Technical collaborations with Lubrizol and Tooling Holland will have a positive impact on Margins: Parag Chheda, ED, Prince Pipes

Parag Chheda, Executive Director, Prince Pipes, talks about the technical collaboration with Lubrizol and Tooling Holland BV, Q1FY21 numbers, demand and Maharashtra Government’s decision to reduce the stamp duty during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Recently the company has signed two technical collaborations with Lubrizol, the largest manufacturer of CPVC compounds and with Tooling Holland BV to significantly enhance internal operational efficiencies. Brief us about the benefits of these technical collaborations?

A: We have made two announcements in the last few days and they are  

Tooling Holland – It is the Netherlands-based company and they are supplying moulds over the world. We will get two major benefits from it and they are (a) Efficiencies: it will improve our efficiencies and (b) Cost optimization: We shall have good cost optimization.

Lubrizol FlowGuard – Collaboration is a recent one. It is an American company and they are the world’s inventors for the CPVC compound and they also happen to be the largest manufacturers CPCV compound.

So, I hope that these two collaborations will have a very good impact on our margins looking from mid-term to mid-term  

Q: Q1FY21 numbers have been weak as expected, however, the company managed to post 10%+ margins. The cost of materials consumed has reduced from 73% of revenue to just 60%. What trend is visible on margins and do you think that it is sustainable?

A: The cost of material is a combination of the purchase of the raw material, which was effective, as well as our utilization because we were able to utilize our plant fully. Also, in March, during the lockdown, we were carrying huge inventories, which we were able to consume. Even though our manufacturing unit was working at maybe 20% lesser capacities but we had good inventories so we were able to capture the demand fully. That has helped us to improve our margins.

Q: Tell us about how the demand was tampered due to the COVID-19 and what kind of recovery is visible? What is the trend on the demand side?

A: I think, the entire country was under 100% lockdown in April but we were able to liquidate our inventories in May. When it comes to June then we were able to recover completely in the month compared to the last year’s June. If I will talk about the second quarter, which is the month of July and August, then we have recovered more than 80%. So, honestly, we have been able to perform better than our expectations. In the coming months, if I specifically talk about quarter three and four, because the period will be the post-monsoon period. So, I am seeing a good demand picking up from the agriculture sector as well as for the building material segment.

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Q: Recently the Maharashtra government has reduced the stamp duty by 2-3% till December. What is your assessment on it and do you think that this will create demand for the forward integrated sectors?

A: The state has given some kind of incentivisation and with this reduction, I expect that within the state there will be price improvement, whether it is on the commercial or private properties. In the same way, we will see good demand from the building material segment.