SUPREMEIND — earnings call
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Prepared remarks
SUPREME INDUSTRIES LIMITED · Management
MR. PC SOMANI – CHIEF FINANCIAL OFFICER – THE
MR. RJ SABOO – VICE PRESIDENT – CORPORATE AFFAIRS AND COMPANY SECRETARY – THE SUPREME
Moderator · Conference Operator
MR. AASIM BHARDE – DAM CAPITAL The Supreme Industries Limited October 31, 2022
Ladies and gentlemen, good day and welcome to the Supreme Industries Limited Q2 FY '23
Questions and answers
“The Supreme Industries Limited
Moderator · Conference Operator
Thank you.
Ladies and gentlemen we will now begin the question-and-answer session.
Anyone who wishes to ask a question may press star and one on the touchtone telephone.
If you wish to remove yourself from the question queue, you may press star and two.
Participants‟ are requested to use handsets while asking a question.
Anyone who has a question may enter star and one.
Ladies and gentlemen we will wait for a moment while the question queue assembles.
The first question is from the line of Sujit Jain from ASK Investments.
Please go ahead.
Sujit Jain
Yes, congratulations on a good set of volume numbers.
Is it safe to assume that the decline in gross profit margin entirely accounts for the inventory losses that would have been there in the quarter?
M. P. Taparia
Yes, you can safely assume, it is entirely due to the inventory loss suffered not only in PVC, but partly in LDP and PP.
The Supreme Industries Limited October 31, 2022
Sujit Jain
And that is about 7% to 8% of the sales, that is falling gross profit margin?
M. P. Taparia
As you see our margins have dropped now.
Our volumes have gone up and our overall profit has gone down.
Sujit Jain
Yes.
I'm saying 8% drop in gross profit margin should be entirely accounted by the inventory losses?
P. C. Somani
It could be 8% to 10% also.
You see ultimately one cannot decide the county, but roughly estimate between 8% to 10% of the sale on INR 2000 crore.
Sujit Jain
Right.
And this guidance of 25% volume growth, is it for the full year volume growth or it is for H2?
Because then that means close to 33% growth in H2 volumes?
M. P. Taparia
At least for the Plastic Piping division for the full year.
Last year, we sold 2,73,000 tonnes.
And this year, we anticipate to sell 3,40,000 tonnes of Plastic Piping System.
Sujit Jain
Right.
And Jal Jeevan mission, you have mentioned the order that you received that will -- which kind of pipe will go into that order?
Will it be PVC pipe or that will be HDPE pipe?
M. P. Taparia
HDPE, high density polyethylene pipe.
Sujit Jain
Okay.
M. P. Taparia
HDPE pipe.
Sujit Jain
And the growth that we have locked in pipe volume this quarter has come mainly from growth.
If you can just split the growth between PVC pipes growth Y-o-Y and CPVC growth and as well as application?
Did it come from plumbing or did it come from agri?
M. P. Taparia
July, August, September or any season.
In July, September, the demand for agriculture comes down, so it is mostly from housing and infrastructure.
Sujit Jain
And within that PVC and CPVC, if you can just quantify the growth Y-o-Y?
M. P. Taparia
We can say that overall, our sales of plastic piping is around 80% in PVC system and 20% other polymers, which include high density polyethylene, linear low density polyethylene, polypropylene and CPVC.
Sujit Jain
Got that.
So what would be the growth in CPVC pipes Y-o-Y, volumes?
M. P. Taparia
In quarter-to-quarter we grew, this quarter, we grew by 21% and half yearly we grew by 44%.
Sujit Jain
In CPVC in volumes?
The Supreme Industries Limited October 31, 2022
M. P. Taparia
I'm talking volumes.
Sujit Jain
Right.
And similar numbers for PVC?
M. P. Taparia
PVC you can calculate to that polyethylene number also is there.
We calculate and give you because CPVC generally question asked so that's why I was ready.
But major growth is still 80% in PVC.
Sujit Jain
Sure.
And one last question.
Consumer volume is down 7.7% Y-o-Y.
This is just a blip or could there be a particular reason why it is affected?
M. P. Taparia
Consumer product July, September demand was weak for furniture.
Product is only in furniture, furniture demand was weak Maybe prices are falling so customers were destocking -- our distributors were destocking.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Rahul Agarwal from Incred Capital.
Please go ahead.
Rahul Agarwal
Seasons greetings to everybody at Supreme.
Sir, three questions quickly.
Firstly, on the PVC price.
