Analyst Meet / AGM - Analyst Meet
FY 19 has been a year of demand not meeting the expectation
The company had its analyst meet on 7 Mar 19 and was addressed by Mr. Anil W CFO
Key Highlights
The company imports its key raw material i.e. EDC. Forex fluctuations does not affect as its pass through to the customers.
EDC PVC delta is currently around 550 US $. Difficult to predict as EDC prices have become volatile due to increase in chlorine prices. Aluminum production is lower which has resulted in many companies worldwide producing lower chlorine which is used in production of aluminum. Thus lower availability of chlorine is affecting EDC prices. Higher the aluminum prices and production, higher the chlorine availability and lower the EDC prices. That's the thumb rule.
CPVC would continue to remain around 5% of total sales going forward as well.
The company will continue to expand its pipes and fitting capacity by around 10% every year. So roughly by FY 19 the capacity will inch up further to 3.7 lakh tons from around 3.3 lakh tons currently.
The plant has sufficient capacity till 4 lakh tons. After that the management may think of green field expansion. Current utilization is around 2.65-2.7 lakh tons.
No expansion in PVC resin business.
The company will continue to invest around Rs 100 crore in capex every year on expanding pipes and general maintenance capex.
The company has sufficient in-house power to meet the future expanded pipes capacity as well.
FY 19 has been a year of demand not meeting the expectation. The year started with high expectation from rural side, but is ending up on a disappointing note. After growing strongly in H1 FY 19, H2 looks like more of inventory correction and low demand which otherwise is seasonally strong period.
Lot of reasons for the same. It is uneven monsoon, rural income distribution lower than expected, delay of sugar cane prices in hand of farmers of Karnataka and Maharashtra where company has a strong market share, inventory corrections etc. Demand surely has improved in Feb and Mar compared to Jan 19 and Dec 18 months, but still not near to what otherwise would be a double digit volume growth.
Baring this FY 19, management still believes that the pipes and fitting demand will grow by around 10-12% every year.
Around 70-75% of total pipes sales is towards agri division and rest is towards non agri side. The management is increasing its reach and presence in non agri side. It has a strong rural distribution and now increasing its reach and presence in non agri side in urban markets. Margins are better in urban due to higher requirements of fittings.
The company spends around Rs 35-40 crore every year on branding. It continues to command a premium over competitors in pricing.
The company has 4 warehouses and 18000 touch points. Post GST any changes 850+ dealers as on date.
PVC continues to get imported. Domestic capacity meets only 45% of total demand. No new capacities are coming domestically or globally and demand continues to grow by around 5-7% every year.
75% of sales come from west and south and rest is from East and North market.
PVC Indian market is around Rs 22000 crore
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