finolex industries ltd share price Management discussions

1. ECONOMIC OVERVIEW

1.1 INDIAN ECONOMY

The world continues to reel from multiple successive events such as the protracted war in Ukraine, high inflation in Western democracies including the United Kingdom teetering on a cost-of-living crisis, a fresh wave of COVID-19 cases hitting China etc. These events have impacted all countries; however, India has revealed itself to be a bright spot in an otherwise gloomy global economic outlook.

Today, ranked amongst the fastest-growing major economies in the world, India is also set to be the 2^nd fastest growing economy in the G20 while holding the presidency of the forum for 2023. The Ministry of Finance announced that the Indian economys real GDP grew at 7.2% in FY23¹. In its 75^th year of Independence, India is the 5^th largest economy in the world and poised to reach a nominal GDP of $ 3.5 trillion² by March 31, 2023, as per the economic survey tabled in Parliament. Indias agriculture sector has seen a robust average annual growth rate of 4.6% over the last six years and is expected to grow at a rate of 3.5% in FY23, as per the Press Information Bureau. India has become a net exporter of agricultural products in recent years, touching $ 50.2 billion in FY23, while allied sectors - animal husbandry, dairy, and fisheries - are increasingly being recognised as emerging sectors.

The industrial sector is a significant contributor to the Indian economy providing about 30% of the total gross value added in the country. In FY23, the sector faced exceptional challenges as the Russia-Ukraine conflict began in early 2022 and with no end in sight. The conflict directly contributed to a sharp rise in the prices of many commodities including edible oil, crude oil, fertilisers and food grains that remained at elevated levels for many months. However, the Indian industrial sector acquitted itself quite well despite difficult circumstances with the first half of FY23 showing a 3.7% increase in overall Gross Value Added (GVA), which is higher than the average growth achieved in H1 of the last decade. Overall, the industrial sector is expected to witness a modest growth of 4.1% in FY23 compared to 10.3% in the previous fiscal year. The services sector is expected to act as the driver of growth for the economy by rebounding to a y-o-y growth of 9.1% in FY23 as compared to 8.4% in the previous fiscal. After the worlds largest vaccination programme, private consumption has seen continuous momentum and grew at 7.5% in FY23⁴ compared to 7.9% in the previous fiscal. The Gross Fixed Capital Formation, as a measure of investment, grew by 11.4% in FY23³ against 15.8% in the previous fiscal year. Over the last few years, the government has continued to push capital expenditure and infrastructure spending while private investment is showing signs of improvement thanks to better balance sheets in banks and companies.

Sources

1 The Economic Times

2 The Economic Times

3 The Economic Times 4 Money Control

Despite supply chain disruptions and an erratic geopolitical environment, Indian exports grew by 14% in FY23⁵. Following the pattern of previous post-pandemic fiscal years, the share of exports to GDP increased to 22.7% in FY23 and will ensure that India continues to have fiscal space to manoeuvre and remain resilient compared to other emerging market economies.

1.1.1 OUTLOOK

In line with multilateral agencies such as the World Bank, IMF, ADB, and the RBI, domestically – the Economic Survey 2022-2023 has projected a baseline GDP growth of 6.5% in real terms in FY24. The actual outcome for real GDP growth is likely to be in the range of 6% to 6.8%⁶.

While external exigencies can impact growth, a domestic-driven economy like Indias would make it less exposed than export-driven economies like China, South Korea or Japan. Additionally, the Government of India in the Union Budget for FY24 has increased capital investment outlay on infrastructure for the third year in a row by 33% to _ 10 trillion, a steep increase reflecting the governments focus on sustained domestic demand and the generation of jobs. Finally, the Russia – Ukraine war created heightened uncertainty geopolitically and led to a drastic increase in commodity prices. While these prices have moderated, many of them still hover above pre-war levels.

All these factors have led to a deterioration of the global outlook, impacting trade numbers for the Indian economy with export demand expected to slow down internationally, while domestic demand continues to increase imports, thereby leading to a widening of current account deficits (CAD), which may then, in turn, bring the currency under pressure. While entrenched high inflation can risk low global growth even leading into FY24, the positives for the Indian economy are that oil prices would stay low and CAD will be better than projected. Additionally recessionary tendencies in advanced economies may result in a return of capital flow to India if inflation in the country is stable below 6%.

