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Edited Transcript of SUPREMEIND.NSE earnings conference call or presentation 29-Jul-19 10:30am GMT

Q1 2020 Supreme Industries Ltd Earnings Call

Mumbai Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Supreme Industries Ltd earnings conference call or presentation Monday, July 29, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mahaveer Prasad Surajmal Taparia

The Supreme Industries Limited - MD & Director

* P. C. Somani

The Supreme Industries Limited - CFO

* Shivratan Jeetmal Taparia

The Supreme Industries Limited - Executive Director

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Conference Call Participants

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* Aasim Bharde

IDFC Securities Limited, Research Division - Research Analyst

* Abhishek Ghosh

DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation

* Ashish Poddar

Anand Rathi Financial Services Limited, Research Division - Research Analyst

* Avi Mehta

IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary

* Bhargav Buddhadev

Kotak Mahindra Asset Management Company Limited - Research Analyst

* Chintan Shah

* Kartik Mehta

IDFC Asset Management Company Limited - VP & Fund Manager

* Kishan Gupta

CD Equisearch Private Limited, Research Division - Senior Analyst

* Kunal Lakhan

Axis Capital Limited, Research Division - VP of Realty and Aviation

* Maulik Patel

Equirus Securities Private Limited, Research Division - Research Analyst

* Nehal Shah

ICICI Securities Limited, Research Division - VP of Research of Midcaps

* Nikhil Gada

Asian Markets Securities Private Limited, Research Division - Analyst of Consumption Appliances, Plastics, and Building Materials

* Praveen Sahay

Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst

* Ritesh Shah

Investec Bank plc, Research Division - Analyst

* Ritesh Badjatya

* Rohan Gupta

Edelweiss Securities Ltd., Research Division - Research Analyst

* Sonali Salgaonkar

Jefferies LLC, Research Division - Equity Analyst

* Srinath V.

Bellwether, Inc. - Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to The Supreme Industries Q1 FY '20 Investor Conference Call hosted by Axis Capital. (Operators Instructions)

I now hand the conference over to Mr. Kunal Lakhan from Axis Capital. Thank you, and over to you, sir.

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Kunal Lakhan, Axis Capital Limited, Research Division - VP of Realty and Aviation [2]

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Hi. Good evening, everyone. Thanks for taking time off this evening to attend this con call.

Today, we have from Supreme's Management, Mr. S. J. Taparia, Executive Director; Mr. P. C. Somani, Chief Financial Officer; and Mr. R. J. Saboo, AVP, Corporate Affairs and Company Secretary of the company.

I would now like to invite Mr. Taparia to begin this con call. Thanks, and over to you, sir.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [3]

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Thank you very much, Mr. Kunal. I'm S. J. Taparia, Executive Director of The Supreme Industries Limited. Mr. M. P. Taparia could not attend the conference due to minor health issues.

I welcome all the participants, who are participating in the discussion of the unaudited, stand-alone and consolidated financial results for the first quarter ended 30th June 2019.

The stand-alone results and the consolidated results are already with you. I will give brief on company's product operating performance and other highlights.

The company sold 113,428 metric tons of plastic goods and achieved net product turnover of INR 1,418 crores during the first quarter of the current year against sale of 99,905 metric tons and net product turnover of INR 1,316 crores in the corresponding quarter of previous year, achieving volume and product value growth of about 14% and 8%, respectively.

Total stand-alone income and operating profit for the first quarter of the current year amounted to INR 1,437 crores and INR 167 crores as compared to INR 1,346 crores and INR 186 crores for the corresponding quarter of the previous year, recording increase in stand-alone income of about 7% and decrease in operating profit of about 10%.

The stand-alone profit before tax and profit after tax, excluding exceptional items, for the first quarter of the current year amounted to INR 114 crores and INR 74 crores as compared to INR 140 crores and INR 91 crores for the corresponding quarter of the previous year, recording decrease of 19% in both terms.

Total consolidated income and operating profit for the first quarter of the current year amounted to INR 1,437 crores and INR 180 crores as compared to INR 1,346 crores and INR 192 crores for the corresponding quarter of the previous year, recording increase in consolidated income about 7% and decrease in operating profit about 6%.

The consolidated profit before tax and profit after tax, excluding exceptional item, for the first quarter of the current year amounted to INR 127 crores and INR 87 crores as compared to INR 146 crores and INR 97 crores for the corresponding quarter of the previous year, recording a decrease of 13% and 10%, respectively.

The business scenario of all the product segments of the company for the current year ended 30th June 2019 as compared to corresponding period in the previous year has been as under: Plastic Piping Systems business grew by 22% in volume and 20% in value terms; Packaging Products segment business grew by 1% in volume and decreased by 5% in value terms; Industrial Products segment business degrew by 16% in volume and 19% in value terms; Consumer Products segment business degrew by 3% in volume and value terms.

The overall turnover of the value-added products increased to INR 457 crores during the current quarter as compared to INR 431 crores in the corresponding period of previous year, achieving growth of 6%.

Total borrowing of the company stands at INR 115 crores as on 30th June 2019 as against INR 162 crores as on 31st March 2019. Average cost of borrowing as on 30th June 2019, decreased to 6.53% per annum as against 8.23% per annum as on 31st March 2019.

Business outlook. Various initiatives taken by the central and state governments, such as boosting affordable house construction, establishing sewerage and drainage system, drinking water system are all gathering momentum. Recent announcement by government to provide drinking water in each home by year 2024 will boost the requirement of Plastic Pipe Systems in large volume speaks well for the company's business.

The raw material prices of most of the polymers are in declining trend. The company converts mostly commodity plastics, where prices have tendency to remain volatile. This resulted in steep inventory loss in the [working] of the company for the quarter affecting operating margins adversely. It is expected that due to increased worldwide supply of these polymers, the prices may remain soft and range bound during the year.

Emerging from this business outlook, the company remains fully committed to its investment plans.

Jadcherla unit has commenced commercial production and started delivering Roto molded tanks and furniture products in the market during the first quarter. The company is doubling the Roto molding capacity at Jadcherla and finalizing plan to put up HDPE fittings manufacturing capacity at Jadcherla, which may go into production in first half of 2020, '21. The company will plan to put up plastic pipe manufacturing capacity at Jadcherla complex, where initial steps are being taken.

New production facilities of Protective Packaging division is under construction at Jadcherla.

