12 to 18 months, what he's asking for, yes, you are right, it has been far better what you call, 40%, 50%, if it goes 60% plus utilization.
65% normally we achieve.
Okay. Got that. Sir, you have also mentioned about this in the cross-laminated films. You have come out with new products and you're also looking at additional countries. So how are the prospects in this segment?
This year, the business will show hardly any growth. But next year, we are quite optimistic with our business in moulded item and in export market will show good growth. We've got quite a good capacity lying idle. We'll be able to put better utilization of capacity next year.
Okay. Okay. And sir, just one more thing. In terms of the Performance Packaging division also, you've kind of looked at those special structure films for newer applications and you're also evaluating expansion opportunities. So how should one look at this segment's prospects?
This segment, our capacity is very small. We can produce only 12,000 tonnes per year. We are evaluating this capacity and where we put up the -- up till now, we have not taken any decision. Once we take a decision, we will convey to all our investors.
Next question comes from Bhargav Buddhadev from Kotak Mutual Fund.
Sir, my first question is on how is the competitive scenario in the domestic market for cross-laminated films? We believe there were a few competitors who had come up with lower-priced products. How is the scenario now?
Scenario of what?
In terms of competition.
Now they are selling in kilograms because in the market, the quality was found quite inferior. They only offered blue pallet product, which didn't perform compared to our product quality.
Okay. So are we seeing any improvement in terms of pricing over here, given that those competitors are exposed on their product?
Yes, we are pricing product correctly.
Because our margins are in this segment continue to remain in single digits. So are we confident that we will see recovery?
Margin single digit? No, I think margins are in 2 digits.
No, no, overall packaging business, I'm saying EBIT margin.
Overall packaging, there are too many -- 3 segments. So when you see, cross-laminated film, it is in double digit.
No, sir. For the overall packaging business, are we looking at margin recovery possibly in FY '24?
Yes, sure. You see our Protective Packaging division, which also constitutes a good part of the business in this, is working on various product developments, new applications. So in the division, yes, we should shoot double digit definitely in '23-'24.
Okay. Secondly, sir, if you look at the working, it's right about 36 days versus 30 days in FY '22. Possibly, this -- on account of higher inventory is due to volatile RM prices. But as RM prices stabilize, are we looking at working capital coming back to normal?
Yes, yes. It should. To some extent, the growth in business, we'll require more working capital, obviously. But yes, the level it is at, it should definitely come down.
And lastly, sir, on the value-added side, you mentioned CPVC had 32% revenue growth. Are there any other things, which you want to call out, which have done well?
There are many product of value addition, not only in plastic, piping and other division also. So overall, as we stated, our value-added business has gone up to INR 826 crores in third quarter compared to INR 665 crores in the previous year same quarter. So there was 27% value growth in the value-added item. It came not only from plastic piping, it came from other divisions also.
[Operator Instructions] Next question comes from Pranav from Equirus Securities Private Limited.
Sir, I wanted to understand and know about your thoughts on how the PVC prices are expected to move going forward because as we understand globally, still the demand continues to remain challenging, and India remains in a bright spot. So is there a possibility that imports might see dumping coming from a lot of other countries, which are big exporters of PVC because of which going forward, there is a possibility that prices may correct?
No. We believe PVC prices have gone down too much so that can be corrected. It went down up to $650 from $2,100 internationally. And now it has come up to close to $950, $960. So that overshoot when there's a big cycle change. But now after all, considering the cost position, we believe the prices are in range bound, considering those are up and minus we cannot say. But we don't see much upside also with the world economy not in great shape, but downside also due to cost push.
Next question comes from Sailesh Raja from B&K Securities.
My questions are pertaining to Supreme Petro. Sir, so much of styrene monomer capacity has been created in China and a lot more capacities to get added. But still, the prices of styrene are very volatile. If you see last 6 months from $1,250 per tonne went down to $950. Again, now it bounced back to $1,250 per tonne. So by when do you expect the styrene prices will stabilize, sir?
Styrene prices will always go and remain always volatile. But the bulk created from China to India is still at an elevated level. Earlier it was $110 per tonne, but now also it is $80 per tonne, whereas solid material can come at $30. So bulk shipping, yes, for liquids are still quite high. But fortunately, quite a good capacity coming at China, that will give a good support to our company for procuring our requirement of styrene monomer.
Okay. Okay. Sir, can we expect this EBITDA per KG to sustain above INR 20 for this year and the next year? Because 9 months, we have done INR 22 per KG.
For which INR 20?
Overall EBITDA -- overall, sir, for the company, EBITDA per KG, we have done INR 20.
Supreme Petrochem, that they will reply you the effect.