Domestically, India remains in a robust position and government measures have set up the economy for growth over the medium and long term. Higher governmental CAPEX and highly improved corporate and bank balance sheets are expected to result in higher private investments that will take the onus going forward and reduce the need for the government to do the heavy lifting. The strong focus on urban infrastructure will be especially important for the construction industry, with the budget including necessary allocations for rural programmes as well. A coordinated monetary and fiscal policy will eventually lead to lower borrowing costs later in the year and further consolidate demand. The agriculture and allied sectors have been forecasted to grow at 3.6% in FY24. Further, the industry and services sectors are expected to grow by 5.8% and 7.6%⁷, respectively.

2. PIPING INDUSTRY OVERVIEW

The government has allocated _ 70,000 crore⁸ in the Union Budget 2023 - 2024 on its flagship scheme under the Jal Jeevan Mission (JJM), to provide potable drinking water to every rural household which is a jump from _ 60,000 crore 5 Times of India 6 Press Release

7 The World Bank 8 The Print in the previous fiscal year. This translates to a nearly 17% increase in budget allocation under this scheme and will continue to have positive impacts on dependent industries such as the organised pipe manufacturing sector.

By the end of March 2023, the government was estimated to have provided 11.66 crore⁹ rural households with tap water connections, achieving a 60% coverage milestone. States that have a higher number of households for tap connections include Rajasthan, Kerala, Manipur, Tripura, Maharashtra, Madhya Pradesh, Mizoram and Sikkim.

It is crucial to note that the organised piping manufacturers will benefit the most from the government outlay on water connections and their existing strong presence in the rural market. Although unorganised players have the chance to participate in government projects, they are expected to upgrade facilities and get ISI certifications. Similarly, the PM Awas Yojana which is on the mission to provide housing for all got a massive boost of nearly 68% by being allocated _ 79,000 crore¹⁰ in the Union Budget 2023-2024. The existing inventory of housing has been reduced and this combined with the huge allocation of funds will translate to a huge demand for affordable housing. Last year the scheme allocated _ 48,000 crore to complete 8 million houses for eligible beneficiaries. This allocation will help boost the housing sector which would also directly benefit the piping industry to meet plumbing requirements.

Other relevant government initiatives and schemes include AMRUT – Atal Mission for Rejuvenation and Urban Transformation, Swachh Bharat Mission, and Pradhan Mantri Krishi Sinchai Yojana (PMKSY) would further help boost demand in the piping industry within the country.

These initiatives and schemes combined with strategic planning to target market with relatively low penetration would further ensure that the piping industry has the environment for sustained high growth moving forward. A significant share of the market remains unorganised although the share of organised players continues to rise. Currently, approximately 65% of the Indian piping industry is organised with the UPVC segment being 57-58% organised and 80% of the CPVC market segment being organised. India is the fastest-growing consumer of PVC and there remains a large scope for sustained growth. Pipes and fittings form 73% of the end consumer market for PVC in India with the top 5 players expected to consolidate in market share.

The biggest drivers of growth in the Indian piping industry are the rising demand from the irrigation, water supply and sanitation sectors in addition to the demand for the replacement of metal pipes in the residential real estate market.

These growth estimates are influenced by factors such as:

Sources

9 Press Information Bureau

10 The Business Standard

Raw material cost fluctuations combined with increasing customer awareness about quality of products and tax compliance becoming more stringent has led to an increasing capture of market share by large organised players. This is expected to continue with the largest organised players gaining more market share even when compared to other regional organised companies who have struggled with growth. The piping market is being driven by rapid urbanisation,demandforlargeandcost-effective sewage lines, increasing public and private initiatives, and infrastructure developments, in addition to the factors mentioned earlier. The growing usage of PVC in flooring applications across private, commercial, and industrial premises is expected to contribute to the growing demand for PVC_Resin.

3. COMPANY OVERVIEW

Finolex Industries Limited, also known as Finolex, FIL, or Finolex Pipes, is a prominent producer of PVC resin in India, as well as a top brand in pipes and fittings, with a strong reputation for trustworthiness. In fact, Finolex is the largest backward integrated pipes company in the country. We offer a wide range of PVC pipes and fittings suitable for applications in agriculture, plumbing and sanitation. With four state-of-the-art manufacturing facilities in Maharashtra and Gujarat, we have a pipes and fittings production capacity of 4,00,000 MT per annum and a PVC resin manufacturing capacity of 2,72,000 MT per annum. During the financial year 2022-23, we have commenced commercial production of PVC fittings at a new state of art manufacturing facility in Talegaon near Pune, Maharashtra with annual capacity of 12,000 MT.