The company is augmenting capacity of HDPE pipe capacity and putting up injection molded fitting manufacturing facility at Kharagpur, PVC pipe capacity at Kanpur and molded fitting capacity in Jalgaon unit. Most of the capacities shall go into production during third, fourth quarter of the current year and shall be available for full in financial year 2020, '21 onwards.

This is brief and overall summary of the quarter under reference. Thank you for your patience. Now I and my colleague, Mr. P. C. Somani, CFO, are available to reply to your various queries raised by all of you. Thank you.

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Questions and Answers

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Operator [1]

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[Operators Instructions) The first question is from the line of Praveen Sahay from Edelweiss Financial.

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Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [2]

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Sir, as you have delivered 22% of volume growth in the plastic piping segment, can you give some brief from where -- which segment or end user industry have you received the volume growth?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [3]

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The maximum growth has come in the agriculture pipes. This year, the demand for agriculture has been very good. In fact, we were not able to meet the demand. The major growth has been in the agriculture pipes.

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Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [4]

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So on the overall volume, how much is an agri pipe contribution currently?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [5]

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I -- we -- I wouldn't be able to answer that.

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Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [6]

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Okay. Can you give the capacity of each segments, sir? How much capacity are for plastic piping or the Packaging or industrial [rental] unit?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [7]

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Look, as far as Plastic Piping System is concerned, the capacity's not earmarked separately as far as agri pipes or the other pipes. But total piping products, yes.

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P. C. Somani, The Supreme Industries Limited - CFO [8]

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Yes. The capacity of piping products, it was [80,000] metric tons. The capacity of Industrial Products is about to 67,000 metric ton; capacity of Furniture products, 34,000 metric ton; and capacity of Packaging Products, 84,000 metric ton per annum.

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Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [9]

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Okay. And as you had mentioned in the commentary that your inventory loss was due to of a correction in the raw material. How much is that for the quarter, the inventory losses?

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P. C. Somani, The Supreme Industries Limited - CFO [10]

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Very difficult to quantify as such, but we know in PVC resin more. PVC piping division is about INR 18 crores to INR 20 crores. There was a price drop in polythene by 12% to 13%. So significant inventory losses, exact quantification is very difficult to say.

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Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [11]

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Okay, okay. And also, that, there [is a] price hike due to -- of the custom duty change in the budget. Was that implemented already? Or...

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P. C. Somani, The Supreme Industries Limited - CFO [12]

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In PVC, [it has been implemented.]

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [13]

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Yes, that has been implemented. PVC -- the duty has been increased only on PVC, and this has been implemented.

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Operator [14]

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The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [15]

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Sir, this margin in the Packaging business, if you look at the EBIT margin has now become single digit at around 8.4%. So has there been any price cuts taken by the company in the Packaging business, especially the SILPAULIN business?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [16]

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No, SILPAULIN business, there is no specific price cut as such. Only certain turnover has been done based on the off-season discount basis. The [preponement] (inaudible). So to that extent, yes, you can say the margin of that business will be lower. But otherwise, it's primarily because of the decrease in polymer prices of polyethylene, LD, LDPE, LLDPE by 12% to 13% in the span of 2 months, which resulted in (inaudible) margins.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [17]

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Okay. So now given that we are entering the season time, can we expect a bounce-back in the EBIT margin in the Packaging business in 2Q?

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P. C. Somani, The Supreme Industries Limited - CFO [18]

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Yes, it will bounce back.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [19]

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Okay, okay. Secondly, sir, we've seen healthy volume growth in the pipe business. So we're hearing that a lot of organized players have been struggling on the balance sheet side, so should we assume this growth continuing in the ensuing quarters as well?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [20]

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No. You see this particular first quarter (inaudible) is not a barometer for the whole year. As mentioned earlier, because of these agri pipes (inaudible) Demand was quite robust. In fact, we cannot meet this demand. (inaudible) the volume growth is so good.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [21]

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Sir, I'm referring to your annual guidance of 8% to 10%. Would we be revising that guidance upward? Or we still continue to stay with that?

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P. C. Somani, The Supreme Industries Limited - CFO [22]

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We continue to stay with that.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [23]

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And on the EBITDA margin side, sir, what would be your guidance for the full year?

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P. C. Somani, The Supreme Industries Limited - CFO [24]

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EBITDA is 13.5% to 14.5%.

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Bhargav Buddhadev, Kotak Mahindra Asset Management Company Limited - Research Analyst [25]

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And, sir, we stick to that guidance?

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P. C. Somani, The Supreme Industries Limited - CFO [26]

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Yes.

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Operator [27]

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The next question is from the line of Avi Mehta from India Infoline.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [28]

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Sir, just wanted to understand there is -- the reasons for this sharp -- because in the agri segment, given that there has been concerns on rural demand across the other consumer segments has -- could you kind of help explain? As the other parties have been [-- other participated.] Is this because of some moderation compared to intensity?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [29]

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Sorry. Repeat your question again, please.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [30]

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Sir, we have seen a very healthy growth in the agri segment. This is what you have clearly alluded to. Now this is slightly in contrast with what we hear [at the other] managements, which are arguing that there has been weakness in the rural segment -- rural. So I'm just trying to reconcile these 2. What specifically might have hit our industry? Is this some [competitive] intensity as earlier participants alluded or other...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [31]

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We are talking only growth for -- see rural. What you are hearing of others is for the -- all the products put together. We are talking specifically of the pipes for agriculture and various [supports] given by the government. And these farmers this time, they (inaudible) good quantity of pipes. So this has nothing to do with the overall rural demand for all the product groups. But yes, for agri pipes, all the pipe industry had enjoyed good growth.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [32]

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Do you think, sir, that is as -- but you're not seeing any moderation of competitive intensity, right, sir, have you?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [33]

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No, no, moderate -- not competitive intensity.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [34]

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No moderation in competition from the unorganized sector as well?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [35]

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No.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [36]

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Okay sir. And, sir, the second bit was on the overall growth. You have pointed that there is a moderate or muted input cost environment in FY '20 that you see. Would it suggest that sales growth could be similar to the volume growth rate?

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P. C. Somani, The Supreme Industries Limited - CFO [37]

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With the present prices have now bottomed out. We expect now the (inaudible) And that's why we are still sticking to same guidance of 8% to 10% volume growth and in between 12% to 15% value growth. It depends upon the polymer prices. It could be somewhere here and there. At which the change of product mix, [in the] first quarter, was (inaudible) different product mix] [in structure.] Going forward, the value growth should be better than the volume growth unless and until the polymer prices are absolutely remain on downward trend.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [38]

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Okay .So you're saying that in addition to polymer prices, the mix should also help our realization?

