Vinod Mason, Director of Strategy, Transformers & Rectifiers, discusses company's fourth quarter earnings and future outlook.
Transformers & Rectifiers (TRIL) expects FY16 to be a profitable year with its order book worth Rs 768 crore, Vinod Mason, Director of Strategy, Transformers & Rectifiers told CNBC-TV18.
Last moment client delays led the decline in sales last year, Mason said.
Arc furnace transformers business was likely to drive the company’s margins this year, he said.
Below is the edited transcript of Vinod Mason’s interview with Reema Tendulkar & Sonia Shenoy on CNBC-TV18.
Reema: Do you have the visibility that things will improve in FY16 and if yes what gives you that visibility?
A: The situation will definitely be better; we won’t have had such a bad quarter because we never expected it. Our business is such where clients at times, change their deliveries in last moment. They are very dependant on electricity boards. One of our clients deferred the delivery and that affected us.
An another order which we were supposed to execute was linked with the short circuit testing of a transformer which took place longer time and that had to be carried out outside the country all this is now being done.
We are starting with a very healthy order book over 19,000 MVA and Rs 768 crore so we see definitely the year to come, this financial year FY16 will definitely be better.
Sonia: Rs 768 crore is your current order book, is it right?
A: This is carried forward order book otherwise in the last year we had a good year as far as the order book was concerned. We booked about total Rs 965 crore in the last year.
Sonia: If you do believe that the operational performance of the company will improve any indication of how much it could improve to? In FY15 your margins were sub 5 percent. How much could they recover to by the end of FY16?
A: If you look at our performance sheet the cost have come down this year. In fact we were quite happy with that. Even if we had done about Rs 80 crore more we would have been in profits. We are a shortfall of almost about Rs 138 crore compared to the previous year. The costs are under control, the margins will definitely be better and these orders are at a good margin.
Reema: We understand that there is a fair amount of pricing pressure which is there in the industry. Do you still see a lot of pricing pressure continuing even in FY16 and what will this do to your FY16 profits? Because in FY15 you wrapped up with a loss, will you be profitable in FY16?
A: We will definitely be profitable in FY16; I can say that with confidence because the order book which we have itself indicates that it is a profitable order book. As far as the market is concerned, the steps have been taken. We are heavily dependent on the investment in infrastructure industry.
Steps are taken but the reality is what takes time because when the tender is floated after that it takes almost 6 months to decide and then we start manufacturing and then delivering.
So definitely things will start improving in the second half of the year. However inquiries for the business are definitely improving. We are seeing a positive trend, but not to the extent what we expected it will change. That kind of a change is expected only in the second half of the year.
Sonia: What is the capacity that the industry is operating at this point in time?
A: I don’t think there is any improvement compared to last year. The industry is at around 66-67 percent.
Sonia: Do you see any improvement at all in demand in at least the first half of the year and in capacity?
A: First half, definitely some improvement but we see a major improvement coming in the second half.
Reema: Company was also targeting high margin orders particularly in the Arc Furnace Transformer markets? Have you won any order, if yes what would be the size and what would be the order book?
A: We got one from Iran and we are expecting more, this is our major thrust at the moment. If you see our performance last year we were very heavily dependent on electricity board business and this year we have reduced that to almost from about 80 percent to 70 percent and the industry business has gone up to 30 percent.
We are seeing a positive trend on that. We are putting a lot of pressure on that, especially on the Arc Furnace Transformer and the Rectifiers Transformers because it is a good profitable business.