So obviously, it's down 35% since April.
When I see the company realizations, they are not down as much.
Like in first half, it looks like 11% to 12% since April.
Is this because of sales mix change?
Or is there any other reason to it?
M. P. Taparia
In first quarter, there were less sale of a plastic -- PVC pipe system and the sales were more of other items.
Rahul Agarwal
And how is that doing in second quarter?
M. P. Taparia
Second quarter, the sale of polyethylene pipe system growth for the infrastructure during rainy season demand come down.
Rahul Agarwal
I understand.
So it's basically a function of sales mix, right?
The mix change basically led to the realizations falling lesser than what it should be.
Is that correct?
M. P. Taparia
That depends on the market situation, we drop the price to the market situation.
And fortunately in the month of April, May the demand from the farmers was very good compared to last year.
Last year, if you recall, April, May, the country was affected by COVID second wave and then affected more in rural areas.
So the demand from retail segment was very weak in last year, April and May.
This year demand was very robust.
So when demand is very robust, we are not necessarily required to drop the price to the same extent.
Rahul Agarwal
Sir, second question, a clarification on the guidance you gave 20% volume growth was for the entire company, right?
M. P. Taparia
For the entire company, yes.
The Supreme Industries Limited October 31, 2022
Rahul Agarwal
So that implies like a 100% Y-o-Y growth in second half.
Is that correct?
Because we have done about 170,000 tonnage in first half...
M. P. Taparia
More than 2,00,000 tonnes.
In first half, we sold 220,725 tonnes.
Rahul Agarwal
And full year, we're talking about 4,70,000 tonnes, correct?
M. P. Taparia
3,94,000 tonnes we sold last year, we calculate 78%, it becomes 4,70,000 tonnes.
So we expect to see 250,000 tonnes in second half.
So 2,20,000 tonnes in the first 2,50,000 tonnes second half.
Rahul Agarwal
And last question was on inventory loss.
Was the inventory also marked down as of September 2022, or it was only related to sale?
Prakash Somani
The inventory is also marked down naturally following the accounting principles.
Rahul Agarwal
So I mean incrementally third quarter, whatever, in case if there is further fall, the inventory loss will be restricted to the market price as of September, is that correct, sir?
Prakash Somani
Yes, you're right.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Abhishek Ghosh from DSP.
Please go ahead.
Abhishek Ghosh
Sir, just until last quarter, your volume guidance for almost 15%, it's moved up to 20% now.
Obviously, there is an amount of lower PVC prices, but in terms of agriculture, housing, infrastructure, any other segment that you're seeing now, the confidence in volume growth is much better any of the segments?
M. P. Taparia
We are seeing good growth in furniture also.
Furniture in the second quarter was weak.
Now we are seeing -the prices have come down dramatically.
So the product becomes more affordable in a lower segment, which will give better volume.
The demand from all segments, the demand are looking better because the price of the polymers will come down in all the polymers.
So, the consumer will now pay for less commercial product, they will like to buy quality product.
So we are seeing better demand prospect now going forward.
Abhishek Ghosh
And sir, any thoughts on agri demand.
There's also a short season now.
How are you seeing that happening because agri has been weak for some time.
So in light of PVC prices correcting now, how should one expect that?
M. P. Taparia
Agri demand is going to super this year.
Abhishek Ghosh
Sorry, agri demand will be?
The Supreme Industries Limited October 31, 2022
M. P. Taparia
It will be very good this year.
For three reasons.
The most of the state dams are full with water.
Secondly, the price have become very affordable.
And thirdly the condition of the crops are extremely good today.
Abhishek Ghosh
That's helpful, sir.
Sir, the other thing is over FY '23, you have three greenfield capacities coming through and some brownfield expansions also coming through.
So in tonnage terms, how much of overall capacity, which will get commissioned in FY '23?
M. P. Taparia
Total capacity, it will be 80,000 tonnes.
And this year, we will get benefit of between 30,000 tonnes.
Abhishek Ghosh
So 80,000 tonnes of capacity increase and 30,000 tonnes of sales from that?
Is it right?
M. P. Taparia
Because the plant will start one after another now.
Abhishek Ghosh
And is it fair to assume, sir, that given the polymer prices where it is, that new capacities will be able to ramp up to that 50%, 60% utilization in two years' time?
Is that a fair assumption?
Prakash Somani
Yes, it should be better.
M. P. Taparia
Normally we achieve 65%, I think.
Abhishek Ghosh
The 65% in two years' time is what the expectation would be from the new capacities which are coming through?
