Yogesh Agarwal, MD and CEO of Ballarpur Industries expected the company’s growth rate for FY14 to improve to 8-10 percent on the back of increased pricing and better volumes. Also, since the company had completed most of its investment cycles, there was no additional capital expenditure in the near-term, he added.
Speaking to CNBC-TV18, Agarwal said the weak rupee was a positive for the company's exports but their annual payout of USD 100 million (from the company’s total debt USD 500 million) maybe impacted by the falling currency.
He said that their exports stood at USD 50 million.
In terms of earnings, he expected the earnings before interest, taxes, depreciation and amortisation (EBITDA) for FY14 to be around 21 percent. "The company's interest costs would be financed by the increased EBITDA margins," he said.
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Below is the edited transcript of his interview to CNBC-TV18.
Q: What does the rupee depreciation do to you? What do you have by way of forex loans and imports and exports? How do they square up? Does it leave you a bit poorer or richer after that fairly steep depreciation?
A: The rupee depreciation; overall it helps us in business. But we do have some dollar loans. If we cut to the business, we compete with Chinese paper in India on coated paper side. So any depreciation on rupee to that extent helps us in domestic pricing because the rupee pricing goes up. So to that extent, it helps us.
We do import some raw material which is much less than as compared to the import parity which we keep on a coated paper. Also, we have export of around USD 50 million from India. That helps us.
We have our Sabah Forest Industries (SFI) operations in Malaysia where any dollar appreciation or ringgit depreciation helps us because we compete with Indonesians there.
So overall, the rupee depreciation helps us. We do have dollar loans and annual payout principle and interest is around 100 million. To that extent, it would dent our bottomline in rupee depreciation.
If you put together the loan and business part; the business part is much more than the loan side and we would gain on rupee depreciation.
Q: Just to clarify, USD 100 million is the dollar loans that you have or is that the amount that you need to pay out in this year?
A: No, that is the amount we need to payout; around USD 75 million would be the principal and around USD 25 million would be the interest component.
Q: What is your total exposure by way of loans?
A: The total exposure would be around USD 500 million or so.
Q: Coming to the business side, what disappoints the street is the revenue growth that has been largely flat. Every quarter, we see it is either a zero or 3 percent growth. Is growth expected to be in the zero to 5 percent mark on the revenue side?
A: Essentially, we sell to the capacity. So whenever the capacity comes in – it comes in a stair-step. So you will not see typically a gradual growth. Generally we grow every 2-3 years in a stair-step way.
The year FY13-FY14, we do see a growth of around next year 8-10 percent. It will be driven because of price increases as well as some additional volumes which we are going to get because of more squeezing our assets.
So roughly 9-10 percent growth you can take in the year FY13-FY14.
Q: You said as it is because of rupee depreciation, your outgo on your forex loan is going to be higher by at least 10 percent. Your interest cost already has been rather high in the year gone by. What will be the interest cost in the current year?
A: The total debt would be around Rs 5,000 crore. Roughly half of it is dollar and half of it is in rupee. So the dollar loans would be on an average 4-5 percent interest rate and the rupee would be 9-10 percent. One can calculate our total exposure on the interest side.
The 25 million is on account of dollar debt with the interest component and another 2,500 crore or so would be the rupee debt. So 8-10 percent would be the interest rate on various kinds of products we would have bought there.
This also includes 200 million perpetual bond issue. Only 10 percent coupon would go and not the principle. So it would be something around 25 million on accounts of dollar and Rs 220 crore or so on account of rupee debt.
Q: How is the company planning to finance this USD 100 million payout that you need to do in this year itself?
A: This would essentially be through internal accruals. Last two years we were doing two pulp mills. Before that we have done two paper machines. So, we are now out of investment cycle. For the last four-five years, we were investing and most of the debt has gone into building capacity and vertical integration with pulp and wood fibers, plantations and so on.
This is the first year FY13-FY14 when the entire vertical integration along with revenue growth will kick in. The last pulp mill has gone on production in the month of June last month.
So FY13-FY14 our full EBITDA or I would say almost 75 percent of incremental EBITDA will get captured. It is through this EBITDA that we would be paying back the interest.
Q: What is the cash accrual on an annual basis or for the next year?
A: If you look at the total EBITDA level, it will be something like more than Rs 1,000 crore. Then the interest component has to go out and depreciation on the capitals.
That is how one could arrive at the number which will be the cash available.
Easily this interest component can be handled through the internal cash accruals.
Q: What would your EBIT margins be this year?
A: Last year we have done around 18 percent EBITDA operating margin. This year FY13-FY14, which is starting today – our financial year is July 1 – this should go up by roughly 2.5-3 percent point.
So, one would look at something like 21 percent EBITDA margin of this year. This is basically because of the vertical integration through the pulp mills and through the plantation activities in Sabah.
We are going to bring in 120,000 tonne of pulp from Sabah. Last year, we brought around 70,000 tonne so 50,000 tonne more is going to come in from Sabah, Malaysia. Also, our local pulp mill would give us approximately 60 percent of production this year.
That is how 3 percentage point on overall business improvement on EBITDA level one would see.
Q: In the last quarter there was some pressure on your pulp realization. How was that panned out in the coming quarter?
A: Pulp realization has helped in the domestic market, we compete with imported pulp. This is dissolving grade pulp so we are sole manufacturers here doing market dissolving grade pulp. So this is competing with imported fiber.
Any rupee depreciation to that extent straightaway gets factored in the rupee pricing and our cost base is on rupee. So that is a clear kind of a spread of margin there.
Otherwise, in the international market, the dissolving grade pulp is bottoming out. So it would be in the region of USD 900-950 but it is improving now. It has been there. But it has shown some signs of improvement in the last three-six months. Rupee depreciation straightaway helps us.