Jindal Poly expects 25% boost to margins through cost hike

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Jindal Poly expects 25% boost to margins through cost hike

Margins of Jindal PolyFilms slipped this quarter compared with the previous on account of high raw material prices. Sameer Banerjee, wholetime director of the company, in conversation with CNBC-TV18, says that the price hikes the company has embarked on is likely to bode well and boost margins by 25% for Jindal PolyFilms.

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Margins of Jindal PolyFilm slipped this quarter compared with the previous. The company recently undertook a series of price hikes to allay the increasing input cost. Sameer Banerjee, wholetime director of the company, in conversation with CNBC-TV18, says that the move is likely to bode well and boost margins by 25% for Jindal PolyFilms.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: You have undertaken a series of price hikes can you give us a sense of what the quantum of the increase has been and how much relief it may give you on your margins?

A: We have so far taken a price hike of roughly about 6% in the last two months which should boost our margin by about 25%.

Q: Can you go through what the key raw materials you use and where is this pressure coming in terms of raw material because your margins did slip to around 15% versus 24% in the previous quarter?

A: Yes, the pressure came not because of increase in raw material prices, it was more because of the dip in the polyester film prices, which dipped from Rs 220 a kg at peak to around Rs 100 a kg. This price of Rs 225 which was achieved middle of last year lasted till about October 2010 was because of a shortage of polyester film in the international market which drove prices internationally, and then in the domestic market as well. But this got corrected in the last quarter of the year, and in April-June, the prices were more or less around Rs 100-105 a kg. Raw material prices have not changed that dramatically during that period, but our other product, the BoPP films, that was more or less steady through this period. So the change that was noticed in margin was mainly because of the drop in the polyester film prices.

Q: You have taken a cumulative price hike of around 6% till now. How is the demand scenario panning out for you? Are clients actually absorbing this 6% price hike and what are you working with in terms of an order book for FY12?

A: Yes, the market has taken this increase and we are hoping to increase another 2-3% for both our products - polyester film and BoPP films, in the next 1-2 weeks. This period of the year which precedes the festive season is a good time for us. We expect demand to be above normal and lines are expected to run to full capacity. Even the export prices which had shown a similar drop have now started improving with the Chinese prices having moved up by more than 10% in the last 3 weeks. Effect of that is also being felt here. We are experiencing the improvement in price in the international market and consequent improvement in our margins.

Q: How much of an improvement would you say you expect to see over the course of the next few quarters both in terms of how much sales can jump by and how much profits can get lifted to?

A: We are expecting that the margins which had dropped to 17% would increase to about 22-23% in the current quarter, and may retain the same level or a little bit more in the coming two quarters.

Q: Give us a sense of what is happening with market share as well for you - how structured is the market and how much does Jindal Poly enjoy at this point?

A: We have two products. Polyester film and BoPP films. In polyester film, we hold a market share in India of roughly 30% and in BoPP films, we hold a market share of roughly 50%. We have been holding this share despite increase in capacities by some of our competitors in both products.

Q: A word on diversification, we understand that you are getting into value added segments and maybe power is also an option just take us through that?

A: The company is investing into a thermal power project which is coming up in Orissa. The size of the project is 1800 megawatt, in three phases of 600 megawatt each. The project is progressing very satisfactorily and we expect generation from the first two units in 2012 and the third unit in 2013.