4,00,000 MT PER ANNUM

Pipes and fittings production capacity

2,72,000 MT PER ANNUM

PVC Resin manufacturing capacity

3.1 FINOLEX PIPES _ OUR COMPETITIVE ADVANTAGE

While factors such as rising input costs and disruptions to supply chain logistics could have temporary impacts, our company has been able to innovate and adapt to expand our presence. Over the years, we have consistently expanded our product range and distribution network, bolstering our position in the plumbing and sanitation market. Additionally, we have adeptly embraced the opportunities presented by growing markets like CPVC pipes and fittings. With these strategic moves, our company stands well-prepared for the future, fully equipped to cater to the evolving needs of the housing, construction, and infrastructure segments.

3.1.1 LONG LASTING AND DURABLE PIPES

Four decades of product excellence – superior quality, strong and durable pipes

For the last eour decades, Finolex has persisted in improving and perfecting its product range by using the highest quality raw materials combined with state-of-the-art technology and manufacturing processes. Our approach to creating strong and durable pipes and fittings has seen us steadily add depth to our products and we have never compromised on our quality standards.

This constant drive to build quality into every aspect of our business has also seen our network of dealers and retail touchpoints grow by leaps and bounds.

Backward Integration in PVC Resin –

One of our biggest advantages in producing quality products is our backward integration into PVC resin production. This ability makes us the only company in India with this capability.

The advantages of backward integration are numerous starting with consistent quality, cost optimisation and uninterrupted raw material availability for production. This has been achieved thanks to the foresight of our leaders. The captive jetty in Ratnagiri allows Finolex to import raw material that is used in manufacturing PVC resin. This steady supply of raw materials allows Finolex to control and maintain the quality of our products. In addition, the Ratnagiri facility includes a power station ensuring a steady power supply and further reducing manufacturing costs.

All these factors ensure our company can maintain the quality of raw materials and finished products, optimise costs, and remain at the top of our industry.

Robust manufacturing plants –

Finolex has four manufacturing plants. Three in Maharashtra (Ratnagiri, Urse and Talegaon) and a fourth in Gujarat (Masar). Our insistence on quality is reflected by the ISO 9001:2015 certification that all our manufacturing facilities hold.

Our flagship facility in Ratnagiri includes its own open sea cryogenic jetty to receive raw materials, storage facilities to stock them, a PVC pipe manufacturing plant, and a PVC resin manufacturing facility in technical collaboration with Uhde GmbH, Germany with Hoechst Technology. In-house resin manufacturing ensures that all our pipe manufacturing plants, across locations, receive a dedicated supply of consistent and superior-quality resin.

The keyword is quality. Finolex ensures quality across its four facilities by using the latest technologies and most up-to-date manufacturing processes, which all lead to the further enhancement of value and the brand.

3.1.2 LONG LASTING RELATIONSHIPS

Our company values the support of its stakeholders and takes proactive measures to interact with them. It is of paramount importance to our leadership to ensure that there is regular interaction with our stakeholders to understand their concerns and interests. Through our diverse range of Corporate Social Responsibility (CSR) initiatives, we actively engage with and uplift underprivileged sections of society, ensuring inclusivity and making a positive impact in the communities we serve. Our CSR programmes encompass various areas such as education, healthcare, environmental sustainability, and social welfare. We are committed to fostering inclusivity by extending support and opportunities to the marginalised and underprivileged, empowering them to lead better lives and contribute to the overall development of society. Our various modes of engagement ensure longer-lasting relations with stakeholders and society.

OUR STAKEHOLDERS

3.1.3 EMPOWERED COMMUNITIES

Our companys commitment extends beyond providing products and services for the development of our nation. Rather, it is intertwined with our fundamental philosophy of empowering the people of India. Through our collaboration with the Mukul Madhav Foundation, we continuously strive to improve the lives of the communities we serve. Our goal is to create a network that fosters peoples aspirations and equips them with the necessary skills to enhance their standard of living. Our efforts span across education, healthcare, sanitation, environment, and social welfare programmes. We do not merely donate funds, but also empower individuals with dignity.

