Finolex Industries Ltd Management Discussions.

Indian Economy

The Indian economy is one of the fastest-growing emerging economies and is the 5th largest economy in the world in terms of GDP. Owing to various global as well as domestic factors, Indias GDP declined to 4.2% in FY 2019-20. This decline was primarily driven by a slowdown in the manufacturing and construction sectors as well as a decline in consumption.

Despite the slowdown, the country has improved its ranking in the World Banks ‘Doing Business report and stood 63rd in CY 2019, in comparison to ranking 142nd in CY 2014. This improvement was largely on account of measures such as: corporate tax rate cuts; the easing of manufacturing policies to boost the ‘Make in India campaign and the infusion of H 70,000 crore into public sector banks. With these initiatives, the PMI for the month of January 2020 rose to 55.3, taking it to an eight-year high.

However, global economic growth has come to a complete standstill due to the sudden outbreak of the COVID-19 pandemic. To contain the spread of the virus, nationwide lockdowns were imposed across India and economic activity came to a complete halt. Towards the end of the fiscal year, GDP was severely affected by the COVID-19 outbreak. GDP declined to 3.1% in the final quarter of FY 2019-20, reflecting the impact of the lockdown that began in March.


The Indian Economy is expected to slow down to a growth rate of 1.9% in FY 2020-21 from its current levels of 4.2% growth in the current fiscal year. Indias growth rate is expected to recuperate in FY 2021-22 and is anticipated to touch 7.4% on the back of favourable economic environment in the second half of CY 2020. The Indian government has introduced fiscal measures and monetary policies to revive the economy and it is expected to deliver favourable results in the near term.

Industry structure, developments and outlook

Finolex Industries Limited (FIL) is a leading manufacturer of PVC Resin and the largest producer of PVC Pipes & Fittings in India. The Company offers the latest range of superior quality and durable PVC-U pipes and fittings used in agriculture, construction and industrial operations. Its product portfolio consists of two maJor divisions:

• PV C Resin

• PV C Pipes and Fittings


PVC resin is the third largest polymer in terms of production and consumption. It is derived from the polymerization of vinyl chloride and is custom-made for utilization as a common plastic material in the agriculture and construction sector. It is used in pipes and fittings, window frames and shutters, wires and cables, etc. It is also a preferred plastic material for application in flooring, films and sheets. Of the total resin production in India, approx. 73%2 is consumed by pipe manufacturej With the increase in demand for pipes, the consumption of PVC resin is estimated to grow at a consistent rate. The demand for PVC in India is proJected to grow at a CAGR of 6.81% between CY 2019 and 2030 to reach 6,779 KTPA by 2030.3 A growing agriculture sector, infrastructure development, rapid industrialization, favourable government policies, rising urbanization and growing usage of PVC in flooring applications across private, commercial and industrial premises are expected to contribute to the growing demand for PVC resin. FIL has a state-of-the-art resin manufacturing plant in Ratnagiri, spread across 650 acres. Global PVC demand break down


PVC pipes are commonly used for irrigation, building and construction, water supply and sewage management etc. Extremely durable, PVC pipes are easy to install, lightweight, strong and recyclable making them a cost-efficient and sustainable choice. The Indian PVC pipe market is categorised into chlorinated, plasticized and un-plasticized varieties.

The demand for PVC pipes and fittings in India currently stands at 20 Lakh MT and is proJected to grow at a CAGR of 14.7% between FY 2018-26. This growth is primarily driven by government investments in irrigation, housing and sanitation, through schemes such as ‘Housing for All, ‘Atal Mission for ReJuvenation and Urban Transformation(AMRUT)and‘PradhanMantri Krishi Sinchayee YoJana (Prime Ministers Agriculture Irrigation Scheme). PVC pipes are extensively used in the agricultural sector for field irrigation. Continuous depletion of water tables across the country has forced people to source water from far-flung places. To support the rural economy and the farmers incomes, Pradhan Mantri Krishi Sinchayee YoJana therefore aims to improve irrigational facilities. The budget allocation for the scheme has been increased by 18% to H 3,500 crore in FY 2019-20. Increased investments in residential and commercial infrastructure have resulted in a further rise in demand for PVC pipes. The Company serves customers in agricultural and housing, construction and infrastructure sectors, through its network of over 22,000 direct and indirect retail outlets. PVC pipes and fittings are widely used for building and construction, irrigation, water supply and other purposes. The Company offers superior quality PVC-U and CPVC pipes and fittings across the country. FIL has world-class manufacturing units in Pune and Ratnagiri in Maharashtra and Masar in GuJarat.

Agriculture Sector

Agricultural Pipes and Fittings

• PVC-U Selfit Pipes – These pipes have a unique design with a plain end and a self-socketed end which enables a perfect fit without the use of couplej Its strong solvent cement Joint is durable, permanent and eliminates the inconvenience of loose couplers, making it economical and efficient.

