May 12, 2013 12:50 PM IST | Source: CNBC-TV18

Steel biz to improve operating margins in FY14: Usha Martin

AK Somani CFO Usha Martin expects steel business to contribute more to revenues and also improve operating margins in FY14.

Jharkhand based Usha Martin expects it's steel business, which contributes 57 percent of the revenue to grow further on better availability of metallics and also sees this business enhancing the operating margins in FY14 and FY15.

“The margins would also be contributed significantly by this steel business as we would be getting additional benefits on account of the projects savings on the steel side,” AK Somani, CFO, Usha Martin told CNBC-TV18.

Manufacturing of wire and wire rope is another major business of the company. However Somani is not seeing much growth in this business in the current year due to lower uptake from local and global markets. He expects wire rope business to grow at 10-11 percent in FY14 and sees operating margin of this business to remain at same level in FY14.

On Friday, Usha Martin reported 47 percent on year increase in January-March net profit at Rs 22 crore. The company’s net sales however remained almost flat at Rs 947 crore.

Below is the verbatim transcript of the Somani's interview

Q: You have managed to improve your margins quite a bit on year on year (YoY) basis as well as on a quarter on quarter (QoQ) basis. Could you tell us what led to the improvement in margins and how much more could we expect in FY14?

A: First of all the comparison in FY13 is not very appropriate with FY12 because FY12 was an abnormal year for the company, where we incurred huge losses on account of the inventories of the coking coal and forex losses. In comparison to that those abnormal losses were not there in FY13 and at the same time we also got some benefits on account of the ongoing capex, which has started giving the positive gains. Going forward in FY14 we should also be getting further gains on account of the projects which have been recently completed and those which are going to get completed in about another four months time. However, the full advantage of that would only be coming in FY15 but we would start getting the additional benefit from October onwards this year.

Q: The segmental revenues are quite disparate though. There is disappointment on the steel business both on revenues and profits. For the rest of the year what would you point to in terms of growth you expect both from the steel side of the business and what has been performing your wire and wire ropes business?

A: If we see that the steel which makes about 57 percent of our revenue in the year, going forward contribution from steel business would be increasing in the total revenue,  because the additional availability of the metallics in FY14 would enable us to go for higher production of steel. Whereas wire and wire rope business would be increasing but just about 10-11 percent on YoY basis. However, the margins would also be contributed significantly by this steel business as we would be getting additional benefits on account of the projects savings on the steel side. The wire and wire rope business EBITDA should remain almost at the same level what it is there in FY13.

Q: Would you also expect to see any improvement in realisations because that hasn’t been very strong this quarter?

A: I don’t think that there would be much to expect on that side because all that depends on the market condition which are definitely not giving better assurance that the market conditions are going to be better going forward. Even on the wire and wire rope business internationally where we are whether it is in South-East Asia, whether it is Europe, whether it is United States everywhere the business conditions are not optimal. So, in view of that we would be depending more upon the growth in India. However, it is not very certain how much that is going to happen. Within that – auto sector where our lot of steel goes is also not doing that great. However, we are looking for the growth in steel and more focus is on our internal preparedness. As I told that additional availability of the metallics would be playing a key important role in making us to produce more on the steel side. That would also be heading to our EBITDA and to the other bottomlines also.

Q: Any kind of guidance if you could help us with or what could be the quantum of improvement about the EBITDA level or margin level in FY14?

A: I can only say that we should be having the improvements. To what extent and all that depends a lot on the pull factor in the market. Last year also we have seen that we could have produced more but we could not because the market was not having adequate pull. As a result of that there was a lot of competition and the prices were under pressure and also the margins. So, it would not be fair to give what sort of earning improvement would be there but only thing I can tell that internally we should be getting a better savings and that should be if the market is as it is today then we should be seeing quantum increment in the EBITDA margins going forward.

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