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P. C. Somani, The Supreme Industries Limited - CFO [39]

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Yes.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [40]

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Okay, sir. The second bit on the packaging side. I just wanted to kind of -- just going back to that, again, would the adjusted for the inventory loss -- I know you can't give a number, but in your assessment, the EBIT per kg would be similar to FY '19 levels if I adjust for this one-off inventory loss? Or you think that there will be some pressure that you see as we go into this year?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [41]

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We don't see any pressure in the remaining months of the year.

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P. C. Somani, The Supreme Industries Limited - CFO [42]

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Yes, as compared to last year.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [43]

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As compared to last year, it should be similar lines.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [44]

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Okay. So profitability should be similar lines? Okay, fair enough, sir. And lastly, sir, on the EBITDA margin, just you have -- the range is slightly narrower at 13.5% to 14.5% from 13.5% to 15%. Are you factoring in these inventory losses? Or you think the likelihood of inventory losses is more or less done in that we saw in Q1? There has been a fair bit of a volatility in the input basket from whatever we can see. So I'm just trying to understand your thoughts on it. Sir, how do you see it?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [45]

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We see that now there should not be any much inventory losses. And prices, they tend to go up, but they'll remain in range bound and at affordable levels. You see, as you rightly said, it's a very volatile situation. So it's very difficult to say anything. And it also depends on China and U.S. relations, which is -- everybody is aware of. But still we feel that the prices would remain affordable for the polymers, which we are mainly dealing in, and we should be able to achieve the targets what we have set for ourselves.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [46]

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And, sir, conceptually, if the input costs are going to remain more or less flattish, in terms of competition, does the competitive intensity from the unorganized segment come off? Or does it increase? How does it behave in such an input cost environment?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [47]

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Unorganized sector competition has definitely come down. Although in some sectors, like Furniture, still it remains. Mainly because of use of reprocessed material. But otherwise, I mean, all in all, it should be (inaudible) competition. Especially in PVC pipes, there has been a shift. There are some major players who are having difficulties, but there are newcomers also. So we have the largest range and good coverage. So we should be able to do -- perform well in our piping System.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [48]

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Sir, sorry. Just if I may again go -- sir, if I may clarify this. You said the unorganized competition has come off, and that is because of the balance sheet issues?

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P. C. Somani, The Supreme Industries Limited - CFO [49]

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Not much seen in the pipe -- pipes division, at least.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [50]

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Not much in pipes, but (inaudible) segments is what you're seeing it?

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P. C. Somani, The Supreme Industries Limited - CFO [51]

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Especially in the Furniture it is still somewhat there, but it is -- (inaudible) it doesn't affect our product range there as we have introduced, I mean, high [split [products. So it is all right.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [52]

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No, sir, I meant on the pipes segments, not just the -- okay, I'll come back in the queue, sir.

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Operator [53]

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The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [54]

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Just one thing. In the Packaging segment, we mentioned that there's been some amount of discounting that we have done, but despite that, the [overall] volume growth is just about 1%. So is it the underlying market is not growing? Or is it because of higher competitive intensity? If you could highlight that, it will be helpful.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [55]

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There is competition, no doubt, in the tarpaulin sector. The company has introduced many new products from those film (inaudible) to different type of products, and which are showing good growth. They are being received very well. As well as our company now [is on the] -- mainly cross-line bonded film, which is the company is trying to increase production of those products. And the tarpaulin market, by and large, is saturated, so which is we see whatever we have projected for this division, this vertical. We should be able to maintain that.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [56]

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And the margin drop that you have seen?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [57]

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Margin drop now should not take place. Whatever is to happen has happened, and it should be -- now it should be on the growth path.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [58]

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Sure. Sir, also, if you look at it, the reported margin are about 11.6% for the first quarter, you’re talking about that margin should -- for the year should be more like 13.5% to 15%. So the expectation in that is only the inventory losses kind of reverse. Will we able to get there or will we require any market tailwinds to kind of get to those margins?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [59]

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Overall, no inventory losses, certainly, is going to increase the margins. And the overall product mix also will help the company to achieve 13.5% to 14.5% of EBITDA.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [60]

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Sure, okay. And sir, what is the kind of capacity that we are adding on the current base this year? FY '20 -- in FY '20, what is the capacity in tonnage terms that you would add?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [61]

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Around 50,000 tons.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [62]

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Okay. And skewed towards any one product?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [63]

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Pardon?

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [64]

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I'm saying, in terms of which key products will be -- which key segments will...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [65]

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Piping segment is the key product, and these rotational molded products...

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P. C. Somani, The Supreme Industries Limited - CFO [66]

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Part of piping only.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [67]

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Yes, part of piping. And in the -- otherwise, in all -- wherever required in Furniture, we are adding quite a lot of new products, new machines or new capacities. And in all the segments. Protective Packaging, we are increasing our capacities. So all in all, in all the product segments..

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P. C. Somani, The Supreme Industries Limited - CFO [68]

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Major capacity will be piping division.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [69]

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Yes. Major in piping division, which would be the -- which is the largest of the company's overall portfolio. And I think piping System should contribute to 60% of the company's turnover -- projected turnover.

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Operator [70]

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The next question is from the line of Ritesh Shah from Investec.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [71]

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Sir, my first question is again on the Packaging division. In the annual report, we have mentioned that we have started to launch products that use recycled or reprocessed granules. Sir, is it possible if you could give some color on the brand under which it is being sold? That's one. And earlier, you had given a broad number of 20,000 annual sales. If you could dissect that between cross-laminated, cross-bonded and this new brand that we would have launched to through -- against the competition which is there in the low price segment.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [72]

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First, in reprocess, what we've said is -- see, there are 2 types of reprocessed in a [true sense.] One is you are purchasing the reprocessed material from market where we don't know the original source of the material. What we do reprocessed in, earlier, we were selling our (inaudible) scrap which we are converting and using it into a product, especially for some special products, and where it has been well received. So that it will help in adding value because definitely, we will -- those are sold at little lower price, but their overall contribution would be better because earlier we were selling scrap to the scrap dealers.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [73]

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Right. Sir, is it possible if you could help with some tonnage or something? I think more in the right direction.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [74]

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That will be classified information.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [75]

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Okay. And sir, between cross-laminated and cross-bonded, how much is the ratio? You had indicated earlier that cross-bonded is (inaudible) tons. So has that number increased? Or are we planning to bring it down, given the competitive intensity is pretty high? And as you indicated, the market is quite saturated.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [76]

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No. We are -- see, our total capacity is 27,000 tons. Out of it, 9,000 tons are for tarpaulins, but the other capacity will all convert into cross-bonded film, and which we are going to increase also. We are going to add some additional equipments. So which will -- which this film is much superior and which is patented as well.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [77]

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Okay. Sir, just last question. What is the brand under which you are selling that reprocessed granules, the tarpaulin that we make?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [78]

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No. And there is no -- we don't make tarpaulins from that. It is just for rain cover or for individual person's cover. What -- I really don't know the name of that, product which you market as a particular product for some application. And definitely not tarpaulin. Tarpaulin requires a high quality, and there is no change in our tarpaulin formulations.