• PVC-U Ringfit Pipes – FIL is the first player in India to offer a unique range of PVC-U pipes that are specially designed for higher diameter requirements and which eliminate the need for solvent cement. The sealing ring ensures leak-proof Joints and easy installation. The entire range consists of sizes ranging from 63 mm to 400 mm in diameter, with 4,6,8 and 10 kgf/cm2 working pressure.

Casing Pipes

Casing pipes are manufactured using a unique PVC-U compound which makes them ideal for the transportation of hard, salty, sandy or chemically aggressive water. These pipes are also anti-corrosive, preventing the damage of pipes due to chemicals present in the soil. The pipes are easy to install and the threaded ends can be screwed to each other without the use of cement or adhesives. Moreover, the pipes are durable, maintenance-free & economical in comparison to conventional pipes.

Column Pipes

Column pipes are uniquely designed and manufactured using state-of-the-art CNC machines. These pipes have a square threaded profile with an optimal load- holding capacity. The pipes are easy to install and have anti-abrasion and anti-corrosion properties that ensure durability. Additionally, the smooth internal surface of the pipe reduces energy consumption due to friction-free water flow, increasing the life of the pump.

Solvent Cement

Solvent Cement is primarily used to Join two or more pipes or fittings. FIL offers high quality Solvent Cement that is easy to apply and is environmentally friendly. The Company markets solvent cement for diverse applications ranging from agriculture and sanitation to plumbing.

Opportunities in Agricultural Sector Budget Allocation

• An amount of H 2.83 lakh crore has been allocated for the Agriculture and Allied Activities sector.

• Vision to double farmers income by 2022-23.

• Agro-credit up to H 15.00 lakh crore would be available in FY 2020-21.

• Warehouse Development and Regulatory Authority (WDRA) norms will be followed for further development and maintenance of warehouses. Viability gap funding will be encouraged for building efficient warehouses in the PPP model.

• H 3.60 lakh crore was approved for Jal Jeevan Mission which aims to ensure access to potable drinking water in rural areas. It aims to ensure sustainability of water resources, promote water harvesting and desalination.

• Allocation for National Rural Drinking Water of H 11,500 crore for FY 2020-21.

• Cities with million-plus populations will be encouraged to achieve the above obJectives in FY 2020-21.

• Allocation for Pradhan Mantri Krishi Sinchayee YoJana (PMKSY) at H 11,127 crore.

Other Initiatives

• Measures have been taken to improve organic, natural, and integrated farming. Jaivik Kheti Portal, for example, aims to strengthen the online national organic products market.

• Encouragement for Zero-Budget Natural Farming.

• National Bank for Agriculture and Rural Development (NABARD) aims to map and geo-tag agro-warehouses, cold storages, reefer van facilities, etc.

• Financing on Negotiable Warehousing Receipts (eNWR) will be integrated with Electronic National Agriculture Market (eNAM)

• Under Deen Dayal Antyodaya YoJana – 0.5 crore households mobilized with 58 lakh SHGs to achieve poverty alleviation.

• PM-KUSUM, a scheme to support the installation of off-grid solar pumps in rural areas to reduce their dependence on electricity grids, will be expanded to include 20 lakh farmej This will provide an opportunity to set up standalone solar pumps.

Housing, Construction and Infrastructure Sector ASTM Pipes and Fittings

Finolex ASTM Plumbing Pipes and Fittings are a better alternative to traditional GI piping systems. They are technically superior, cost effective and offer many other advantages. They are corrosion-resistant and highly- durable and offer excellent solutions for transporting lead-free potable water. The Company offers ASTM pipes that are UV stabilized and lightweight, making them easy to transport and install. These pipes are most suitable for potable water distribution and varied plumbing applications. They are generally used in the following applications:

• Cold water plumbing in buildings.

• Piping systems for swimming pools.

• Pipes for hand pumps.

• Salt water lines.

• Water distribution mains.

CPVC Pipes and Fittings

FIL offers CPVC pipes and fittings ideal for supplying a continuous flow of hot and cold potable water. CPVC plumbing pipes and fittings are an excellent alternative to conventional materials and are extensively used in residential apartments, hospitals, swimming pools, manufacturing plants, hotels and resorts. Some of the main features of CPVC pipes include the following:

• These pipes are an ideal solution for hot water up to 93C.

• CPVC impedes bacterial growth.

• CPVC pipes are UV- stabilized and are designed for a lifespan of around 50 yeaj

• These pipes are manufactured with lead-free and environmentally friendly compounds.

SWR Pipes and Fittings

Finolex SWR pipes and fittings are primarily used for soil, waste and rain water management. These products are lightweight and easy to install and are generally used for non-pressure plumbing applications that discharge wastewater without leakage. Finolex SWR pipes ensure protection from scale formation, rusting, weathering & chemical action and are manufactured in conformation to internationally accepted quality standards and IS specifications. Additionally, these pipes are immune to bacteria, fungi, micro-organisms, rodent and insect attacks. Finolex SWR pipes and fittings are a permanent solution for sanitation and drainage systems and are economical when compared to other conventional drainage systems.

