Aiming for higher non-agri business, PVC prices likely to be volatile, says Finolex MD Ajit Venkataraman

PVC pipe and fittings maker Finolex Industries is looking to increase its share of business from the non-agriculture segment

Polyvinyl chloride (PVC) pipe and fittings maker Finolex Industries is looking to increase its share of business from the non-agriculture segment to improve its margins, Managing Director Ajit Venkataraman told Moneycontrol. Gross profit margin for the March quarter was down compared to the same period last year but rose compared to the December quarter. Venkatraman said PVC prices have stabilised for low but are likely to remain volatile near term.

Edited excerpts :-

Your quarterly operating margin was down year-on-year, what is the reason?

We typically look at the margins per kilogram. Last year, margins per kg was around Rs 11, it has now improved to Rs 13 per kg. The drop is because of a reduction in resin business EBIT (earnings before interest and taxes). But lower EBITDA margin overall was mainly due to a drop in PVC prices.

What is the outlook for the pipes and fittings segment?

That is the most stable segment. In that, we have traditionally been very strong in the agri-segment and now we’re trying to make aggressive inroads into the non-agri-segment. The non-agri segment is a bit more profitable because it is less price sensitive. This is because pipes and fittings contribute only about 1.5-2 percent of the overall project cost so projects typically go for branded names. In the agri-segment, pipes and fittings are bought by farmers, and so it is extremely price sensitive. In the next 3-4 years, our aim is to make the agri and non-agri ratio 50:50. Currently it is 65:35.

What is your outlook for PVC prices?

If you look back 10 years, PVC prices have been fairly stable between $750 and $850 per metric ton. But during COVID 19, we saw a lot of volatility and the PVC prices shot up to almost $1,900 per metric ton. They have come down to manageable levels, but still there is a certain degree of volatility.

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PVC is used for housing and construction and there are two markets in the world which drive this – China and the USA. The China market has been hit over the last 3-4 years, and the US housing market is highly inflated right now. So, the entire world’s PVC demand is finding its way to India, and hence there is upward pressure on prices.

China is initiating various initiatives to boost the housing sector. So consumption of PVC in China would increase causing prices to rise. Also, any incidents in the Middle East may impact PVC prices as a lot of the raw materials are imported through that region.

What are your capex plans?

Our capex plan is about Rs 150 crores, which includes incremental expansion of our pipes and fitting capacity. Our PVC plant is almost 30 years old. We do a good chunk of the capex on that. We are also looking at expansion of capacity, but it's still in the planning stage. Right now, we have a total capacity of 470,000 metric tons per annum for pipes and fittings.

Are you planning to enter any new segments?

We will continue to focus on the PVC pipes and fittings segment considering the growth in agri and non-agri-business.

In agri, almost 45-50 percent of the cultivated land is irrigated, the rest in non-irrigated. With the vagaries of weather people would like to convert them into irrigated land. So there is enough headroom in India for the agricultural segment to grow.

In the building and construction segment, growth is robust, almost 15 plus percent across the country. And it is expected to grow at 15 percent compounded over the next five years. Growth in both the segments is extremely good, so we don’t want to dilute our focus.

What is volume growth in pipes and fittings segment you are expecting?

Last year we grew at about 11 percent. We expect it to be anywhere between 10-15 percent this year.

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