Prakash Somani
Yes, our efforts will be even within one year.
M. P. Taparia
Why should talk pessimistic dear friend.
Abhishek Ghosh
Sure, sir.
M. P. Taparia
It is possible.
Abhishek Ghosh
And sir, just one last question.
Since you have mentioned about this olefin, PEX and all these new range systems that are coming across, how should one look at the value-added product mix from here on, which is at about 38% for 2Q over a medium term, how should one look at the value-added product mix?
M. P. Taparia
This PEX system is value added .
This olefin system is value added.
So, many new product what we are adding is value added.
Value added will growing and absolute quantum will also grow as we anticipate turnover of INR 9,000 crores this year, the value-added percentage also will grow now, Value addede volume will go.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
Please go ahead.
The Supreme Industries Limited October 31, 2022
Bhargav Buddhadev
Congrats on a good volume performance in a difficult environment.
My first question is, is it possible to share how has been the industry going in the first half or maybe in the second quarter, especially given that channel has been sitting on a very lean inventory.
This will give us some sense in terms of how the organized players will do?
M. P. Taparia
Now I can give you the overall picture that Reliance has given us information that last year, the country consumed 2.73 million tonnes of PVC.
And this year, they anticipate the country may consume 3.26 million tonnes,. they expect the country may reach the level of 2019-2020.
In 2019-2020 our company sold 299,000 tonnes plastic pipe system.
This year, we anticipate to sell 340,000 tonnes plastic piping system.
So we anticipate that compared to 2019-2020, we may grow by around 13% in volume compared to 2019-20, we far better than the growth in the country, which means our market share once we achieve this percentage what we have compared to everybody, our market share will increase this year.
Bhargav Buddhadev
Very well explained, sir.
This is very helpful.
Second, sir, is it possible to share how has been the performance of the Silpaulin business?
And is it still being classified under the value-added category?
M. P. Taparia
Silpaulin is value added category for sure, and now all focus more is on export, increasing export and also on other product.
Tarpaulin is a seasonal product, value added product we sell throughout the year.
So that is the volume we are focusing more.
And there because they are value-added, require more fabrication capability.
So our realization of the film also goes up.
So we anticipate better profit also and better volume this year.
Bhargav Buddhadev
And sir, how has been the situation of those copy products, which had come in the markets, have they got exposed and the sort of price increase?
M. P. Taparia
They are exposed.
Now they're produced are coming on kilo basis, INR 140, INR 150 per kilo basis, earlier they were wanted to sell on a meter and feet basis that what we were selling, now they came back to selling on kilo basis.
Bhargav Buddhadev
So this should help us in terms of improving our pricing power in this segment?
M. P. Taparia
That is your judgment.
Bhargav Buddhadev
And sir, lastly, is it possible to share any update on the succession plan, if any?
M. P. Taparia
Thank you very much.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Venkatesh Balasubramaniam from Axis Capital.
Please go ahead.
V. Balasubramaniam
Yes, sir, I had a few questions.
The first three being, sir, you mentioned that at the end of the second quarter, you will actually tell us and quantify what was the quantum of the inventory The Supreme Industries Limited October 31, 2022 loss.
So is it possible to share what was the inventory loss in the first half?
And what was the inventory loss in the current quarter?
That is the first question.
M. P. Taparia
our inventory loss maybe between INR 200 crores to INR 250 crores.
V. Balasubramaniam
You said INR 250 crores for the first half, correct?
M. P. Taparia
First half between INR 200 crores to INR 250 crores.
V. Balasubramaniam
INR 200 crores to INR 250 crores, okay.
And what about the second quarter of the current year?
M. P. Taparia
Second quarter was a larger portion because it was lean season and price dropped more sharply in second quarter.
We started from the middle of June and continued up to 1st of October.
So we have more severe loss in the second quarter.
V. Balasubramaniam
So second quarter could be almost INR 150 crores to INR 180 crores, correct?
Am I correct?
M. P. Taparia
No, very difficult to say.
V. Balasubramaniam
Very difficult to say.
Okay.
M. P. Taparia
We can share you the overall inventory loss, will be right thing to tell only in the month of April next year.
V. Balasubramaniam
Now the second question.
M. P. Taparia
Until next year, we can't say.
V. Balasubramaniam
The next question which I had was I guess -- there was a -- management was on TV, post the results, and given a guidance, volume growth guidance you already know, but I was just reconfirming that you mentioned that this year, you can do INR 9,000 crores of revenues and 12% to 12.5% EBITDA margins, am I correct?