Sewerage Pipes

Specially designed to control underground non pressure applications like gravity drainage and sewer flow for transferring soil and water discharge. Finolex SDR series sewerage pipes are used in various applications such as treating surface water (storm water) and industrial effluent. These pipes are self-socketed and are Joined using solvent cement (cold welding).

Opportunities in Housing, Construction and Infrastructure Sector Housing Initiatives

• In the 2020 budget, the outlay for the Housing Urban Affairs Ministry approached H 50,039.90 crore (an 18.4% increase from the revised estimate).

• Pradhan Mantri Avas YoJana (PMAY), an initiative for providing affordable housing to the urban poor, aims to build 20 million affordable houses by 2022. The budget allocation for affordable housing increased to H 27,500 crore (an 8.5% increase).

• H 13,750 crore has been allocated for the Smart Cities Mission and AMRUT (a 14% increase).

• An additional deduction of up to H 1.5 lakh for interest paid on loans taken for affordable housing, has been extended until 31st March, 2021.

• A tax holiday for developers of affordable housing will be extended by a year.

• The date of approval of affordable housing proJects entitled to receive a tax holiday on profits earned by developers has been extended until 31st March, 2021.

• Under the Affordable Housing Fund (AHF), H 25,000 crore has been allocated to aid incomplete housing proJects.

Healthcare Initiatives

• H 69,000 crore has been allocated to the Healthcare sector.

• Under the PM Jan Arogya YoJana (PMJAY) H 6,400 crore (out of H 69,000 crore) has been allocated towards a scheme offering insurance cover of H 5 lakh per year to poor and vulnerable families.

• More than 20,000 hospitals already empanelled under PM Jan Arogya YoJana (PMJAY).

• Under the Jan Aushadhi Kendra Scheme 2000 medicines and 300 surgical will be offered to all districts by 2024.

Environmental Initiatives

• Under the Swachh Bharat Mission, H12,300 crore has been allocated for FY 2020-21.

• A strong commitment to the ODF Plus (Open Defecation Free) programme has been announced. This aims to promote ODF behaviour and consists of four components including ODF-S, Solid Waste Management, Liquid Waste Management and Faecal Sludge Management.

• There will be a greater emphasis on liquid waste and grey water management as well as on solid-waste collection, source segregation and processing.

Government allocation to above schemes

Risk Management

Risk Mitigation
Economic Risk A soft or modest economic growth might have a cascading effect on several industries or sectors and it could impact business sustainability. Indias economic growth continues unabated, despite several macro- and micro-economic challenges. Regulatory reforms, proposed investment plans and budgetary support is likely to aid economic recovery after the Covid-19 pandemic, that caused a temporary halt to operations across the country.
Competition risk Competition risk describes the risk associated with growing competitive pressures and it might prevent the Company from achieving its predicted margins and market share. The Company is a leading player in Pipes and Fittings segment. The Company always strives to meet challenges and satisfies customer demands by offering superior quality, advanced products that meet diverse requirements.
Input risk Increases in the prices of raw materials could impact margins and profitability. In the Pipes and Fittings segment, the Company passes on price fluctuations to its customers, thereby protecting itself from any adverse impact of an increase in raw material prices. In the PVC resin segment, the main raw material is ethylene dichloride (EDC) which is abundantly available. An increase in price of EDC may result in a temporary decline in profitability. However, the effect is mitigated by resulting changes in demand and supply over a period of time.
Geographic Concentration Risk Failure to expand the geographical reach of the business may limit the Companys ability to reach its customers and promote itself efficiently. It may have an adverse impact on the Companys profitability. To mitigate such risks, the Company has established 3 plants - in Ratnagiri, Pune & Masar and has a wide distribution network of 900 dealers and 21,000+ retailers that cater to customers across the country.

Transparency in information sharing

Transparency refers to sharing accurate information and acting in an upfront and Just manner. Processes, instructions and information related to the Company is directly accessible to those concerned, and the Company provides relevant information to understand and monitor various processes. The Company believes in upholding utmost transparency in all its business operations and therefore, considers it a prime responsibility to disclose relevant information to its stakeholdej The Company also strives to provide maximum possible information in the Management Discussion and Analysis segment of the Annual Report.

Internal Control Systems

The Company has positioned adequate internal control procedures, proportionate to the nature of 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 non-executive directors, monitors the performance of the internal audits. This is conducted on a periodical basis through audit plans, audit findings and the promptness of issue resolution through follow-ups.

Internal Financial Control

The Companies Act, 2013, has made significant changes in financial reporting requirements to comply with international practices. The key requirements are entity level controls and financial reporting controls. The Company has in place all the required controls and frameworks to identify key processes and evaluate the efficiency of internal financial controls.

Human Resources

The Company considers its human resources a critical factor for its success. The Company has drawn up a comprehensive human resource strategy to create a friendly, dynamic work environment that effectively emphasizes the importance of a team while building a professional work culture. In line with the Companys human resource strategy, it has implemented various initiatives to build better organizational capabilities. The Company believes it will enable them to sustain competitiveness in the global market. The Companys focus remains on attracting talent and retaining the best to create a productive and engaged workforce.

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 realized, 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 materialize, 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