MUKUL MADHAV FOUNDATION

Our CSR partner, the Mukul Madhav Foundation (MMF) is a charitable trust founded in 1999, with_ an_ overseas office in London, U.K. Registered under the Bombay Charitable Act 1950, MMFs mission is to help the most vulnerable communities with quality healthcare, education, equality, clean water, and sanitation thereby uplifting their standard of living and empowering people to rise_above their circumstances. Together, our Company and MMF are building a legacy that inspires and unites.

These are our focus areas:	• Promoting preventive healthcare
• Agriculture & rural development projects	• Promoting sports
• Ensuring environmental sustainability	• Safe drinking water and sanitation
• Eradicating extreme hunger and poverty	• Support differently-abled
• Promotion of education	• Technology incubators
• Promotion of vocational skills and livelihoods	• Support for Armed forces/veterans
• Promoting gender equality and empowering women	• Contribution to Swachh Bharat Kosh Clean Ganga Fund
	• Animal welfare

4. OVERVIEW OF THE PLUMBING AND SANITATION SECTOR

When it comes to constructing either residential or commercial properties, it is imperative to have a robust plumbing and sanitation system in place to guarantee cleanliness and safe drinking water. With the need for future houses and smart cities on the rise, PVC pipes present an ideal solution. These pipes are crafted with precision and quality, ensuring excellent hygiene standards and safe disposal of wastewater. Capable of transporting a wide range of substances such as liquids, gases, and waste, PVC Pipes are the present and future of the plumbing and sanitation industry in the country, all while creating millions of employment opportunities.

4.1 OVERVIEW OF FINOLEX PIPES USED IN THE PLUMBING AND SANITATION SECTOR

ASTM PIPES AND FITTINGS:

Designed for potable water distribution and plumbing applications as it is lead-free and corrosion resistant.

Applications:

• Sugar Industry, Paper Industry, Distillery_lines

• Cold water plumbing

• Piping systems for swimming pools

• Pipes for hand pumps

• Water distribution mains

• Industrial process lines

Features & Benefits:

• Lead-free and Environment and health-friendly

• UV Stabilised ensuring protection from direct sunlight

• Ideal for potable water transportation

• Meet global standards for housing and industry application

• Tough, Durable, and Immune to termites

• Corrosion-free and chemical resistant

For more information, refer to our website here

CPVC PIPES AND FITTINGS:

Finolex Pipes premium offering which is ideal for hot and cold-water applications and are suitable for indoor and outdoor distribution systems.

Applications

• Hospitals

• Academic Institutes

• Hotels & Resorts

• Swimming Pools

• Manufacturing Plants

• High-rise and independent houses

Features and Benefits

• Lead free and Environment & health friendly

• UV stabilised

• Ideal for hot and cold-water applications

• Fire resistant

• High Impact Strength

• Leak proof joints

• Corrosion-free

For more information, refer to our website here

SWR PIPES AND FITTINGS:

These pipes are designed using high grade raw materials and are ideal for the efficient removal of waste in the drainage system.

Applications

• Waste discharge system in residences, commercial complexes, resorts, hospital_etc.

• Venting of gases and odour in domestic plumbing

• Rainwater transportation and harvesting for residential and commercial buildings

Features and Benefits

• UV Stabilised

• Corrosion and rust proof

• Lightweight

• Non-reactive to acids, alkalis, effluents, salts, and minerals

• Good resistance to combustion

• Stringent quality control

• Leak Proof

For more information, refer to our website here

SEWERAGE PIPES:

These underground and sewerage pipes are designed to carry night soil and waste from buildings to the drainage system and in turn to treatment plants. This is ideal for buildings where hygiene is a priority.