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Operator [79]

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The next question is from the line of Kartik Mehta from IDFC Mutual fund.

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Kartik Mehta, IDFC Asset Management Company Limited - VP & Fund Manager [80]

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Sir, I just wanted to know the color on the margin that one of the reason you mentioned is that because of the inventory-related losses, the margins were impacted. Is there any other reason beyond that in terms of, let's say, operating deleverage in certain section, where the utilization was lesser because of the demand slowdown?

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P. C. Somani, The Supreme Industries Limited - CFO [81]

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No, it's not because of any operating deleverage kind of thing. One is the inventory losses. The second one is the higher sale or higher demand of the agri pipes, which is high volume, less value addition. So in terms of margin, then you [compare it,] low-margin business.

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Kartik Mehta, IDFC Asset Management Company Limited - VP & Fund Manager [82]

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Right, right. So these are the 2 essential reasons? So now -- see inventories [are units] are dynamic, continuous process. If the prices have further gone down, you will be carrying further the sort of a high-cost inventory. And the prices have fallen further sequentially. So can we expect on a better sequential inventory loss or you are done with that?

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P. C. Somani, The Supreme Industries Limited - CFO [83]

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No. no. We don't believe this price will further fall down because already [such] a low prices have come. So in our view, there should not be any volatility. To the extent, it's been [very,] range bound.

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Kartik Mehta, IDFC Asset Management Company Limited - VP & Fund Manager [84]

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Right. So apart from Industrial, where you had a deep [cut] in the revenue, and I believe thanks to the [auto] and all. So otherwise, there is a decent volume number. And if in the case of the coming quarters -- because generally we have maintained the margins of 13.5% to 15%, and we have seen the deep cut in the first quarter. So are you hopeful of the full year margin to reach the 15%? Would you see the recovery in the margins in the coming quarters?

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P. C. Somani, The Supreme Industries Limited - CFO [85]

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In fact our guidance guidelines about 13.5% to 14.5% margin. And in the Industrial product, you are seeing the difference in the variation between first quarter last year principally because of the one unit of Jadcherla, which we have [divested] to a joint venture effective 1st July. It was there last year first quarter. Wherein it is not the [index.] This is a major reason.

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Kartik Mehta, IDFC Asset Management Company Limited - VP & Fund Manager [86]

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Okay. So are we sticking to our margin guidance for the full year?

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P. C. Somani, The Supreme Industries Limited - CFO [87]

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Yes. Yes, very much.

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Operator [88]

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The next question is from the line of Nehal Shah from ICICI Securities.

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Nehal Shah, ICICI Securities Limited, Research Division - VP of Research of Midcaps [89]

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Sir, within the piping segment, can you throw some light on the demand for plumbing pipes in Q1?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [90]

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It has grown well, the plumbing pipe. It has grown well. I don't have the exact numbers in front of me, we cannot give. But there has been good growth, especially from the -- low-income houses, there is a good demand, and we believe this will continue to grow.

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Nehal Shah, ICICI Securities Limited, Research Division - VP of Research of Midcaps [91]

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Can we safely assume to be it in double digits?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [92]

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It will be in double digits.

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Nehal Shah, ICICI Securities Limited, Research Division - VP of Research of Midcaps [93]

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All right. Sure. And sir, my second question would be on the CPVC pipes with respect to the provisional anti-dumping duty being levied at this point in time. So can you throw some light on that? And what would be the repercussions based on that?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [94]

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See there has been talks, but I think 19th of August is the meeting. Then we will know the exact outcome of anti-dumping duty on the CPVC. But as far as we are concerned, we are not buying from the country where it is proposed for the anti-dumping duty. So we believe we have -- no, we should not have any effect on that, if at all it could help us.

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Nehal Shah, ICICI Securities Limited, Research Division - VP of Research of Midcaps [95]

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So -- yes. But any consignments which are coming in from Korea, China, where the anti-dumping duty is levied? Are you seeing the provisional anti-dumping duty being levied across what has been coming in at this point?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [96]

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No. At the moment, it is not levied. It will be decided on 19th of August is the meeting as we understand. And it will be clear what the anti-dumping imposed or effect will be. But since we do not buy anything from Korea or China, so our company should not have any effect.

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Operator [97]

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The next question is from the line of Kishan Gupta from CD Equisearch.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [98]

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Yes. Sir, basically, you talked about falling product prices. So how is the pricing for pipes now compared to what it was last year?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [99]

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Prices are in the similar range with products. Prices falling is in terms of pipes, polymers -- polymer price. Sorry, polymer price or...

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P. C. Somani, The Supreme Industries Limited - CFO [100]

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(inaudible) which were as high as INR 81,000 per metric ton in March, came down as low as INR 71,000 in April. Now there is a gradual increase [with this] anti-dumping duty [or sort of] custom duty increase in the [budget.] Now they are at INR 75,000, INR 76,000 per ton. So still we are lower than the peak of March.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [101]

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Sir, I'm talking about the same period last year. So I'm talking about PVC prices, product prices. So how is this faring compared to the same period last year?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [102]

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Product prices are similar to last year. In terms of your value addition remains same. Depending on the raw material prices, the product prices change, but there is no pressure on the value-add on those products.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [103]

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Because as I can see, your volumes have grown by 22%, but your value has grown by 20%. So you are you saying there is no change in product prices despite fall in your raw material prices, right?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [104]

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Yes.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [105]

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So ideally when raw material prices, you don't have inventory loss. Your margins should increase in that case?

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P. C. Somani, The Supreme Industries Limited - CFO [106]

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So there is a heavy inventory loss. You can't say inventory loss is not there because the volume is...

