You are here: Home » Companies » News
Business Standard

Sustained rural agricultural distress hits PVC pipe manufacturers hard

Players like Finolex Cables, Astral Poly Technik and Supreme Industries have, therefore, witnessed a sharp erosion in their profit margins in the quarter ended December 2018

Dilip Kumar Jha  |  Mumbai 

PVC pipes
Photo: Shutterstock

Hit hard by a downturn in demand due to sustained rural agricultural distress, polyvinyl chloride (PVC) pipe manufacturers are facing a huge slump in demand.

Players like Finolex Industries, and have, therefore, witnessed a sharp erosion in their profit margins in the quarter ended December 2018. While these players were expecting a revival in demand after Diwali, the weak purchasing power of rural farmers reduced the potential of an upsurge in demand for pipes, which are primarily used in irrigation.

Now, with the pipeline inventory with distributors getting gradually cleared, players are expecting a revival in demand during the April – June quarter. Coincidentally, the demand for irrigation equipment goes up ahead of the monsoon. The revival of demand is expected to boost their sales and profits starting the June quarter.

“Being a debt-free company, the downturn in demand has less impacted our business compared to other peers in the industry. Even in this downturn, we are the only players in the industry who take an advance for orders being placed by consumers. We hope that the demand would slowly start picking up in the coming weeks as pipeline inventory is clear now. Hence, demand is just waiting to explode and the full impact of which would be seen in the June quarter,” said Prakash Chhabria, executive chairman, Finolex Industries Ltd.

To take advantage of the surge in demand, Finolex Industries is planning to invest Rs 40 crore on capacity expansion.FIL is one of the largest resin manufacturers in the country and has an upper hand when compared with its organised peers who don’t enjoy the benefits of backward integration.

Net sales Net Profit
Rs Crore FY18Q3 FY19Q3 % change FY18Q3 FY19Q3 % change
Jain Irrigation 1865.64 2037.69 9.22 67.28 91.47 35.95
Supreme Inds. 1278.3 1410.41 10.33 104.22 80.98 -22.30
Finolex Inds. 722.72 756.59 4.69 69.55 78.69 13.14
Astral Poly 512.29 633.7 23.70 46.27 52.71 13.92
Kisan Mouldings 129.57 123.82 -4.44 -1.6 -2.87 -
Texmo Pipes 68.41 89.47 30.78 -0.33 0.16 -
Apollo Pipes 74.73 87.04 16.47 4.49 5.33 18.71
Source: Capitaline; Compiled by BS Research Bureau

Currently, FIL has a captive consumption of resin to the extent of 70 per cent, which assumes significance in the Indian set-up, which faces a PVC shortfall of close to 50 per cent. The company operates through its three state-of-the-art manufacturing plants located in Pune, Ratnagiri in Maharashtra and Masar in Gujarat.

Along similar lines, is planning to add additional capacity at Hosur and Santej and launch new products in both the segments amid expectations of a bump in sales in the financial year 2020.

“The company maintained its margin guidance for adhesive and piping business to be in the range of 13 – 15 per cent on the back of higher utilisation. Further, the company is planning to add additional capacity to boost sales growth in FY20. We expect Astral’s revenue, EBITDA and profit to growth between 19 and 21 per cent during FY 18 - 20,” said Sudeep Anand, an analyst with IDBI Capital.

Ltd (SIL) currently holds a 13 per cent share in the organised plastics piping segment and 9 per cent in the pipe segment in India. In FY18, the total capacity of SIL stands at 568,000 tonnes of which piping systems contribute nearly 80 per cent, the remainder being packaging and industrial plastics.

“Organised sector has a 70 per cent share of the Rs 31,500 crore plastic piping industry in India. Six leading share 40 per cent of the organised market size,” said Akhil Parekh, analyst,

Declining input prices offer scope for a margin surprise in resin making operations of FIL. Incremental brownfield expansion is also expected to aid return with a significant macro opportunity.

First Published: Sun, March 03 2019. 11:03 IST
RECOMMENDED FOR YOU