Applications

• Gravity Drainage

• Transportation and discharge of industrial effluents

• Drainage of surface water

• Sewer flow for transportation of night soil and water discharge

Features and Benefits

• Corrosion and rust proof

• Good resistance to combustion

• Non-reactive to acids, alkalis, effluents, salts, and minerals

• Easy Installation, Low frictional losses and scale formation

• Non-conductor of electricity

For more information, refer to our website here

4.2 KEY GOVERNMENT INITIATIVES IN THE AREA OF CLEAN DRINKING WATER AND SANITATION

The Jal Jeevan Mission	The Jal Jeevan Mission led by the Government of India aspires to provide safe and adequate drinking water through individual household tap connections by 2024 to all households in rural India.
	With a focus on the implementation of source sustainability, the Jal Jeevan Mission will mandate greywater management, water conservation, and rainwater harvesting. The functions under this mission include providing Funtional Household Tap Connection (FHTC), In-village water supply infrastructure, and retrofitting of completed and ongoing piped water supply schemes to provide FHTC and improve services.
Swachh Bharat Mission and National Mission for Clean Ganga	The Swachh Bharat Mission and the National Mission for Clean Ganga (NMCG) will propel investments in Water Supply and Sanitation (WSS) and therefore impact plumbing and sanitation products. The Swachh Bharat Mission focuses on the construction of households, communities, and public toilets, including conversion to pour-flush latrines. All of these factors will help drive the plumbing and sanitation sectors.
Atal Mission for Rejuvenation & Urban Transformation	Atal Mission for Rejuvenation & Urban Transformation (AMRUT) initiative by the government is focused on providing basic infrastructure services such as water supply, sewerage, stormwater drains, and the development of green spaces.
Smart Cities Mission	The objective of the Smart Cities Mission is to promote cities to provide core infrastructure with, a clean and sustainable environment and therefore, create a respectable quality of life for citizens through the application of smart solutions. Infrastructure elements include adequate water supply, sanitation and affordable housing.

4.3 OUTLOOK

In India, it is estimated that up to 40% of water is lost in transmission due to ageing pipe networks which makes the pipes and fittings business crucial in assuring the safe and clean use of water. From January 2023 to March 2023, the Jal Jeevan Mission has achieved the remarkable feat of providing 86,894 new tap water connections. So far, a total of 58 Crore people have access to clean drinking water through taps.

The domestic plastic pipes industry is estimated to be _ 315 billion¹¹ with organised players sharing nearly 65% of market. The pipes and plastic fittings industry is expected to grow at a CAGR of 14% between FY18 – FY26. The drivers of this growth are a combination of demand in the market and government initiatives that are focused on infrastructure in urban and rural areas.

5. OVERVIEW OF THE AGRICULTURE SECTOR

Sources

11 Times of India

The agriculture sector serves as the main source of livelihood for approximately 58% of Indias population. At present, India holds the distinction of being the largest producer of an array of commodities, including spices, pulses, milk, tea, cashew, and jute. Additionally, the country is also the second-largest producer of wheat, rice, fruits, vegetables, sugarcane, cotton, and oilseeds.

Over the last few years, the agriculture sector has demonstrated resilience and witnessed growth. With the distinction of being the largest employer of the workforce, the Gross Value Added (GVA) for agriculture and allied sector grew by 3.3%¹² in constant price terms in FY23. This increase is largely due to a rise in prices of almost all major agricultural commodities, especially cereals such as wheat and rice. As per the first advance estimates for 2022-2023 (kharif only), total foodgrain production in India is estimated at 149.92 million tonnes with rice production at 104.99 million tonnes. Indias agricultural and processed food products exports in FY23, were up by 9% compared to the same period last year and reached $26.3 billion¹³. Moreover, growth in the allied sectors including livestock, dairying and fisheries have experienced high growth and seen big jumps in export numbers.

Government initiatives include promoting micro-irrigation via dry and sprinkler systems under the ‘Per Drop More Crop component of Pradhan Mantri Krishi Sinchayee Yojana (PMKSY-PDMC). Other schemes and initiatives such as enhancing allocation to the rural infrastructure development fund, SWAMTIVA Scheme, and pushing crop diversification with Minimum Support Price (MSP) are all suggestive of the agriculture and allied sectors experiencing sustainable growth.

Sources

12 Press Information Bureau

13 The Financial Express

5.1 OVERVIEW OF FINOLEX PIPES USED IN THE AGRICULTURE SECTOR

PVC U PIPES _SELFIT AND RINGFIT_

These pipes and fittings are specifically manufactured and designed for varied pressure and gravity flow applications in agriculture, irrigation, swimming pools and domestic water supply.

