Key takeaways of the call

Sales lost in Q4FY20 due to COVID Pandemic led lockdown was about Rs 190 crore and the impact at EBITDA level was about Rs 45 crore. Though the company had orders the company could not despatch as the customers not giving clearance as they are not in a position to receive it on account of uncertainties. The logistics was also hit and migrant labour went home back. So Q4FY20 is not normal as used to be.

Capacity utilization for FY20 stood at 80% overall with 82% for India operations and 75% for overseas.

PE Pipes business badly hit in FY20 and the fall is more pronounced in Q4FY20. This is despite healthy order book as the company put despatches on hold anticipating payment delays. As the products are supplied to government projects through the contractors of projects such as L&T, Indian Hume Pipes etc., the lack of funding by both Central and State Government for projects has hit the customers heavily. The company still has a healthy PE Pipes order book of Rs 325 crore.

Composite Cylinders: The company has strong orders but could not execute due to lockdown. As the major customer for this product is the neighbouring country, with road transport is disturbed in April 2020 completely and followed by WB lockdown the shipment could not be made as planned with trucks stuck for about 1-1.5 months with drivers deserting it. In the last 10 days the company could restart the supply. The customer has promised repeat orders of last year offtake, but having lost almost 2 months due to lockdown, it has to be seen how much of recoup the company could achieve this fiscal.

The company has already stepped down its Capex plans. Against planned capex of Rs 200 crore for FY20 the company has incurred a total capex of just Rs 145.4 crore in FY20. OF the Rs 145.4 crore capex incurred in FY20 about Rs 94.4 crore is toward established Products for capacity expansion, re-engineering and automation; Rs 51 crore for Value Added Products. Planned Capex for FY21 is about Rs 100 crore and of which about Rs 75-80 crore will be of maintenance capex.

Industrial Packaging: Greenfield expansion at Iowa, USA is under progress and to be completed by Q2-FY21. Brownfield expansion in India and overseas locations continues for future growth and leveraging of existing infrastructures.

The company is in B2B business unlike other polymer companies and supplies products under contract with clients. So any increase/decrease in price of raw-materials are passed on to the clients.

Expect some stability in Q2FY21 and normalcy to return only in Q3&Q4FY20.

Total debt of the company as end of Mar 2020 stood at Rs 832 crore, a reduction of Rs 8 crore from Rs840 crore in corresponding previous period.

April 2020 was a total disaster with complete lockdown. In later part of May 2020, the company started operations in phased manner with lot of conditions. The company is also forced to train local labours in place of migrant labours who moved back to native place. However in last week of June there was sudden imposition of lockdown affecting operations of plants such as Gummidipoondi in TAmilnadu. The Daman plant is also shutdown for brief period in later part of June as one of the security person was tested COVID positive.

International business is little better than domestic. Bahrain, and Saudi Arabia is still in lockdown. Thailand is still ok. UAE night operations is prohibited.

Value added product: Sales of Composite Cylinders was RS 190 crore vs RS 180 crore in FY19. The Composite IBC was about Rs 376 crore vs 371 crore and MOX Films it was about RS 118 crore vs. 110 crore.

IBC: The Company has presence in more geographies with large requirement. See traction from Europe. The company do not see demand as a problem unless there is a second round of lockdown in various geographies.

Pharma, Food, Fine chemicals, Agri chemicals are all doing well. Construction chemicals, Textiles are the customer industries that is weak.

There is more aversion especially in Europe from sourcing from China. So MNC companies that is looking for alternate sourcing to China the top most picks as low cost base are India, Vietnam, Indonesia and Thailand. The company has presence in all these markets and expect that will boost exports.

Overseas operations of the company is currently facing less challenge. The Indian operations are of mixed bag. Expect things to come to a stability in Q2FY21 and with Q3&Q4 being traditionally a strong quarter normalcy will return. There will be pressure on margin in H1FY21 with lower volume unable to recover the fixed cost. IF things are back to normal H2FY21 will return to normal EBIDA margin.

Expect CNG cylinder that has greater potential to come to market in Q3FY21. Globally only 3 players are in this CNG composite Cylinder market currently including the company.