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Jan 02, 2013 04:02 PM IST | Source: CNBC-TV18

Avantha Power IPO to hit mkt in July-Aug '13: Avantha Group

The initial public offering (IPO) of its group company Avantha Power will hit the capital market in July-August 2013. It aims to garner Rs 1,250 crore to Rs 1,500 crore through this IPO.


In an interview to CNBC-TV18, B Hariharan, group director finance, Avantha Group spoke about the latest happenings in the company and the road ahead.


The initial public offering (IPO) of its group company Avantha Power will hit the capital market in July-August 2013. It aims to garner Rs 1,250 crore to Rs 1,500 crore through this IPO.


Meanwhile, a major restructuring of its Belgium operations is also underway. "We will be getting rid of about 200 employees and that will save about USD 15 million on an annual basis. It will be effective from January. Most of the capacities will move to Hungary, which is a low-cost site," he elaborated.


This restructuring will lead to margin improvement in FY14.


Below is the edited transcript of B Hariharan's interview with CNBC-TV18


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Q: What's happening with Avantha Power's listing? You have tried once, but it did not come off. Are you going to bring it to market any time soon or have you already raised money from a private equity player and you don't need to?


 A: No, we are going to bring it to the market sometime in July this year. We have already started working on it.


 


Q: Have you decided on the size of the issue and how much money you are going to look to raise for Avantha Power?


 


A: We will raise about Rs 1,250-1,500 crore. We will come with the issue around July-August this year.


 


Q: Can you just update us on what’s happening with your overseas operations especially Hungary and Canada both in terms of execution slippages, the kind of penalties you are facing and whether there is any resolution on that front?


 


A: I think you will see the resolution happening. We have done major restructuring in Belgium. We have finalised to get rid of about 200 employees there. That’s going to save the company USD 15 million on an annual basis. This will be effective from January, so most of the capacities will move to Hungary, which is a low-cost site.


 


The problem was not in Hungary, the problem was in Belgium. So, that restructuring is going to help us improve the overall margins in the European business. Canada seems to be still under some issues. Hopefully, in this quarter one will see a resolution of Canada also. So, 2013-2014 would definitely be a better year for Crompton Greaves Limited (CG).


 


Q: Crompton Greaves’ investors would have been very worried to see margins plummet to 4.7 percent in the Q2, which was an all-time low. What is the road forward, in terms of margin profile?


 


A: The management of Crompton has given guidance. Last quarter annualised for this financial year is not going to be different from the average they have got. It is 5-6 percent earnings before interest, tax, depreciation, and amortisation (EBITDA) margin for the year. I think they will maintain that guidance. However, going forward one will see a significant improvement in the margin, in coming 2013-2014. This will be due to the restructuring, which is happening in Belgium.


 


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Q : To what kind of levels and would it be back ended, as we will see the gains only towards the end of FY14 or will we see the signs of that as the year starts unfolding?


A: You will start seeing it from the Q1 of 2013-2014 itself, as there has been no problem in the order book. The only problem was on the margin side. Belgium and Canada were the main issues there in Crompton. So, Belgium will be sorted out, effective January. One will see the margin gradually moving up from the Q1 of 2013-2014. So, I think we would be back to normal.


Q: Could you just update us on the order book situation as well. Are there any fresh order inflows that you have received?


A: Yes, order inflows are quite strong there. I think we have seen a 30 percent increase in the order book. It is only the question of margins under pressure and the European operations. That will get corrected partially to the Belgium restructuring. Also next financial year we will see that happening gradually.


Q: Can you update us in terms of what’s happening with Ballarpur Industries Limited (BILT)? There was a listing being planned for Sabah, any clarity or timeline on that?


A: We have revived that plan. We have a planning to list the international subsidiary in a London Stock Exchange. We are planning listing in Singapore. We have already started work on that. So, sometime post this financial year that is June end, or July-September quarter we will see some activity on that.


Q: Even in Ballarpur the margins have been slipping quite sharply over the last few quarters. Do you expect any near-term price increases or any margin stabilisation?


A: Margins drop in Ballarpur is because of the non-integration with pulp. We have increased our paper capacity. We were importing pulp so the margins were down. However, we have completed our expansion of pulp capacity in Sabah. We are now completing the same in Ballarpur unit. It will be done this month in January.


So, once that is done we will get back to our normal EBITDA margins of 24-25 percent. This will happen in the next financial year. However, we have already seen improvement in the margin in the last quarter from the previous quarter by 1.5 percent.

So, this year one will see overall increase of about 3 percent in the margins. In the next financial year when both the pulp facilities are in operation, the EBITDA margins will go back to the normal of 24-25 percent.

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