Applications

• Irrigation Schemes

• Potable water supply lines

• Biogas plants

• Rising main and distribution lines

• Main lines for sprinkler and drip irrigation

• Household applications

Features and Benefits

• Non-reactive to acids, alkalis, effluents, salts, and minerals

• All weather jointing

• Quick installation with Ringfit pipelines

• Low frictional losses and scaling

• Increased product life

For information, refer to our website here

CASING PIPES

Manufactured using a special Lead-Free PVC-U compound, these casing pipes are ideal for the transportation of hard, salty, sandy or chemical aggressive water and so protect water lines from soil conditions.

Applications

• Domestic

• Irrigation

• Bore-well casing

• Industrial Mining

Features and Benefits

• Lead-free

• Excellent stiffness helps pipes withstand external pressure

• Horizontal slots enable laminar flow into the borewell reducing losses at the entrance of the borewell

• Non-conductors of electricity

• Maintenance-free and economical

• Manufactured from a special PVC-U compound with extra toughness

• Increased permeability due to continuous ribs

• Easy and quick installation For more information, refer to our website here

COLUMN PIPES

These pipes are suitable for water extraction from bore wells as they are uniquely designed and manufactured using lead-free compounds which allows them to withstand system load such as the weight of the pump, water and pipes for additional safety.

Applications

• Ideal for both urban and rural extraction of water from borewells

Features and Benefits

• Lightweight

• Easy to install

• High tensile strength

• High torque resistance

• Lead-free

• Anti-abrasion and anti-corrosion

For more information, refer to our website here

SOLVENT CEMENT

Our solvents are manufactured under license from Invogue Labs Inc. New York, U.S.A. with strict in-house quality standards to guarantee superior quality. This range of solvent cements facilitate strong joints between pipe to pipe, fitting to fitting or pipe to fitting combinations.

Applications

• To facilitate strong and consistent joints between pipes, fittings, or pipe-to-fitting combinations

Features and Benefits

• High-quality applicator for user-friendly and smooth application

• Colour-coded solvent packaging for ease of identification

• Non-toxic and non-flammable

• Environmentally friendly due to Low VOC emission For more information, refer to our website here

5.2 KEY GOVERNMENT INITIATIVES TO BOOST THE AGRICULTURE SECTOR

• Kisan Drones – Use of drones to spray farms with pesticides and nutrients to double farmers income. The drones will then also be used to carry produce from the farms to the markets directly and/or for crop assessment

• The government raised the farm credit target to _ 20 lakhs crore for FY24 with a focus on the development of animal husbandry, dairy and fisheries sector

• Promoting natural farming – assistance will be provided over a period of three years to 1 crore farmers and 10,000 bio input resource centres will be established

• _ 6,000 crore investment in a subsidiary of Pradhan Mantri Matsya Sampada Yojana to promote endeavours of fishermen, fish vendors, and micro and small enterprises to enhance the value chain and reach markets

• _ 70,000 crore allocated ‘Har Ghar, Nal Se Jal for FY24

• Funds allocated to promote micro irrigation in drought-prone areas of the country

• Government to launch ‘Atmanirbhar Clean Plant Programme to boost the availability of disease-free, quality planting material for high-value horticulture crops with _ 2,200 crore budget allocation

• RBI to raise the credit limit for collateral-free agriculture loans to _ 1.6 lakhs

• Agriculture Accelerator Fund to be set up to promote startups in rural India

5.3 OUTLOOK

The agriculture and allied sectors in India are expected to continue to grow boosted by government initiatives including improving productivity and enhancing the efficiency of resource utilisation. Additional measures such as digitalisation via platforms like e-NAM which integrated 1260 APMC mandis across 22 states and 3 union territories have helped facilitate online trading of 203 agriculture and horticulture commodities that enable farmers to realise better remunerative prices for their produce. Initiatives for logistics support such as transportation, cargo centres, and cold storage facilities has set the industry up to take advantage of growth opportunities, maximise revenue and reduce wastage. Some of the supply-side drivers such as hybrid and genetically modified seeds will further enhance productivity. India is also at the forefront of agricultural research and development which have a public-private partnership with innovative funding resulting in better productivity.

All of this is complemented by the policy support from the Government and increasing agriculture exports which sets the industry up for sustainable growth in the years to come.

6. THREATS

Our Company continues to remain vigilant to any threats that the business may face and we are committed to being prepared for unforeseen circumstances through good governance, forethought and planning.