M. P. Taparia
Yes very correct.
V. Balasubramaniam
Yes.
Okay.
Lastly, one small tiny little question.
Your other expenses in the quarter have gone up quarter-on-quarter by INR 16 crores and your power and fuel expenses have gone up by INR 9 crores.
Can you please explain why this quarter-on-quarter increase has happened in these two items?
Prakash Somani
Power and fuel because of the volume.
If you look at the volume what we produced, we are looking at volumes sold, if you look at volume produced from first quarter to second quarter, about 14% higher volume we have produced.
The Supreme Industries Limited October 31, 2022
V. Balasubramaniam
And this is just volume related?
There is nothing where prices have gone up of something, especially I'm asking on the other expenses side?
Prakash Somani
Other expenses, you see the certain order for what you get from the delivered prices, the freight component because many of the orders now we're getting on door deliver price, so your revenue becomes higher but then your cost of freight comes in the part of expenses, majorly two heads only freight and advertising and publicity, which we are where now, focusly and consisting incurring more expenditure.
Moderator · Conference Operator
Thank you.
Next question is from the line of Sonali Salgaonkar from Jefferies.
Please go ahead.
Sonali Salgaonkar
My first question is regarding the current demand scenario, especially in construction or real estate.
You did mention that you expect agri demand outlook to be very good this year, but what about construction?
What are the initial feelers you are getting from the industry right now?
M. P. Taparia
Agri demand is very robust.
Sonali Salgaonkar
So both in rural and as well as urban?
M. P. Taparia
They all required house,
Sonali Salgaonkar
Sir, secondly, could you help us understand what is the PVC trend from the 1st of October?
How much it has fallen?
How much do you expect it to fall further?
And if you do expect some lingering impact of inventory losses in Q3 as well?
And where do you expect them to stabilize?
M. P. Taparia
Too many question madam.
I must tell you that last month the PVC prices have fallen by INR 7, in October.
They have fallen by INR 7 and company gave linked to quantity off tick of INR 2 to INR 4 scheme also.
Now, the prices have dropped if I consider the scheme also the price is dropped by INR 61 since 1st April and as on today, INR 61 prices have dropped.
So it's such a big drop that I can't say the prices will not drop, but it may drop maybe INR 3, INR 4, INR 5.
After INR 61 drop, I can't say it's cannot become weak it has already gone from INR 140 to INR 79.
Sonali Salgaonkar
Got it.
M. P. Taparia
The worst case earlier it was INR 70, so worst case it may drop by further INR 9 also in month of November, mid-December, not much room now to drop.
Sonali Salgaonkar
Sir, my third question is could you help us with your segment wise capacity, right now?
And you did mention 80,000 metric tonnes is what you expect as new capacity in FY '23.
So I'm just...
The Supreme Industries Limited October 31, 2022
M. P. Taparia
Yes.
Sonali Salgaonkar
Right.
So you did mention 30,000 tonnes, I'm just a bit confused upon that 30,000 tonnes?
M. P. Taparia
30,000 tonnes because the capacity is one after another.
The plant at Cuttack may start by end of December, plant at Erode may probably start by end of November.
So we may get three month or four month production.
So that's why you cannot get more than 30,000 tonnes this year, so for this year only.
Sonali Salgaonkar
Sir, segment-wise capacity, please?
Prakash Somani
Capacity for the FY '23, you want?
Sonali Salgaonkar
Yes, sir.
Prakash Somani
So plastic piping system, it will be close to 580,000 tonnes.
For industrial product, it will be close to 83,000 tonnes.
For packaging products it will be 90,000 tonnes.
For consumer product, 30,000 tonnes.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Sneha Talreja from Edelweiss.
Please go ahead.
Sneha Talreja
Just two questions from my end.
First thing, you spoke about packaging in the cross-laminated division where you have spoken about 10% sort of a guidance for your growth.
Is it only for the cross-laminated unit?
Or is it for the complete packaging division that you have as a whole?
That was the first one.
Prakash Somani
It was cross-laminated film.
Sneha Talreja
So any guidance for the complete packaging also?
Or should we assume that 20% for the entire company now?
Prakash Somani
For packaging segment as a whole, you can count similarly.
We'll come back to you.
We‟ll calculate and come back to you.
Sneha Talreja
Secondly, as you were saying PVC prices were almost at the bottom is what you are seeing.
So has the channel already started picking up inventory due to which we have seen much better volumes than what we were expecting in Q2?
