Floriculture, IT key focus areas: Karuturi Networks

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Karuturi Networks has been buzzing since past few days and is up over 20% in the past one week. KS Ramakrishna, MD, Karuturi Networks discusses the company's business plans.

Ramakrishna says that last year's consolidated results were Rs 45 crore on the topline and out of that, a substantial portion, which is Rs 38 crore has come in from floriculture and approximately Rs 4.5 crore from IT and Rs 2.5 crore from project exports.

Excerpts from CNBC - TV18's exclusive interview with KS Ramakrishna:

Q: As regards to the nature of the business, you were Karuturi.com and you changed to Karuturi Networks. In 2000, you went and set up an international gateway in 8 cities, you got a teleport in Bangalore and an optical fibre link between Dubai and Mumbai and then you said you would be spinning off floriculture in a separate division and you would concentrate on becoming a pure network in broad band player. That has not quite happened. What is the focus?

A: You are absolutely right. We started off with Karuturi.com and we put in our own private placement and we continue to do that business very well.

In the last quarter, we have had a very prestigious acquisition of a customer, which is Microsoft. We have had very good customer base including Network Appliances, Credence Design and top notch customers. That line of business is doing very well. There is a renewed focus in the flower business.

We have always believed that India has a sustainable competitive advantage in advance agriculture and exports there on, into Europe and most of the northern hemisphere areas. There had been some macro issues dealing with floriculture out of India largely attributable to high freight rate cost.

Q: Am I right in saying that floriculture and IT will now both be the focuses for the company not at the cost of each other?

A: Absolutely.

Q: Will you be able to give us a revenue break up between floriculture business, IT business and even the foods business that you have got into this quarter?

A: Last year's consolidated results were Rs 45 crore on the topline and out of Rs 45 crore a substantial portion, which is Rs 38 crore has come in from floriculture and approximately Rs 4.5 crore from IT and Rs 2.5 crore from project exports.

Last year, we did not have anything out of gherkins. This quarter has been the first quarter where we have seen small business of about Rs 2.5 crore from gherkins. But next quarter, when we are in a complete commercial production, we expect to see gherkins over a 12 month period ending March 31, 2007 to contribute atleast Rs 20 crore on the topline from gherkins

Q: Why gherkins, because we have had others like Ballarpur also enter this business and doing just about okay. What is the potential that you see in gherkins?

A: Since you mentioned Ballarpur, it has been a pioneer in this business. Today, after their acquisition, they are the world's largest gherkins exporters. We have chosen to be in gherkins because we believe our core competencies in agriculture are expandable from floriculture to gherkins.

We are in direct farms and we understand contract farming. It is more out of demand from our own customers who wanted us to add this product line that we have chosen to get into this business.

Q: What are the kind of margins you are enjoying in this business as opposed to floriculture and IT as a whole?

A:  Definitely, the margins in gherkins are much lower than floriculture. But the margin in floriculture is over 35% and out of gherkins is 15%. But that has to be seen in context of investment to turnover.

In floriculture, traditionally, we see an investment to turnover of about 1.5 whereas in gherkins we see a turnover of almost four times our investment. So in terms of ROI and ROE, they are pretty similar.