Re-occurrence of COVID-19 pandemic-like conditions

A potential reoccurrence of the COVID-19 pandemic could have a significant impact on businesses and industries, as it remains a persistent threat worldwide. Although some regions have entered a post-pandemic phase, the rising number of COVID-19 cases in other countries suggests that the threat is not yet over. The construction industry, for example, could experience strain again as workers are required on construction sites and cannot work remotely. Therefore, it is essential to maintain vigilance and prioritise employee safety to mitigate potential impacts on business and industry.

Low consumer spending

Although trends suggest that consumer spending is on the rise, potential economic downturns abroad and an increase in inflation could put a damper on spending. The lingering effects of the pandemic and rising inflation globally, may continue to weigh on consumers minds and impact their spending decisions. Additionally, geopolitical tensions could further exacerbate economic uncertainties.

Rise in costs

While there has been some moderation in oil prices recently, any escalation in the Ukraine conflict or energy supply disruptions could potentially impact commodity prices, including industries such as construction and agriculture. The conflict has already led to inflation in several economies due to supply chain disruptions, which has affected not only agriculture-related products like fertilisers and potassium but also other sectors such as housing.

7. FINANCIAL ANALYSIS

Revenue (_ Crore)

Interest coverage ratio (times)

Debt-equity ratio (times)

FINANCIAL REVIEW AND ANALYSIS

Particulars	Unit	FY23	FY22	Variance
Revenue	Cr	4,397	4,647	-5%
EBITDA	Cr	293	1,024	-71%	Reduction in EBITDA is primarily attributable to sharp correction in PVC prices during the year.
EBITDA margin	%	6.65%	22.03%	-15%
PAT	Cr	237	1053	-78%	Reduction in net profit ratio is in line with reduction in profits during the year which, in turn, is primarily attributable to sharp correction in PVC prices.
PAT margin	%	5.38%	22.67%	-17%
RoCE	%	17.17%	67.09%	-50%	The reduction in return on capital employed ratio is in line with reduction in profits during the year which, in turn, is primarily attributable to sharp correction in PVC prices.
Interest coverage ratio	Times	10.74	72.66	-85%	Reduction in interest coverage is due to reduction in net profits and increase in the interest rate regime.
Debt-equity ratio	Times	0.11	0.07	52%	The increase in debt equity ratio is due to higher buyerscredit outstanding as at March 31, 2023, compared with March 31, 2022. On a net debt basis, the Company is debt free as at March 31, 2023 and March 31, 2022.
Inventory turnover ratio	Times	3.64	2.95	23%
Debtors turnover ratio	Times	13.91	19.27	-28%	Debtors Turnover Ratio decreased due to increase in average Trade Receivable in FY23 in line with increase in revenue from plumbing and sanitation.
EV/EBITDA	Times	36.18	9.37	286%	Attibutable to reduction in net profits during the year.
Market capitalisation	Cr	10,585	9,596	10%
Current ratio	Times	0.94	1.2	-21%
EPS	R Per share	3.82	16.98	-78%	Reduction in profits during the year which, in turn, is primarily attributable to sharp correction in PVC prices during the year.
Return on net worth	%	4.90%	27.27%	-22%

8. RISK MANAGEMENT AND MITIGATION

We place a high value on transparency in information sharing, which involves providing accurate information and being open to scrutiny and judgement. We believe that transparency is important for building communication and promoting authenticity and competency. Finolex Pipes is committed to upholding transparency in all its business operations and considers it a responsibility to disclose relevant information to stakeholders. We also aim to provide comprehensive information in the Management Discussion and Analysis section of our Annual Report.