Or is it...
M. P. Taparia
Sorry, please raise your question again.
Sneha Talreja
I was asking since you were mentioning that PVC prices have already fallen so much and they're almost at the bottom, have the distributors started picking up inventory again?
And are we seeing pickup in the inventory levels?
Or are they still at the bottom end?
The Supreme Industries Limited October 31, 2022
M. P. Taparia
I think we can better reply only in the month of January because this month was a month of festival, earlier it was Dussehra, then Diwali and yesterday was Chhath Tyohar.
So all the big festivals are over now.
Now the remaining five months there is big festival of Pongal and Holi, but they don't affect the business.
So we can tell you on the end by end of November.
Now we will be reaching on in January, then we can tell you the demand.
But normally, in commerce is I can say we will start building inventory properly, like business sense, not commercial sense but in a business sense.
Sneha Talreja
And sir, last one, I actually missed out the number for the CPVC volume growth.
Can you repeat that again for Q2 as well as H1?
M. P. Taparia
Q2 was 21% and six months was 44%.
Moderator · Conference Operator
Thank you.
Before we take a next question, we‟d like to request participants to please limit your questions to two per participant.
If time permits you may come back in the queue for a follow-up question.
The next question is from the line of Achal Lohade from JM Financial.
Please go ahead.
Achal Lohade
My first question was in terms of the correction in the PVC price, if you could elaborate a little bit as to if it was passed on, was there a significant lag during the second quarter?
M. P. Taparia
No, we dropped the price immediately.
Achal Lohade
So what I was curious about, if you look at the Q-o-Q decline in the average PVC price, it's somewhere around 25%.
But in our case, the drop seems to be just 10%, 11%, this is for plastic piped products.
Just wanted to check if there is a significant change in the product mix compared to first quarter?
M. P. Taparia
Again depending on the particular market situation.
Now we say that our prices are completely -- the whole benefit of price reduction has gone to the market.
Now we can declare today entire benefit has gone to the market.
Achal Lohade
Right.
No sir, what I was trying to understand is in terms of the average realization for the quarter for the Plastic Pipe division, it's decline of about 11% compared to first quarter as compared to a 24%, 25% drop in the PVC resin price.
So, the decline in the realization is lower than the PVC price.
M. P. Taparia
The plastic pipes doesn't contain only PVC, we got polyethylene pipes, linier low density product, we got polypropylene pipe, polyethylene pipes system, it is called CPC pipe system So there are many systems that go into plastic pipe systems, it is not only PVC pipe system.
Achal Lohade
So you mean it's to do with the product mix, but the drop in the realization is not as much as the PVC price realization declines.
Is that a fair assessment?
The Supreme Industries Limited October 31, 2022
M. P. Taparia
Our plastic pipe system is not 100% only PVC system.
Achal Lohade
Sir, second question was in terms of the guidance, what you mentioned is 12% to 12.5% EBITDA margin for the full year.
As compared to first half, we have achieved about somewhere around 9.7%, which implies a 15% kind of a number for the second half.
So, I was just curious, in terms of the margins, even second half will be more agri heavy period compared to first half, would that have similar margins the way it is for plumbing business, sir?
M. P. Taparia
We give our calculation and we are not mentioning only Plastic Piping System.
We make many products.
And we told 12% to 12.5%, this is for the entire company.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Rushabh Shah from Anubhuti Advisors.
Please go ahead.
Rushabh Shah
Sir, my question was pertaining to other listed entity, Supreme Petrochem.
So can you give some operational highlights on the same and again, I think volume guidance for the entire FY '23?
M. P. Taparia
Basically, we are great to inform that our first trend to increase our capacity of polystyrene and also revamping our EPS capacity, there are very well established.
They are waiting from consent to operate from government of Maharashtra.
And we are also expanding our capacity at Manali plant.
So overall, 120,000 tonnes of polystyrene and expanded polystyrene capacity will be ready to start running from month of November this year, next month only, subject to getting the department's Consent to Operate.
Because once you move detailed project, first you require permission from pollution board Consent to Establish then from pollution then you go ahead to expand capacity.
After the capacity is established, then we approach them again to give us Consent to Operate.
So some of the machine did not get take place due to festival this month.
We hope sometimes the meeting will take place in next month, and then we'll get Consent to Operate from them, then our capacity will go up by around 10,000 tonnes per month from both the plants with us.
And then ABS plant is shaping up well.
So our CapEx plans are going quite well.
And our products are really well received.