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [107]

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No, going ahead. I'm saying going ahead. So if they're going...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [108]

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(inaudible) don't see. See in PVC, the major loss has come in last quarter, and the remaining losses come in this quarter, last quarter means the fourth quarter of last year. And in the last quarter, still some remaining inventory loss in PVC. Now going forward, we don't expect any further -- such huge variations.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [109]

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And your product prices, your finished product, plastic pipe prices, too, you're saying to remain -- it won't be affected by fall in product prices, raw material product prices.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [110]

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Yes.

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Operator [111]

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The next question is from the line of Ashish Poddar from Anand Rathi.

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Ashish Poddar, Anand Rathi Financial Services Limited, Research Division - Research Analyst [112]

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So it's related to the value-added portion. So if I calculate, it comes to around 32% of the total revenues, which is closer to this -- the similar number in the Q1, FY '19. But if I look at the remaining portion of the year, it is quite high. So it is just because of the higher portion of pipes revenues, which is impacting this percentage of the value-added portion?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [113]

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Yes. You are right.

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Ashish Poddar, Anand Rathi Financial Services Limited, Research Division - Research Analyst [114]

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So if, sir, that is the case, and we are believing in that, that the piping segment will continue to contribute more, and we are talking about 60% of total revenue. In that scenario, will the uptick in margin happen? Or it's -- our guidance is at risk on that sense?

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P. C. Somani, The Supreme Industries Limited - CFO [115]

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No. No, margin definitely up. The only thing is in the first quarter, the agri pipes has [outplayed] other divisions, other segments of the piping division, which is the lowest in the value addition chain.

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Ashish Poddar, Anand Rathi Financial Services Limited, Research Division - Research Analyst [116]

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So can you quantify the share of agri pipe, to get a view that what is the impact on the total number? Just a ballpark number, sir.

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P. C. Somani, The Supreme Industries Limited - CFO [117]

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Maybe around 35% to 40% of the volume or value could be in this -- in that range.

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Ashish Poddar, Anand Rathi Financial Services Limited, Research Division - Research Analyst [118]

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[And in pertaining] Q1, FY '20?

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P. C. Somani, The Supreme Industries Limited - CFO [119]

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Q1. In Q1.

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Ashish Poddar, Anand Rathi Financial Services Limited, Research Division - Research Analyst [120]

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But otherwise, for the full year, how -- what is the...

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P. C. Somani, The Supreme Industries Limited - CFO [121]

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The agri pipe is not a full year [season.] It is -- [this is a] April to June only. The remaining part of the year is very nominal.

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Ashish Poddar, Anand Rathi Financial Services Limited, Research Division - Research Analyst [122]

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So in -- okay, okay in that way. So some portion will go in Q4 also, I believe. Q4 and Q1, perhaps.

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P. C. Somani, The Supreme Industries Limited - CFO [123]

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Correct.

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Operator [124]

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The next question is from the line of Maulik Patel from Equirus Securities.

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Maulik Patel, Equirus Securities Private Limited, Research Division - Research Analyst [125]

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A couple of questions. Sir, is there any way that Supreme or the industry will benefit from this government mission of Nal se Jal.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [126]

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Yes. We believe so. Nal se Jal would need lot of piping system. So that's the -- that's what we believe that there is really a good growth for piping system as such. And ‘til the government is committed to do this Nal se Jal. That will give a big boost to piping system or piping demand.

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Maulik Patel, Equirus Securities Private Limited, Research Division - Research Analyst [127]

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Okay. But, sir, isn't it that the PVC or the plastic pipe demands are within the house or within the apartment area where the -- where probably already in the existing flats or the houses these are already been placed? Isn't that the government is planning to more -- to lay a pipeline, which in a -- within the cities or within the states? And these pipelines are more like metal pipelines?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [128]

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There are HDPE pipelines also used for carrying water. And a lot of government projects are going on. And company is participating with some of the contractors to give them HDPE pipes who want good quality. In our HDPE pipe business, we are increasing capacity also. It's not a high-margin business. But HDPE pipes, we are increasing our capacity. And we -- we'll do well, there is good demand for HDPE pipes.

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Maulik Patel, Equirus Securities Private Limited, Research Division - Research Analyst [129]

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So sir, is HDPE pipes are used within city areas?

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Mahaveer Prasad Surajmal Taparia, The Supreme Industries Limited - MD & Director [130]

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Look, for carrying -- yes, it is used in the city area also, carrying water to the [last point] and then PVC pipes or HDPE pipes also are in use.

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Maulik Patel, Equirus Securities Private Limited, Research Division - Research Analyst [131]

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Okay. I got it. Sir, second question is on overall the demand side. If you talk about -- and you mentioned that agri season was strong, which particular states you witnessed such a strong agri season? Because we understand that agri season are different from the state-to-state wise. It's not very constant phenomenon.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [132]

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Yes. It is in Maharashtra, Delhi, (inaudible) Madhya Pradesh and Rajasthan also.

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Operator [133]

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The next question is from the line of Chintan Shah from Investec.

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Chintan Shah, [134]

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Sir, one question. Sir, how should one look at the segmental ROC? I'm again, specifically looking at Packaging segment, wherein if one [removes] SISPAULIN part, which earlier we had quantified that it does around INR 500 crores of top line and 30% of margins, which I assume would have reduced overtime. If one does strip out this part of the business, then how would the ROCs for the balance business pan out, sir?

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P. C. Somani, The Supreme Industries Limited - CFO [135]

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You see, we don't even inform the ROCs each segment (inaudible). Within the segment you see Packaging Products put together, which includes packaging film, which includes Protective Packaging Products, and which includes the cross-laminated film products. All put together, they are definitely -- [it's our criteria] of defined more than 25% of ROC. And within these 3 segments [puzzle,] we could just say (inaudible) except for the [cross-laminated film] better compared to the other 2.

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Chintan Shah, [136]

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Taparia, sir, as I just had this question. The reason I'm asking is we have a stated capital allocation policy of 25% ROC. So if we see certain segments, which are actually not making money for us against the high benchmarks that we have, would we be open to the thought of stripping out a few businesses which are not making money?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [137]

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Yes. We can always think of. And that's the reason like we have got out from auto business, especially (inaudible) Khushkhera unit. So that is the reasons. So we -- wherever there is a possibility of increasing, wherever what -- we work on the guideline of minimum 25% ROIC. So if -- not necessarily that for a particular year. But going forward, also, if we don't see possibilities. And definitely, one could think of exiting. We have done in the past as well.

