How is the market shaping for agriculture and non-agriculture pipes and fittings businesses?

The pipes and fittings industry experienced a phenomenal Q3, particularly Finolex, which achieved a high record and was the best Q3 ever. The strong performance was primarily driven by high demand in the agriculture sector, with a lot of pent-up demand in the market resulting in us doing more than 90,000 metric tons in Q3 of FY23.

Looking at the five-year compounded annual growth rates (CAGRs), both the agricultural and non-agricultural markets have performed well. The agriculture market has grown at a rate of 8-10 per cent CAGR over the last five years, and the non-agriculture market has grown upwards at a rate of 15 per cent. Looking forward to the next five years, we expect the overall market will grow anywhere between 10-15 per cent, with the plumbing and sanitation segment growing faster than the agricultural segment.

Which other key segment will be of prime focus to you apart from agriculture?

We are a 40 + year-old brand and have a long-standing reputation in the agricultural segment. Our products are well-known for their quality and durability, with pipes purchased by farmers over 40 years ago still functioning well.

We are well known in the market for our quality; even the farmers ask for Finolex pipes. So that is the strength of our brand. Over the past five years, we are gradually transitioning into the plumbing and sanitation segment, with a split of 35 per cent for nonagriculture and about 65 per cent for agriculture. As we move forward, we aim to grow the non-agriculture or the plumbing and sanitation segment and achieve an even split within the next 2-3 years.

What is your business outlook for 2023 and for the next 5 years?

2023, so far has been a positive year and this is the year when we have surpassed the pre-COVID levels, which is quite encouraging. We expected it to take three years, but it only took two years for us to achieve it. This growth is primarily due to pent-up demand and the construction industry's success in India, particularly in housing and infrastructure, which has reflected positively in our plumbing and sanitation segment, allowing us to grow faster than the market. However, it is important to note that the market volume is highly dependent on PVC prices, which have been volatile in recent years due to COVID.

Over the last decade, PVC prices were steady, but during the pandemic, they rose significantly. The PVC price went up to 80 per metric tonne and then fell to almost $750 per metric tonne. So, this is a huge fluctuation, and the market is efficient, which means that the price is passed on to the market as quickly as possible. It has a significant impact on market demand, with retail networks willing to stock up in inventory when prices rise, but keeping lean inventories when prices fall. The volume of business is therefore affected by this.

Moving into FY '24, the outlook depends on the stability of PVC prices, and it is difficult to predict their future based on the past two years. We need to keep a close eye on this to make predictions for the future.

How are you planning to increase your market and revenue share in the upcoming quarters?

The pipe and fitting industry experienced its strongest quarters in Q1 and Q4, while Q2 typically proved to be weak due to the monsoon season. It is especially in this season the volume drops, particularly in the agricultural sector. However, efforts are being made to maintain and grow our business in the agricultural segment, with brand strength and network being key factors driving growth. While we are a strong brand, most of our growth is seen in Tier 2, Tier 3, and Tier 4 cities, where we have a stronghold in the agriculture segment. We are leveraging this growth for our plumbing and sanitation segment as well. The goal is to accelerate growth in the non-agricultural (Plumbing & Sanitation) segment while continuing to expand the agricultural segment.

What kind of demand you are expecting from your target markets (Both Agriculture and Housing Segment)? Are there any plans to diversify into other markets and cities?

Our goal is to achieve steady growth in both the rural and urban markets. When we talk about agriculture, it is much more in the rural markets and when you talk about the plumbing and sanitation it is much more in the urban markets. So, we are focusing on having deeper penetration in the urban area and are going about it in a targeted way.

The selling process for agriculture and plumbing and sanitation is very different. Agriculture is much more of a demand-pull, while non-agriculture, i.e. plumbing and sanitation focuses on push marketing. When farmers have the money, they seek Finolex pipes as they want to invest in quality products. In contrast, the non-agriculture segment is more competitive and requires push marketing. Branding plays a crucial role in this segment, and we have to spend heavily on brand building. There is also a need for retail presence, in terms of advertising, promotion and meeting the influencers such as plumbers, architects, and builders. So promotional activities are essential to stay ahead of the competition. So, the approach is very different for these two segments, and our efforts are targeted towards ensuring growth in both areas.

What are the new trends you are seeing in the plumbing, sanitation pipes and fittings business?

The current trend is moving towards solution sales rather than just product sales. As far as the products and their ranges are concerned, most manufacturers offer similar products, making it a commodity business. Differentiation can be achieved through the quality of the products, brand, brand pull and distribution network. So, all these things contribute to how well you sell. The way you can service the market is what sets companies apart and that is where we are focusing our efforts.

The prices of PVC pipes have been quite volatile for some time. How are you dealing with it?

Finolex is the sole manufacturer of pipes and fittings which is integrated downwards. We produce our own PVC and raw materials. We consume all our raw materials. This provides us with a reasonable edge against price fluctuations. It is important to note that the market is highly efficient, and any changes in the price of PVC are immediately reflected in the market. Consequently, our profit margins are linked to the PVC cycle. It is during the rising market; we can make more money than during downward trends.

Kindly shed details on your plans for capex.

In March, we invested over Rs 100 crores by setting up a new fittings plant in and around Pune. This is a stateof-the-art facility and we have augmented our fitting capacity by almost 25 per cent. We are continuously assessing new investment opportunities. Currently, we have a pipe production capacity of 3,70,000 metric tonnes, which is adequate for the next few years. However, we acknowledge the need to prepare for future growth and are continuously evaluating potential investment prospects.

Are there any plans to further expand your workforce?

At Finolex, we are in the process of transitioning from a traditional manufacturing company to one that is digitising its systems, processes, and operations. This requires us to constantly add new capabilities in data, data warehousing, and analytics. We are also adding new capabilities in sales and marketing, as we shift our focus from being an agriculture-focused company to a plumbing and sanitation company. Also, the way we sell will also be very different. To support this transition, we are bringing in people from various industries, such as building and construction, who have expertise in the adjacencies, that are ahead of the pipes and fittings industry. These are the new things that we are adding to the dominant sections of our business.

What kind of new marketing strategies and campaigns you will be implementing in future? What kind of investments you have chalked out for these campaigns?

The company recognises that developing closer relationships with customers is a critical part of its operations. This involves providing better service, ensuring that products are available in remote areas, and making our product available when the customer demands it.

The company's recent expansion into the plumbing and sanitation sector has necessitated a need to have a substantial reach to the customer base, which is very different. As a result, we have invested heavily in building relationships with industry influencers such as plumbers, engineers, architects, and builders. Although these efforts may not be visible, all of this is happening behind the scenes. However, we have evidently taken a significant leap in our retail network reach and the branding associated with it.

In addition to marketing, the company has also invested heavily in IT to ensure end-to-end transparency and efficiency. This includes implementing systems to track sales and customer purchases, as well as leveraging analytics to better understand customer behaviour and preferences. The company recognises the importance of IT infrastructure for both primary and secondary sales and is committed to ongoing investment in this area to support its growth strategy.