Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prince Pipes And Fittings Ltd (BOM:542907, Financial) reported a 3% YoY volume expansion and a 9% YoY revenue growth, reaching INR604 crores in Q1 FY25.
- EBITDA and PAT grew by 29% YoY and 25% YoY respectively, indicating strong profitability improvements.
- The company has aggressively enhanced its branding initiatives, which are translating into meaningful volume growth.
- The buildout of the bathware segment continues with strong momentum, with expectations for Aquel by Prince to gain presence across all zones in India over the next two quarters.
- The construction of the Begusarai plant is progressing on course, which will cater to the fast-growing market in East India.
Negative Points
- EBITDA margin for the quarter was lower than usual at 9.6%, impacted by product mix and increased branding costs.
- The company experienced a significant increase in inventory days from 52 days in March 2024 to 70 days in June 2024.
- There was no significant inventory gain in Q1 FY25 despite the increase in PVC prices towards the end of the quarter.
- The company has downgraded its long-term EBITDA margin guidance slightly from 12%-14% to 12%-13%.
- There is ongoing destocking in the channel due to a downtrend in PVC prices, which could impact short-term demand.
Q & A Highlights
Highlights of Prince Pipes And Fittings Ltd (BOM:542907) Q1 FY25 Earnings Call
Q: This quarter saw a 13.5% volume growth. Can you provide a broader understanding of how the industry performed and whether Prince Pipes did better? Also, can you provide guidance on volume growth and margins for FY25?
A: Growth was driven across agriculture, plumbing, and infrastructure segments. We believe the industry is doing well, particularly in real estate and agriculture. We maintain our guidance of 15% volume growth for FY25. Despite a slight dip in EBITDA margin this quarter due to product mix and increased branding costs, we believe a 12% to 13% EBITDA margin is sustainable long-term.
Q: Q1 FY24 had a low margin due to an SAP issue and inventory loss. Adjusting for this, margins still dropped in Q1 FY25. Can you explain why?
A: The current EBITDA margin is lower due to a higher proportion of agriculture sales, which have lower margins, and increased A&P costs. However, we believe a 12% to 13% EBITDA margin is achievable long-term.
Q: April and May demand was strong, but June saw some softness. How has demand been in July, and what are your expectations going forward?
A: April and May were robust, but June saw some destocking due to falling PVC prices. This trend continued in July. However, we are optimistic about long-term demand due to affordable raw materials, strong real estate, and infrastructure sectors.
Q: CPVC volume growth has been strong for your peers. How did Prince Pipes perform in this segment?
A: While we don't provide segmental breakups, CPVC continues to do well. We are optimistic about CPVC volume growth due to increased local raw material capacity, which will keep prices affordable.
Q: Your ROE has declined from 20%-25% pre-COVID to 12%-13% now. What are your plans to improve this?
A: We are adding capacity aggressively, which will improve asset utilization and returns over the next two to three years. We expect ROE to improve as new capacities come online and start contributing to revenue.
Q: Inventory days increased from 53 days in March to 70 days in June. Are you expecting any inventory losses in the September quarter?
A: Inventory levels are always in the range of 60 to 70 days. While there could be inventory losses due to falling PVC prices, we believe supply is paramount for meeting demand. Inventory gains and losses are part of the business and tend to even out over 12 months.
Q: What is the current capacity utilization, and what are your plans for capacity expansion?
A: Current capacity utilization is around 60%. We are adding 45,000 tons of capacity at our Bihar plant by January and another 35,000 to 40,000 tons through debottlenecking at existing plants over the next three to four quarters.
Q: Are you planning to enter the OPVC segment?
A: Currently, we are focused on distribution-driven products and private projects. We have no immediate plans to enter the OPVC segment but will continue to evaluate opportunities strategically.
Q: Given the strong volume growth and reduced receivables, are there any cash discounts or other incentives affecting margins?
A: We have optimized our credit policy but the margin impact is primarily due to product mix and increased branding expenses. We aim to further reduce DSO while maintaining growth.
Q: What is your outlook on PVC prices and their impact on margins?
A: PVC prices are currently affordable, which is good for volume growth. We expect prices to remain range-bound. Any support from the government for local manufacturers could impact prices, but it's speculative to predict timing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
