It was a stellar third quarter performance for Meghmani Organics. The company reported significant gross margin expansion on curtailed costs. Lower finance costs and higher other income boosted profits. The YoY consolidated gross margins for the quarter expanded 950 basis points to 49.7 percent and finance costs were down 29 percent at Rs 14.9 crore versus Rs 21 crore YoY.
Ashish Soparkar, MD, Meghmani Organics is confident of 10-15 percent volume growth and expect margin expansion in the coming quarters on back of higher productivity and capacity utilisation.
The company is also confident of reducing debt to the tune of Rs 100 crore both in FY16 and FY17 as well.
The consolidated year-on-year (YoY) revenues were up 2.3 percent at Rs 311 crore versus Rs 303.9 crore reported for the same quarter in the earlier fiscal. EBITDA too was up 71 percent at Rs 70.8 crore versus Rs 41.3 crore YoY and the YoY EBITDA margins were up 22.8 percent versus 13.6 percent for Q3FY15.
The basic chemical business is seeing very good growth because it is directly related to India’s growth, said Soparkar, adding that the capacity utilisation for the segment is also at its optimum currently.
Below is the verbatim transcript of Ashish Soparkar’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Nigel: Let us go through your revenues first as there is mild growth of around 2 percent. Could you break it up for us first in terms of your exports as well as your domestic revenues? Where exactly was the growth and also the gross margin expansion is it sustainable has it peaked out?
A: Our export is around 65 percent of our revenue. The topline has not grown because our finished products, raw material depend upon the oil pricing. So, as oil prices have gone down considerably our finished product prices have also reacted as per the market. As you can understand the topline has not grown but bottomline has become very strong.
Reema: What was the decline in prices of your finished products and is there a way for you to tell us what the volume growth was?
A: The volume growth was around 10-15 percent that has come out of utilising spare capacity that is installed much earlier and that is sustainable because we have been able to produce and sell 15 percent or more in all our three divisions.
Nigel: What is your total capacity utilisation? Is it at optimum capacity currently?
A: For basic chemicals we are at optimum capacity. However, it will go up further by 10-15 percent in next two years. In agro and pigments we are at around 70 percent capacity utilisation.
Nigel: Just a follow-up question since you mentioned a basic chemical business over there what went so right? Your revenues have jumped up close to 30 percent. Your earnings before interest and taxes (EBIT), margins have come in close to around 30 percent. Is this kind of a performance sustainable because that is really what has led the big beat on the margins as well as on the bottomline front?
A: Basic chemicals are directly related to the growth of India which is 7 percent and as you can see from drawing board to finish it takes 4 years for project to finish. We don’t see any new project coming very soon. We believe the margins are maintainable and we are very happy with the position as of now in basic chemicals. In pigments and agro chemicals also the margin has gone up.
Reema: Yes, that is a reason why your consolidated margins have gone up so much. It now stands at nearly 23 percent. Do you believe margins are sustainable at these levels?
A: In coming at least couple of quarters I believe they will be strengthening further. As we will be ramping up higher productivity and from 70 percent capacity utilisation we believe that we will be able to reach 75-80 capacity utilisation in the next year from April 2016 onwards.
Nigel: Then could you tell us what is your balance sheet position currently because that has what given to your net profit this time around. Your finance costs have come down considerably. What exactly is it looking like and also what is your capital expenditure (Capex) plans going ahead?
A: We have done all the capex that is necessary. On the contrary we are reducing our debt every year by Rs 100 crore. This year also we will reduce debt by Rs 100 crore and next year also we plan to reduce our debt by further Rs 100 crore approximately. This is as per what is the schedule given by the banks and the financial institute. We don’t intend to pre-pay and they don’t want us to pre-pay also.
We also renegotiated our term loan to take advantage of falling rates as indicated by Reserve Bank of India (RBI) that has also saved us. So, that combined efforts have reduced our financial cost by at least 12 percent. We believe this will be sustainable and next year also we believe it will go down by 10-15 percent.
Reema: What about the topline growth? We understand that it is on account of a decline in your finished products prices because of the way crude prices have weakened. However, is that the trend we should expect even in FY17? What is your internal forecast on revenues?
A: I don’t think so that topline will go down further because oil prices have almost reached bottom of around USD 30-35 per barrel. I don’t feel that it will go to USD 15-20 per barrel. So, it will be in our opinion, our estimate the oil price will remain between USD 25-40 per barrel and at this line our topline will be this or higher. If we ramp-up 10-15 percent more capacity we believe the topline will go up by 10-15 percent. There is no likely fall in topline.