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Chintan Shah, [138]

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All right. That helps. And, sir, my second question is, again, on reprocessed, the granules. I think it was the first time in the annual report in last decade or so, we have [used this word] and across segments. So is there some change in strategy over here wherein we are looking to optimize margins? Or how should one look at this?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [139]

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Yes. It is wherever -- see after all (inaudible) processing, there will be a wastage. And company always makes effort to utilize their own wastage. So the efforts in all the divisions, it goes on. And that's what we have mentioned about this -- in the film business. So there's -- and to make a product, which is little differentiated and does not need that high quality. So it is for specific product. Otherwise all [of our] products are of the same quality. (inaudible) get extra value. That's all.

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Chintan Shah, [140]

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And sir, this is huge deviation from our earlier policy wherein we have stated that we'll only use virgin polymers.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [141]

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So you see here there is a difference, like virgin polymer in terms of -- we use Virgin polymer or we use our own processed material. Our own scrap. We don't buy any scrap from the market, which has been recovered, which is value of the scrap dealers. They converting to granules and sell to all the companies, which we do not buy. We stayed with our policy of not buying any reworked material where the originality of the product is not known or originality of the material is not known. We use in all of our products. I mean, that is permissible also in -- by all, even for the OE as well. So our old product, but that then you can segregate and use in certain products where it does not impair the quality. What's important is the originality of the granule or raw material must be known.

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Operator [142]

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The next question is from the line of Vipul Shah from Sumangal Investments.

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Unidentified Analyst, [143]

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Sir, so my question is regarding margin guidance. You guided for 13.5% to 14.5%. That is only for piping division? Or that is consolidated all products in?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [144]

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Overall of the company.

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Unidentified Analyst, [145]

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And second question, what is our -- what is the contribution of this tarpaulin in the Packaging materials business this quarter?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [146]

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[A couple of information.] We don't give the breakup of the information.

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Operator [147]

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The next question is from the line of Srinath .V from Bellwether Capital.

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Srinath V., Bellwether, Inc. - Equity Research Analyst [148]

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So just wanted a qualitative view on how the CPVC business has done for the quarter. Is the growth in line with our piping business? And what was the impact on the customs duty on this particular business line?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [149]

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So, there has not been -- the import duty on PVC resin has gone up. So accordingly, the PVC prices have gone up marginally. Otherwise, there is no other impact of CPVC. On CPVC -- [the growth] kind of things which you can see -- CPVC is -- see, unless CPVC full clarity on the custom duty will come on 19th of August, as I mentioned earlier. Then really we'll know what is the impact. But we believe we will not be affected by any change in the duty of CPVC.

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Srinath V., Bellwether, Inc. - Equity Research Analyst [150]

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And what would -- just wanted to get a qualitative feel on the growth for the quarter. How would have growth panned out, given that we've had strong 20% growth for the piping division? Would that be in line with that kind of a growth number, sir?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [151]

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It is -- we don't give this (inaudible)

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P. C. Somani, The Supreme Industries Limited - CFO [152]

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(inaudible) double-digit, definitely.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [153]

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Yes. It is (inaudible)

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Srinath V., Bellwether, Inc. - Equity Research Analyst [154]

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Yes. No, no, no. Just a qualitative feel. I'm not looking for a specific number.

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P. C. Somani, The Supreme Industries Limited - CFO [155]

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(inaudible) double-digit growth (inaudible) also in line with (inaudible)

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Operator [156]

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The next question is from the line of Praveen Sahay from Edelweiss Financial.

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Praveen Sahay, Edelweiss Securities Ltd., Research Division - Assistant VP of Equity Research & Research Analyst [157]

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Yes. And my follow up question related to the Supreme Chambers. As we are -- that is still left within a -- some sellable area. So do we book in [this] quarter [earning?]

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [158]

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Well, there is still pending. We have got 12,500 square feet to be sold. We are in discussion, but unless -- I mean we really cannot say (inaudible) it can happen. And very difficult to predict anything on that.

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Operator [159]

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The Next question is from the line of Aasim Bharde from IDFC Securities.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [160]

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Sir, you mentioned that you expected to do an 8% to 10% volume growth and a 12% to 15% value growth. So the improvement in realization would be mainly a factor of mix. So now on the pipe side, I presume it would be mostly [related to] real estate pipes versus agriculture. On Packaging, it will be mostly perhaps on the cross-laminated bond film side. So, what other levers do you have to improve mix across your product segments?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [161]

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(inaudible) product segment. You see in Furniture, the various premium Furniture items in the packaging film, multilayer packaging film, protective [film.] We have variety of products (inaudible) Protective packaging there are a variety products. There is increase in the range also. New varieties of [home] products are being introduced. So it's all the overall mix, which is in all the divisions, there are new products being added, whether it is a material handling products or whether it is a furniture or whether it is multilayer films or protective packaging. Of course the -- and the piping system as well.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [162]

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So during the -- just to follow up on that. So during Q1, has there been a decent enough growth across these premium products as well, but realization has come off simply because you sold more agri pipes?

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P. C. Somani, The Supreme Industries Limited - CFO [163]

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/>

Yes.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [164]

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Yes. In value terms, we have grown in the total -- in value-added products.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [165]

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Okay. So sir, second question is on consumer segment margins. So it has improved by about 150 bps Y-o-Y despite volume and revenue decline during the quarter. So what would explain the margin expansion here?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [166]

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We got better value product.

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P. C. Somani, The Supreme Industries Limited - CFO [167]

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Better value products. And since here we don't import the raw material. We are not [carrying a] large inventory of polymer as such. That's why so-called inventory loss in that will be very negligible or will not be there.

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Operator [168]

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The next question is from the line of Abhishek Ghosh from DSP Mutual fund.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [169]

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So most of my questions are answered. Just one thing in terms of the Industrial segment, what will be the volume related to the unit, which has been divested?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [170]

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It is not much of a volume. Really we don't (inaudible) industrial. But the value-wise, it was INR 100 crores plus.

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P. C. Somani, The Supreme Industries Limited - CFO [171]

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Yes. INR 100 crores plus (inaudible) turnover from that unit.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [172]

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It is now -- it has gone out from our -- I mean our industrial sales.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [173]

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Sir, effectively, INR 180 crores of revenue that we are seeing in this current quarter and INR 228 crores in the 1Q FY '19, out of that INR 25 crores kind of a number we should reduce. Is that the way to look at it?