Sorry, sir?
Supreme Petro will tell you correctly.
Okay. Okay. Sir, how is the demand -- current demand scenario, sir, now?
Demand, there is quite a good demand.
Okay. Sir, by when do you think the new expanded capacity will be fully utilized? Sir, the last 2, 2.5 years, we didn't focus on exports. And also, can you please guide us how much we are targeting in exports in this year and the next year, sir?
Our capacity of polystyrene has gone up to 300,000 tonnes now. And we believe that we may export some 30,000 tonnes, 40,000 tonnes polystyrene next year. And if we are running at maybe 80% capacity, 200,000 tonnes, we'll be able to sell in India.
We have a follow-up question from Ritesh Shah from Investec.
Sir, just one question. There have been murmurs on the street about new management been indicated. What we see is there is a new HR head, which has come in. Just wanted to sir understand the thought process of induction of senior management. Is this something ongoing? How should we look at it? That will be very helpful, sir.
We have appointed one HR head.
Yes, sir.
He is now functioning very well starting from 1st of August.
Right. Sir, are we looking at further induction at the top level basically, given the company is growing and manufacturing facilities are also expanding. Are we looking to strengthen the...
We are having leadership development among our organization.
Okay. Sure. And sir, would you be able to provide some color on our recent launches on cables, electrical side and specifically on the cylinder side, how things have been actually progressing and industrial valves as well, sir?
They have been launched only in this month only. So I have nothing to tell you today. Industrial valve and cables have been launched this month only. So it's too early to give any color about that, but we anticipate good demand growth coming from both the products.
Sir, would it be possible for you to quantify the size of the market that we are looking at over here? And what sort of competition will be over there?
We will be conveying you on this in the month of April.
Next question comes from Ahmed Mandasoor, an individual investor.
Sir, there is -- as per your management presentation, there is a capacity of extruded polystyrene, which we're expecting to come up by March '24. So sir, is that on track? Or has the capacity building started?
Extruded polystyrene?
Extruded polystyrene boards.
No, that has not come up still in production.
Okay. So are you expecting it to expand by 1 lakh cubic meters by FY '24?
Yes, I think they will be able to reply you properly.
Next question comes from Rahul Agarwal from InCred Capital.
Sir, first question was, what could be the top 2, 3 reasons for PVC resin prices to go up?
Very good question. Some plant went through difficulty. And so there was tremendous shortage created because no new capacity came up. Some existing plant went through difficulty, some existing plant in U.S.A. which were big suppliers. They went on expansion, so they also closed their operations. Particularly the demand for PVC, we have never seen such a swing that prices went up from $700 to $2,100 and then came down again back to $650. Upwards, when it started from April, May 2020 and continued up to October 2021. November onwards, the prices started falling.
Sir, I was asking because of this December up move. The reason for that also was some plant shut down globally, is it?
Plant shutdown and somewhere we had cost pressure, then they felt not worth of producing PVC.
Okay. So that plant.
Prices dropped so severely that many suppliers found that it is not worth running and making PVC full capacity. It's a normal particular cycle.
Got it, sir. So that plant is now already functional?
Perhaps, by and large running. In the world, there are very good huge plants. They have 45 million tonne capacity to produce. So some plants will always be maintenance or some plant may have some break down. But overall, supply is adequate nowadays.
Got it, sir. And sir, the last question on packaging. The volumes actually degrew in third quarter by 12% Y-o-Y to 145,000 tonnes. Any specific reason for this?
Partly due to fall in demand for cross-laminated film product.
But I thought, sir, our products are better, then why the demand is going down?
Okay. But there are so many good lookalike products there in the market, selling at 30%, 40% lower than our price. No quality. That will come back now.
Okay. Okay. Got it. So next quarter, we should see some improvement. That's what you're indicating, right?
Yes, for sure.
[Operator Instructions] The next question comes from Sonali Salgaonkar from Jefferies.
Sir, my first question is, with PVC prices firming up, do you foresee the risk of affordability getting impacted? Because we are seeing very strong volume growth throughout this year, that's FY '23, the first 9 months, especially because PVC prices have corrected, which has led to increase affordability. Do you foresee that to reverse?
Do you foresee the reversal of prices?
It may not go back to the same level of 72 -- within country, we are getting at INR 72 a kilo. We don't see that's going back to INR 72 a kilo. Our procurement cost has gone up from INR 72 today to INR 90 a kilo. It came down from INR 160 a kilo to INR 72. Now currently it is INR 90. We do not see any reason for prices to come down from INR 90 to INR 72.
So that's what I'm asking. If the prices stay firm for PVC, do you foresee the affordability to get impacted?
