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"We have excellent relationships with EDC manufacturers from all over the world. As such supply of EDC at competitive prices is assured." - Views on News from Equitymaster
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  • Oct 26, 2002

    "We have excellent relationships with EDC manufacturers from all over the world. As such supply of EDC at competitive prices is assured."

    Mr. S.S. Dhanorkar is Director - Commercial at Finolex Industries Ltd. He is a graduate from Sydenham College and went on to complete his CA. Mr. Dhanorkar has been with Finolex for almost two decades. Starting in the finance department, he moved on to head finance and marketing and is currently on the board of the company.

    In an interview with Equitymaster, Mr. Dhanorkar spoke about the potential for the PVC pipe & fittings industry, fundamentals of PVC industry and current expansions at Finolex Industries.

    EQTM : What is the outlook for PVC pipes and fittings over the next one to three years? Which are the key consuming industries of PVC pipes & fittings and what sectors do you believe will be the key contributors to growth?

    Mr. Dhanorkar Agriculture plays an important role in the demand for many goods. The single largest sector consuming PVC in India is PVC pipes and fittings. PVC pipes are mainly used in irrigation and rural water supply. Both these activities get the maximum attention and fund allocation from Central as well as State Governments. Even fifty years after independence, more than half the cultivable land area is still without assured irrigation and millions of people living in remote villages go daily without on-tap drinking water. Every year the State Governments are spending billions of Rupees on providing these basic facilities to the people and this is likely to continue over the next few decades. As a result the demand for PVC pipes and fittings is bound to keep growing at a healthy rate. Moreover, the demand for PVC in housing is yet at a very negligible level. As new applications are being accepted for plumbing, sanitation and rainwater, the demand for PVC pipes in housing is likely to see a quantum jump.

    EQTM : What is the demand-supply position for PVC in the South-East Asian region? PVC prices weakened over much of FY02. What is the domestic outlook for PVC over the next 3 years?

    Mr. Dhanorkar The PVC capacity in Asia Pacific is around 12 MMT. Not much capacity has been added over the last 2 to 3 years. However, the demand has been growing at an average of 4% to 5% p.a. China continues to be the largest consumer of PVC. The total demand in China is around 6 MMT against a capacity of less than 4 MMT. This means that China imports more than 2 MMT of PVC every year.

    From a low of around $400/ MT in December 2001, PVC prices moved to over $600/ MT by June 2002 and have been around that level till September 2002. It is to be noted that like all commodities, PVC prices are subject to cycles. However, what is important is the growth in demand.

    On the domestic market front, PVC is already in short supply in India. Against a capacity of 788,000 MT, the domestic demand for 2001-2002 was around 825,000 MT and this is expected to grow by 8% - 10% over the next 3 years. In other words demand will continue to be in excess of supply in the Indian market.

    EQTM : Could you share with us the extent of captive PVC consumption by the company ? Also, the company has expressed intentions of increasing PVC pipe capacity. Could you share with us details of the expansion ?

    Mr. Dhanorkar Considering the growth in the PVC pipes and fittings industry, FIL has already initiated expansion of PVC pipes capacity. The capacity will go up to 52,000 MTPA in a phased manner by the end of 2002. The captive consumption, including associate companies, is expected to grow to 60,000 MTPA. by next year.

    EQTM : In FY02, Finolex Industries reported a significant jump in operating performance despite drop in PVC prices. Could you highlight the key contributors of this performance?

    Mr. Dhanorkar The operating profits during 2001-2002 [period of 8 months] have increased sharply compared to the full year 2000-2001 because of a healthy difference between the PVC selling price and raw material prices. The Company managed to cover a substantial quantity of raw materials when the prices were very low whereas it got a benefit of higher selling prices for PVC as the prices increased. Besides this, FIL has continuously brought down its finance cost, by repaying loans and by substituting high cost loans.

    EQTM : Is there any risk of PVC feedstock producers present downstream causing bottlenecks in supply or are imports easily available?

    Mr. Dhanorkar The main raw material for production of PVC is Ethylene Di Chloride [EDC] and Ethylene. Both raw materials are internationally traded commodities and are available for sale from various countries like USA, Saudi Arabia, Iran, Qatar, Indonesia, Korea and Europe.

    FIL has entered into Long Term contracts for purchase of EDC from many suppliers. We have excellent relationships with EDC manufacturers from all over the world. As such supply of EDC at competitive prices is assured.

    EQTM : On a lighter note, do you have any favourites books/personality?

    Mr. Dhanorkar My favourite book is by Jonathan Livingstone Seagull. In a very simple way Richard Bach inspires us to grow from strength to strength, set higher targets and enjoy achieving them.



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