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P. C. Somani, The Supreme Industries Limited - CFO [174]

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Yes. Correct. About INR 25 crores, INR 27 crores. Yes

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [175]

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Okay. Sir, but despite that, there is some amount of decline because of overall pressure on realization because of inventory losses.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [176]

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One more thing that, last year, we supplied voting machines to [CIL,] the Election Commission's order. It was one of our order. And it will not continue. So that also will have effect.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [177]

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Okay. Fair. Okay. And any update on composite cylinder, sir?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [178]

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Composite cylinder is -- we have had certain issues on our supplies to Bangladesh. [We've mentioned,] we still do not know the final earnings figures, we will know only sometime in August or beginning September. We have taken -- we have considered in this working up till now whatever loss it is visible. There will be some addition in the losses but that will be -- full clarity will come by end of August.

On the other hand, we have improved our -- we have some issues that have all being resolved. We believe our customer is -- our new product is under testing. And we are in discussion also of the new order with the customer.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [179]

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And sir, in August, what will help us get that clarity. Is there any kind of committee meeting or...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [180]

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In terms of whatever -- yes, the final decision would be or final outcome, we would know.

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Operator [181]

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The next question is from the line of Sonali Salgaonkar from Jefferies India.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [182]

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Sir, my question is regarding an update on the DWC pipes, CPVC [pipes] and planned industrial applications. [So as] we understand, there has been some amount of investment that we have done earlier into these smaller segments. But just wanted to understand how has been the ramp up of these in the overall revenue mix for us.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [183]

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DWC pipe is -- we do not -- it has not gone as per the expectation mainly because the -- generally, DWC pipes are made by people who are using outside raw material or recovered material, which is not permissible in the BIS standard. And that's why our company's products get priced out.

We have seen some growth, and especially from the private because all the government buying, they want BIS, but the product usage as mentioned in the BIS Standard is not being followed, which our company follows strictly. So we have less sales. It is growing, but still our capacity remains unutilized for DWC.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [184]

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So what's the -- our capacity for DWC right now?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [185]

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This is...

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P. C. Somani, The Supreme Industries Limited - CFO [186]

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Capacity around 50,000.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [187]

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Around, total capacity is -- around 8,000, 10,000 tons. [I'm sorry, I mean] exact capacity. We are producing at 2 places out of our units, and that's the main reason. Our quality of our pipe is very, very good. It is the best in the market. And we are supplying this to companies who are finding the advantage in terms of quality, our prices are higher compared to general market situation mainly because of raw material usage. We will let you know the capacity of DWC.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [188]

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Sure, sir. And in our Industrial Components category, approximately how much of our revenue mix comes from auto segment?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [189]

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Auto segment has reduced. At one time, it used to be around 45%, 50%. But now it will be around 20% or 25% of the total. Rest is on the appliances.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [190]

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Right. So in Q1, we are talking of almost 1/4 of our revenue from auto.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [191]

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Will be something like that.

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Operator [192]

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The next question is from the line of Ritesh Badjatya from Asian Market Securities.

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Ritesh Badjatya, [193]

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So sir, my question is on the margin side. Like this quarter, we have the low margin mainly because of the more agri contribution. What is -- is there some element also due to low-income house contributed more in the CPVC side of the segment?

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P. C. Somani, The Supreme Industries Limited - CFO [194]

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No. The margins are not because of the (inaudible) Side. And second is the raw material declining sale, which resulted into inventory losses.

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Ritesh Badjatya, [195]

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So there is not an element due to the low-income house, contribution is more in the CPVC side.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [196]

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Low income or high income also. Our product quality remains same.

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Ritesh Badjatya, [197]

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Remains same.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [198]

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Yes. There is nothing of that we get some special or cheaper prices for low income. Our quality remains same for the same prices.

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Operator [199]

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The next question is from the line of Maulik Patel from Equirus Securities.

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Maulik Patel, Equirus Securities Private Limited, Research Division - Research Analyst [200]

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Sir, what is your guidance for the CapEx for this financial year?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [201]

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It's around INR 300 crores to INR 350 crores.

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Maulik Patel, Equirus Securities Private Limited, Research Division - Research Analyst [202]

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Okay. And sir, on the margin side, subsequent to the other questions I already been asked, so what could be the difference between the agri pipe margin and plumbing pipe margin I mean (inaudible) I think can see the...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [203]

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This is classified information. Not possible to share.

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Operator [204]

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The next question is from the line of Rohan Gupta from Edelweiss.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [205]

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Sir, in industrial segment, you mentioned roughly now almost 75% business come from appliances. We have already reduced our dependency on auto. Do you see that there are any other segments where you, once again, want to reduce your business because of the continuous margin pressure, whether industrial or in Furniture, which is not fitting in your criteria of almost 25% ROC profile?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [206]

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Not at the moment.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [207]

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So in rest of the business, you see that your return ratios, they still remains pretty solid whether it's appliances or Furniture?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [208]

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Yes.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [209]

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Okay. Sir, just second question on this pipe business. We have seen that even on a -- sorry, I'm asking about Packaging business. So we've seen our packaging per kg margins have been continuously coming down. I understand you mentioned that there is some lower raw material costs or inventory loss is there in the current quarter, but what is a sustainable per-kg margin, if you can just see in terms of Packaging business, one can look at?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [210]

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There are so many products in that division. Very difficult to quantify on per-kg basis.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [211]

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But earlier, we -- I mean we used to have a pretty decent per-kg margins of close to...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [212]

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It is definitely -- I mean everyone knows that in our cross-laminated film the margins have eroded. Which is very well known. But whatever erosion, now we feel that the margins will remain. And there will not be any further erosion. In fact, there may be improvement.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [213]

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So margin in absolute level, should not go down from the current level, which was roughly INR 16 EBIT per kg in the current quarter, which also had -- adding some impact of inventory losses?

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P. C. Somani, The Supreme Industries Limited - CFO [214]

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Yes. It should improve definitely. If you look at the last year similar quarter, is was INR 30 per kg.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [215]

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Yes. Absolutely right, which is now INR 16. These are just half.

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P. C. Somani, The Supreme Industries Limited - CFO [216]

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Definitely, you should -- this quarter is abnormally low, because of the heavy inventory losses. (inaudible) prices have come down between 12% to 13%. They should [go in] similar level again.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [217]

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So you think they should go back to INR 30 (inaudible) margin?

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P. C. Somani, The Supreme Industries Limited - CFO [218]

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Yes. Yes. (inaudible) per kg, yes.