We are already sharing our volume, not only in Indian market, but we are exporting also.
There is a big fall in the price of stand monomer, main raw material, which has resulted in erosion of profit in the second quarter, but like business conditions are looking quite favorable.
Rushabh Shah
So until now, we are almost running at 100% capacity.
So incremental volume will only be possible once the new capacity come online.
Am I correct, no?
M.P. Taparia
You are right.
Rushabh Shah
And just secondly, on the polystyrene prices.
So we believe recently there has been, I think, a correction in the prices alongside crude prices.
So how are the prices currently trending?
The Supreme Industries Limited October 31, 2022
M.P. Taparia
Nothing to do with crude.
We don't make the polystyrene from crude.
We pay for a standard monomer.
Rushabh Shah
Sorry, monomer.
Absolutely correct, but about the prices.
M.P. Taparia
We dropped the price.
Rushabh Shah
And are currently any new capacities coming online in other countries?
Just wanted to check on how the whole scenario is working on polystyrene prices?
M.P. Taparia
We can't say -- we will give margin, and we have no problem.
Indian market is also growing, we have no problem.
Rushabh Shah
So second half, we can expect, again, I think margins normalize and maybe we can see the 1Q level margins again?
M.P. Taparia
Normally, the price of polystyrene dropped from $1,500 in the month of June to $950, one week before.
And third week of October, price dropped $950 from $1,500 in the month of June.
And as the price dropped, we could even drop the prices of polystyrene also.
Rushabh Shah
Understood.
So currently, prices are in the north of somewhere $900 correct?
M.P. Taparia
No, not $900.
Today, it is around $1000.
Moderator · Conference Operator
Mr. Shah may we request for you to return to the queue, there are several participants waiting for their turn.
We'll take a next question from the line of Utkarsh Nopany from Haitong Securities.
Please go ahead.
Utkarsh Nopany
Sir, first thing, on the pipe volume front, we have guided that we are expecting our pipe segment volume to grow a 25% rate for FY '23.
So this implies that our pipe segment volume is likely to grow at around 4.5% CAGR in the second half of FY '23 over second half of FY '19.
So just wanted to understand from you, sir, why we are expecting such muted pipe volume growth for the second half of FY '23, sir?
When we are expecting a pretty positive demand outlook from both agri and the plumbing side, sir?
P.C. Somani
Second half
Utkarsh Nopany
Sir, I'm comparing second half of FY '19 versus second half of FY '23, sir?
M.P. Taparia
I can't share FY '19 today, I'm not ready for FY '19.
Overall, we will grow 25% plus.
Utkarsh Nopany
Sir, second question is on the margin front.
Like if you see our packaging segment margin, we are at a multiyear low level in this quarter, just want your sense on the guidance trend for the second half of FY '23 and FY '24, what kind of a margin we are looking at for the packaging segment, sir?
The Supreme Industries Limited October 31, 2022
M.P. Taparia
At first half, there was price erosion in LDPE.
We use it for a particular packaging low density polyethylene where the price has dropped very substantially.
So there was a component of inventory loss also.
But now the price has stabilized.
We're not saying immediately to comparable.
Utkarsh Nopany
Sir, earlier what we were doing
M.P. Taparia
Overall, we anticipate profit to the company this year between 12% to 12.5%.
Utkarsh Nopany
Sir, we got the point, sir, for the Packaging segment specifically, can we expect our margin to improve back to again to 18% to 20%, which we were doing earlier, sir, once the resin prices stabilizes?
M.P. Taparia
I think 18 to 20% in packaging sales.
P.C. Somani
So it should be between 15% to 17%, which ultimately the market compression is increasing.
So whatever price erosion has taken place in the past, you cannot restore everything back to the normal level.
Utkarsh Nopany
And sir, like at the company level, we earlier guided two quarters back that we are looking at a 16% EBITDA margin on a steady state basis.
So once the resin prices stabilizes can we look at maintaining 16% EBITDA margin at the company level, say, from FY '24 onwards?
M.P. Taparia
We told 15% if I remember, 15% to 15.5%, we told in the month of April, I think.
First let us work over this year please.
Utkarsh Nopany
And sir, lastly, on the CapEx front, we have spent INR 237 crores in the first half.
How much amount we are planning to spend in the second half, sir?
Prakash Somani
From the cash flow point of view, INR 237 crores is the cash outflow which we have made this year in first half.
Similar cash flow around INR 250 crore in the second half on the cash flow point of view.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Rajesh Kumar Ravi from HDFC Securities.
