ET 500: Finolex Industries, India's largest PVC pipemaker, set to make it big in next five years

When a company has the entire Indian population as its target customer base, its focus on a single product is scarcely a constraint. Pune-based Finolex Industries is set to make it big in the next five years as it expands capacities, improves margins, deepens reach, de-leverages balance sheet and sheds unproductive assets to emerge a much stronger and remunerative company for its shareholders — all this while selling just PVC pipes.

“You need pipes wherever you have to transport fluids. Every piece of agricultural land, every household needs to source water. So every Indian is a potential customer for us,” said Saurabh Dhanorkar, managing director of Finolex Industries.

The company is already the largest PVC pipemaker in India, with an installed capacity of 230,000 tonnes, and still plans to add 30,000-40,000 tonnes to its capacity every year for the next three-four years.

It has set up a network of 15,000 dealers who buy the company’s products on 100% advance payment. This is set to expand in line with the company’s growth plans. “We have strong presence in the North, West and South. It is in the eastern part of the country that we plan to expand now. We recently set up a warehouse in Cuttack in Odisha that has cut the delivery time for dealers. Similar warehouses can be set up in other states to improve reach,” said Dhanorkar.

The company already sells in these areas, but Dhanorkar explained, “If we don’t have warehouses we can cater to only large dealers who can buy in truck loads. But with our warehouses nearer to the market, we will be able to reach even the smaller dealers.”

The company is actively considering leveraging this large and growing network of dealers to start distributing other related products. “This huge dealership network in itself is an asset for the company. A dedicated team is exploring various other products we could sell through this,” said Prakash Chhabria, executive chairman of the company.

As Finolex aims to achieve volume growth of 15% annually over the next three-four years, it is simultaneously working on improving its profit margins by monetising its established brand. It ended 2013-14 with a PBDIT (profit before depreciation, interest and taxes) margin of 15.3%, which is gradually expected to reach 20% — due to not just better pricing of pipes but also rising proportion of fittings in the overall sales.



A neglected segment till recently, fittings is suddenly being seen as a segment with a great potential that offers better margins. “There may be some 500 pipe manufacturers in the country, but not even one fifth of them can make fittings,” said Dhanorkar. Therefore, fittings manufactured by Finolex are also used with pipes of other players.

“Fittings contribute around 6-7% of revenues from the pipes segment. This is expected to rise to 12% over the next one-two years,” said Dhanorkar.

Finolex Industries is the only backward integrated pipe maker in India that manufactures its own PVC. The company’s growth plans will soon lead to a situation where its entire 270,000-tonne PVC-making capacity will be used for captive consumption.