No, small changes in pricing and volume is going on taking place. So that is a part of business. And for 2 years, it was significant price rise and significant price drop. That's where PVC came in limelight.
Okay. Got it, sir. On the demand side, are you seeing any weakness in the real estate or construction demand in Q3? You did mention that agri was very strong. But do you -- have you seen any weakness in construction demand?
We are seeing good demand coming from agriculture, housing and infrastructure, all the 3 segments.
Next question comes from Keshav Lahoti from HDFC Securities.
I just wanted to check one thing. Last time, you mentioned that your capacity will increase by net 60,000. Overall, it will be 80,000, but a plant from Maharashtra to Erode will transfer by 20,000. But this call, you have guided your capacity will increase by 90,000. So what is the reason for the same? And what will be your capacity segmental-wise in FY '23 end?
Yes. Capacity realignment with the Erode, et cetera, we have put up the new lines also. We have funded the capacity for the plastic water tank. That's why overall for the current year, the capacity increase is better and now visible. Everything will be in production by end of February, mostly. For segmented capacity for the end of March '23, which is close to like 815,000 metric tons, the measured will be in the Plastic Piping system 610,000 tonnes; industrial product, 83,000 tonnes; packaging product, 90,000 tonnes; and consumer product, 30,000 tonnes.
Okay. Understood. Sir, why PVC resin prices have pulled off from INR 160, INR 170-odd levels to INR 90 level? Do you think now there would be some demand impacted of CPVC?
For CPVC, as we told, we have seen a growth of 92 -- 32% in 9 months. And CPVC demand is going in the plumbing segment. Also, it continuously -- requirement continues. So we don't see any demand downside also. We don't see a downside.
Okay. One last question from my side. Again, I'd like to ask you on resin prices. Is it fair to assume that resin prices will settle at INR 90 level? Or do you think the volatility will continue in this?
In all the polymer prices, not only PVC, all the polymer prices, volatility remain. In all commodity products, prices will always remain volatile. But if the volatile is only INR 3, INR 4 a kilo, minus or plus, doesn't make much difference. It was severe, so PVC came in limelight. It went up from INR 70 to INR 160, and then came down to against INR 72. Otherwise, there is nothing great now. It normally happens in our business. Now it is a normal business cycle.
We have a follow-up question from Rajesh Ravi from HDFC Securities.
You mentioned in the earlier question, the pipes plastic capacity is now increasing to 610,000 tonnes by year-end. And even if I do 25% volume growth, you would be closing the year with close to 5 lakh tonnes of volume for FY '23. And that would mean you will have a good amount of capacity surplus for the next 2 to 3 years. So just wanting to understand, how would that impact or will it lead to a slower CapEx program for you for the next 2 to 3 years, and you will focus more on asset searching?
So dear, you see the capacity what we are talking is installed capacity per annum. If you have observed in the past, our utilization remained around 65% or so. For example, if we have 800,000 tonnes capacity, then if you go at 65%, then you require further capacity because the number of SKUs, the items, the change of product lines, it requires a lot of...
And not throughout the year.
And demand is not even throughout the year. So we have a very tight working capital measurment in the company. So we don't create inventory beyond in all the parts. So all put together, capacity utilization cannot be or will not be more than 65% to 70% for the rest. So apart from that, we also need to expand geographically to make our product more reachable to the various parts of the country.
Okay. And which of these geographies reach up -- which markets do you believe that your reach is still not to the optimum level that you expect to proceed?
We believe we have to explore throughout the country. There is opportunity for us throughout the country. There are 6,000 talukas in our country. Every state, there are many talukas where our product is not found.
Okay. Understood. Sir, in terms of macro numbers, do you have any view on how would have demand been shaping up in FY '23 for plastic pipes, more so in terms of PVC and CPVC growth for the industry this financial year?
Overall for the country, this year, we are told by the raw material makers, the country may see a growth of 21% by volume. And we are saying, it will grow by 35%. Currently, ours also will grow by 21% by volume. The country has a degrowth continuously for last '20-'21 and '21-'22. This year the country has entered into a growth path.
Sorry, you mentioned that Supreme will deliver 35% volume or 25% volume growth?
We anticipate that we will grow 35% plus -- we will grow 35% plus in the plastic piping system...
In the plastic piping, right?
Whereas the country is expected to grow by 21%.
Okay. Okay. Understood. And anything on the CPVC, similar numbers. What sort of volume growth the industry is looking at?
CPVC, we can tell you about our company. We have grown 9 months at 32%. And the country growth may be around 240,000 tonnes.
Okay. And this 32% growth is volume or revenue for you, sir?