Rajesh Kumar Ravi
Sir, you mentioned early in the call that the inventory losses was close to 10% of INR 2,000 crores, which I assume was for Q2, while later in the call, you mentioned the INR 200 crore inventory loss is for the H1.
Can you rectify this?
P.C. Somani
between INR 200 crores and INR 250 crores, it is very difficult to quantify precisely.
That is why the answer has given in the range between INR 200 crores, INR 250 crores.
Rajesh Kumar Ravi
No. But as you mentioned 10% of INR 2,000 crores.
So that was pertaining to second quarter.
Is that understanding right?
The Supreme Industries Limited October 31, 2022
Prakash Somani
Yes.
Rajesh Kumar Ravi
So if I look between Q1 and Q2, March end to June end to September end, the price fall between these two points is close to INR 25 to INR 30 in each of the quarters.
So if in second quarter on a INR 25?
Prakash Somani
The second quarter, apart from the realization loss, we have also marked down the inventory to the market price.
Rajesh Kumar Ravi
No. But in Q1, you did not do it.
Prakash Somani
There are a sufficient gap between the cost and the selling price.
So the majority of the losses came into Q2 numbers.
Rajesh Kumar Ravi
And now you mentioned that we have seen INR 8 further fall in October from September end?
M.P. Taparia
There was a INR 7 drop in the prices and the company gave a scheme of INR 2 to INR 3, INR 2 to INR 4.
So I cannot give the change of INR 4 reduction, but INR 7 was fall in the price itself.
You count full INR 4 scheme then the drop is INR 11 in the month of October.
Rajesh Kumar Ravi
So if prices do not pick up, would we be having further losses to the tune of 2% to 3% of top line in this quarter?
M.P. Taparia
you can't forecast so many things, but we have given a forecast that we will earn 12% to 12.5%.
Rajesh Kumar Ravi
That is okay, well taken sir.
I'm just saying if the situation remains status quo 2% to 3%?
M.P. Taparia
Nobody stops them to go up again.
Rajesh Kumar Ravi
And secondly is on the realization trend, if I look at on a quarter-on-quarter basis, when the resin pipes where realization has fallen around 11%, the other segment reported just 2% to 3% realization drop Q-on-Q.
Could you explain that because resin prices that have fallen broadly in a similar range across the other segments?
P.C. Somani
See the product mix, like industrial product.
The composite cylinder is doing very well.
Really, the consumer product, we are being more and more business of the value item.
It's the product mix of the expected division which is holding on to the overall realization.
Rajesh Kumar Ravi
And earlier in the call, you were giving the breakup.
So could you repeat the segmental capacity breakup September end?
And this is the 80,000 expansion, what will be the segmental capacity at March end?
Prakash Somani
I have given March end capacity only, Segmental what I've given.
The plastic piping I‟ve given 580,000 because as of March '23, which would be after the two plants, which are there The Supreme Industries Limited October 31, 2022 will go in operation.
Industrial products 83,000.
Packaging products, 90,000. and Consumer products of 30,000.
Rajesh Kumar Ravi
So this is a 60,000 increase only versus FY '22
M.P. Taparia
What has happened is certain capacity we have transferred from our erstwhile Maharashtra plant to Erode.
We are looking at complete the whole additional capacities then it will be 60,000, 65,000
Rajesh Kumar Ravi
So you are expecting 50% incremental.
50% of the volume from these capacities to be affected in this year itself, if 60,000 increase and 30,000 volume contribution from these capacities?
P.C. Somani
Capacity of Maharashtra was already in the operation.
Moderator · Conference Operator
I'm sorry to interrupt Mr. Rajeshkumar Ravi.
Could you please return to the queue?
There are several participants waiting for their turn, sir.
We'll take a next question from the line of Ritesh Shah from Investec.
Ritesh Shah
Sir, two questions.
First, can you detail our incremental product pipeline, there are several new launches.
If you can specifically cite some details on one is on Biofloc, second is PEX and the third is basically the bath division.
So that's the first question.
M.P. Taparia
Biofloc, we have dropped.
Ritesh Shah
Okay, sir, any particular reason?
M.P. Taparia
If you remember, we have made a soft launch just to test the market, and we felt the product is not adding value to the customer.
So we sold only 11 pieces of Biofloc at that time and then now we don't sell the product
Moderator · Conference Operator
Thank you.
We'll take our next question from the line of Chirag Lodaya from Valuequest.
Please go ahead.
Chirag Lodaya
I just have one question.
