PVC prices are anticipated to be unpredictable as Finolex CFO Ajit Venkataraman aims to increase non-agribusiness

The gross profit margin for Finolex Industries, a manufacturer of poly vinyl chloride (PVC) pipes and fittings, decreased in the March quarter as compared to the same time the previous year.

In order to boost its margins, Finolex Industries, a manufacturer of polyvinyl chloride (PVC) pipes and fittings, wants to take on more business from non-agricultural sectors, according to Chief Financial Officer Ajit Venkataraman, who spoke with Moneycontrol. While it increased from the December quarter, the gross profit margin for the March quarter was lower than it was for the same time previous year. PVC prices have leveled out, but Venkatraman predicted that they would likely be erratic in the foreseeable future.

Revised passages:

What caused your quarterly operating margin to decline year over year?

Usually, we consider the margins per kilogram. Margin per kilogram rose to Rs 13 per kg from around Rs 11 last year. EBIT (profits before interest and taxes) for the resin industry has decreased, which is the source of the decline. But the primary cause of the overall reduced EBITDA margin was a decline in PVC pricing.

How does the pipes and fittings sector look?

The most stable part is that one. We are now attempting to aggressively penetrate the non-agri-segment, notwithstanding our historical dominance in the agri-segment. Due to its lower sensitivity to pricing, the non-agri category is somewhat more lucrative. This is because projects usually choose for branded brands since pipes and fittings only account for 1.5–2% of the total project cost. Because farmers purchase pipes and fittings in the agri-segment, prices are quite important. We want the ratio of agro to non-agri to be 50:50 during the next three to four years. At the moment, it is 65:35.

How do you see the pricing of PVC?

PVC costs have remained mostly steady over the last ten years, ranging from $750 to $850 per metric ton. However, there was a great deal of volatility during COVID 19, and the price of PVC skyrocketed to about $1,900 per metric ton. There is still some volatility even though they have dropped to bearable levels.

China and the United States are the two global markets that drive the usage of PVC in housing and building. The US housing market is now very bloated, while the China market has suffered over the last three to four years. India is thus becoming the destination for all of the global PVC demand, which is pushing prices higher.

China is launching a number of programs to stimulate the housing market. Thus, when PVC demand increased in China, prices rose as well. Since a large portion of PVC's raw materials are imported via the Middle East, any occurrences there may also have an effect on the material's pricing.

What capital expenditures do you have planned?

Our capital expenditure plan, which includes the gradual growth of our fitting capacity and pipes, is around Rs 150 crores. We've had our PVC factory for approximately 30 years. We spend a significant amount of money on it. Although it is still in the planning stages, capacity expansion is another option we are considering. We now have a 470,000 metric ton annual capacity for pipes and fittings.

Do you intend to join any upcoming markets?

Considering the expansion of both agribusiness and non-agribusiness, we will maintain our emphasis on the PVC pipes and fittings market.

About 45–50% of the area that is farmed in agriculture is irrigated; the other portion is not. People would want to transform them into irrigated land due to the unpredictable nature of the weather. Therefore, India has considerable capacity for the agricultural sector to expand.

increase in the building and construction sector is strong, with over 15 percent nationwide increase. And for the next five years, compound annual growth of fifteen percent is anticipated. Given the excellent growth in all categories, we don't want to shift our priorities.

What rate of increase in volume do you anticipate in the pipes and fittings segment?

Our growth rate was around 11% last year. This year, we anticipate it to be between 10 and 15 percent.