Cheaper raw material to perk up margins: Pradip Overseas

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Cheaper raw material to perk up margins: Pradip Overseas

As the company's stock shown about 50% improvement from what it was 3-4 months ago, talking about the business outlook going forward, JS Negi, independent director of Pradip Overseas said the company's margins are likely to improve in second half with the fall in the prices of the raw material.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Pradip Oversea See previous management interviews See what other Experts & Brokerages are saying about Pradip Oversea

As the company's stock shown about 50% improvement from what it was 3-4 months ago, talking about the business outlook going forward, JS Negi, independent director of Pradip Overseas said the company's margins are likely to improve in second half with the fall in the prices of the raw material.

In an interview to CNBC-TV18, he further said, the company has a planned expansion programme that would be over by June 2012.

Below is an edited transcript of JS Negi's interview to CNBC-TV18. Also watch the accompanying video.

Q: How does the rupee actually impact you?

A: We are basically exporting and we have two types of exports - direct and indirect export. Last year, we did direct export of around Rs 200 crore and this year also we are planning to cover around Rs 225 crore. By November 2011, it is around Rs 120 crore.

Q: What are indirect exports?

A: Indirect export is all that we are exporting in rupee terms, direct export means we are dealing directly with dollars or euro terms.

Q: Is there any expansion, anything seminal that is happening in your company that we need to know?

A: We have an expansion plan in our current facility. We are doing two types of expansions, we have two facilities - one is narrow width and another is wider. Narrow width, we have already started expansion in full swing where our capacity arrangement is around 17.5 million metres per annum. Wider width, we have planned for around 35 million metres per annum. So, the capacity enhancement will be from 140 million meters per annum to 192.5 million meters per annum, this is our expansion plan.

Q: How much will it cost you, how are you going to raise the money and when will it come up?

A: This has already been tied up by our loan for the entire facility, two three consortium banks have already done that and it is around Rs 268 crore term loan which we have got sanctioned. Rest of the money is available with us because last year we did the IPO, so that money is available and we are doing the expansion on that ground only. We have almost spent around Rs 120 crore at the moment for the entire expansion programme we have taken up and we are expecting that this entire expansion programme would be over by June 2012.

Q: Year ago in September quarter you did Rs 18 crore, the last quarter for which we have numbers you have done only Rs 5 crore, even QoQ you have fallen from Rs 12 crore to Rs 5 crore, why is this fall?

A: The fall was basically the cotton prices last year, which went up from to Rs 30,000-60,000, talking about raw cotton and subsequently the gray cloth and other prices have gone up. If you see our entire business pattern, you will find that we are actually procuring the gray and then we are processing and finishing at our own facilities.

This entire process takes place almost 3-4 months. So it means our inventory period is almost for 3-4 months. We have already procured this material and the reflection has come only last quarter significantly because it was old material.

Q: So, will your margins improve in second half, you did 9% margins in the first half, how much will it imrpvoe by and how much will your interest cost be because you are doing some Rs 31 crore of interest payment every quarter?

A: Very clearly this is going to be improved now, because now the raw material prices have come down, market is quite stable. We are in a positive position because of the rise in foreign currency. Certain machineries that we are going to purchase will definitely impact but only later. And, by that time probably dollar-rupee would be stable.