In volume.
In volume terms, okay. And going forward, are you expecting that with prices softening compared to the volatile numbers earlier, the agri market should open up big way and that is where the volumes can remain buoyant for next financial quarters?
The price change will -- demand will remain buoyant coming in the peak agri season, that is in April and May. If nothing happens -- agri pumps because the prices today are down by 20% compared to last year January. Vinyl product sharing price is 20% lower than last year January. So it has become very affordable to the farmers.
Correct. But what we understand is that the sales, rural or agri sales have relatively much lower margins compared to the plumbing sales. So would that mean that while volume numbers for the industry may look up, margin profile for the industry and major players may taper down?
Margin will remain normal. In the pipe -- for farmers, pipe prices are always kept low.
Correct. So blended margin, will it be impacted? I'm just trying to understand...
We don't make only agriculture pipes. We make varieties of products. I am saying that housing is bigger than agriculture.
Any ballpark breakup, sir? How much would be your housing sales or plumbing sales as a whole?
Breakup, we do not know because our agriculture pipe is used for housing also.
Okay. Great. Lastly, one more question. This Meghmani Finechem CPVC resins, which is now getting available in the market, and next year, DCW resins would also come in supplies. How would they change the CPVC dynamics?
The requirement of import may go down.
Okay. But would it also bring in more players, more CPVC pipe manufacturers in the market?
Yes, there are already many are there.
No. Why I'm saying this is currently, the resin supply is well concentrated and few have only -- this is more of a more moat sort of thing. And hence, the pricing of CPVC also remains celebrated. So can that see a risk?
We don't see that. After all CPC supply was not a problem starting this year. The problem was that in previous year due to the plant shutdown of Kaneka, there was -- now this year, starting from April, there was no problem in supply.
No, I'm not talking about Supreme, sir. In general for the industry because we have a...
I am saying the industry as such. There was no problem getting CPC resin, nothing. If the local process may come up, then it will get extended and imports will go down.
Next question comes from Sujit Jain from ASK Investments.
Sir, if I look at your volume growth 5 years here, from FY '14 to FY '19, it was 8%. Of course, this was a sluggish real estate period. Over the medium term, 5 years hence from today, let's say, FY '23 end, what kind of industry level volume growth one can expect?
For which segment?
For overall piping segment?
15%, our company should grow.
15% you are saying?
1-5 percent volume growth should go, next 5 years, yes.
And that is mainly on the back of housing demand, that is plumbing pipes, is it?
Housing, infrastructure, agriculture, all segments.
Okay. And what would be your normalized margins at the company level overall now that the inventory gains losses are out broadly?
That should be around...
15.
Between 15% to 16% in normalized level.
Okay. And in terms of your dealer distribution network, where that number stands today?
We go on increasing our reach. We go on increasing number of distributors and dealers. Overall, we are nearly 4,000...
4,373.
Okay. That is a distributor number. And in terms of dealer?
See dealers, for each segment, we have got different number of dealers. In piping systems, it is more 70,000 dealers. And the business, our distributor as well as dealers, we looked really to more than 200,000 -- 150,000 retailers. Overall, we don't keep -- I don't have numbers to just tell you. But distributors, many of them sell to many retailers.
So penetration-led growth will not be there for Supreme because Supreme would have reached to most of the distributors and dealers in India?
No, it's not the case.
I don't want to...
Reach wise, you see India is a large country. As mentioned in earlier call, the answer is, India has more than 6,000 talukas. There are many talukas where we are not there.
We are very clear that we are not present in all 6,000 talukas. But we are present in many areas, that's why our sales are the highest in the country.
This 4,300 number can potentially go to what, 5,500, 6,000?
No, we don't keep any limit. Out there, there are 6,000 talukas, and then we have got several products, which are sold through distributor network, not only plastic piping system, our furniture, our tarpaulin, our material handling system, our protective packaging product. So we will have many, many more number of family members going to be aiding.
Right. And did we hear it correctly when you spoke about CPVC demand in India at 240,000 tonnes?
Around that, yes. It is restricted only to plumbing. But it's a small segment only.
Right. All of your competitors are entering into bathware and faucet-ware segments. Supreme has not done that. What is the strategy?
We are already there. Our brand is very strong. AquaKraft brand is very strong.
Not metal faucet-ware, you are there in plastic faucet-ware. So would you in future look to...
We have got -- as on today, no plan to go to metals. When we will have planned, we'll inform to all our partners.
Right. And one last question. Capacity is coming up in the East. You've put up capacities there. You still have to put up capacities. If in one particular region, large capacities come up, would it impact the sales in that particular region?