Risk	Mitigation
Economic Risk	Indias economic growth is still expected to become the fastest-growing major economy in the world, due to progressive initiatives by the Central Government including regulatory reforms, investment plan propositions, and budgetary support. Our Company has proven to be resilient, consistent, and sustainable in providing growth and delivering robust results.
A repeat of major events such as a recurrence of COVID-19 pandemic lockdown along with other geopolitical crises may impact economic growth
Competition Risk	Our Company has worked tirelessly to maintain its competitive advantage. This has been achieved by differentiating its value proposition and we believe taking such actions continuously will ensure we remain relevant and at an advantage over the competition. Some of the actions taken to achieve this include:
New players entering the market in addition to other organised players looking to increase market share with a rise in opportunities does pose a risk to our predicted margins and market share
	• Focus on the plumbing and sanitation business through enhanced credit to dealers, the addition of new SKUs, and entering new markets like the North East of India
	• Maintain the highest product quality standards
	• Increase our network of dealers and deepen our relationship with them
	• Regular and important branding exercises
	• Improved logistics networks to increase our reach
	• Increased participation of on-field influencers
Input Risk	Within the Pipes and Fittings segment, any adverse impact of an increase in raw material prices is generally passed on to its customers, thereby protecting the Company from price fluctuations.
An increase in the prices of raw materials may impact the Companys margins and affect our profitability	In the PVC Resin segment, our Company is affected by the volatility of prices of certain commodity chemicals (Ethylene and PVC) and intermediates (EDC and VCM). Our operations require a continuous purchase and supply of materials such as Vinyl Chloride Monomer (VCM), Ethylene and Ethylene Dichloride (EDC) for the manufacturing of PVC Resin. The prices of PVC Resin manufactured by us are monitored by Company Management and adjusted to respond to a change in the import parity price of PVC in the market. The market price of input and output are generally adjusted over a period of time and therefore, the Company is exposed to price variations only for a limited period.
Geographic Concentration Risk	This risk has been mitigated by the fact that the Company has established 4 separate plants in Ratnagiri, Pune, Masar and Talegoan along with a wide distribution network of dealers and retailers that cater to customers across the country including less penetrated market regions such as the North East of India.
There remains the risk of concentration of the business in only a few geographies which may limit our Companys customer reach and engagement. Additionally, this may impact marketability and consumer familiarity which may impact our profitability.

9. HUMAN RESOURCES

We put our people at the center of what we do and consider them critical for our success. We have outlined our HR Strategy which has three pillars – Culture, Career and Compensation & benefits. Our HR Strategy helps us in building better organisation capabilities, hire and retain best talent and create a culture that delivers long term value and sustained competiveness in the market place.

Our employee value proposition, clearly defines our priorities – "We strive to be best at what we do, both in eyes of our customers and our co-workers. We believe in healthy work-life balance. We are truly one team with complementary strengths so that everyone is adding value. We bring meaning to everyones life by wholeheartedly giving back to our society. We are Finolex Parivaar !!". We have implemented several initiatives to help skill our employees to further enhance their productivity and increase employee engagement. We continue to dedicate our resources towards the development of leadership skills and competencies to ensure employee growth within the organisation.

These initiatives have also helped in retaining our best talent while also establishing the organisation as an attractive workplace with an engaged and productive workforce. As of March 31, 2023, our employee strength stood at 1,478 and we invested 26,680 hours in Learning and Development of our employees.

10. INTERNAL CONTROL SYSTEMS

Our has positioned adequate internal control procedures, proportionate to the nature of the business and size of operations for the smooth conduct of business. Internal audits are conducted at regular intervals at all the plants and cover key areas of operations. These audits are independent, objective and responsible for evaluating and improving the effectiveness of risk management, control and governance processes. An Audit Committee, consisting of five independent directors and one non-independent & non-executive director, monitors the performance of the internal audits. This is conducted periodically through audit plans, audit findings and the promptness of issue resolution through follow-ups.

11. INTERNAL FINANCIAL CONTROL

The Company has well-established and well-documented internal financial controls, which are commensurate with the nature of our business and the size and complexity of its operations. These controls form the basis of the overall framework of governance under which the Company operates. Moreover, these controls ensure the adequate safeguarding of our assets, adherence to the Companys policies, prevention and detection of errors, accuracy and completeness of financial records along with the necessary checks and balances to ensure the smooth functioning of the organisation. The internal financial controls are reviewed periodically to ensure their effectiveness and sustenance are maintained.

12. CAUTIONARY STATEMENT

In this Annual Report, we may have disclosed information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements - written and oral - that we periodically make, may contain statements that set out anticipated results based on the managements plans and assumptions. We have tried wherever possible to identify such statements by using words such as ‘anticipate, ‘estimate, ‘expects, ‘projects, ‘intends, ‘plans, ‘believes, and words of similar substance in connection with any discussion of future performance. We cannot guarantee that these statements will be realised, although we believe we have been prudent in these assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind. We undertake no obligation to publicly update any statements, whether as a result of new information, future events or otherwise, except as may be required by law.