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Operator [219]

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The next question is from the line of Ritesh Shah from Investec.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [220]

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Sir, first question is, other income has actually dropped on a sequential basis. Is there any particular reason for that?

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P. C. Somani, The Supreme Industries Limited - CFO [221]

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No. Other income is basically (inaudible) we sell it out. Otherwise there is no other income (inaudible). So some rental or some sale of -- [sale of assets] or machines or something. So...

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [222]

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There is nothing fixed vertical. It can be depending on whatever or if we are selling some equipment because we keep on updating our equipment. I mean apart from increase in capacity, some of the old machines will be discarded, replaced with the new machine. So other income comes from the value realized more than the depreciated value of that equipment.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [223]

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Correct. Sir, my second question is, again, on SILPAULIN. You indicated that the market was saturated. Sir, what is our strategy going forward for this particular subsegment?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [224]

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As I said, that we have made various other products from the film, and which is doing well and which is growing. So various products for different uses, like even there is scooter covers. I mean, one of the items, what I'm saying. So those are going well. So like this, company has developed many products and company's focus also in exports where the margins are better. Company is making a lot of efforts for exports, and this is increasing.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [225]

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Okay. And sir, last question. You indicated we don't use a [bought out] scrap or reprocessed granules. Sir, any particular reason for that? If we have the flexibility and if we can maintain our quality, is that a lever which is available to increase the margins. So why not use -- do that?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [226]

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See, it is -- you -- there are -- there may be some good suppliers. But it's very difficult to maintain the quality. When you are not sure of the quality of the reworked material. So it's better not to use because what is important is the quality of our product. Finally, which we give it to our customers. And if you're not sure the originality of the material, then it is difficult. Like I can tell you, for crates, for Coca Cola or for Pepsi, they wanted to give their crates back and to convert into a new product.

Again, the crates of different size or -- not the color but different sizes. So which we know the originality of our own product, which came back, which we reprocessed and which we used. Which is in the customer's knowledge and as per their desire, which has certain values of final acceptance is definitely reduced, but that is acceptable to the customer. So those sort of -- which is in the knowledge of the customer. We will not do anything which is not in the knowledge of the customer.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [227]

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Okay. That helps. Sir, lastly, you said DWC, the capacity is 8,000 to 10,000 tons. Did I hear it right?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [228]

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Yes. Around that.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [229]

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And what will be the utilization levels?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [230]

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Exact capacity, we'll let you know for DWC. Yes, go ahead with your question.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [231]

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And sir, what will be the utilization levels? Because this is something which might be (inaudible)

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [232]

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See, utilization levels are low for DWC. I don't have immediate figures, but it is mainly -- we know that the other DWC producers are having good business, that is mainly because of the problem on the material what I shared with you. Otherwise, it's a good product. And the problem here is of the BIS. See, we as a company, do not want to do something that [could have] BIS mark. The product may be classifying for the -- from the quality point of view, but it doesn't qualify as per the guidelines given by BIS, where they're not permitted use of outside scrap in DWC pipe.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [233]

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Right. Sir, last question. Any new product launches planned over next 3 quarters that you would like to highlight?

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [234]

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We keep on adding products. So there's nothing we will -- [again,] always in our piping system, we keep on adding new range of products, new fitting items. Which is a continuous -- in the pipeline. In Furniture, we are going to a lot, many new products, more of value-added products. In material handling, also new crates or as per the need based, in foam as I said, there's a lot of new products. So in every vertical, addition of new products is a continuous operation.

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Operator [235]

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The next question is from the line of Aasim Bharde from IDFC Securities.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [236]

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In the Ind AS 116 impact on our reported numbers. And if yes, could you quantify them?

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P. C. Somani, The Supreme Industries Limited - CFO [237]

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Yes. We have very [negative] impact as such. And I can give you annum impact. Roughly about 10 cr, or 10.5 cr will be the total impact. It will go away from the rental and would (inaudible) interest. (inaudible) liability which we have to capitalize will be in the range of around INR 42 crores.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [238]

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Okay. Is this negative on the PAT level? Or is it completely neutral?

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P. C. Somani, The Supreme Industries Limited - CFO [239]

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[Both. EPS is around] (inaudible) for the quarter, it is around INR [40 lakhs.]

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Operator [240]

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The next question is from the line of Nikhil Gada from Asian Market Securities.

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Nikhil Gada, Asian Markets Securities Private Limited, Research Division - Analyst of Consumption Appliances, Plastics, and Building Materials [241]

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Sir, just first wanted to know from the quarter, what was the volume growth from our cross-laminated film business?

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P. C. Somani, The Supreme Industries Limited - CFO [242]

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We don't share the individual numbers now.

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Nikhil Gada, Asian Markets Securities Private Limited, Research Division - Analyst of Consumption Appliances, Plastics, and Building Materials [243]

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No the reason, basically, I was asking is because the last call, you had mentioned that we are targeting at least a 10%-plus growth from the particular category. And if we see the volume growth for this quarter, it's only been 1%. So I just wanted to have an understanding of how that business has performed for the quarter.

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P. C. Somani, The Supreme Industries Limited - CFO [244]

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We still target the same growth (inaudible) 10% plus in this division. But for the individual breakups, I think we'll not be having it this point of time.

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Nikhil Gada, Asian Markets Securities Private Limited, Research Division - Analyst of Consumption Appliances, Plastics, and Building Materials [245]

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Okay. So sir, in that context, can you just give some sort of guidance of -- as to how much volume growth, we would estimate for our whole year numbers for FY '20 Packaging (inaudible) Because we have been in the range of 4% to 5% volume growth for last couple of years and cross-laminated has been one of the major reasons why we have [really] done such a suboptimal number. So just asking on that.

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P. C. Somani, The Supreme Industries Limited - CFO [246]

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10% to 12%. For the whole year, Packaging business, 10% to 12%.

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Operator [247]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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P. C. Somani, The Supreme Industries Limited - CFO [248]

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Thank you, Kunal. Thank you very much for all this.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [249]

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Thank you very much. Various intelligent questions have been asked. And we replied whatever possible. And we hope, and we are reasonably confident that we will achieve our targeted figures, what we have been shared with you.

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P. C. Somani, The Supreme Industries Limited - CFO [250]

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Thanks, Kunal.

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Shivratan Jeetmal Taparia, The Supreme Industries Limited - Executive Director [251]

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Thank you.

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Operator [252]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.