For any reason, we've got still reach only in 12 states, 29 states are there. So we have to reach in many, many more states. Today, we are operating 20th plant. And we'll be opening new plants in new location, which we will convey in the month of April.
What is the potential of fittings revenue per annum eventually?
If you make good quality product, you can go and sell it.
And one last question. Your reason wise split of your volumes in piping division, North, West, East, South?
We are present throughout the country.
But any percentages you would like to give us?
I don't have the number before me, so I cannot give you -- I don't want to give you a wrong number.
But is it West and South heavy? Is it West-North heavy for the company?
I say we share throughout the country.
[Operator Instructions] Next question comes from Venkatesh B from Axis Capital.
Most of my questions have been answered. Just a very simple question. I know it is still early days. And after the full year numbers are over, you look at next year FY '24. But as of today, given that you will do almost 25% kind of volume growth in the current year, can you do double, more than 10% kind of volume growth next year? Is that a possibility?
I think we can. Still, we may grow 15% next year.
15%, okay, okay. And if raw materials do not fluctuate too much and if PVC prices remain where they are, we should be in that 15% to 16% kind of EBITDA margin band?
We hope so.
Next question comes from Utkarsh from Haitong Securities.
Sir, based on the current demand environment, can we expect to clock more than 20% volume growth for the pipe segment in the current March quarter period?
Sorry, say it again?
Based on the current demand environment and the resin prices, can we do more than 10% volume growth on a year-over-year basis for the Pipe segment in this current March quarter period?
For this January-March?
Yes, January to March, sir, versus previous January-March, sir.
We'll do more than 10%. We'll do more than 10%. Last time, our capacity was based on 97,000 tonnes. We'll do more than 10%.
Okay. And sir, like you have mentioned the volume growth for the CPVC for the 9 months. Sir, can you also quantify for December quarter?
[Operator Instructions] I welcome back the management team. Please go ahead, sir.
Sir, I was asking for the CPVC volume growth for December quarter period only, not for the 9 months.
We don't give numbers before -- for the December quarter alone.
Okay. And, lastly sir, how is the competitive scenario in the pipe segment at the moment? Whether the small and the midsized players have become more aggressive in the market after easing of the PVC resin supplies in the domestic market?
We don't compete with those players. I have no view on that. We only know that our growth is 30%, 35% and the country growth is 25% -- 21%. So our share has mostly gone up. And because we are introducing several new varieties of product, there's also -- basically, it is a better growth for our company.
Okay. Sir, lastly, like our number of pipe distributors or channel partners actually came down from FY '21 to FY '22 as per the annual report. Just wanted to know whether in this 9 months of FY '23, have we done any addition of pipe new distributors? And what would be that number?
I don't think any new numbers. We are mentioning same numbers, 1,320, 1,320, I think because overall 1,320, 13 -- now 1,319. And it was 1,250 on March 31, 2022. So we have added 69 distributors.
Next question comes from Nikunj Khanna from ASK Investments. The next question comes from Niraj Shah from Arihant Capital.
Sorry, if the question is repetitive. Just wanted to understand first thing is the rural demand, how do we see the rural demand right now? And secondly, what would be our view if China opens up and then what would happen to the raw mat pricing scenario over there if China opens up? Because I believe imports would increase from there. Just these 2 questions.
Two questions on rural segments. We introduced -- in rural area, we have 2 items, that is agriculture pipe and our cross-laminated film for various agriculture applications. In both the segments, we are seeing good demand coming from rural sector. Coming to the second point, we believe that China is now in between strong restriction on COVID movement, and China economy opened up. From 30th of this month, when the China opens, the market expects the polymer prices may harden. And it continues request -- China has continued to import raw material, there is no material to run the plants. We are -- and PVC, at least, we are too much dependent on imports. Our 60% of our requirement has to come from imports.
Okay. So you're expecting prices to go up?
May go up, it shall be seen, not much. There is no reason for price to go up too much also and too much down also. Some small change will always take place.
Okay. And that would be towards the end of the current month, right?
Sorry?
As you said, China will be opening up towards the end of the current month?
There the New Year Lunar already there. It will close by 27th. So the China will open fully from 30th, that is Monday. And we expect is that all polymer prices in domestic market in China will harden because the demand will open up very nicely up to the Lunar New Year. This is the market expectation.
But nobody can say. I can't predict particularly what will happen in China. If they supply more material in India, they are welcome. We are short of PVC in end demand in the country, and China is a big supplier.
Thank you. That will be the last question for the day. Now I hand over the floor to management for closing comments.
Thank you very much.
Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening, everyone.
Thank you, Prakash-ji and everybody. Thank you very much.
Thank you, sir.