Sir, I just wanted to know what is the reason of PVC prices going down further?
So earlier, the reason was a lot of dumping from China.
But what we are hearing currently is a lot of shipment for December delivery from US are coming at much lower prices.
So just wanted to get your sense what exactly is happening in global markets?
M.P. Taparia
There are two reasons.
First reason is, there's a big drop in demand in housing construction in USA. due to continuous increase in interest cost.
The government of USA is very concerned about the inflation.
So Fed is going on increasing the rate of interest, they may increase rate of interest again on second,that is the reason is the housing demand is poor and around 80% of PVC by way of pipe or profile or cable are consumed in housing requirement.
So the housing demand goes down and there is a huge increase in the price of caustic soda.
Because of that, The Supreme Industries Limited October 31, 2022 they are able to get chlorine at a negative price.
And that enables them to make PVC at very low cost and sell excess capacity in the world market.
So today, the lowest cost supplier is USA and because of them only the price has dropped much more than what was expected earlier.
Moderator · Conference Operator
We'll take a next question from the line of Mohammed, an individual investor.
Mr. Mohammed your line is unmuted, could you please go ahead with your question?
Mohammed
This is regarding Supreme Petrochem, so once the consent of the operator comes by when can you ramp from the capacity to like full utilization right now for the existing capacity?
M. P. Taparia
for suprme ptro, but you ask question to, to Mr. Nair, please.
Moderator · Conference Operator
Our next question is from the line of Vipul Shah from Sumangal Investments.
Vipul Shah
Can you give more information regarding this PEX pipes, what are applications and what is the value addition we are getting as compared to normal PVC pipe?
M. P. Taparia
PEX pipe is quite expensive pipe system for carrying hot water.
It is far better than CPVC pipe system, but much more expensive than CPVC system.
Plus materials are also very expensive.
Vipul Shah
So can you quantify how expensive it is as compared to CPVC?
M. P. Taparia
70% to 80% more.
Vipul Shah
70%, 80% more than CPVC, right?
M. P. Taparia
On the bathroom side, it will cost 70%, 80% more.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Karan Bhatelia from Asian Markets Securities.
Please go ahead.
Karan Bhatelia
Sir while we've seen a sharp decline in the PVC prices in last six months, how is the pricing behavior in CPVC market?
M. P. Taparia
CPVC market are holding steady as of today.
Karan Bhatelia
And for last six months, what was the increase approximately?
M. P. Taparia
No, they remain steady.
There is no increase also.
They are holding steady.
Karan Bhatelia
For the coming year, we expect some correction in CPVC?
Or we expect them to be stable?
M. P. Taparia
For polymer, I can't give you a forecast like that.
Moderator · Conference Operator
Thank you.
Our next question is from the line of Ritesh Shah from Investec.
Please go ahead.
The Supreme Industries Limited October 31, 2022
Ritesh Shah
Sir, my question was pertaining to the new product launches.
I think you touched up on Biofloc and you touched up on PEX.
Sir, any incremental color on bath division.
Basically, how much is the segment doing right now?
What are the targets?
That was one question.
M. P. Taparia
Our bath is doing very well.
We trust you with information how much we are selling, but our business is picking very much.
We have 230 varieties of bath fitting range.
And we are adding more and more varieties.
Ritesh Shah
And sir, my second question was, just from an understanding standpoint, when we say packaging, industrial and consumer products, what are the kind of polymers that you process over here?
Is it largely HDPE and LDPE or are there other polymers also over here?
M. P. Taparia
Other polymers are also which are very expensive polymers, are added to the polyethylene.
Ritesh Shah
Sorry, I didn't get the answer.
I could not understand?
M. P. Taparia
We are having some other polymer along with the polyethylene.
Ritesh Shah
Sir, my question was if you look at HDPE and LDPE prices, on a sequential basis, it has declined by 17% and 18%.
But if you look at the realization decline, it is plus 7% in industrial versus minus 4% and minus 12% in packaging.
So we have done actually very well on the product realization.
So is it more to do with the mix of polymers?
Or is it more to do with the product mix change on a sequential basis?
M. P. Taparia
It would be both the region.
Product mix and mix of polymers.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, that was the last question.
I now hand the floor back to the management for closing comments.
Over to you, sir.
M. P. Taparia
We thank all the participants for the very analytical questions.
We thank all of them.
Thank you all very much, and wish you a very happy, healthy and prosperous new year.
Moderator · Conference Operator
Thank you very much.
Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines